judgement:
Appeals Nos. 384 and 385 of 1963.
Appeals by special leave from the judgment and Decree dated January 19, 1961, of the Kerala High Court in Income tax Referred case No. 20 of 1959.
K. N. Rajagopal Sastri and R. N. Sachthey, for the appellant.
Bishan Narain, G. B. Pai, T. A. Ramachandran, J. B. Dadachanji, 0.
C. Mathur and Ravinder Narain, for the res pondents.
April 10, 1964.
The judgment of the Court was delivered by SUBBA RAO, J.
These two appeals by special leave raise the question whether the estate duty paid by the resident Company, hereinafter called the assesses, incorporated outside India, on behalf of members not domiciled in India is deductible from its profits in computing its assessable income under section 10(2)(xv) of the Indian Income tax Act, 1922, hereinafter called the Act.
The material facts are not in dispute and they may be briefly stated.
The assesses is a resident Company incorpo rated outside India.
Most of its shareholders are in the United Kingdom.
During the accounting period ending March 31, 1955, it paid pound 1,302 9 4 and pound 1,303 towards estate duty which was payable on the death of certain share holders who were not domiciled in India.
The assessee debited the said amounts to revenue in its accounts in ascertain 695 ing the profits and gains of its business for the said year.
Similarly, for the accounting year ending March 31, 1956, it paid a sum of pound 3,809 1 5 towards estate duty payable on the death of certain shareholders and debited the said amount to revenue in its accounts in ascertaining the profits and gains of its business for that year.
The Income tax Officer included the said amounts so paid towards estate duty in the profits and gains of the company for the said two accounting periods and assessed the company to income tax for 1955 56 and 1956 57 on that basis.
The appeals preferred by the assessee to the Appellate Assistant Commissioner were dismissed.
On further appeal to the Appellate Tribunal it held that the assessee was entitled to deduct the said amount in computing its profits; and on that finding it set aside the orders of the Appellate Assistant Commissioner.
On an application made by the Commissioner of Income tax, the Appellate Tribunal stated a case under section 66(1) of the Act to the Kerala High Court, and referred the following question of law for its opinion: "Whether on the facts and in the circumstances of the case, the estate duty paid by the Company under Section 84 of the , is a revenue expenditure deductible in computing the assessee 's business income for the assessment years in question?" The High Court agreed with the view expressed by the Appellate Tribunal and answered the question referred to it in the affirmative.
The present appeals by special leave have been filed against the said order of the High Court.
Mr. Rajagopala Sastri, learned counsel for the Commissioner of Income tax, raised before us the following two points; (1) The sums paid by the assessee under section 84 of the , are not expenditure of the assesseeCompany and, therefore, they cannot be deducted from its profits in computing its assessable income under section 10(2)(xv) of the Act; and (2) even if it is revenue expenditure, it is not laid out or expended wholly or exclusively for the purpose of the assessee 's business within the meaning of the said sub clause.
Mr. Bishan Narain, learned counsel for the respondent, supported the judgment of the High Court and contended that the said estate duty was revenue expenditure incurred by the assessee as it was put out of pocket to that extent and that it had not been proved that the assessee could legally recover the said amounts from the legal representatives of the deceased shareholders.
He further argued that 696 he said expenditure was wholly and exclusively for the pur pose of the assessee 's business within the meaning of s.10(2)(xv) of the Act inasmuch as it discharged its statu tory obligation in order to preserve the assets of the com pany.
The question raised turns upon the provisions of section 10(2) (xv) of the The act.
It reads : Section 10.
Business The tax shall be payable by an assessee under the head "Profits and gains of business, profession or vocation" in respect of the profits and gains of any business, profession or vocation carried on by him.
(2) Such profits or gains shall be computed after making the following allowances, namely: (xv) any expenditure (not being an allowance of the nature described in any of the clauses (1) to (xiv) inclusively, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly or exclusively for the purpose of such business, profession or vocation.
" The first facet of the argument turns upon the question whether the estate duty paid by the assessee is an expendi ture incurred by it within the meaning of the said provision.
Under section 5 of the the property of every person dying after the commencement of the said Act shall be liable to a duty called "estate duty" at the rates fixed in accordance with section 35 thereof.
Under section 21 of the said Act there shall not be included in the property passing on the death of the deceased, inter alia, movable property situated outside the territories to which the said Act extends at the time of the death of the person.
Under section 53 of the said Act, where any property passes on the death of the deceased, every legal representative to whom such property so passes for any beneficial interest in possession or in whom any interest in the property so passing is at any time vested and others mentioned in the section shall be accountable for the whole of the estate duty on the property passing on the death.
Section 84 thereof is aimed to reach the property of a member of a company dying outside India: the section before amendment read: Section 84.
Company to furnish particulars of deceased inemberrs to the Controller Where a company incorporated outside India carried on business in the territories to which this Act extends and has been, treated for the 697 purposes of the Indian income tax Act, 1922 (Xi of 1922),as resident for two out of three completed assessments immediately preceding, such company shall, within three months of the receipt of intimation of the death of a member dying after the commencement of this Act, fur nish to the Controller such particulars as may be prescribed in respect of the shares of the deceased member in the company, and shall be liable to pay estate duty at the rates mentioned in Part III of the Second Schedule, on the principal value of the shares held by the deceased in the company except in cases where the deceased member was a person domiciled in India and the person accountable has obtained a certificate from the Controller showing that either the estate duty in respect thereof has been paid or will be paid or that none is due, as the case may be." Under this section in the circumstances mentioned therein a company is liable to pay estate duty in respect of the shares of the deceased member of the company on the princi pal value of the share held by the deceased in the company: under this section a statutory obligation is imposed on the company to pay the estate duty on the shares of a deceased non resident member.
If such a member of the company had died in India, subject to the conditions mentioned in the section, the company would not be liable to pay the estate duty payable on the shares held by the deceased.
In substance the company is made a statutory agent to pay the said duty payable in respect of property belonging to another.
Section 77 of the enables a person authorised or required to pay estate duty in respect of any property to transfer the said property for the purpose of paying the duty.
This section cannot have extra territorial operation.
Prima facie the company cannot transfer the shares or the property of a person domiciled in a country outside India.
Nor sub section
(2) of section 77, which says that a person having an interest in any property, who pays the estate duty in respect of that property, shall be entitled to the like charge, as the estate duty in respect of that property had been raised by means of a mortgage to him, has application, for it cannot be said that the company has any legal interest in the shares owned by a third party.
That apart, the said sub section also cannot have extra territorial operation.
Nothing has been placed before us to enable us to ,.come to the conclusion whether in England, where the concerned shareholders died, the resident company could recover the amount representing the estate duty paid by it in 698 India from the legal representatives of the deceased share holders.
We, therefore, assume that the assessee who, as a statutory agent pays to the State the estate duty, cannot recover the same from the legal representatives of the deceased non resident shareholders.
In that situation the company would be out of pocket to the extent it paid the estate duty of the said persons.
We cannot, therefore, accede to the contention of the learned counsel for the appellant that the amounts paid by the assessee towards estate duty were not expenditure incurred by it, but only amounts paid by it on account with a right to recover the same from the persons on whose behalf it paid.
The next question is whether the said expenditure was expended wholly and exclusively for the purpose of the business of the assessee within the meaning of section 10(2)(xv) of the Act.
The crucial words of the section relevant to the present enquiry are "for the purpose of such business.
" Subsection (2) cl.
(xv) is a residuary clause which provides for allowing the items of business expenditure not covered by the other clauses of sub section
(2) of section 10 of the Act.
Beforethe Amending Act of 1939, the language of the predecessor of this clause read thus: " not being in the nature of capital gains incurred solely, for the purpose of earning such profits or gains.
" The Amending Act of 1939 substituted the present clause and made it more comprehensive by using the expression "for the purpose of such business".
Some of the decisions cited at the Bar, both English and Indian, throw some light on the construction of the said expression and we would, therefore, briefly notice them.
The House of Lords in Strong and Company of Romsey, Limited vs Woodifield(1) construed a corresponding provision in the Income tax Act of the United Kingdom, the, relevant part whereof read: "money wholly and exclusively laid out or expended for the purposes of such concern." ' There, a brewing company, which also owned licensed houses in which it carried on the business of innkeepers, incurred damages and costs to the amount of pound 1,490 on account of injuries caused to a visitor staying at one of its houses by falling in of a chimney.
The House of Lords held that the damages and costs were not allowable as a deduction in computing the company 's profits for income tax purposes.
The learned Lord Chancellor said: "They cannot be deducted if they are mainly incidental to some other vocation, or fall on the , (1) ; , 219, 220.
699 trader in some character other than that of a trader." Lord Davey, whose dictum was the basis for some of the subsequent decisions in that country, referring to the expression "for the purpose of trade" observed as follows: It is not enough that the disbursement is made in the course of, or arises out of , or is connected with, the trade or is made out of the profits of the trade.
It must be made for the purpose of earning the profits." Lord Davey 's definition appears to be much narrower than that of the Lord Chancellor, for the former restricts the expression to mean that the expenditure should have been made only for the purpose of earning profits.
Finlay, J., in Allen vs Farquharson Brothers Limited(1), noticed that the qualifictaion "for the purpose of earning profits" was a slight expansion of the words of the statute, though he ex pressed the view that it brought out the real import of the relevant section.
In Rowntree and Company, Ltd. vs Curtis (H.M. Inspector of Taxes)(2), in disallowing the deduction claimed by a company of a sum set aside for the relief of ,the invalid employees, Rowlatt, J., applied the test whether the said expenditure incurred by the company was for the purpose of earning profits.
In Cooke vs Quick Shoe Repair Service(3), the court allowed a deduction in respect of sums paid by the respondent firm in discharging the liabilities of the business outstanding at the date of the said respondent purchased the business from a third party on the ground that the said expenditure, having been incurred for the purpose of preserving the goodwill and for ensuring the continuity of supply of raw material and labour, was wholly and exclusively laid out for the purpose of its business.
After referring to earlier decisions, Croom Johnson, J., made the following observation: Here is a payment made in the circumstances of this case in order to ensure a supply of leather for the business, a payment made in order to ensure a continuance of labour willing to be employed in this business, and payment for rent in order to ensure that the landlord 's consent to assignment of the premises, of the premises in which the business was carried on, should not be re fused.
I find it quite impossible to say that there is no evidence to justify those findings." (1) 65.
(2) (3) ; 466. 700 Here it will be noticed that the learned Judge went beyond the limited scope given by Lord Davey to the expression in the statute and did not confine it to the amounts spent only for earning profits, but to expenditure incurred in connec tion with the business.
Where a company incurred an ex penditure in defending its title to property, it was held in Southern (H.M. Inspector of Taxes) vs Borax Consolidated, Ltd.(1) that the said amount was spent wholly and exclu sively for the purpose of the company 's trade and was, therefore, an allowable deduction for the purpose of com puting the profits of the company for income tax purposes.
This decision gives a more liberal meaning to the expression "for the purpose of the trade" than that given by Lord Davey.
"Purpose" of the trade includes the purpose to pro tect the assets of the company carrying on the trade.
The House of Lords resurveyed the legal position in Morgan (Inspector of Taxes) vs Tate and Lyle Ltd.(2) in the context of the questions whether the expenditure incurred by a com pany engaged in sugar refining in a propaganda campaign to oppose the threatened nationalization of the industry was, an admissible deduction.
Lord Morton, after referring to the relevant case law and to Lord Davey 's formula, made the following observations: ". . this seeems to me to be an assumption wholly unwarranted by the evidence.
There is no evidence that a transfer of the assets to a national body or authority would not destroy or adversely affect the company 's business. . . .
It is clear on the authorities that Lord Davey 's formula includes expenditure for the purpose of ' preventing a person from being disabled from carrying on and earning profits in the trade." Lord Reid laid down the relevant test thus: "A general test is whether the money was spent by the person assessed in his capacity of trader or in some other capacity whether on the one hand the expenditure was really incidental to the trade itself or on the other hand it was mainly incidental to some other vocation or was made by the trader in some other capacity than that of trader.
" This decision also restated the two tests namely (i) that the expenditure should be for carrying on the business to earn profits in the trade, and (ii) that the expenditure shall ' be incurred by the assessee in his capacity of a person (1) (1942) 10 T.T.R. (Suppl.) 1, section (2 ) , 205, 206, 219. 701 carrying on the business.
Lord Greene, M.R., in Rushden Heel Co., Ltd. vs Keene(1) reaffirmed the second test in the following words: "I find, however, in Strong and Company 's case(2) what appears to me to be a clear answer to the present appeal.
It is, I think, a matter not of dictum but of decision in that case that an expense is not deductible if it falls on a trader in some character other than that of a trader.
This was the ground of the opinion of Lord Loreburn, L.C., with which Lords Macnaghten and Atkinson agreed.
Their Lordships held that the expense there in question fell upon the appellants in their character not of traders but of householders.
" In Smith vs Lion Brewery Co., Ltd.(3), the question was whether a brewery company, which was owner and lessee of a number of licensed premises where business was carried on on the tide house basis, was entitled to deduct for the purposes of income tax its liability in respect of compensation fund charges under the, Licensing Act, 1904.
It was contended by the Crown that the liability to which the Company became subject was in its capacity as landlord of the property and not as trader carrying on the trade of brewer.
When the case ultimately came up before the House of Lords, the House was equally divided.
The view of two of the members who agreed with the view of the Court of Appeal prevailed.
The basis of the judgment was that the liability was wholly and exclusively related to the carrying on of the company 's business, because on the facts of that case the company had assumed the position of landlord for the purpose of its trade.
If the finding was that the company paid the tax in its capacity as landlord as opined by the learned Lords who dissented, the result would have been the other way.
In Harrods (Buenos Aires) Ltd. vs TaylorGooby (H.M. Inspector of Taxes)(4), Buckley, J., covered the entire ground over again in the context of a question whether the appellant company therein which was incorporated and resident in the United Kingdom and carrying on the business of a large general stores in Buenos Aires, having paid in Argentina a tax known as the "substitute tax" to which it was liable, could claim deduction under the Income tax Act, 1952 (15 and 16 Geo.
VI and 1 Eliz. 1, c. 10, s.137 (a)).
The learned judge held on the facts of that case (1) , 316.
(2) ; (3) (4) Appeal No. 2048 (Ch. D.) decided on 25th March, 1963 (unreported).
702 that incurring liability for that tax was a pre condition of the Company 's earning profits in the Argentina, for without incurring liability for that tax the Company could not carry on business in the Argentina at all.
On that finding the learned Judge came to conclusion that it was a liability which the Company had undertaken for the purpose of its trade, and was, therefore, a payment made wholly and ex clusively for the purpose of the company 's trade.
It will be seen that in that case the tax was paid by the Company in its capacity as company doing business and unless that tax was paid the company could not carry on its business.
The two tests laid down are satisfied.
Pausing here, we shall briefly recapitulate the legal posi tion in England.
The relevant wordings of section with which the English Judges were concerned are, in effect, similar to the terms of section 10(2)(xv) of the Indian Income tax Act, 1922.
The test laid down by Lord Davey in Strong and Company of Ramsey, Ltd. vs Woodifield(1), namely, the disbursement must be made for the purpose of earning profits, has been accepted and followed throughout, though the content of that test has been expanded to meet diverse situations.
Broadly, the English courts applied two tests to ascertain whether a deduction was permissible or not, namely.
(i) whether the expenditure was incurred for the purpose of carrying on of the business and for removing obstacles and impediments in the conduct of the business, and (ii) whether the assessee paid the amount in his capacity as businessman or in his personal capacity.
Now coming to the Indian decisions, a Devision Bench of the Bombay High Court in Tata Sons Ltd. vs Commissioner of Income tax, Bombay (2 ) held that the share of bonus voluntarily paid by a company, which held the managing agency of another company, to some of the officers of the managed company was a permissible deduction under s.10(2)(xv) of the Act.
The reason for the conclusion is stated thus: "But having considered the whole case and the question submitted to us I am satisfied that looking purely at it from the point of view of commercial principles what the assessee company has done is something which had as its object increasing the profits of the Tata Iron and Steel Co. nd thereby increasing its own share of the commission." (1) ; (2) , 472. 703 In Badridas Daga vs Commissioner of Income tax(1), where the agent of the assessee misappropriated his money and the assessee claimed the part of the amount misappropriated and not recovered from the agent as a deduction under section 10(2)(xv) of the Act for the purpose of income tax, this Court held that it was not allowable under section 10(2)(xi) or s.10(2)(xv) of the Act.
Venkatarama Ayyar ,j., observed : "The result is that when a claim is made for a deduction for which there is no specific provision in section 10(2), whether it is admissible or not will depend, on whether having regard to accepted commercial practice and trading principles, it can be said to arise out of the carrying on of the business and to be incidental to it." This decision, though not direct in point, lays down the principle that an expenditure can be deducted only if it arises out of the carrying on of the business and is incidental to it.
In Indian Molasses Co. (Pvt.) Ltd. vs Commissioner of Income tax, W.B. (2), this Court held that section 10(2) (xv) of the Act enacted affirmatively what was stated in the negative form in the English statute and was substantially in pari materia with the English enactment and the courts might consider the English authorities as aids to the interpretation thereof.
The decision of this Court in Commissioner of Income tax, Bombay vs Abdullabhai Abdulkadar(3), though, turns upon the provisions of section 10(1) of the Act, gives some assistance in deciding the question raised.
One of the questions raised was whether the tax paid by the assessee firm as an agent of the non resident principle could be claimed as a bad debt or a trading loss.
In the words of Kapur, J., "the loss which the appellant has incurred is not in its own business but the liability arose because of the business of another person and that is not permissible deduction within section 10(1) of the Act".
It is true that this decision did not arise under section 10(2)(xv) of the Act, but the principle that the expenditure incurred by the assessee in his capacity as agent of another is not a deductible item equally applies to the present case.
This Court in The Commissioner of Income tax, W.B. vs Royal Calcutta Turf Club(1) had to consider the question whether an expenditure incurred by a race club for the purpose of training jockeys of the club was an allowable deduction within the meaning of section 10(2)(xv) of the Act.
(1) ; (2) (3) ; (4) ; , 735 736.
704 Kapur,j., speaking for the Court , after considering the relevant decisions, concluded thus: "Applying the law, as laid down in those cases, to the present case the conclusion is that the amountn dispute was laid out wholly and exclusively for the purpose of the respondent 's business because if the supply of jockeys of efficiency and skill failed the business of the respondent would no longer be possible.
Thus the money was spent for the preservation of the respondent 's business.
" This decision gives a liberal interpretation to the relevant expression.
In M/s. Haji Aziz and Abdul Shakoor Bros. vs The Commissioner of Income tax, Bombay City II(1), this Court disallowed deduction of the amount paid by a firm as penalty to release the consignment confiscated by the Customs authorities.
In coming to the conclusion, Kapur, J., speaking for the Court, observed: "The words "for the purpose of such business" have been construed in Inland Revenue vs Anglo Brewing Co., Ltd.(2) to mean "for the purpose of keeping the trade" going and of making it pay.,, After considering the relevant decisions, the learned Judge proceeded to state thus: "They cannot be deducted it they fall on the assessee in some character other than that of a trader.
Therefore, where a penalty is incurred for the contravention of any specific statutory provision, it cannot be said to be a commercial loss falling on the assessee as a trader the test being that the expenses which are for the purpose of enabling a person to carry on trade for making profits in the business are permitted but not if they are merely connected with the business." No doubt this judgment is really based upon the fact that an expense which is paid by way of penalty for breach of law cannot be said to be an amount wholly and exclusively laid out for the purpose of the business; but the observations in the decision go further and indicate that the expenditure, if incurred by the trader in some character other than that of a ,trader, is not an allowable deduction.
(1) ; , 657, 663.
(2) [(1925] 813. 705 The expression "for the purpose of the business" is wider in scope than the expression "for the purpose of earning profits".
Its range is wide: it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measure for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile titles; it may also comprehend payment of statutory dues and taxes imposed as a pre condition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business.
However wide the meaning of the expression may be, its limits are implicit in it.
The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business.
It cannot include sums spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory; in that event, he pays the amount on behalf of another and for a purpose unconnected with the business.
In the present case, the company, as a statutory agent of the deceased owners of the shares, paid the sums payable by the legal representatives of the deceased shareholders.
The payments have nothing to do with the conduct of the business.
The fact that on his default, if any, in the payment of the dues the Revenue may realise the amounts from the business assets is a conse quence of the default of the assessee in not discharging his statutory obligation, but it does not make the expenditure any the more expenditure incurred in the conduct of the business.
It is manifest that the amounts in question were paid by the assessee as a statutory agent to discharge a statutory duty unconnected with the business, though the occasion for the imposition arose because of the territorial nexus afforded by the accident of its doing business in India.
We, therefore, hold that the estate duty paid by the respondent was not an allowable deduction under section 10(2)(xv) of the Act.
We answer the question in the negative.
The order of the High Court is wrong and is set aside.
In the result, the appeals are allowed with costs.
One set of hearing fees.

summary:
For the two accounting periods the assessee, a resident company, incorporated outside India paid estate duty payable on the death of its certain share holders not domiciled in India and debited the said amounts to revenue in its accounts in ascertaining the profits and gains of its business for the said years.
The Income tax Officer included the said amounts so paid towards estate duty in the profits and gains of the company for the said two accounting periods and assessed the company to income tax for 1955 56 and 1956 57 on that basis.
The appeals by the assessee to the Appellate Assistant Commissioner were dismissed but on further appeal, the Appellate Tribunal set aside the said orders and held that the assessee was entitled to deduct the said amount in computing its profits.
On an application by the Commissioner of Income tax, the Tribunal stated a case under section 66(1) of the Act to the High Court and referred the following question of law for its opinion: "Whether on the facts and in the circumstances ,of the case, the estate duty paid by the company under s, 84 ,of the , is a revenue expenditure deductible in computing the assessee 's business income for the ,assessment years in question." The High Court agreed with the view of the Tribunal and answered the question in the affirmative.
On appeal by special leave it was urged on behalf of the appellants, (1) that the sum paid by the assessee under section 84 of the were not expenditure of the assessee company and therefore, they could not be deducted from its profits in computing its assessable income under section 10(2)(xv) of the Act; and (2) that even if it was revenue expenditure, it was not laid out or expended wholly or exclusively for the purpose of the assessee 's business within the meaning of the said sub clause.
Held: (i) There was nothing on the record to show whether in England, where the concerned share holders died, the resident company could recover the amount representing the estate duty paid by it in India from the legal representative of the deceased share holders.
Therefore, the assessee who, as a statutory agent paid to the State the estate duty, could not recover the same from the legal representative of the deceased non resident share holders.
In that situation the company would be out of pocket to the extent it paid the estate duty of the said persons.
Therefore, it cannot be held that the amounts paid by the assessee towards estate duty were not expenditure incurred by it, but only amounts paid by it on account with a right to recover the same from the persons on whose behalf it paid.
(ii)The expression" for the purpose of the business"in s.10(2) (xv) of the Act is wider in scope than the expression "for the purpose of earning profits".
Its range is wide: it may 694 take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre condition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business.
However wide the meaning of the expression may be, its limits are implicit in it.
The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for carrying on the business and the assessee shall incur it in his capacity as a person carrying on the business.
It cannot include sums spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory; in that event, he pays the amount on behalf of another and for a purpose unconnected with the business.
In the present case, the amounts in question were paid by the assessee as a statutory agent to discharge a statutory duty unconnected with the business, though the occasion for the imposition arose because of the territorial nexus afforded by the accident of its doing business in India.
Therefore, it must be held that the estate duty paid by the respondent was not an allowable deduction under section 10(2)(xv) of the Act.
Case law reviewed.


judgement:
iminal Appeal No. 71 of 1963.
Appeal by special leave from the judgment and order dated November 23, 1962 of the Allahabad High Court (Lucknow Bench at Lucknow) in Criminal Revision No. 251 of 1962.
S T. Desai, O. P. Rana, Atiqur Rahman and C. P. Lal, for the appellant.
C. B. Agarwala, Ravinder Narain, O. C. Mathur and J. B. Dadachanji, for respondents nos.
1 and 2.
April 15, 1964.
The Judgment of SUBBA RAO and DA, '; GUPTA JJ. was delivered by SUBBA RAO J. RAGHUBAR DAYAL J. delivered a dissenting Opinion.
736 SUBBA RAO, J.
This appeal by special leave raises the question of the privilege raised by the Government of India in respect of certain documents called for from its Home De partment in a criminal proceeding pending the court of the Special Judge, Anti Corruption (East), U.P., Lucknow.
The respondents were prosecuted in the said Court, after obtaining the sanction of the Central Government under section 197 of the Code of Criminal Procedure, for an offence under section 6(1)(a) of the Prevention of Corruption Act, 1947 (Act 11 of 1947).
An objection was taken before the said court on behalf of the respondents that the sanctioning authority did not apply his mind properly when sanction for the prosecution was granted.
It was stated on behalf of the respondents that on a representation made by one of the accused, Col. Sujan Singh, for reconsideration of the order of his prosecution, the Deputy Secretary in the Home Department reconsidered the matter and made notings on his application to the effect that the sanction accorded earlier for his prosecution was given on insufficient data.
He filed a petition before the Special Judge to summon the con cerned record of the Home Department on the ground that the said record would substantiate his assertion that the con cerned officer did not apply his mind earlier in according, sanction for his prosecution.
The Secretary, Ministry of Home Affairs, claimed privilege on the ground that the production of the record containing the said notings of the Deputy Secretary would not be in the interests of the State.
The Special Judge in the first instance and the High Court in revision re jected the claim of privilege raised by the Union Govern ment.
The State of U.P. has preferred the present appeal by special leave against the order of the High Court.
The respondents filed criminal petition No. 149 of 1964 for condonation of delay in filing appearance and the statement of case.
The facts relevant to this application are briefly as follows.
Respondents 1 and 2 received the notice granting special leave by this Court on January 16, 1964.
After the receipt of the notice they contacted their local advocate at Lucknow and, on his advice, the 1st respondent, along with his local advocate, came to Delhi on January 28, 1964, and made necessary arrangements with Messrs. J. B. Dadachanji & Co., Advocates.
On January 16, 1964, respondents 1 and 2 received a notice from the High Court intimating them that the records of the case had been despatched to the Supreme Court.
On February 11, 1964, they filed their appearance and on February 18, 1964, their statement of case.
If January 16, 1964, was the date of service on them, there would not be any delay in making their appearance or filing their statement of case.
But the notice of the dispatch of the records was served on the learned counsel for respondents 1 and 2 on November 4, 1963.
Under Ch.
V, r. 4(1)(c), read with r. 2, of the Rules of the High Court, Allahabad, where a party is represented by an advocate, a service of notice of dispatch of record on such advocate is deemed to be sufficient service.
As the present appeal arises out of an interlocutory order it may be said that the advocate representing the respondents in the High Court still continues to represent them.
We assume for the purpose of this case that the rule is valid and the notice was duly served on the advocate.
If that be so, the respondents should have filed their appearance and lodged their statement of case within a month from the said date.
But they filed their appearance on February 11, 1964, which is clearly beyond time.
It will be seen from the said facts that the respondents had filed their appearance within one month from the date of service of notice on them, but beyond time from the date the notice was served on their advocate.
The said delay is not in the presentation of any appeal but only in following the procedural steps for making the case ready for disposal.
We are satisfied by perusing the record that the delay was not due to negligence on the part of the respondents.
It is not suggested that the appellant is in any way prejudiced by this delay.
In the circumstances we think that this is a fit case for excusing the delay.
We excuse the delay in filing respondents ' appearance and also in lodging the statement of case.
Whether the daily of the respondents in entering appearance is excused or not.
we are at the outset confronted with the situation that this Court gave special leave when the appeal was prima facie barred by limitation without the appellant filing an application for excusing the delay and the Court excusing the same.
A few facts would make the position clear.
The Judgment of the High Court in the criminal revision is dated November 23, 1962.
A certified copy of the Judgment was delivered to the appellant on December 5, 1962.
On December 19, 1962, the appellant filed a petition in the High Court of Judicature at Allahabad for a certificate that the case was a fit one, for appeal to the Supreme Court.
On February 18, 1963, the High Court held that the order sought to be appealed against was an interlocutory one and, therefore, the petition was not maintainable under article 134 (1)(c) of the Constitution of India.
On April 16, 1963 the appellant filed a petition in this Court for special leave to appeal against the order of the High Court in the criminal revision.
In para.
19 of that petition it was stated that the appellant applied to the High Court for a certificate for leave to appeal to the Supreme Court but the High Court by order dated February 18, 1963, refused to grant the certificate applied for.
The appeal L/P(D)ISCI 24 738 would be in time if that application was maintainable in the High Court, but would be out of time if that application was not maintainable there, for in the latter event the time would have expired on March 5, 1963, and the appeal would have been out of time by 42 days.
Learned counsel for the appellant contends that special leave was ranted on May 10, 1963, and that, as the respon dents have not taken objection on the ground that it was barred by limitation till they filed their petition in this Court on February 26, 1964, we shall not permit them to raise this plea at this very late stage.
We are not impressed by this argument.
This is not a case where the Supreme Court excused the delay in filing the petition for special leave and the respondents with the knowledge of that fact permitted the appellant to incur heavy expenditure and after a long delay raised the objection at the time of hearing of the appeal that the delay should not have been excused.
But this is a case where the appellant did not bring to the notice of the Court that the petition for special leave was out of time.
The Registry could not point out the defect as in the petition it was stated that the application under article 134(1)(c) of the Constitution of India was dismissed by the High Court without indicating on what ground it did and this Court assumed that the petition for special leave was in time and gave special leave.
Order XXI, r. 2, of the Supreme Court Rules reads: "Where the period of limitation is claimed from the date of refusal of a certificate, it shall not be necessary to file the order refusing a certificate, but the petition for special leave shall be accompanied by an affidavit stating the date of the judgment sought to be appealed from, the date on which the application for a certificate was made to the High Court, the date of the order refusing the certificate and the ground or grounds on which the certificate was refused and in particular whether the application for a certificate was dismissed as being out of time." Under the said rule it is incumbent upon the petitioner to state in the affidavit filed in support of the petition the date of the order of the High Court refusing the certificate and the ground or grounds on which the certificate was refused.
If the appellant had complied with this rule, the Registry of this Court would have noticed the delay in filing the special leave petition and brought that to the notice of the Court.
In the circumstances there are two courses open to us: one is to dismiss the appeal on the ground that it was barred by limitation, and the other is to permit the appellant to file 739 a petition at this very late stage for excusing the delay in filing the special leave petition and consider that petition on merits.
Ordinarily no indulgence should be given to a party when the said party with open eyes filed a petition for special leave without disclosing a material circumstance in the affidavit on the basis of a wrong view of law that the appeal was in time.
With some hesitation we gave liberty to the appellant to file a petition for excusing the delay and they have done so.
We shall now consider the petition for excusing the delay on merits, as this Court would have done if that application had been filed along with the special leave petition.
Two reasons are given in the application for excusing the delay, namely, (1) the Law Officer, who was at the relevant time in charge of the matter in the High Court, advised the Government that the order under appeal was a final order and that an application should be filed under article 134(1)(c) of the Constitution in the first instance so that the other side might not contend that the appellant did not approach the High Court for a certificate, and that the said advice was accepted by the Government; and (2) the appellant acted bona fide, as it believed on legal advice that the period of limitation would be counted from February 18, 1963, i.e., the date of the order of the High Court refusing to give certificate and that the order was also filed along with the petition in this Court.
The respondents filed a counter affidavit denying that the order was a final order and stating that there was not sufficient reason for excusing the delay.
The learned counsel for the appellant contended that the order of the High Court dated November 23, 1962, in the criminal revision was a final order within the meaning of article 134(1) of the Constitution.
The material part of the said article reads: "An appeal shall lie to the Supreme Court from any judgment, final order or sentence in a criminal proceeding of a High Court in the territory of India. . . .
We find it difficult to hold that the order under appeal is a final order within the meaning of the said article.
In Seth Premchand Satramdas vs The State of Bihar(1) it was held that an order of the Patna High Court dismissing an application under section 21(3) of the Bihar Sales Tax Act, 1944, to direct the Board of Revenue, Bihar, to state a case and to refer it to the ; ,, 804.
L/P(D)ISCI 24(a) 740 High Court was not a "final order".
This Court, speaking through Fazl Ali, J., defined the expression 'final order" thus: "It seems to us that the order appealed against in this case.
cannot be regarded as a final order, because it does not of its own force bind or affect the rights of the parties".
Though this definition is given in a different context, it will equally apply to that expression in article 134 of the Constitution.
Can it be said that the Special Judge in allowing the petition of the respondents to call for the production of a document from the Union Government is a final order in the criminal proceeding '? The criminal proceedings were taken against the respondents for an offence under section 6(1)(a) of the Prevention of Corruption Act, 1947.
The proceedings are now pending in the court of the Special Judge.
In the course of those proceedings the respondents filed an application for the production of a document by the Union Government and that was allowed by the court.
The said order is only an interlocutory order pending the proceedings.
It does not purport to decide the rights of the parties, namely, the State of U.P. and the accused.
It enables the accused to have the said document duly proved and exhibited in the case.
It relates only to a procedural step for adducing evidence.
The High Court confirmed that order in revision.
But the learned counsel contents that it negatives the claim of privilege made by the Union Government and, therefore, it decides against the right of the Union Government to withhold the production of the document.
Assuming that the order decides some right of the Union Government, on which we do not express any opinion, the Union Government is neither a party to the cri minal proceedings nor is it a party either before the High Court or before us.
The indirect effect of that order on a third party to the proceedings, who does not seek to question that order, does not deprive the order of its interlocutory character.
We, therefore, bold that the order made by the High Court is not a final order within the meaning of article 134(1) of the Constitution.
That apart the order of the High Court holding that the order sought to be appealed from was not a final order within the meaning of article 134(1) of the Constitution has become final.
The appellant has not filed any appeal against that order.
It cannot ignore that order for the purpose of special leave and contend that the application before the High Court was maintainable and the order made by the High Court must be deemed to have been made on merits, though in express terms it rejected the petition for the reason that it was not maintainable.
In either view the period of limitation for filing the special leave petition could not be computed from 741 the date of the order of the High Court refusing to give a certificate to appeal to the Supreme Court.
It is then contended that the rule does not say in express terms that the said order of refusal to give a certificate must be on an application which is maintainable and, therefore, if in fact the High Court refused to give a certificate, whether on merits or on the round that it was not maintainable, the party can take advantage of the said rule.
We cannot accede to this argument.
The rule presupposes that the application for the certificate is maintainable, and the court refuse to give it on the round that the conditions laid down in article 134(1) of the Constitution have not been complied with.
If the construction put forth by the appellant be accepted, it will give room for fraud and ,evasion of the rule.
A party whose appeal has become barred can file a petition with the knowledge that it is not maintainable, get an order of dismissal and then seek to take advantage of the additional period of limitation provided by the rule.
The rule, therefore, must be interpreted reasonably and if so interpreted.
it could only mean that the refusal of the ,certificate must be in an application maintainable under the said Article.
Now we shall proceed to consider the application for excusing delay on its merits.
The reason for the delay given in the affidavit is that the Law Officer was of the opinion that the application for a certificate was maintainable under article 134(1) of the Constitution.
We do not see any justification for this opinion.
There is no conflict of judicial opinion on this question.
The only question that was before the Law Officer was whether the order sought to be appealed from was a final order.
The order ex facie was an interlocutory order and so far as the Government of U.P. was concerned it could not possibly be held that any of its rights bad been affected by that order.
In the circumstances we cannot hold that a wrong legal advice is a sufficient ground for excusing the delay.
What is more, on February 18, 1963, the High Court in a considered order held that the order sought to be appealed from was not a final order and, therefore, an application under article 134(1) of the Constitution was not maintainable.
The time for preferring an appeal from the main order of the High Court would expire only on March 5.
1963, that is to say, the appellant had 15 days time more for taking steps for preferring the appeal.
Even so no steps were taken to file the appeal and instead an appeal was filed on the basis of the original opinion of the Law officer that the time can be computed from the date of the order refusing to issue the certificate.
From the information supplied by the counsel for the appellant it appears that the Government decided to file the appeal only on March 8, 1963, i.e., after the time for filing the appeal bad 742 expired.
After further correspondence between the Govern ment of U.P. and the counsel representing it in the Supreme, Court the special leave petition was filed only on April 16,.
1963, completely ignoring the reasons given by the High Court in dismissing the application for certificate of fitness.
On the ,said facts we do not see any justification for excusing the long delay of 42 days.
the appeal is clearly barred by limitation and should be dismissed.
Accordingly the appeal is dismissed.
RAGHUBAR DYAL, J.
I respondents ' appearance and also in lodging the statement of case be excused.
I am however, of opinion that the appellant 's application for excusing the delay in the presentation of the petition for special leave to appeal be allowed.
It has to be assumed, for the purposes of disposing of this application, that the order under appeal was not a final order within the meaning of that expression in article 134(1) of the Constitution.
The High Court held so and refused the certificate.
The appellant has neither preferred an appeal against that order nor questioned its correctness in its petition for special leave.
The reason urged for condoning the delay is that the legal advisers of the appellant were of opinion that limitation for the presentation of the petition for special leave would be governed by the provisions of r. (1) of O.XXI, Supreme Court Rules, hereinafter called the rules, and that in accordance with those provisions the period of limitation would be 60 days from the date of refusal of the certificate by the High Court.
If that rule applied, the petition for ,special leave would be in time.
The certificate was refused on February 18, 1963, and the special leave petition was filed ' on April 16.
The question then is whether the appellant can take advantage of the opinion of its legal advisers, assuming that this opinion was erroneous.
I am of opinion that it should be given that advantage, as the error.
if any, cannot be said to be of such a character which a legal adviser could not have possibly given.
The rule does not expressly state that limitation would be counted from the date of refusal of the certificate only when an application for a certificate under article 134 would be maintainable as an application against an order which is held by the High Court to be a 'judgment, final order or sentence in a criminal proceeding '.
It is true that an application under article 134 is contemplated to be an application against the judgment.
final order or sentence in a criminal proceeding, and that refusal of a certificate under article 134.
for purposes, of rule 1 (1) of O.XXI.
refers to the refusal of an application 743 for certificate against the judgment, final order or sentence in a criminal proceeding.
But this does not necessarily mean that the rule will not be applicable in cases of refusal of a certificate when one applied for it on the ground that the order sought to be appealed against amounted to a judgment, final order or sentence while the High Court came to a different opinion.
The rule does not specifically ,state that the date of the refusal of the certificate would be taken to be the starting point of limitation only when the High Court refuses certificate on the round that it was not a fit case for appeal to the Supreme Court.
If it were so, the rule would have been limited to those cases.
Further, there is indication in sub r.
(2) itself that such was not contemplated by sub r.
(1) of r. 1.
Sub rule (2) of r. 1 requires the petitioner, in case he desires limitation to be counted from the date of refusal of the certificate, to mention the rounds for the refusal of the certificate and, in particular, Whether the application for certificate was rejected as being out of time.
An application presented after the expiry of limitation is not maintainable till the Court allows the application for the condonation of delay.
There must be a reason for providing, in sub r.
(2), that the fact of the refusal of the certificate on round of limitation must be expressed.
The reason is that proviso (iii) to sub r.
(1) of r. 1 provides that when an application for a certificate is dismissed on the round of its being out of time, limitation for the petition for special leave to appeal will not be counted from the date of the dismissal of the application.
There is no corresponding provision with respect to the limitation being not counted from the date of refusal.
if the refusal be on the ground that the order sought to be appealed against did not amount to a 'judgment, final order or sentence ' in a criminal proceedings.
In view of these considerations, the advice of the appel lant 's counsel, even if it be erroneous, should not go against the appellant to the extent that the delay in filing of the special leave petition be not condoned.
I do not think that the omission to state the ground of refusal in the petition for special leave was deliberate in order to keep back from the Court that the application had been presented after the expiry of the period of limitation.
it would not be irrelevant to consider the nature of the point sought to be urged in the appeal.
The question is whether the High Court was right in considering the order of the trial Court rejecting the claim of privilege raised by the Union Government in accordance with section 123 of the Evidence Act with respect to the production of certain documents summoned.
on the ,round that the disclosure would not be in public 744 interest.
If the view of the Courts below is wrong, the result of refusing to condone the delay would be that public interest will suffer and that consideration should, in my opinion, outweigh the lapse on the part of the appellant in not filing the petition for special leave to appeal within time and that too,, in view of the wrong advice or opinion given by its legal advisers.
I would therefore allow the application and condone the appellant 's delay in presentation of the petition for special leave.
ORDER In accordance with the opinion of the majority, the delay in filing the special leave petition is not condoned.
The appeal is barred by limitation and is dismissed.
Appeal dismissed.

dataset_name: IN-Abs

summary:
The respondents were prosecuted in the court of the special Judge after obtaining the sanction of the Central Government, for an offence under section 6(1)(a) of the Prevention of Corruption Act, They put an objection that the sanctioning authority did not apply his mind properly when sanction was granted.
One of the respondents asked the Court to summon the concerned record of the Home Department for, it would substantiate his assertion that the concerned officer did not apply his mind earlier in according sanction for his prosecution.
The Secretary Ministry of Home Affairs, claimed privilege.
The Special Judge and the High Court in revision rejected the claim of privilege of the Union Government.
The appellant than filed a petition in the High Court for grant of a certificate.
The High Court held that the order sought to be appealed against was an interlocutory one and, therefore, the petition was not maintainable under article 134(1)(c) of the Constitution.
Against the order of the High Court in revision the appellant filed a petition for special leave to appeal stating that he applied for a certificate to the High Court but it was refused.
The appellant did not bring to the notice of this Court that the petition for special leave ",as out of time.
The Registry could not point out the defect as in the petition it was stated that the application under article 134(1)(c) was dismissed by the High Court without indicating on what ground it did and this Court assumed that it was in time and granted special leave.
However after obtaining the permission of this Court the appellant filed a petition for excusing the delay on the ground that the Law Officer, who was at the relevant time in charge of the matter in the High Court, advised the Government that the order under appeal was a final order and that an application should be filed under article 134(1)(c) of the Constitution and that the appellant acted bonafide.
The appellant contended (1) that the order of the High Court in the criminal revision was a final order within the meaning of article 134 (1)(c) of the Constitution and (2) that the rule 1(1) of 0.
XXI of the Supreme Court Rules does not say in express terms that the order of refusal to give a certificate must be on an application which is maintainable and, therefore, if in fact the High Court refused to give a certificate, whether on merit,, or on the ground that it was not maintainable, the party could take advantage of the said rule.
Held (per K. Subba Rao and K. C. Das Gupta, JJ): (i) The order under appeal was not a final order within the, meaning of article 134(1) of the Constitution.
It did not purport to decide 735 the rights of the parties, namely, the State U.P. and the accused.
Assuming that it decided some right of the Union Government, the Union Government was neither a party to the criminal proceedings nor was it a party either before the High Court or before this Court.
The indirect effect of the order of a third party to the proceedings, who did not seek to question that order, did not deprive the order of its interlocutory character.
Seth Premchand Satramdas vs State of Bihar [1950] S.C.R. 799, relied on.
(ii) Rule 1(1) of 0.
XXI presupposes that the application for the certificate is maintainable and the Court refuses to give it on the ground that the condition laid down in article 134(1) of the Constitution have not been complied with.
On a reasonable Interpretation of the rule, it could only mean that the refusal ,of the certificate must be in an application maintainable under the said Article.
(iii)The order ex facie was an interlocutory order and so far as the Government of U.P. was concerned it could not possibly be held that any of its rights had been affected by that order.
In the circumstances, it must be held that a wrong legal advice is not a sufficient ground for excusing the delay, and the appeal therefore must be dismissed as barred by limitation.
Per Raghubar Dayal, J. (dissenting),: The appellant should be given the advantage of the opinion of its legal advisers as the error, if any.
could not be said to be of such a character which a legal adviser could not have possibly given.
The rule does not expressly state that limitation would be counted from the date of refusal of the certificate only when an application for a certificate under article 134 would be maintainable.
It is true that an application under article 134 is contemplated to be an application against the judgment, final order or sentence in a criminal proceeding and that refusal of a certificate under article 134, for purposes of rule 1(1) of 0.
XXI, refers to the refusal of an application for certificate against the judgment, final order or sentence in a criminal proceeding.
But this does not necessarily mean that the rule will not be applicable in cases of refusal of a certificate when one applied for it on the ground that the order sought to be appealed against amounted to a judgment, final order or sentence while the High Court came to a different opnion, The rule does not specifically state that the date of the refusal of the certificate would be taken to be the starting point of limitation only when the High Court refuses certificate on the ground that it was not a fit case for appeal to the Supreme Court.
If it were so, the rule would have been limited to those cases,.