judgement:
Appeal No. 758 1963.
Appeal from the judgment and decree dated February of the former Bombay High Court in Appeal of 1957 from original decree.
815 J. B. Dadachanji, Ravinder Narain and O. C. Mathur, for the appellant.
Girish Chandra and Sardar Bahadur, for respondents Nos. 1, 2 (i) to 2 (iv), 3 and 4.
February 17, 1964.
The Judgment of the Court was delivered by: MUDHOLKAR, J.
The question which arises for consideration in this appeal by a certificate granted by the High Court of Bombay is whether a will alleged to have been executed by one Ramdhan on May 23, 1947 is genuine or is a fabrication.
By this will, Ramdhan is alleged to have bequeathed almost his entire property consisting of 16 fields assessed to land revenue at Rs. 425/ per annum, five houses, a shop and movables consisting of 800 tolas of gold, 1,000 tolas of silver, Rs. 50,0001/ cash and Rs. 15,000/ due from debtors as well as cattle, agricultural implements, utensils, etc., to the appellant, and practically excluded his widow.
Sitabai and his three married daughters.
The appellant is the grandson of one of the three predeceased uncles of Ramdhan, and the ground on which the widow and the daughters were practically excluded by Ramdhan is said to be the strained relations which developed between Ramdhan and his wife during his last days.
Ramdhan died on October 31.
1948, and Sitabai, who was all along living with him, came into possession of Ramdhan 's property.
Admittedly, the appellant did not try to disturb her possession.
According to him, he allowed Sitabai to remain in possession on his behalf, and that for some time she was managing the estate in a satisfactory way.
Later on, however, she, in utter disregard of the appellant 's interests, began to give away some portions of the property to her daughters and strangers, even though she knew that the property had been bequeathed to him by Ramdhan.
and that she was entitled to receive only a maintenance of Rs. 40/ per month under the will of Ramdhan.
It may be mentioned that Ramdhan was a resident of Peepalgaon in the district of Parbhani, and the entire property, movable as well as immovable, is at Peepalgaon itself.
Upon these allegations, the plaintiff instituted the suit out of which this appeal arises, in the District Court at 816 Parbhani.
Sitabai denied the execution of the alleged will by Ramdhan, and also denied the relationship claimed by the appellant with Ramdhan.
According to her, after Ramdhan 's death she was in exclusive possession of the property, that she is a helpless widow without a male issue, and that the appellant taking advantage of this fact ha,.
set up a false will and laid claim to Ramdhan 's property.
While admitting that the immovable property had been correctly set out in the plaint, she challenged the correctness of some of the items of the movable property, During the pendency of the suit, one Madanlal was joined as a party to it on the.
basis of his claim to be the adopted son of Ramdhan.
lie also challenged the genuineness of the will.
According to him, he was adopted by Ramdhan in the month of Chait, Samvat, 1999 according to the prevailing custom in the State of Udaipur.
Sitabai died during the pendency of the suit, and her daughters, Champabai, Rambhabai, and Rajubai as also Ram Pershad, one of Sitabai 's sons in law, who was alleged to have obtained possession of the property after the death of Sitabai, were brought on record as the legal representatives of Sitabai.
The trial Court held in favour of the appellant that he was related to Ramdhan, as alleged by him, and that the will executed by Ramdhan was genuine.
It also negatived Madanlal 's claim of having been adopted by Ramdhan.
On these findings, that Court decreed the appellant 's suit.
legal representatives of Sitabai thereupon preferred an appeal before the High Court, which held that the will set up by the appellant is not genuine, and on that ground, dismissed his suit.
In support of the will, the appellant examined himself, the scribe, Venkat Rajaram and three of the attesting witnesses, Raja Kaniahprasad, Rasheeduddin Ahmed and Wamanlal.
The appellant also examined some witnesses in support of his contention that the property bequeathed to him under the will was entrusted by him to Sitabai after the death of Ramdhan.
On the other hand, the respondents have led evidence to show that Ramdhan could not have been at Hyderabad where the will is alleged to have been executed, on May 23, 1947, because till the afternoon of the 817 previous day he was at a village nearly 300 miles distant from Hyderabad.
The High Court, on a consideration of the entire evidence adduced by the parties, came to the conclusion that the will was prepared under highly suspicious circumstances, and that the evidence adduced by the appellant was not such as to satisfy it that the alleged will was a genuine one.
Accord ing to the High Court, the circumstances appearing in the case indicate that the alleged will was "in all probability" a false document brought into existence without the knowledge of Ramdhan.
The High Court rightly pointed out that the nature of proof which was required in a case of this kind was that laid down by the Privy Council in Sarat Kumari Bibi vs Sakhi Chand(1), where it has been stated that in all cases in which a will is prepared under circumstances which arouse the suspicion of the Court that it does not express the mind of the testator, it is for the propounder of the will to remove that suspicion.
According to the High Court, the evidence led by the appellant was so unsatisfactory that it was impossible to give any effect to the alleged will.
Mr. Dadachanji 's grievance, however, is that the entire approach of the High Court to the evidence in this case was wrong, because it first took into consideration the various circumstances, and then judged the credibility of the wit nesses in the light of those circumstances.
In support of his contention, he has relied upon the following observation of Biswas, J. in Kristo Gopal vs Baidya Nath(2): "It is difficult to avoid the conclusion that the learned Judges for some reason or other must have formed the idea that the will was not a genuine document, and that having formed such, an idea.
he looked at the evidence of each of the witnesses with a suspicious eye.
On no other hypothesis is it possible to explain the criticism which he has led himself to make.
" The learned Judge has supported his observation by quoting the following observations of Lord Watson in Chotey Narain Singh vs Mt. Ratan Koer(3): (1)(1928) L.R. 56 I.A. 62.
(2) A.I.R. 1939 CaL 87.
(3) 22 I.A. 12.
23. 134 159 S.C. 52 818 "The theory of improbability remains to be considered; and the first observation which their Lordships, have to make is that, in order to prevail against such evidence as has been adduced by the respondent in this case, an improbability must be clear and cogent.
It must approach very nearly to, if it does not altogether constitute, an impossibility.
" The learned Judge has then observed as follows: "In a case where.
attesting witnesses are produced and they give clear and cogent testimony regarding execution, one should require very strong circumstances to repel the effect of such testimony.
It will not do to talk airily about circumstances of suspicion.
It is no doubt true that a person who takes it upon himself to dispute the genuineness of a will cannot be expected to prove a negative in many cases.
At the same time, the difficulty in which, on his own seeking, he places himself, will not relieve him of the burden it may be a heavy burden of displacing the positive testimony on the other side.
If he rests his case on suspicion, the suspicion must be a suspicion inherent in the transaction itself which is challenged and cannot be a suspicion arising out of a mere conflict of testimony." Then the learned Judge went on to observe that if there was evidence to show that the will was actually made, it would not be relevant to enquire whether there was any occasion or motive for the execution of the will, and that if such a test were to be applied in every case, no will could probably be proved at all.
The questions which we have to consider are whether there was, in fact, a will, that is to say, whether Ramdban did execute a will during his lifetime, and if so, whether the document upon which the appellant relies is a will executed by Ramdhan and duly attested by witnesses.
The appellant can prove these facts only by adducing evidence of the due execution of the will by Ramdhan and of its attestation.
The challenge before us is as to the credibility of the witnesses 819 who have come forward to say that the document upon which the appellant relies not merely bears the signature of Ramdhan but represents the disposition made by Ramdhan, that is it was executed by Ramdhan, and that the attesting witnesses attested the execution of the will by Ramdhan.
In order to judge the credibility of the witnesses, the Court is not confined only to the way in which the witnesses have deposed or to the demeanour of witnesses, but it is open to it to look into the surrounding circumstances as well as the probabilities, so that it may be able to form a correct idea of the trustworthiness of the witnesses.
This issue cannot be determined by considering the evidence adduced in the Court separately from the surrounding circumstances which have also been brought out in the evidence, or which appear from the nature and contents of the document itself.
We do not understand the observations of Lord Waston to mean that the testimony as to the execution of the document has to be considered independently of the attendant circumstances.
All that he says is that where there is a large and consistent body of testimony tending to show the execution of a will by the testator, that evidence should not be lightly set aside on the theory of improbability.
Dealing with the mode of proof of a will, this Court has observed in H. Venkatachala lyengar vs B. N. Thimmajamma and Others(1): "As in the case of proof of other documents so in the case of proof of wills it would be idle to expect proof with mathematical certainty.
The test to be applied would be the usual test of the satisfaction of the prudent mind in such matters.
However, there is one important feature which distinguishes wills from other documents.
Unlike other documents the will speaks from the death of the testator, and so, when it is propounded or produced before a court, the testator, who has already departed the world cannot say whether it is his will or not; and this aspect naturally introduces an element of solemnity in the decision of the question as to whether the document pro pounded is proved to be the last will and testa (1) 426.
820 ment of the departed testator.
Even so, in dealing with the proof of the wills the court will start on the same enquiry as in the case of the proof of documents.
The propounder would be called upon to show by satisfactory evidence that the will was signed by the testator, that the testator at the relevant time was in a sound and disposing state of mind, that he understood the nature and effect of the dispositions and put his signature to the document of his own free will.
Ordinarily when the evidence adduced in support of the will is disinterested, satisfactory and sufficient to prove the sound and disposing state of the testator 's mind and his signature as required by law, courts would be justified in making a finding in favour of the propounder.
In other words, the onus on the propounder can be taken to be discharged on proof of the essential facts just indicated.
There may, however, be cases in which the execution of the will may be surrounded by suspicious circumstances.
The alleged signature of the testator may be shaky and doubtful and evidence in support of the propounder 's case that the signature in question is the signature of the testator may not remove the doubt created by the appearance of the signature; .
the dispositions made in the will may appear to be unnatural, improbable or unfair in the light of relevant circumstances; or, the will may otherwise indicate that the said dispositions may not be the result of the testator 's free will and mind.
In such cases the court would naturally expect that all legitimate suspicions should be completely removed before the document is accepted as the last will of the testator.
The presence of such suspicious circumstances naturally tends to make the initial onus very heavy; and unless it is satisfactorily discharged, courts would be reluctant to treat the document as the last will of the testator." 821 This Court also pointed out that apart from suspicious circumstances of this kind, where it appears that the propounder has taken a prominent part in the execution of the will which confers substantial benefits on him, that itself is generally treated as a suspicious circumstance attending the execution of the will, and the propounder is required to remove the suspicion by clear and satisfactory evidence.
In other words, the propounder must satisfy the conscience of the Court that the document upon which he relies is the last will and testament of the testator.
This decision has been recently referred to in a Judgment of this Court in Shashi Kumar Banerjee and others vs Subodh Kumar Banerjee(1) (Civil Appeal No. 295 of 1966 decided on September 13, 1963).
There, Wanchoo J. who spoke for the Court, has observed as follows : "The mode of proving a will does not ordinarily differ from that of proving any other document except as to the special requirement of attestation prescribed in the case of a will by section 63 of the Indian Succession Act.
The onus of proving the will is on the propounder and in the absence of suspicious circumstances surrounding the execution of the will, proof of testamentary capacity and the signature of the testator as required by law is sufficient to discharge the onus.
Where however there are suspicious circumstances, the onus is on the propounder to explain them to the satisfaction of the court before the court accepts the will as genuine.
Where the caveator alleges undue influence, fraud and coercion, the onus is on him to prove the same.
Even where there are no such pleas but the circumstances give rise to doubt it is for the propounder to satisfy the conscience of the Court.
The suspicious circumstances may be as to the genuineness of the signature of the testator, the condition of the testator 's mind, the dispositions made in the will being unnatural, improbable or unfair in the light of relevant circumstances or there might be other indications in the will to show that the testator 's (1) C.A. No. 295 of 1960, D. Sept. 13. 1963 (Non reportable).
822 mind was not free.
In such a case the court would naturally expect that all legitimate suspicion should be completely removed before the document is accepted as the last will of the testator.
If the propounder himself takes part in the execution of the will which confers a substantial benefit on him, that is also a circumstance to be taken into account, and the propounder is required to remove the doubts by clear and satisfactory evidence.
If the propounder succeed in removing the suspicious circumstances the court would grant probate, even if the will might be unnatural and might cut off wholly or in part near relations.
It is in the light of these settled principles that we have to consider whether the appellants have succeeded in establishing that the will was duly executed and attested." In Sarat Kumari Bibi 's case(1) on which the High Court has relied and which is also relied upon in Venkatachala lyengar 's case(2) just cited, it was found that one Jamaluddin who took benefit under the will, had taken an active part in the preparation of the will, and, therefore, the rule made by Lindley and Davey L.JJ.
in Tyrrell vs Painton(3) that where circumstances exist which would excite the suspicion of the Court, the burden is upon the propounder of the will to remove such suspicion and prove affirmatively that the testator knew and approved of the contents of the document, was applied.
The High Court has analysed the entire evidence adduced by the propounder of the will to prove its due execution by Ramdhan, and along with that evidence, it has also considered certain attendant circumstances.
One is the fact that the will is said to have been executed at Hyderabad, which is a place where the appellant resides and carries on his profession as a medical practitioner and not at Peepalgaon, where Ramdhan resided.
The evidence adduced in the case shows that on the day prior to the one on which the will purports to have been executed, Ramdhan was at Ghanegaon till the afternoon.
This place is 8 miles distant from Peepalgaon, and (1) [1928] L.R. 56 I.A. 62.
(2) [1959] Supp. 1, S.C.R. 426, 443.
(3) , 157, 159.
823 the nearest railway station is 20 miles distant from Peepal gaon.
The will is said to have been executed at about noon, and though it is not impossible, it is highly improbable that Ramdhan could have been present at the place of execution by that time.
The third thing is that the will was executed in the house of the appellant.
One of the circumstances is that there was no particular reason why the will should have been executed at that time, because there is no suggestion that Ramdhan was not keeping good health.
Then again, the property is very considerable, and instead of employing the services of a trained lawyer to draw up the will, a layman like Venkat Rajaram, who has given his profession as "Jagirdari" had been enlisted.
The scribe as well as the attesting witnesses are not the personal friends of Ramdhan, though they say they knew him, but appear to be either the friends or neighbours of the appellant.
Yet, the appellant wants the Court to believe that all these persons were collected by Ramdhan after his arrival at Hyderabad on the morning of May 23.
This, in itself, would be an improbable thing indeed, because Ramdhan would not have had enough time at his disposal for doing it.
Again, there is no explanation why he should collect only the friends and acquaintances of the appellant rather than persons, who were his own friends.
The High Court has further pointed out that the document is inscribed on a flimsy paper.
It is in high flown Urdu, and is alleged to have been dictated by him in that language.
No doubt, the evidence indicates that Ramdhan could speak in Urdu, but it also indicates that he cannot read or write in Urdu.
It would, therefore, be legitimate to infer that the language which he could speak was the unlettered man 's Urdu and not high flown Urdu.
which contains an admixture of Persian words.
Indeed, such words have actually been used in this document.
The signature of Ramdban is itself in Modi script, which would not have been the case if were well versed in Urdu.
When we turn to the reverse of the sheet on which the document is inscribed, we find that as we go lower down, more and more words seem to be crammed in each line and the spacing between two lines tends to decrease, even though there appears to have been plenty of room for the signature of Ramdhan to be scribed lower down 824 on the paper.
It would be legitimate to infer from this that the signature was already there before the will was scribed.
This feature of the document as well as the quality of the paper used would suggest that a piece of paper bearing Ramdhan 's signature has been utilised by the scribe for engrossing what purports to be a will.
Finally, there is the circumstance that the will is un natural in the sense that though Ramdhan left property worth several lakhs, he made no provision for a residence for his wife but gave her only Rs. 40/ per month as her maintenance, and made only paltry bequests to his daughters.
It is true that the daughters are married in affluent families, but in the absence of a male issue, a father is normally expected to give at least substantial bequests to his daughters.
Instead, the wiil gives almost the entire property to a distant relative, who, it may be noticed, was neither brought up by the testator, nor was a person who looked after the testator during, his declining years.
All this is said to have been due to the fact that Ramdhan 's relations with his wife had become strained.
Indeed, the relationship between Ramdhan and his wife had become so bad that Ramdhan, according to the appellant, suspected that she was trying to poison him.
Curiously enough, in spite of this, Ramdhan continued to live with Sitabai right till his death, and had made no arrangement for a person other than her to take charge of the cash and the gold and silver ornaments of the value of a couple of lakhs of rupees or so, in the event of his dying suddenly.
There is nothing to suggest that Ramdhan 's food was cooked by any one other than Sitabai.
To prove the appellant 's allegations that Ramdhan and Sitabai were not getting on well, the main evidence is that of the appellant himself, who is the person who has obviously taken an active part in procuring the execution of the document which he has set up as the will of Ramdhan.
He must be held to have taken an active part, even though, according to him, he did not do so, because the will was written not only at Hyderabad where he lives and carries on his profession but also in his own house, and the persons who played one part or the other in this connection are either his friends or his neighbours.
It is these circumstances which have to be borne in mind while evaluating the testimony of the witnesses bear 825 ing on the execution of the will.
Further, it is necessary for the appellant to satisfy the conscience of the Court about the genuineness of this will by removing all suspicions which naturally flow from the various circumstances, which we have set out above.
There is not an iota of evidence in this regard, and we are not satisfied that the suspicion created by the circumstances referred to by us has been removed.
Learned counsel has taken us through the evidence of the appellant, the scribe and three attesting witnesses examined by him.
All this evidence has been critically examined by the High Court but for reasons given by it in its judgment, not accepted by it.
We find no reasons for viewing the evidence differently.
We have already adverted to the fact that no particular reason has been even indicated by the appellant as to why Ramdhan thought of executing a will long before his death.
If his idea in doing so was to make certain that his property does not fall in Sitabai 's hands after his death one would have expected him to make some arrangement for keeping the movables out of her reach.
He, however, made no such arrangement.
Further, he would have also taken the precaution of registering the will, so that any challenge to its genuineness could not have been successfully made.
Further, there is no unimpeachable evidence to show that the will was brought to light immediately after Ramdhan 's death, which would have been the case if it were a genuine will.
On the other hand, there is one circumstance which suggests that the claim on the basis of Ramdhan 's will was not even thought of by the appellant till long after Ramdhan 's death.
The circumstance is the continuance of Sitabai in possession of the cash, gold and silver articles and other movables, even subsequent to Ramdhan 's death.
Of course, the appellant has given the explanation that he allowed her to remain in possession on his behalf, but his evidence is wholly incredible.
Indeed, the appellant has said that he instituted the suit because he found Sitabai parting with portions of Ramdhan 's movables in favour of her daughters and strangers after the death of Ramdhan.
At least, one thing will follow from this that according to him Sitabai was more interested in her daughters than in him.
If, therefore, he had a genuine claim to Ramdhan 's property, he would not have 826 allowed Sitabai to remain in possession of Ramdhan 's movables.
At least, he would have obtained from her a document containing the list and description of the movables and also an admission to the effect that she was entrusted with them by the appellant and that she had no right in them.
Had she refused to execute such a document, one would have naturally expected the appellant to institute a suit for their possession immediately.
There is no explanation for the absence of such a document, and thus this is also a circumstance which militates against the genuineness of the will.
In the circumstances, we hold that the High Court was right in rejecting the evidence of the attesting witnesses and the scribe as well as of the appellant with regard to the exe cution of the will by Ramdhan.
We accordingly uphold the judgment of the High Court, and dismiss the appeal with costs.
Appeal dismissed.

summary/full:
The appellant filed a suit claiming the property of one R which was in possession of R 's widow on the allegation that R had executed a will bequeathing almost his entire property to the appellant and practically excluding his widow and daughters.
The ground on which the widow and the daughters were excluded is said to be the strained relations which had developed between R and his wife.
The widow denied the execution of the alleged will and challenged the genuineness.
The Trial Court holding that the will was genuine decreed the suit.
On appeal, the High Court dismissed the suit holding that the win was not genuine.
The finding of the High Court was based on the evidence and the attending circumstances appearing in the case.
Or appeal to this Court by a certificate granted: Held: (i)In order to judge the credibility of the witness, the Court is not confined only to the way in which the witnesses have deposed or to the demeanour of the witnesses, but it is open to it to look into the surrounding circumstances as well as the probabilities, so that it may be able to form a correct idea of the trustworthiness of the witnesses.
This issue cannot be determined by considering the evidence adduced in the Court separately from the surrounding circumstances brought out in the evidence, or which appear from the nature and the contents of the document itself.
(ii) It is necessary for the propounder to satisfy the court about the genuineness of the will by removing all suspicions which naturally from the various circumstances.
Surat Kumar Bibi vs Sakti Chand, , Krishto opal vs Baidyanath, A.I.R. 1939 Cal.
87, Chotey Narain Singh V. Ali.
Ratan Koer, (1894) L.R. 22 I.A. 12, H. Venkachala Iyengar vs N. Thaimmajamma, [1959] Supp. 1 S.C.R. 426, Shashi Kumar Banerjee vs Subodh Kumar Banerjee, C.A. No. 295 of 1960.
Sept. 13, 1963 (Non reportable and Tyrell vs Painton, , referred to.


judgement:
vil Appeal No. 938 of 1963.
Appeal from the judgment and decree dated December 19, 1960 of the Allahabad High Court in Income tax Reference No. 1588 of 1956.
K. N. Rajagopala Sastri, R. H. Dhebar and R. N. Sachthey, for the appellant.
A. V. Viswanatha Sastri and Naunit Lal, for the respondent.
The Judgment of the Court was delivered by Subba Rao J.
This appeal by certificate raises the question whether loss of cash by dacoity is an admissible deduction under section 10(1) of the Indian Income tax Act, 1922, hereinafter called the Act, in computing the assessee 's income in a banking business.
The facts relevant to the question raised may be briefly state .
The assessee is the Nainital Bank Limited.
It is a puplic limited company which carries on the business of banking.
It has various branches and one of them is situated at Ramnagar.
In the usual course of its business large amounts were kept in various safes in the premises of the Bank.
On June 11, 1951, at about 7 P.m.
there was a dacoity in the Bank and the dacoits carried away the cash amounting to Rs. 1,06,000 and some ornaments etc.
pledged with the Bank.
For the assessment year 1952 53 the Bank claimed the said amount as a deduction in computing its income from the banking business on the ground that it was a trading loss.
The Income tax Officer disallowed the claim on the ground that it was not a loss incidental to the banking business.
On appeal, the Appellate Assistant Commissioner of Income tax, and on further appeal, the Income tax Appellate Tribunal, confirmed that finding.
On a reference to the High Court of Judicature at Allababad, a Division Bench of that Court held that the loss by dacoity was incidental to the banking business and was, therefore, a trading, loss and that the assessee was entitled to a deduction of the same under section 10 (1 ) of the Act.
Hence the appeal.
Mr. Rajagopala Sastri, learned counsel for the appellant, argued that the Bank lost the money by burglary not in its capacity as a bank but only just like any other citizen, that the risk of L2Sup./64 9 342 burglary was not incidental to the business of banking and that, therefore, the amount burgled could not be deducted as a trading loss.
Mr. A. V. Viswanatha Sastri, on the other hand, contended that the money lost by burglary was the stock in trade of the banking business, that it was kept in the Bank in the usual course of its business and that the risk of its loss was incidental to the carrying on of the said business and, therefore, the amount lost was a trading loss liable to be deducted under section 10(1) of the Act.
Before we consider the law on the subject, it would be con venient at the outset to notice briefly the scope of the activities of banking business.
Under section 5 (1 ) (b) of the Banking Companies Act, 1949, "banking" is defined to mean "the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or Otherwise"; and under section 5 (1) (c), "banking company" means any company which transacts the business of banking in India; under section 5(1) (cc), " 'branch ' or 'branch office in relation to a banking company, means any branch or branch office, whether called a pay office or sub pay office or by any other name, at which deposits are received, cheques cashed or money lent, and for the purposes of section 35 includes any place of business where any other form of business referred to in subsection (1) of section 6 is transacted," Therefore, a banking business consists mainly in receiving deposits, making advances, realizing them and making fresh advances.
It is a continuous process which requires maintenance of ready cash in the bank premises.
The Nainital Bank Ltd., is a public limited company incorporated for carrying on such banking business and Ramnagar branch is one of its branches doing such business.
Unlike an individual, a limited company like a banking company comes into existence for the purpose of carrying on only the banking business and ordinarily there cannot be any scope for attributing different characters to that business.
We therefore, start with the fact that the Ramnagar branch of the Bank had kept large amounts in the Bank premises in the usual course of its business in order to meet the demands of its constituents.
It is settled law, and indeed it is not disputed, that cash is the stock in trade of a banking company.
In Arunachalam Chettiar vs Commissioner of Income tax Madras(1), the Judicial Committee was considering the basis of the right of an assessee to ((1) , 83 (P.C.).
343 deduct irrecoverable loans before arriving at the profits of moneylending, and in that context stated: "The basis of the right to deduct irrecoverable loans before arriving at the profit of money lending is that to the money lender, as to the banker, money is his stock in trade or circulating capital; he is dealing in money." In Commissioner of Income tax, Madras vs Subramanya Pillai(1) a Division Bench of the Madras High Court, in explaining the principle why in money lending business allowances for bad debts were given, observed: "In the case of banking or money lending business . allowance for bad and doubtful debts was given for the reason that all the moneys embarked in the moneylending business and lent out for interest were in the nature of stock in trade of the banker or money lender and the bad and doubtful debts represented so much loss of the stock in trade.
Losses in respect of the stock intrade have always been regarded as trade losses and allowed to be set off against the receipts.
" The same view was expressed by the Full Bench of the Madras High Court in Ramaswami Chettiar vs Commissioner of Income tax, Madras (2 ) and by the Patna High Court in Motipur Sugar Factory, Ltd. vs Commissioner of Income tax, Bihar & Orissa(3).
Under section 10(1) of the Act loss of stock in trade is certainly an admissible deduction in computing the profits.
Payment received from an insurance company for stock destroyed by fire was taken into account as a trading receipt in computing the profits assessable to income tax; see Green (H. M. Inspector of Taxes) vs J. Gliksten and Son, Ltd. (4) ; and Raghuvanshi Mills Ltd. vs Commissioner of Income tax, Bombay City(5).
If receipt from an insurance company towards loss of stock was a trading receipt, conversely to the extent of the loss not so recouped it should be trading loss.
Loss sustained by an assessee owing to destruction of the stock in trade by enemy invasion was held to be a trading loss which the assessee was entitled to claim as a deduction: see Pohoomal Bros. vs Commissioner of Income tax, Bombay City(6).
Loss incurred in stock in trade by ravages of white ants was allowed as trading loss in computing the profit of a business; see Hira Lal Phoolchand vs Commissioner of Income (1) , 92.
(3) (5) ; (2) I.L.R. (4) (6) 344 tax, C.P., U.P. and Berar(1).
We, therefore, reach the position that cash is a stock in trade of a banking business and its loss in the course of its business under varying circumstances is deductible as a trading loss in computing the total income of the business.
But it is said that every loss of a stock in trade in whatsoever way it is caused is not a trading loss, but the said loss should have been caused not only in the course of the business but also should have been incidental to it.
The leading case on the subject is that of this Court in Badridas Daga vs Commissioner of Income tax(2).
There, the appellant was the sole proprietor of a firm which carried on the business of money lending.
The agent of the firm withdrew large amounts from the firm 's bank account and applied them in satisfaction of his personal debts.
In the firm 's account the balance of the amount not recovered from the agent was written off at the end of the accounting year as irrecoverable.
This Court held that the loss sustained by the appellant therein as a result of I misappropriation by the agent was one which was incidental to the carrying on of the business and should therefore, be deducted in computing the profits under section 10 (1) of the Act.
Venkatarama Ayyar J., speaking for the Court, 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.
If that is established, then the deduction must be allowed, provided of course there is no prohibition against it, express or implied, in the Act.
" Applying the principle to the facts of the case before the Court, the learned Judge proceeded to state: "If employment of agents is incidental to the carrying on of business, it must logically follow that losses which are incidental to such employment are also incidental to the carrying on of the business.
" The principle was clearly laid down and was, if we may say so, correctly applied to the facts before the Court.
But there is a (1) (2) ; 345 passage in the judgment on which strong reliance was placed by the learned counsel for the appellant and it was contended that the instant case clearly fell under the illustration contained in the passage.
It reads: "At the same time, it should be empbasised that the loss for which a deduction could be made under section 10(1) must be one that springs directly from the carrying on of the business and is incidental to it and not, any loss sustained by the assessee, even if it has some connection with his business.
If, for example, a thief were to break overnight into the premises of a money lender and run away with funds secured therein, that must result in the depletion of the resources; available to him for lending and the loss must, in that sense, be a business loss, but it is not one incurred in the running of the business, but is one to which all owners of properties are exposed whether they do business or not.
The loss in such a case may be said to fall on the assessee not as a person carrying on business but as owner of funds.
This distinction, though fine, is very material as on it will depend whether deduction could be made under section 10(1) or not.
" It was said that the loss in the present case fell on the assessee not as a person carrying on the business of banking but as owner of funds.
That passage in terms refers to a money lender and does not deal with a public company carrying on banking business.
In the case of a money lender the profits he made may form part of the private funds kept in his house which he may or may not invest in his business.
It is indistinguishable from his other moneys.
But in the case of a bank the deposits received by it form part of its circulating capital and at the time of the theft formed part of its stock in trade.
In one case it cannot be posited that the amount robbed is part of the stock in trade of the trader till he invests it in his business; in the other it forms part of the stock in trade without depending on the intention of the banking company.
There lies the distinction between the instant case and the illustration visualized by this Court.
We have only suggested a distinction, but we are not expressing any definite opinion on the question whether the loss incurred in the case illustrated is or is not a trading loss.
The correctness or otherwise of the said observation may fall to be considered when such a case directly arises for decision.
346 Before parting with this decision, it may be noticed that this Court agreed with the decisions in Venkatachalapathy lyer vs Commissioner of Income tax(1), Lord 's Dairy Farm Ltd. vs Commissioner of Income tax(2) , and Motipur Sugar Factory Ltd. vs Commissioner of Income tax( 3 ).
The decision in Motipur Sugar Factory case(3), which was accepted by this Court to be correct, takes us a step further in the development of law.
There, the assessee company was carrying on business in the manufacture of sugar and molasses out of sugarcane.
It deputed an employee,in compliance with the statutory rules, with cash for disburse ment to sugarcane cultivators at the spot of purchase.
The cash was robbed on the way.
The Division Bench of the Patna High Court held that the loss of money was loss arising out of the business of the assessee and sprang from the statutory necessity of sending money to various purchasing centres for disbursement and, therefore, the assessee was entitled to deduct the loss in computing its taxable income under section 10(1) of the Act.
It will be noticed that this is not a case of misappropriation by a servant of the company, but a case of loss to the company by reason of its cash being robbed from its servant.
In that case, cash was entrusted to the employee under statutory rules.
But there may be cases where such entrustment may be made by custom or practice.
What is important to notice is that robbery of cash from the hands of an employee is held to be incidental to the business of the assessee.
If that be so, why should a different principle be adopted if the loss was not caused by robbery from the hands of the employee on his way to a particular place in discharge of his duty, but it was a loss caused by dacoity from the premises of the bank itself.
In one case, the employee carried cash for disbursement to sugarcane cultivators, and in the other, funds were lodged in the Bank with reasonable safeguards for disbursement of the same to its constituents.
If the loss was incidental to the business in one case, it should equally be so in the other case.
The judgment of the Special Bench of the Madras High Court in Ramaswami Chettiar vs The Commissioner of Income tax, Madras(4) supports the case of the Revenue.
There, the loss was incurred by theft of money used in moneylending business and kept in the business premises.
The Full Bench by majority held that the loss incurred thereby should not be allowed in computing the income tax, as the theft was committed by persons who were not at the time of commission employed as clerks or servants by the assessee.
This judgment, (1) (3) (2) (4) Mad.
347 if we may say so with respect, takes a narrow view of the problem.
Indeed in Motipur Sugar Factory case(1), which was approved by this Court, the theft was committed not by the employee of the company but by robbers.
To that extent the correctness of the Madras decision is shaken.
That apart the judgment of Anantakrishna Ayyar J., who recorded a dissent, contains a constructive criticism of the majority view.
We prefer the view of Anantakrishna Ayyar J., to that of the majority.
The decision of the High Court of Australia in Charles Moore and Co. (W. A.) Pvt. Ltd. vs Federal Commissioner of Taxa tion(2) throws considerable light on the subject.
In that case the assessee was carrying on business of a departmental store and he banked the takings thereof daily.
It was the practice every business morning for the cashier accompanied by another employee to take the previous day 's takings to the bank some two hundred yards away and pay them to the credit of the assessee.
One day, while on their way to the bank the two employees were held up at gun point and robbed of a large amount which formed part of the receipts of the assessee for the previous day.
The Court held that the loss was incurred in gaining or producing the assessable income of the year in question within the meaning of section 5 1 (I) of the Income Tax and Social Services Contribution Assessment Act, 1936 52 and was not a loss or outgoing of capital or of a capital nature, and was consequently a deduction from assessable income in such year.
It was pointed out therein: "Banking the takings is a necessary part of the operations that are directed to the gaining or producing day by day of what will form at the end of the accounting period the assessable income.
Without this, or some equivalent financial procedure, hitherto undevised, the replenishment of stock in trade and the payment of wages and other essential outgoings would stop and that would mean that the gaining or producing of the assessable income would be suspended.
" Then the Court proceeded to state "The 'occasion of the loss ' in the present case was the pursued in banking the money .
There Is no difficulty in understanding the view that involuntary outgoings and unforeseen or unavoidable losses should be allowed as deductions when they represent that kind of casualty, mischance or misfortune which is a natural or recognized incident of a particular trade or (1) (2) ; , 350.
348 business the profits of which are in question.
These are characteristic incidents of the systematic exercise of a trade or the pursuit of a vocation.(1) Even if armed robbery of employees carrying money through the streets had become an anachronism which we no longer knew, these words would apply.
For it would remain a risk to which of its very nature the procedure gives rise.
But unfortunately it is still a familiar and recognized hazard and there could be little doubt that if it had been insured against the premium would have formed an allowable deduction.
Phrases like the foregoing or the phrase 'incidental and relevant ' when used in relation to the allowability of losses as deductions do not refer to the frequency, expectedness or likelihood of their occurrence or the antecedent risk of their being incurred, but to their nature or character.
What matters is their connection with the operations which more directly gain or produce the assessable income.
" This decision laid down the following principles: (i) banking the takings was a necessary part of the operations of the business with which the court was dealing in that case; (ii) the loss to the business caused by robbery was incidental and relevant to that business as the procedure involved in carrying on of the business carried with it the risk of the cash being robbed on the way; (iii) the expressions "incidental" and "relevant" in relation to losses did not relate to the frequency of the happening of the risk but to their nature and character, that is to say, the loss must be connected with the operation to produce income.
The judgment of the Supreme Court of Newzealand in Gold Band Services Limited vs Commissioner of Inland Revenue ( 2 ) applied the decision of the Australian High Court cited above to a situation which comes very near to our case.
The appellant therein owned and operated a petrol service station which was kept open continuously.
It was held up by an armed robber and a substantial sum of money was stolen.
The Court held that the sum lost as a result of the robbery was a loss exclusively incurred in gaining or producing the assessable income of the appellant and was deductible from its ' gross income.
Adverting to the argu ment very often advanced in courts based upon the robbery being committed in the premises and that committed on the way to a bank, Haslain J. observed (1) Rich J. in Commissioner of Taxation (N.S.W.) vs Ash at 277.
(2) ,470. 349 .lm15
I can see no valid distinction to be drawn in principle between the robbery of trade receipts on the appellant 's premises at an hour before banking was possible (but intended to be banked at a time when the banks were open) and the robbery of the same money when in the custody of the employee on the way to the bank.
In my opinion, the occasion for the loss of the present appellant was the operation of its business in the normal way, with the result that the cash stolen was on the premises at that particular time and that the possibility of such plunder constituted an attraction to a certain type of criminal, including both the safe blower and the armed burglar.
" The present case is a stronger one, for the money was kept in the Bank as it was absolutely necessary to carry on the operation of the banking business.
We may now summarize the legal position thus.
Under section 1O (I ) of the Act the trading loss of a business is deductible for computing the profit earned by the business.
But every loss is not so deductible unless it is incurred in carrying out the operation of the business and is incidental to the operation.
Whether loss is incidental to the operation of a business is a question of fact to be decided on the facts of each case, having regard to the nature of the operations carried on and the nature of the risk involved in carrying them out.
The degree of the risk or its frequency is not of much relevance but its nexus to the nature of the business is material.
In the present case the respondent was carrying on the busi ness of banking.
It is an integral part of the process of banking that sufficient moneys should be kept in the bank duly guarded to meet the demands of the constituents.
The retention of the money in the bank is a part of the operation of banking.
The retention of money in the bank premises carries with it the ordinary risk of its being subject of embezzlement, theft, dacoity or destruction by fire and such other things.
Such risk of loss is incidental to the carrying on of the operations of the business of banking.
In this view, we are clearly of the opinion that the loss incurred by dacoity in the present case is incidental to the carrying on of the business of banking.
In the result, the order of the High Court is correct and the appeal fails and is dismissed with costs.
Appeal dismissed.

dataset_name: IN-Abs

summary/full:
Cash and ornaments worth Rs. 1,06,000 were robbed by dacoits from the Ramnagar branch of the Nainital Bank Ltd., a public limited company carrying on the business of banking.
The loss was claimed by the bank as a trading loss for the assessment year 1952 53.
The claim was disallowed by the Income tax Officer on the ground that the loss was not incidental to the business.
The finding being confirmed by the Appellate Assistant Commissioner and the Incom tax Appellate Tribunal, a reference was made to the High Court of Judicature at Allahabad which held that the loss by dacoity was incidental to the banking business and was, therefore a trading loss which the assessee could claim as a deduction under section 10(1) of the Indian Income tax Act, 1922.
Appeal to this Court on behalf of the Revenue, came by way of a certificate under article 133 of the Constitution of India.
It was contended on behalf of the appellant that the risk of burglary was not incidental to the business of banking, and the loss in the present case fell on the assessee not as a person carrying on the business of banking but as an owner of funds.
HELD : Cash is the stock in trade of a banking company.
and its loss is therefore a trading loss.
But every loss is not deductible in computing the income of a business unless it is incurred in the carrying out of the operation of the business and is incidental to the operation.
Whether in a particular case an item of loss claimed as a deduction under section 10(1) of the Act is incidental to the operation of the assessee 's business or not is a question of fact to be decided on the facts of that case, having regard to the nature of the operations carried on and the nature of the risk involved in carrying them out.
The degree of risk or its frequency is not of much relevance but its nexus to the nature of the business is material.
[344 A; 349 D E].
It is an integral part of the business of banking that sufficient moneys should be kept in the bank duly guarded to meet the demands of the constituents.
Retention of the money in the bank is part of the operation of banking.
Retention of money in the bank carries with it the ordinary risk of its being the subject of embezzlement, theft, dacoity or destruction by fire and such other things.
Such risk of loss is incidental to the carrying on of the operation of the business of banking.
Loss incurred by dacoity in the present case is incidental to the carrying on of the business of banking.
[349 F G].
Case law discussed.
Motipur Sugar Factory Ltd. vs Commissioner of Income tax, Bihar and Orissa, Charles Moore & Co. (W.A.) Pvt. Ltd. vs Federal Commissioner of Taxation, ; and Gold Band Services Ltd. vs Commissioner of Inland Revenue, , relied on.
341 Badridas Daga vs Commissioner of Income tax [1959] S.C.R. 690 distinguished.
Ramaswamy Chettiar vs Commissioner of Income tax, Madras I.L.R. (1930)53 Mad. 904, disapproved.


judgement:
Appeal No. 760 of 1962.
Appeal by special leave from the judgment and order dated July 16, 1959 of the Andhra Pradesh High Court in Writ Petition No. 1123 of 1956.
K. R. Chaudhuri, for the appellant.
A. Ranganadham Chetty and B. R. G. K. Achar, for the respondent.
February 21, 1964.
The appellant filed a writ petition in the High Court questioning the validity of section 11 (2) of the Hyderabad General Sales Tax Act, No. XIV of 1950, (hereinafter referred to as the Act).
The material facts on which the petition was based were these.
The appellant acted as agent in the then State of Hyderabad to both resident and non resident principals in regard to sale of betel leaves.
Under the Act betel leaves were taxable at the purchase point from May 1, 1953, by virtue of a notification in that behalf.
We are here concerned with the assessment period from May 1, 1953 to March 31, 1954, covered by the assessment year 1953 54.
The appellant collected sales tax from the purchasers in connection with the sales made by it on the basis that the incident of the tax lay on the sellers and assured the purchasers that after paying the tax to the appellant, there would be no further liability on them.
After realising the tax, however, the appellant did not pay the amount realised to the Government but kept it in the suspense account of its principals, namely, 870 the purchasers.
When the accounts were scrutinized by the Sales Tax Department, this was discovered and thereupon the appellant was called upon to pay the amounts realised to the Government.
The appellant however objected to the payment on the ground that it was the seller and the relevant notification for the relevant period imposed tax at the purchase point, i.e. on the purchaser.
This objection was over ruled and the appellant was directed to pay the amount to Government.
The main contention raised on behalf of the appellant in the High Court was that section 11 (2) of the Act, which authorised the Government to recover from any person, who had collected or collects, after May 1, 1950, any amount by way of tax otherwise than in accordance with *.he provisions of the Act, as arrears of land revenue, was beyond the legislative competance of the State legislature.
The argument was that the Act was passed under Entry 54 of List 11 of the Seventh Schedule to the Constitution, which enables the State legislature to enact a law taxing transactions of sale or purchase of goods.
The entry therefore vests power in the State legislature to make a law for taxing sales and pur chases of goods and for making all necessary incidental provisions in that behalf for the levy and collection of sales or purchase tax.
But it was urged that that entry did not empower the State legislature to enact a law by which a dealer who may have collected a tax without authority is required to hand over the amount to Government, as any collection without the authority of law would not be a tax levied under the law and it would therefore not be open to the State to collect under the authority of a law enacted under Entry 54 of List II any such amount as it was not a tax on sale or purchase of goods.
The High Court held section 11 (2) good as an ancillary provision with regard to the collection of sales or purchase tax and therefore incidental to the taxing power under Entry 54 of List 11.
Further the High Court took the view that assuming that Entry 54 of List II could not sustain section 11 (2), it could be sustained under Entry 26 of List H.
Consequently the writ petition was dismissed.
The High Court having refused a certificate to appeal to this Court, the appellant obtained special leave and that is how the matter has come up be fore us.
871 It is necessary to read section II of the Act in order to appre ciate the point urged on behalf of the appellant.
Section 11 is in these terms: 1 1 (1) No person who is not registered as a dealer &hall collect any amount by way of tax under this Act nor shall a registered dealer make any such collection before the 1st day of May, 1950, except in accordance with such conditions and restrictions, if any, as may be prescribed Provided that Government may exempt persons who are not registered dealers from the provisions of this sub section until such date, not being later than the 1st day of June, 1950, as Government may direct.
(2) Notwithstanding to the contrary contained in any order of an officer or tribunal or judgment, decree or order of a Court, every person who has collected or collects on or before 1st May, 1950, any amount by way of tax otherwise than in accordance with the provisions of this Act shall pay over to the Government within such time and in such manner as may be prescribed the amount so collected by him.
and in default of such payment the said amount shall be recovered from him as if it were arrears of land revenue.
" It will be seen that section 11 (1) forbids an unregistered dealer from collecting any amount by way of tax under the Act.
That provision however does not apply in the present case, for the appellant is admittedly a registered dealer.
Further section II (1) lays down that a registered dealer shall not make any such collection before May 1, 1950, except in accordance with such conditions and restrictions, if any, as may be prescribed.
This provision again does not apply, for we are not concerned here with any collection made by the appellant before May 1, 1950.
The prohibition therefore of section 11 (1) did not apply to the appellant.
Then comes section 11 (2).
It applies to collections made after May 1, 1950 by any person whether a registered dealer or otherwise and lays down that any amount collected by way of tax otherwise than in accordance with the provisions of the Act shall be paid over to 872 the Government and in default of such payment, the said amount shall be recovered from such person as if it were arrears of land revenue.
It is clear from the words "other wise than in accordance with the provisions of this Act" that though the amount may have been collected by way of tax it was not exigible as tax under the Act.
Section 11 (2) thus provides that amounts collected by way of tax though not exigible as tax under the Act shall be paid over to Government, and if not paid over they shall be recovered from such person as if they were arrears of land revenue.
Clearly therefore s, 11 (2) as it stands provides for recovery of an amount collected by way of tax as arrears of land revenue though the amount was not due as tax under the Act.
The first question therefore that falls for consideration is whether it was open to the State legislature under its powers under Entry 54 of List II to make a provision to the effect that money collected by way of tax, even though it is not due as a tax under the Act, shall be made over to Government.
Now it is clear that the sums so collected by way of tax are not in fact tax exigible under the Act.
So it cannot be said that the State legislature was directly legislating for the imposition of sales or purchase tax under Entry 54 of List II when it made such a provision, for on the face of the provision, the amount, though collected by way of tax.
was not exigible as tax under the law.
The provision however is attempted to be justified on the ground that though it may not be open to a State legislature to make provision for the recovery of an amount which is not a tax under Entry 54 of List 11 in a law made for that purpose, it would still be open to the legislature to provide for paying over all the amounts collected by way of tax by persons, even though they really are not exigible as tax, as part of the incidental and ancillary power to make provision for the levy and collection of such tax.
Now there is no dispute that the heads of legislation in the various Lists in the Seventh Schedule should be interpreted widely so as to take in all matters which are of a character incidental to the topics mentioned therein.
Even so, there is a limit to such incidental or ancillary power flowing from the legislative entries in the various Lists in the Seventh Schedule.
These incidental and ancillary powers have to be exercised in aid of the main topic of legislation, 873 which in the present case, is a tax on sale or purchase of goods.
All powers necessary for the levy and collection of the tax concerned and for seeing that the tax is not evaded are comprised within the ambit of the legislative entry as ancillary or incidental.
But where the legislation under the relevant entry proceeds on the basis that the amount concerned is not a tax exigible under the law made under that entry, but even so lays down that though it is not exigible under the law, it shall be paid over to Government, merely because some dealers by mistake or otherwise have collected it as tax, it is difficult to see how such provision can be ancillary or incidental to the collection of tax legitimately due under a law made under the relevant taxing entry.
We do not think that the ambit of ancillary or incidental power goes to the extent of permitting the legislature to provide that though the amount collectedmay be wrongly by way of tax is not exigible under the law as made under the relevant taxing entry, it shall still be )aid over to Government, as if it were a tax.
The legisla turd cannot under Entry 54 of List II make a provision to the effect that even though a certain amount collected is not a tax on the sale or purchase of goods as laid down by the law, it will still be collected as if it was such a tax.
This is what section 11 (2) has provided.
Such a provision cannot in our opinion be treated as coming within incidental or ancillary powers which the legislature has got under the relevant taxing entry to ensure that the tax is levied and collected and that its evasion becomes impossible.
We are therefore of opinion that the provision contained in section 1 1 (2) cannot be made under Entry 54 of List 11 and cannot be justified even as an incidental or ancillary provision permitted under that entry.
An attempt was made to justify the provision as providing for a penalty.
But as we read section 11 (2) we cannot find anything in it to justify that it is a penalty for breach of any prohibition in the Act.
Penalties imposed under taxing statutes are generally with respect to attempts at evasion of taxes or to default in the payment of taxes properly levied (see sections 28 and 46 of the Indian Income Tax Act.
1922).
The Act also provides for penalties, for example section 19 and section 20.
The latter section makes certain acts or omissions of an 874 assessee offences punishable by a magistrate subject to com position under section 21.
Section 11 (2) in our opinion has nothing to do with penalties and cannot be justified as a penalty on the dealer.
Actually section 20 makes provision in cl.
(b) for penalty in case of breach of section II (1) and makes the person committing a breach of that provision liable, on conviction by a Magistrate of the first class, to a fine.
We are therefore of opinion that section 11 (2) cannot be justified under Entry 54 of List II either as a provision for levying the tax or as an incidental or ancillary provision relating to the collection of tax.
In this connection we may refer to cl.
(c) of section 20, which provides that any person who fails "to pay the amounts specified in sub section (2) of section 11 within the prescribed time" shall on a conviction by a Magistrate be liable to fine.
It is remarkable that this provision makes the person punish able for his failure to pay the amount which is not authorised as a tax at all under the law, to Government.
It does not provide for a penalty collecting the amount wrongly by way of tax from purchasers which may have been justified as a penalty for the purpose of carrying out the objects of the taxing legislation.
If a dealer has collected anything from a purchaser which is not authorised by the taxing law, that is a matter between him and the purchaser, and the purchaser may be entitled to recover the amount from the dealer.
But unless the money so collected is due as a tax, the State cannot by law make it recoverable simply because it has been wrongly collected by the dealer.
This cannot be done directly for it is not a tax at all within the meaning of Entry 54 of ,List II, nor can the State legislature under the guise of incidental or ancillary power do indirectly what it cannot do directly.
We are therefore of opinion that s.11 (2) is not within the competence of the State legislature under Entry 54 of List II.
The respondent in this connection relies on the decision of this Court in The Orient Paper Mills Limited vs The State of Orissa(").
That case in our opinion has no application to the facts of the present case.
In that case the dealer had been assessed to tax and had paid the tax.
Later in view of the judgment of this Court in State of Bombay vs The United Motors (India) Limited(2) the amounts paid in (1) ; (2) ; 875 respect of goods despatched for consumption outside the State were held to be not taxable.
The dealer then applied for refund of tax, which was held to be not exigible.
The refund was refused and and the dealer went to the High Court by a writ petition claiming that it was entitled to refund under section 14 of the Orissa Sales Tax Act (which was the law under consideration in that case).
The High Court allowed the petition in part and there were appeals to this Court both by the dealer and the State.
In the meantime, the Orissa legislature amended the law, by introducing section 14A, in the principal Act, which provided that refund could be claimed only by a person from whom the dealer had actually realised the amount as tax.
That provision was challenged in this Court but was upheld on the ground that it came within the incidental power arising out of Entry 54 of List 11.
That matter dealt with a question of refund and it cannot be doubted that refund of the tax collected is always a matter covered by incidental and ancillary powers relating to the levy and collection of tax.
We are not dealing with a case of refund in the present case.
What section II (2) provides is that something collected by way of tax, though it is not really due as a tax under the law enacted under Entry 54 of List II must be paid to the Government.
This situation in our opinion is entirely different from the situation in the Orient Paper Mills Limited 's case(").
The respondent further relies on a decision of the Madras High Court in Indian Aluminium Co. vs The State of Madras(2).
That decision was with respect to section 8 B of the Madras General Sales Tax Act of 1939 as amended by Madras Act 1 of 1957.
Though the words in section 8 B (2) were not exactly the same as the words in section 11 (2), with which we are concerned here, the provision in substance was to the same effect as section 11 (2).
In view of what we have said above, that decision must be held to be incorrect.
Lastly, we come to the contention of the respondent that section 11 (2) is within the legislative competence of the State legislature in view of Entry 26 of List 11.
That entry deals with "trade and commerce within the State subject to the provisions of entry 33 of List III".
It is well settled that (1) ; (2) [1962] XIII S.T.C. 967. 876 taxing entries in the legislative Lists I and II of the Seventh Schedule are entirely separate from other entries.
Entry 26 of List 11 deals with trade and commerce and has nothing to do with taxing or recovering amounts realised wrongly as tax.
It is said that section 11 (2) regulates trade and commerce and the State legislature therefore was competent under Entry 26 of List II to enact it.
We have not been able to understand what such a provision has to do with the regulation of trade and commerce; it can only be justified as a provision ancillary to a taxing statute.
If it cannot be so justified as we hold that it cannot we are unable to uphold it as regulating trade and commerce under Entry 26 of List II, There is in our opinion no element of regulation of trade and commerce in a provision like s, 11 (2).
We are therefore of opinion that the State legislature was Incompetent to enact a provision like section 11 (2).
We may also add that the provision contained in section 20(c), being consequential to section 11 (2) will fall along with it.
In consequence it was not open to the Sales Tax Officer to ask the appellant to make over what he had collected from the purchasers ,wrongly as sales tax.
It is not disputed, as appears from the final assessment order of the Sales Tax Officer, that the appellant was not liable to pay the amount as sales tax for the relevant period.
We therefore allow the appeal and quash the assessment order dated September 27, 1956 insofar as it is based on section II (2).
The appellant will get his costs in this Court as well as in the High Court.
Appeal allowed.

summary/full:
The appellant collected sales tax from the purchasers of betel leaves in connection with the sales made by it.
But it did not pay the amount collected to the Government.
The Government directed the appellant to pay the amount to the Government and it thereupon filed a writ petition in the High Court questioning the validity of section 11(2) of the Hyderabad General Sales Tax Act 1950.
The main contention of the appellant before the High Court was that section 11(2) of the Act which authorises the Government to recover a tax collected without the authority of law was beyond the competence of the State Legislature because a tax collected without the authority of law would not be a tax levied under the law and it would therefore not be open to the State to collect under the authority of a law enacted under the Entry 54 of List II of the VII Schedule to the Constitution any such amount as it was not a tax on sale or purchase of goods.
The High Court held that a. 11(2) was good as an ancillary provision with regard to the collection of sales or purchase tax and therefore incidental to the power under Entry 54, List II.
The High Court also held that even if section 11(2) cannot be justified under that entry it could be justified under Entry 26, List II and in the result the writ petition was dismissed.
The present appeal is by way of special leave granted by this Court.
Held: (i) It cannot be said that the State Legislature was directly legislating for the imposition of sales or purchase tax under Entry 54, list II when it made the provisions of a. 11(2) for on the face of the provisions the amount, though collected by way of tax was not exigible as tax under the law.
(ii) It is true that the heads of legislation in the various lists in the Seventh Schedule should be interpreted widely so as to take in all matters which are of a character incidental to the topic mentioned therein.
Even so there is a limit to such incidental or ancillary powers These have to be exercised in aid of the than topic of legislation, which in the present case is a tax on sale or purchase of goods.
The ambit of ancillary or incidental powers does not so to the extent of permitting the legislature to provide that though the amount collected, may be wrongly, by way of tax is not exigible under the law as made under the relevant taxing entry, it shall still be paid over to the Govern ment as if it were a tax.
Therefore the provision contained in a. 11(2) cannot be made under Entry 54, List II and cannot be justified as incidental or ancillary provisions permitted under that Entry.
(iii) Section 11(2) cannot be justified as providing for a for the breach of any provision of the Act.
(iv) Entry 26, List II deals with trade and commerce and has nothing to do with taxing or recovering amount realised wrongly as tax.
There is no element of regulation of trade and commerce in a provision like section 11(2) and therefore that section cannot be justified under Entry 26.
List II.
869 (v) The provision in section 20(c) is also invalid as it is merely consequential to section 11(2).
The Orient Papers Mills Ltd. vs State of Orissa, ; , distinguished.
State of Bombay vs United Motors (India) Ltd., [1953] S.C.R. 1069, referred to.
Indian Aluminium Co. vs State of Madras, (1962) XIII Sales Tax Cases 967.
held to be wrongly decided.