judgement:
Appeals Nos.
137 to 141 of 1958.
Appeals by special leave from the judgment and order dated April 26, 1956 of the Patna High Court in Misc.
Judicial Cases Nos. 362 to 366 of 1955.
A. V. Viswanatha Sastri, section K. Majumdar and I. N. Shroff, for the appellants Nos. 2 to 4 (In all the appeals).
Hardayal Hardy and D. Gupta, for the respondent (In all the appeals).
December 15.
The Judgment of the Court was delivered by KAPUR, J.
The assessee who is the appellant has brought these five appeals against the judgment and order of the High Court of Patna by which it answered the two questions stated under section 66(2) of the Indian Income tax Act against the appellant and in favour of the Commissioner of Income tax.
The appellant is the son of the late Maharajadhiraja of Darbhanga and the brother of the present Maharaja.
The father died in 1929 and the appellant was given by way of maintenance the Estate of Rajnagar.
He was also given a yearly allowance of Rs. 30,000 which was later raised to Rs. 48,000.
From 1929, the appellant invested his cash surplus in shares and securities, the account of which was entered in what is called Account Book No. 1.
From the year 1930 onwards up to the year 1941 42 the appellant purchased a large number of shares and securities which by the accounting year 1941 42 were of the value of Rs. 14.91 lacs.
During this period the appellant sold shares and securities in the accounting years 1936 37 and 1939 40 of the value of 1.48 lacs and 1.69 lacs respectively.
He made certain amount of profits on these sales but under orders of the Commissioner of Income tax in the former case and of the Income tax Tribunal in the latter case, these sums were not assessed to income tax.
In the 290 accounting years 1942 43 to 1946 47 the appellant purchased and sold some shares and securities.
The entries in Account No. 1 stood as follows: Total value of Total cost of Total cost of shares shares & securities shares and and securities sold cost at the securities pur during the year.
beginning of the chased during the year.
1350 Fs.
Rs. 14.66 lacs Nil Rs. 4.68 lacs 942 43 (13 items) 1351 Fs.
Rs. 9.98 lacs Rs. 2.37 lacs.
Rs. 416 lacs 1943 44 (4 items) (12 items) Rs. 3 05 lacs.
Rs. 069 lacs 1352 FS.
Rs. 8.20 lacs (2 items) and (3 items) 1944 45 other call money.
1353 Fs.
Rs. 10.52 lacs Nil Rs. 1.03 lacs 1945 46 (3 items) 1354 Fs.
Rs. 9.50 lacs Rs. 15 83 lacs.
Rs. 3.39 lacs 1946 47 ( 9items) (2 items) and in all these years the appellant made profits which varied from Rs. 2,56,959 in the accounting year 194243 to Rs. 33,174 in the accounting year 1946 47.
On July 16, 1940, the appellant arranged an overdraft with the Mercantile Bank of India and actually withdrew Rs. 10,000 for the purchase of shares.
But his brother the Maharaja advanced to him without interest Rs. 10 lacs and thus the overdraft was paid off.
A new Account was opened in the books of the appellant named No. 2 Investment Account which contained all entries in regard to shares purchased and sold from out of the money borrowed from the Maharajadhiraj.
In this account entries of the different years were as follows: 292 was held not to.
be taxable.
Thus in the second period the assessee was held not to be carrying on any trade.
In the third period, i.e., the assessment years 1944 45 to 1948 49 the profits made by the appellant from purchase and sale of shares were as follows: 1944 45.
Rs.2,62,000 and odd 1945 46.
Rs.3,95,000 and odd 1946 47.
Rs.1,57,000 and odd 1947 48.
Rs.1,33,000 and odd 1948 49.
76,000 and odd The Income Tax Officer held these to be liable to income tax as business profits.
On appeal the Appellate Assistant Commissioner excluded the profits for the years 1944 45 and 1945 46 but for the years 1946 47 to 1948 49 the assessments were upheld.
Both parties appealed to the Appellate Tribunal.
It held on the evidence that the appellant was to be regarded as a dealer in shares and securities and therefore the profits were assessable to income tax.
The appellant applied for a case to be stated under section 66(1) of the Income tax Act.
This application was dismissed but the High Court made an order under section 66(2) of the Income tax Act to state a case on two questions of law.
The questions were as follows: (1).
Whether in the circumstances of the case, there is material to support the finding of the Appellate Tribunal that the assessee was a dealer in shares and securities with respect to each of the accounts and, therefore, liable to be taxed? (2).
Whether, having regard to the findings of the Appellate Tribunal in respect of 1941/42 assessment, it was open to the Appellate Tribunal in the present case to hold that the profits and the transactions of sale and purchase of shares and securities amounted to profits of business and so liable to be taxed ? The High Court held that the facts and circumstances which the Tribunal took into consideration in arriving at the finding were the material before the Tribunal to support the finding and the first question 293 was answered in the affirmative and therefore against the appellant.
In regard to the second question the answer was again in the affirmative and against ', the appellant who has come to this Court by special leave.
It was argued on behalf of the appellant that he was not carrying on the business of buying and selling shares but his purchases and sales were in the nature of investments of his surplus monies and therefore the excess amounts received by sales were capital receipts being merely surplus and not profits.
It was also submitted that the appellant being a zamindar the buying and selling of shares was not his normal activity; that he had a large income and it was his surplus income which he was investing in buying the shares and whenever he found it profitable he converted his holdings and securities and for a number of years from 1931 32 he had been buying shares but he did not sell them; that the very nature of investments was such that they had to be constantly changed so that the monies invested may be used to the best advantage of the investor; and that the sales were really for the purpose of reemploying the monies that he had invested to his best advantage.
Counsel for the appellant relied upon certain cases in support of his submission that the first question raised was of a wider amplitude and that it had been erroneously restricted by the High Court and that its true import was the same as of the questions which were raised in the following cases decided by this Court.
He relied on G. Venkataswami Naidu & Co. vs The Commissioner of Income tax (1), Oriental Investment Co., Ltd. vs The Commissioner of Income tax, Bombay (2).
In the former case the assessee purchased four plots of land adjacent to the mills of which he was the Managing Agent.
On various dates and about five years later sold them to the mills in which he realized about Rs. 43,000 in excess of his purchase price.
This was treated by the Income tax authorities as purchase with a view to sell at a profit.
The question referred was whether there was material for the (1) [1959] Supp. 1 S.C.R. 646.
(2) ; 294 assessment of that amount as income arising from an adventure in the nature of trade.
The High Court held that that was the nature of the transaction.
On appeal this Court held that before the Tribunal could come to the conclusion that it was an adventure in the 'nature of trade, it had to take into consideration the legal requirements associated with the concept of the trade or business and that such a question was a mixed question of law and fact.
It was also held that where a person invests money in land intending to hold it and then sells it at a profit it is a case of capital accretion and not profit derived from an adventure in the nature of trade but if a purchase is made solely and exclusively with the intention to resell it at profit and the purchaser never had any intention to hold the property for himself there would be a strong presumption that the transaction is in the nature of trade but that was also a rebuttable presumption.
The purchase in the absence of any rebutting evidence was held to fall in the latter category, i.e., adventure in the nature of trade.
In the Oriental Investment case(1) the assessee was an investment company.
It had purchased certain shares and sold them and qua those shares it claimed to be treated as an investor and not a dealer on the ground that it did not carry on any business in the purchase and sale of shares.
The assessee 's applications for reference to the High Court were rejected on the ground that no question of law arose out of the order of the Tribunal.
It was held that the question whether the assessee 's business amounted to dealing in shares and in properties or was merely an investment was a mixed question of law and fact and the legal effect of the facts found was a question of law and this Court ordered the case to be stated on two questions that it framed.
One of the questions was similar to the first question in the present case but the second question was a wider one, i.e., whether the profits and losses arising from the sale of shares etc.
could be taxed as business profits.
The question which the High Court had to answer (1) ; 295 in the present case was a narrow one and the answer to that on the material before the Court was rightly given in the affirmative.
But even if the question is taken to be wider in amplitude, on the materials produced and on the facts proved the appellant must be held to have been rightly assessed.
Counsel for the appellant argued that the amounts received by him in the accounting years were in the nature of capital accretions and therefore not, assessable.
In support, Counsel for the appellant relied on the following cases: Raja Bahadur Kamakshya Narain Singh vs The Commissioner of Income Tax, Bihar & Orissa (1) where Lord Wright observed that profits realised by the sale of shares may be capital if the seller is an ordinary investor changing his securities but in some instances it may be income if the seller of the shares is an investment company or an insurance company.
The other cases relied upon were Californian Copper Syndicate Limited vs Harris (2); Cooper vs Stubbs (3); Leeming vs Jones (4) and Edwards vs Bairstow & Harrison (5).
It is not necessary to discuss these cases because. the principle applicable to such transactions is that. when an owner of an ordinary investment chooses to realise it and obtains a higher price for it than he originally acquired it at, the enhanced price is not a profit assessable to income tax but where as in the present case what is done is not merely a realisation or a change of investment but an act done in what is truly the carrying on of a business the amount recovered as appreciation will be assessable.
In July 1948 the appellant had borrowed, though without interest, a large sum of money to the extent of about Rs. 10,00,000, no doubt from his brother.
He started a new account calling it No. 2 Investment Account.
For the assessment years under appeal shares purchased and sold were of a large magnitude ranging from Rs. 4.68 lacs to Rs. 69 thousands in what is called the first account and from Rs. 9,64,000 or even if Port Trust Debentures are excluded (1) [1943] L.R.70 I.A. 180,194.
(2) (3) , 57.
(4) (5). [1955] ; 296 Rs. 3,60,000 to Rs. 30,000.
The magnitude and the frequency and the ratio of sales to purchases and total holdings was evidence from which the Income tax Appellate Tribunal could come to the conclusion as to the true nature of the activities of the appellant.
The principle which is applicable to the present case is what we have said above and on the evidence which was before the Tribunal, i.e., the substantial nature of the transactions, the manner in which the books had been maintained, the magnitude of the shares purchased and sold and the ratio between the purchases and sales and the holdings, if on this material the Tribunal came to the conclusion that there was material to support the finding that the appellant was dealing in shares as a business, it could not be interfered with by the High Court and in our opinion it rightly answered the question against the appellant in the affirmative.
The second question is wholly unsubstantial.
There is no such thing as res judicata in income tax matters.
The Appellate Tribunal has placed in a tabulated form the activities of the appellant showing the buying and selling and the magnitude of holdings and it cannot be said therefore that it was not open to the Appellate Tribunal to give the finding that it did.
In our opinion the High Court rightly held against the appellant.
The appeals are therefore dismissed with costs.
One hearing fee in this Court.
Appeals dismissed.

summary/full:
The appellant used to invest his cash surplus in shares and securities and maintained an account book called Book No. 1 relating thereto.
During the period from 1930 to 1941 42 he purchased a large number of shares and securities which by the accounting year 1941 42 were of a value Rs. 1491 lacs.
He sold certain shares and securities of the value of several lacs and made certain amount of profit on those sales.
In 1940 the appellant borrowed a large amount of money from his brother, the Maharaja of Darbhanga and opened a new account named account No. 2 which contained all entries regarding shares purchased and sold out of the money borrowed from the Maharaja.
In the assessment year 1944 45 to 1948 49 the profits made by the (1) ; 288 appellant from purchase and sale of shares amounted to several lacs and the Income tax Officer held those to be liable to income tax as business profits.
The Appellate Assistant Commissioner upheld the assessments but excluded the profits for the years 1944 45.
On appeal by both the parties the Appellate Tribunal held on the evidence that the appellant was to be regarded as a dealer in shares and securities and therefore the profits were assessable to income tax.
The High Court stated the following two questions under section 66(2) of the Income tax Act and answered them in the affirmative: "(1) Whether in the circumstances of the case, there is material to support the finding of the Appellate Tribunal that the assessee was a dealer in shares and securities with respect to each of the account and, therefore, liable to be taxed? (2)Whether having regard to the finding of the Appellate Tribunal in respect of 1941 42 assessment, it was open to the Appellate Tribunal in the present case to hold that the profits and transactions of sale and purchase of shares and securities amounted to profits of business and so liable to be taxed?" On appeal by special leave the appellant contended inter alia, that being a Zamindar the buying and selling of shares was not his normal activity and he did not carry on any such business but his purchases and sales were in the nature of investments of his surplus monies and therefore the excess amounts received by sales were capital receipts being merely surplus and not profits.
Held, that on the materials produced and on the facts proved the appellant must be held to have been rightly assessed.
The principle applicable to such transactions is that when an owner of an ordinary investment chooses to realise it and obtains a higher price for it than the original price paid by him, the enhanced price is not a profit assessable to income tax, but where as in the present case what is done is not merely a realisation or a change of investment but an act done in what is truly the carrying on of a business the amount recovered as appreciation will be assessable.
G.Venkataswami Naidu & Co. vs The Commissioner of Income tax, [1959] Supp. 1 S.C.R. 464, Oriental Investment Company Ltd. vs The Commissioner of Income tax, ; , Raja Bahadur Kamakshya Narain Singh vs Commissioner of Income tax, Bihar and Orissa, (1943) L.R. 70 I.A. 180, discussed.
The substantial nature of the transactions, the manner in which the books were maintained, the magnitude of the shares purchased and sold and the ratio between the purchases and sales and the holding justified tile Tribunal to come to the conclusion that the appellant was dealing in shares as business.
The High Court could not interfere with those findings and it rightly answered the questions in the affirmative.
There is no such thing as res judicata in income tax matters 289 and it was quite open to the Appellate Tribunal to give the finding that it did.


judgement:
Appeals Nos. 290 to 292 of 1959.
Appeals by special leave from the judgment and order dated December 6, 1957, of the Kerala High Court in Agricultural Income tax Referred Cases Nos. 15, 18 and 19 of 1955.
C.K. Daphtary, Solicitor General of India, Thomas Vellapally and M. R. K. Pillai, for the appellants (in all the appeals) Sardar Bahadur, for the respondents.
December 15.
The Judgment of the Court was delivered by KAPUR, J.
These three appeals are brought by special leave against the judgment and order of the High Court of Kerala and arise out of a common judgment of that court given in three Agricultural Income tax References Nos. 15, 18 and 19 of 1955.
In the first reference the question raised was: "Whether under the Travancore Cochin Agricul tural Income Tax Act, 1950 in calculating the assessable agricultural income of a rubber estate already planted and containing both mature yielding rubber trees and also immature rubber plants which have not come into bearing, the annual expenses incurred for the upkeep and maintenance of such rubber plants, are not a permissible deduction, and if so, whether the sum of Rs. 42,660 4 1 expended by the assessee in the relevant accounting year 1952, under this head may be deducted." and in the other two the question referred was: 281 "Whether the expenses incurred for the mainte nance and upkeep of immature rubber trees constitute a permissible deduction within the meaning of section 5(j) of Act XXII of 1950?" In all the references the questions were answered in the negative and against the appellant.
The appeals relate to three accounting years 1950, 1951 and 1952 (assessment years 1951 52, 1952 53 and 1953 54).
The appellants have rubber plantations and in the accounting year 1950, corresponding to the assessment year 1951 52, the appellants had under cultivation 3558 84 acres out of which 334 64 acres had immature rubber trees growing and the rest i.e. 3224 20 acres mature rubber yielding trees under cultivation.
In that year a sum of Rs. 19,056 0 9, which was expended for the upkeep and maintenance of immature portion of the rubber plantation, was allowed by the Agricultural Income tax Tribunal and at the instance of the respondent a reference was made to the High Court under section 60(1) of the Agricultural Income tax Act (Act XXII of 1950) hereinafter termed the 'Act ' and that was reference No. 18 of 1955.
During the accounting year 1951 corresponding to the assessment year 1952 53 the appellant had under cultivation.
a total area of 3426,55 acres of which 3091.91acres were mature rubber yielding trees and 334.64 acres had immature rubber trees.
In that year a sum of Rs. 59,271.9 5 was the expenditure incurred for the upkeep and maintenance of immature portion of the rubber estate.
That sum was allowed by the Agricultural Income tax Tribunal and at the instance of the respondent a reference was made under section 60(1) of the Act to the High Court and that was reference No. 19 of 1955.
In Agricultural Income tax Reference No. 15 of 1955 which related to, accounting year 1952 and the assessment year 1953 54, the area under cultivation was 3453,65 out of which 2967,91 acres had mature rubber yielding trees and 485,74 acres had immature rubber growing trees.
In that year the amount expended on the maintenance and tending of the imma ture rubber trees was Rs. 42,660,4 1.
In that case, 36 282 however, the Agricultural Income tax Tribunal rejected the appellant 's claim and disallowed the expenditure.
At the instance of the appellant a case was stated to the High Court under section 60(1) of the Act and was answered in the negative and against the appellant.
In all the cases the assessee company is the appellant and the main question for decision is whether the amount expended for the upkeep and maintenance of the immature, rubber trees is a permissible deduction under section 5(j) of the Act.
The charging section under the Act is section 3 and section 5 relates to computation of agricultural income.
It provides: S.5 "The agricultural income of a person shall be computed after making the following deductions, namely: expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of deriving the agricultural income;".
In regard to this income the High Court held: "We find it impossible to say that the 'amounts spent on the upkeep and maintenance of the immature rubber plants were laid out or expended "for the purpose of deriving the agricultural income", much less that they were laid out or expended "wholly and exclusively for that purpose". "The agricultural income", in the context, can only mean the agricultural income obtained in the accounting year concerned and not the agricultural income of any other period." In our opinion the High Court has taken an erroneous view of the relevant provision.
It is not denied that the expenditure claimed as a deduction was wholly and exclusively laid out for the purpose of deriving income but the use of the definite article "the" before agricultural income has given rise to the interpretation that the deduction is to be from the income of the year in which the trees on which the amount claimed 283 was expended bore any income.
In a somewhat similar case Vallambrosa Rubber Co. Ltd. vs Farmer (1) the expenditure of the kind now claimed was allowed under the corresponding provision of the English Income tax Act.
In that case a rubber company had an estate in which in the year of assessment only 1/7 produced rubber and the other 6/7 was in process of cultivation for the production of rubber.
It may be added that rubber trees do not yield any rubber until they are about six years old.
The expenditure for the superintendence, weeding etc.
incurred by the company in respect of the whole estate including the nonbearing rubber estate was allowed on the ground that in arriving at the assessable profits the assessee was entitled to deduct the expenditure for superintendence, weeding etc.
on the whole estate and not only on the 1/7 of such expenditure.
Lord President said at page 534: "Well that is for the case quite correct, but it must be taken, as you must always take a Judge 's dicta, secundum materiam subjectum of the case that is decided.
But to say that the expression of Lord Esher 's lays down that you must take each year absolutely by itself and allow no expense except the expense which can be put against the profit which is reaped for the year is in my judgment to press it much further than it will go." Counsel for the respondent relied upon a judgment of this Court in Assam Bengal Cement Co. Ltd. vs The Commissioner of Income tax, West Bengal (2) and particularly on a passage at page 983 where Bhagwati J. observed: "The distinction was thus made between the acquisition of an income earning asset and the process of the earning of the income.
Expenditure in the acquisition of that asset was capital expenditure and expenditure in the process of the earning of the profits was revenue expenditure.
" But that case has no relevancy to the facts of the present case nor has that passage any applicability to the facts of the present case.
The question there was (1) (2) 284 whether certain payments made were by way of capital expenditure or revenue expenditure.
The assessee acquired a lease from Government for twenty years and in addition to paying the rent and royalties for the lease the assessee had to pay two further sums as 'protection fees ' under the terms of the lease.
Those sums were held to be capital expenditure inasmuch as they were incurred for the acquisition of an asset or an advantage of enduring nature and were no part of the working or operational expenses for carrying on the business of the assessee.
In our opinion the amount expended on the superintendence, weeding etc.
of the whole estate should have been allowed against the profits earned and it is no answer to the claim for a deduction that part of those expenses produced no return in that year because all the trees were not yielding rubber in that year.
We therefore allow these appeals, set aside the judgments and orders of the High Court and answer the questions in favour of the appellant in all the three agricultural Income tax References.
The appellant will have its costs in this Court and the High Court.
One hearing fee in this Court.
Appeals allowed.

dataset_name: IN-Abs

summary/full:
In computing the agricultural income of a person section 5(f) of the Travancore Cochin Agricultural Income tax Act, 1950, allowed deductions of any expenditure "laid out wholly and exclusively for purpose of deriving the agricultural income".
The assessee who had rubber plantations claimed that the amount expended on the maintenance and tending of immature rubber trees should be deducted in computing its agricultural income but this was disallowed on the ground that the use of the article "the" before the words agricultural income implied deduction (1) ; 280 from the income of the year in which the trees on which the amount was expended bore income.
Held, that the assessee was entitled to the deduction claim ed.
It was no answer to the claim for the deduction that these expenses produced no return in the year in question as the trees were not yielding rubber in that year.
Vallambrosa Rubber Co. Ltd. vs Farmer, , followed.
Assam Bengal Cement Co. Ltd. vs The Commissioner of Income tax, West Bengal, , not applicable.


judgement:
Appeal No. 352 of 1958.
Appeal by special leave from the judgment and order dated July 27, 1956, of the Labour Appellate Tribunal of India, Bombay, in Appeal (Bom.) No. 72 of 1956.
G. section Pathak, J. B. Dadachanji, section N. Andley and Rameshwar Nath, for the appellant.
D. section Nargoulkar and K. R. Choudhuri, for the respondent No. 1.
B. P. Maheshwari, for the Interveners.
December 16.
The Judgment of the Court was delivered by WANCHOO, J.
This is an appeal by special leave in an industrial matter.
The appellant owns two sugar mills.
There was a dispute between the appellant and its workmen with respect to the employment of contract labour in the two mills.
Consequently, a notice of change under section 42 (2) of the Bombay Industrial Relations Act, No. XI of 1947, (hereinafter called the Act) was given to the appellant by the union re.
presenting the workmen.
Thereafter the union, which is the respondent in the present appeal, made two references to the industrial court, one with respect to each mill, under section 73A of the Act, and the main demand in the references was that "the system of employing contractors ' labour should be abolished and the strength of the employees of the respective departments should be permanently increased sufficiently 344 and accordingly".
The appellant raised two main contentions before the industrial court, namely, (i) that the industrial court had no jurisdiction to decide the dispute as the matter was covered by item (6) of Sch.
III of the Act, which is within the exclusive jurisdiction of a labour court; and (ii) that any award directing abolition of contract labour would contravene the fundamental right of the appellant to carry on business under article 19(1)(g) of the Constitution.
The industrial court decided both the points against the appellant; on the question of jurisdiction it held that the matter was covered by item (2) of Sch.
11 of the Act and therefore the industrial court would have jurisdiction, and on the second point it held that there was no contravention of the fundamental right conferred on the appellant under article 19(1)(g).
It may be mentioned that the second point arose on the stand taken by the appellant that the workmen of the contractors were not the workmen of the appellant.
The industrial court then dealt with the merits of the case and passed certain orders, with which we are however not concerned in the present appeal.
It may be mentioned that there were cases relating to a number of other sugar mills raising the same points, which were decided at the same time by the industrial court.
In consequence, there were a number of appeals to the Labour Appellate Tribunal by the mills and one by one of the unions (though not by the respondent union).
All these appeals were heard together by the appellate tribunal, where also the same two points relating to jurisdiction and contra vention of the fundamental right guaranteed by article 19(1)(g) were raised.
The Appellate Tribunal did not agree with the industrial court that the references were covered by item (2) of Sch.
11 to the Act.
It, however, held that the word "employment" in item (6) of Sch.
III to the Act had to be given a restricted meaning.
It pointed out that the three Schedules did not exhaust the comprehensive provisions of section 42(2) and the subject matter of dispute, namely, the abolition of contract labour was a question of far reaching and important change which could not have 345 been intended to be dealt with in a summary way by a labour court, which is the lowest in the hierarchy of courts established under the Act.
It therefore held that the industrial court had jurisdiction to decide the matter.
On the question of contravention of the, fundamental right, the appellate tribunal took the view that the question whether the restriction imposed was reasonable depended upon the facts of each case and therefore was a matter outside its power as a court of appeal It then considered the merits of the matter and came to the conclusion that the approach of the industrial court to the questions raised before it was not correct and therefore it found it difficult to support the award.
Eventually it set aside the award and remanded the matter for early hearing in the light of the observations made by it.
Further, it decided that in the interest of justice the entire award should be set aside, even though there was no appeal before it by the unions in most of the cases.
The appellant then came to this Court and was granted special leave; and that is how the matter has come up before us.
Mr. Pathak on behalf of the appellant has raised the same two points before us.
We shall first deal with the question of jurisdiction.
Reliance in this connection is placed on item (6) of Sch.
III of the Act, which is in these terms: "Employment including (i) reinstatement and recruitment; (ii) unemployment of persons previously employed in the industry concerned.
" It is not in dispute that matters contained in Sch.
III are within the jurisdiction of a labour court and an industrial court has no jurisdiction to decide any matter in a reference under section 73A of the Act which is within the jurisdiction of a labour court.
Mr. Pathak contends that item (6) of Sch.
III speaks of "employment" and includes in it two matters which might otherwise not have been thought to be included in it.
Therefore, according to him, employment as used in item (6) is wider than the two matters included in it 44 346 and the question whether contract labour should be employed or not would be a matter of employment within the meaning of that word in item (6) of Sch.
We do not think it necessary for purposes of this appeal to consider what would be the ambit of employment as used in item (6) of Sch. 111.
The scheme of the Act shows that under sections 71 and 72 the jurisdiction of a labour court and an industrial court is concurrent with respect to any matters which the State Government may deem fit to refer to them; but under section 73A reference by a registered union which is a representative of employees and which is also an approved union, can only be made to an industrial court, subject to the proviso that no such dispute can be referred to an industrial court where under the provisions of the Act it is required to be referred to the labour court for its decision.
78 of the Act provides for jurisdiction of labour courts and matters specified in Sch.
11 are not within their ordinary jurisdiction.
Therefore, when a registered union wishes to refer any matter which is contained in Sch.
11 of the Act such reference can be made by it only to the industrial court.
It follows in consequence that whatever may be the ambit of the word "employment" used in item (6) of Sch.
III, if any matter is covered by Sch.
11 it can only be referred to the industrial court under section 73A.
Now the question whether contract labour should be abolished (on the assumption that contract labour is not in the employ of the mills) immediately raises questions relating to permanent increase in the number of persons employed, their wages including the period and mode of payment, hours of work and rest intervals, which are items (2), (9) and (10) of Sch.
Therefore, a question relating to abolition of contract labour is so inextricably mixed up with the question of permanent increase in the number of persons employed, their wages, hours of work and rest intervals that any dispute relating to contract labour would inevitably raise questions covered by Sch.
Therefore, a dispute relating to contract labour if it is to be referred under section 73A by a registered union can only be referred to an industrial court as it immediately 347 raises matters contained in items (2), (9) and (10) of Sch.
Mr. Pathak urges however that matters relating to permanent increase in the number of persons employed due to the abolition of contract labour, their wages, hours of work and rest intervals were not really disputed at all by the appellant.
It appears that in the written statements of the appellant, these points were not raised; but the decision of the appellate tribunal shows that one of the contentions raised before it by the sugar mills was that the workmen concerned were not employees of the sugar mills.
Therefore, as soon as this contention is raised a dispute as to permanent increase in the number of persons employed, their wages, hours of work and rest intervals would immediately arise.
It must therefore be held that a question relating to the abolition of contract labour inevitably raises a dispute with respect to these three items contained in Sch.
In the circumstances we are of opinion that the industrial court had jurisdiction to deal with the matter.
In particular, we may point out that in their petitions the unions had raised at least the question as to the permanent increase in the number of persons employed and that would immediately bring in item (2) of Sch.
It is true that the question of permanent increase in the number of persons employed, their wages, hours of work and rest intervals would only arise if contract labour is to be abolished; but in our opinion these are matters so inextricably mixed up with the question relating to abolition of contract labour that they must be held to be in dispute as soon as the dis pute is raised about the abolition of contract labour, (assuming always that the employer does not accept contract labour as part of its labour force).
The contention about jurisdiction must therefore be rejected.
This brings us to the second contention raised by Mr. Pathak.
He bases his argument in this behalf on section 3(18), which defines an " industrial matter " as meaning any matter relating to employment, work, wages, hours of work, privileges, rights or duties of employers or employees, or the mode, terms and 348 conditions of employment.
Mr. Pathak urges that the definition of " industrial matter " contravenes the fundamental right guaranteed under article 19(1)(g), when it provides that the mode of employment is also included within it.
Reference is also made to section 3(17) which defines an "industrial dispute" as any dispute or difference which is connected with any industrial matter.
Mr. Pathak therefore urges that reading the two definitions together the industrial court is given the power to decide disputes as to the mode of employment and that contravenes the fundamental right guaranteed under article 19(1)(g), for it enables an industrial court to adjudicate on the mode of employment and thus interfere with the right of the employer to carry on his trade as he likes subject to reasonable restrictions.
Now assuming that the mode of employment used in section 3(18) includes such questions as abolition of contract labour, the question would still be whether a provision which enables an industrial court to adjudicate on the question whether con tract labour should or should not be abolished is an unreasonable restriction on the employer 's right to carry on his trade.
We cannot see how the fact that power is given to the industrial court, which is a quasi judicial tribunal to decide whether contract labour should be abolished or not would make the definition of "industrial matter" in so far as it refers to the mode of employment, an unreasonable restriction on the fundamental, right of the employer to carry on trade.
The matter being entrusted to a quasi judicial tribunal would be decided after giving both parties full opportunity of presenting their case and after considering whether in the circumstances of a particular case the restriction on the mode of employment is a reasonable restriction or not.
The tribunal would always go into the reasonableness of the matter and if it comes to the conclusion that the mode of employment desired by labour is not reasonable it will not allow it; it is only when it comes to the conclusion that the mode of employment desired by labour in a particular case is a reasonable restriction 349 that it will insist on that particular mode of employment being used.
Take, for example, the case of contract labour itself.
The tribunal will have to go into the facts of each case.
If it comes to the conclusion that on the facts the employment of contract labour is reasonable and thus doing away with it would be an unreasonable restriction on the right of the employer to carry on trade, it will permit contract labour to be carried on.
On the other hand if it comes to the conclusion that employment of contract labour is unreasonable in the circumstances of the case before it it will hold that it should be abolished, the reason being that its abolition would be a reasonable restriction in the circumstances.
Therefore the decision whether the mode of employment in a particular case is a reasonable restriction or unreasonable one is in the hands of a quasi judicial tribunal.
In the circumstances it cannot be said that by providing in section 3(18) that an "industrial matter" includes also the mode of employment, there is any contravention of the fundamental right of the employer to carry on trade.
If the argument on behalf of the appellant were to be accepted it would mean that judicial and quasi judicial decisions could be unreasonable restrictions on fundamental rights and this the Constitution does not envisage at all.
We are therefore of opinion that this contention also fails.
Finally, Mr. Pathak draws our attention to sections 3(13) and 3(14) of the Act and submits that the appellant never said that contract labour employed in its mills was not in its employment.
3(13) defines the word "employee" and includes in it any person employed by a contractor to do any work for him in the execution of a contract with an employer within the meaning of sub cl.
(e) of cl.
3(14) defines the word "employer" in an inclusive manner and in cludes "where the owner of any undertaking in the course of or for the purpose of conducting the undertaking contracts with any person for the execution by or under the contractor of the whole or any part of any work which is ordinarily part of the undertaking, the owner of the undertaking".
It is urged that in view 350 of these definitions, the employees of the contractors are the employees of the mills and the mills are the employers of these employees of the contractors.
Therefore, Mr. Pathak urges that there is no necessity of abolishing contract labour and that the industrial court may, if it so chooses, give the same wages and hours of work and rest intervals and other terms and conditions of employment to the employees of the contractors as are provided for comparable direct employees of the appellant and in such circumstances it would not be necessary to abolish the contract system so long as the employees of contractors are to be in the same position as the direct employees of the appellant as to their terms and conditions of service.
This was not however the manner in which the case was contested before the industrial court or the appellate tribunal.
All that we need therefore say is that when the matter goes back before the industrial court as directed by the appellate tribunal, the industrial court may take this submission of the appellant into account and may consider whether it is necessary to abolish the contract system, provided the appellant is able to assure the industrial court that employees of the contractors who are deemed to be its employees within the meaning of section 3(13) and section 3(14) would have the full benefit of the same terms and conditions of service as its comparable direct employees.
The appeal fails and is hereby dismissed with costs.
Appeal dismissed.

summary/full:
A dispute having arisen between the appellant employer and its workmen regarding the employment of contract labour in the appellant 's mills, the union representing the workmen which is the respondent in the present case after serving notice on the appellant under section 42(2) of the Bombay Industrial Relations Act made reference to the Industrial Court under section 73A of the Act demanding the abolition of the system of employing contractors ' labour and the permanent increment of employees in the respective departments.
The contention of the appellant, inter alia, was that the Industrial Court had no jurisdiction to decide the dispute which was within the exclusive jurisdiction of a Labour Court under item (6) of Sch.
III of the Act, and that any award directing the abolition of contract labour would contravene the appellant 's fundamental right to carry on business under article 19(1)(g) of the Constitution.
The Industrial Court decided that the Industrial Court would have jurisdiction as the matter was covered by item (2) of Sch.
11 of the Act and that there was no contravention of the fundamental rights of the appellants.
On appeal the Labour Appellate Tribunal, held, that the Industrial Court had jurisdiction to decide the matter although it was not covered by item (2) of Sch.
11 of the Act.
As regards the question of contravention of the fundamental right it held that the question whether the restriction imposed was reasonable depended upon the facts of each case and the matter was outside the powers of a court of appeal.
Eventually it set aside the entire award on the merits.
On appeal 'by the appellant by special leave, Held, that the Industrial Court had jurisdiction to deal with the matter.
Whatever might be the ambit of the word "employment" used in item (6) of Sch.
III, if a matter was covered by Sch.
11 it could only be referred to the Industrial Court under section 73A.
A question relating to the abolition of contract labour inevitably raised a dispute relating to matters contained in items (2), (9) and (10) of Sch. 11, namely, permanent increase in the number of 343 persons employed, the employees ' wages, hours of work and rest intervals and could, therefore, be referred only to an Industrial Court.
The power given to the Industrial Court which was a quasi judicial tribunal to decide whether contract labour should be abolished or not would not make the definition of "industrial " matter" in so far as it referred to the mode of employment an section unreasonable restriction on the fundamental right of the employer to carry on his trade and as such there was no contravention of his fundamental right by providing in section 3(18) that an "industrial matter" included also the mode of employment of the employees.


judgement:
Appeals Nos. 181 to 184 of 1960.
Appeals.
from the judgment and order dated March 16, 1955, of the Madras High Court in Case Referred No. 43 of 1950.
A. V. Viswanatha Sastri, R. Ganapathy Iyer and G. Gopalakrishnan, for the appellants.
Hardayal Hardy and D. Gupta, for the respondent.
1960, December 14.
The Judgment of the Court was delivered by SHAH, J.
These appeals relate to Excess Profits Tax liability of the appellants in respect of two chargeable accounting periods April 1. 1944, to March 31., 1945, and April 1, 1945, to March 31, 1946.
The appellants were under an agreement dated July 11, 1945, appointed managing agents for 20 years of the Coimbatore Spinning and Weaving Co, 273 Ltd. hereinafter referred to as the company.
Prior to October 1, 1944, the appellants were the Managing Agents of the Coimbatore Mills Agency Ltd hereinafter referred to as the Agency Company who were the Managing Agents of the company.
The year of account of the appellants ended on March 31, of the company on June 30, and of the Agency Company on September 30.
Under the agreement by which the appellants were appointed 'managing agents, the following remuneration was provided: 1.
Office allowance at Rs. 1,500 per mensem; 2. Commission at 1% on all purchases of cotton and stores and 21/2 on all capital expenditure incurred from time to time; and 3.
Commission at 10% on the net profits of the company due and payable yearly immediately after the accounts of the company were closed.
For the assessment year 1945 46, the appellants submitted a return of their income inclusive of the following items: 1.
Remuneration from the Agency Company Rs. 36,000.
Commission at 10% on profits from the Agency Company upto 30 9 1944 Rs. 37,953.
Remuneration from company from 1 10 1944 to 31 3 1945 Rs. 9,000.
Commission at 1% on cotton and stores purchased during this period Rs. 21,704.
This return was accepted by the Additional Income tax Officer, Coimbatore I & II Circles, and the appellants were assessed to income tax.
Excess Profits Tax was also worked out on the same basis for the chargeable accounting period ending March 31, 1945.
For the assessment year 1946 47, the appellants submitted a return of their income which included the following items: 1. Remuneration from the company for one year from 1 4 1945 Rs. 18,000.
Commission at 10% on the profits of the company paid in December 1945 (1 10 1944 to 30 6 1945) Rs. 1,90,889.
35 274 3.
Commission at 1% on purchases of cotton and stores from 1 4 1945 to 30 6 1945 Rs. 16,777.
Commission at 2 12/ %on capital expenditure from 1 10 1944 to 30 6 1945 Rs. 1,690.
The Tax Officer in charge of the assessment directed that the commission on purchases and capital expenditure be taken into account for the year April 1, 1945, to March 31, 1946, and that the receipts be computed accordingly.
The amount of Rs. 1,127 attributable out of item 4 was accordingly taken into the account of the previous year after reopening the assessment under section 34 of the Income tax Act, and the commission on the profits of the company was apportioned between the period October 1, 1944, to March 31, 1945, and April 1, 1945, to June 30, 1945, by the application of r. 9 of Sch.
1 of the Excess Profits Tax Act.
The Tax Officer also determined the proportionate commission payable under items 3 and 4, for the period ending March 31, 1946, and as a result of the apportionment, the liability of the appel lants, original and revised, for income tax and Excess Profits Tax for the assessment year 1945 46 and chargeable accounting period April 1, 1944, to March 31, 1945, stood as follows: Original assessment of income taxRs.
1,04,654.
Excess Profits TaxRs. 45,292.
Revised figures Income tax (loss) Rs. 36,182.
Excess Profits TaxRs.
1,41,962 11 0.
For the assessment year 1946 47 and chargeable accounting period April 1, 1945, to March 31, 1946, tax liability was computed at: Income tax Rs. 1,66,271.
Excess Profits Tax Rs. 1,13,163 5 0.
The orders of assessmentfor income tax and Excess Profits Tax were confirmed by the Appellate Assistant Commissioner and the Income tax Appellate Tribunal.
On the applications of the appellants 275 for reference under section 66(1) of the Income tax Act and section 21 of the Excess Profits Tax Act, the Tribunal drew up a statement of the case and submitted the following four questions to the High Court of Judicature at Madras: 1.Whether on the facts and in the circumstances of the case, the Income tax Officer/Excess Profits Tax Officer was right in taking action under section 34 and 15 of the Income tax and the Excess Profits Tax Act ? 2.Whether on the facts and in the circumstances of this case, the provisions of r. 9, section 1, were properly applied ? 3.Whether on the facts and in the circumstances of the case, the Income tax Officer/Excess Profits Tax Officer was correct in including the proportionate commission income of Rs. 1,127 for income tax assessment 1945 46 and Rs. 1,43,163 plus Rs. 1,127 for Excess Profits Tax assessment Tax for the chargeable accounting period ending 31st March 1945, and 4.Whether on the facts and in the circumstances of the case, the proportionate commission of Rs. 37,129 and Rs. 2,299 were rightly assessed for the assessment year 1946 47 ? The High Court answered all the questions against the appellants and in favour of the Department.
Against the order passed by the High Court, these appeals have been preferred with certificate granted under section 66A(2) of the Income Tax Act read with section 21 of the Excess Profits Tax Act.
Two questions were canvassed in these appeals: 1.Whether it was open to the Taxing Officer to re open the assessment for 1945 46; and 2.Whether the commission received by the appellants was liable to be apportioned under r. 9 of Sch.
1 of the Excess Profits Tax Act.
The appellants maintained their books of account on cash basis and commission received from the company was credited after the accounts of the company were closed.
The amounts received by the appellants from the company were included in their return and assessment for the year 1945 46 was completed 276 for the purposes of the Excess Profits Tax by the Tax Officer without apportionment appropriate to the chargeable accounting periods.
In so doing, the Tax Officer committed an error.
He overlooked the fact that the chargeable accounting period for the as assessment of Excess Profits Tax and the year of account of the company did not tally.
Under section 15 of the Excess Profits Tax Act, if the Tax Officer discovers, in consequence of definite information which has come into his possession that profits of any chargeable accounting period chargeable to excess profits tax have escaped assessment, or have been under assessed, he may serve on the person liable to pay such tax a notice containing all or any of the requirements which may be included in a notice under section 13 and may proceed to assess or reassess the profits.
The provision is substantially similar to section 34(1) of the Income tax Act before it was amended in the year 1948.
It is manifest that by the assessment of income made on the assumption that the chargeable accounting period and the accounting period of the company tallied, there resulted under assessment in the computation of tax liability for Excess Profits Tax, and it was open to the Tax Officer to take action under section 15 of the Excess Profits Tax Act.
Determination of the second question depends upon r. 9, Sob. 1, of the Excess Profits Tax Act.
By section 2(19) of the Excess Profits Tax Act, the expression " profits " means profits as determined in accordance with Sch. 1.
That schedule sets out rules for computation of profits for the purpose of the Excess Profits Tax Act; and by r. 9, it is provided in so far as it is material that: " Where the performance of a contract extends beyond the accounting period, there shall (unless the Excess Profits Tax Officer, owing to any special circumstances, otherwise directs) be attributed to the accounting period such proportion of the entire profits or loss which has resulted, or which it is estimated will result, from the complete performance of the contract as is properly attributable to the 277 accounting period, having regard to the extent to which the contract was performed therein.
" The performance of the contract of managing agency extended beyond the period of account of the company which was July 1, 1945, to June 30, 1946: it covered parts of two accounting periods.
The Tax Officer was therefore obliged to apportion to the, chargeable accounting periods the entire profits resulting from the complete performance of the contract in proportions properly attributable to the accounting periods and this, he proceeded to do.
Counsel for the appellants contends that the contracts contemplated by r. 9 are those of the nature of engineering or works contracts and the like where execution of the contract involves a profit making operation de die in diem and not contracts where remuneration is payable at a certain time for services performed throughout the stipulated period.
It is true that remuneration was paid to the appellants after the expiry of the year of account of the company ; but the contract was one the performance of which extended throughout the year of account of the company.
The appellants were the managing agents of the company and they had to perform their duties as managing agents for the whole year.
It is not disputed that the contract of agency for 20 years is to be regarded for assessment of excess profits tax as an annual contract.
The performance of the contract unmistakably cut across the accounting period is also manifest.
The remuneration for performance of the contract is not computed at a daily rate, but is computed on a percentage of the commission on the profits of the company for the whole year, but on that account, the contract is not one in which performance does not extend throughout the year of account.
Normally in a managing agency contract, the managing agent may not suffer loss, but that does not rule out the application of r. 9 to managing agency contracts.
The terms in which r. 9 is enacted are general: the rule is applicable to all contracts which are intended to be operative for a fixed period.
If, for the performance of the entire contract, 278 remuneration is payable at rates stipulated, the profit earned out of that remuneration must be apportioned in the manner provided by r. 9 if the performance of the contract extends beyond the accounting period The judgment of this Court in E. D. Sassoon & Co., Ltd. vs The Commissioner of Income Tax, Bombay City(1) on which strong reliance was placed by the appellants has no application to this case.
In that case, M/s. E. D. Sassoon & Co., Ltd. who were managing agents of three different companies transferred the managing agencies to three other companies on several dates during the accounting year.
A question arose in the computation of income tax payable by M/s. E. D. Sassoon & Co., Ltd. whether the managing agency commission was liable to be apportioned between M/s. E. D. Sassoon & Co., Ltd. and their respective transferees in the proportion of the services rendered as managing agents for the respective periods of the accounting year.
It was held by this court (Jagannadhadas, J., dissenting) that on a true interpretation of the managing agency agreements in each case, the contract of service between the companies and the managing agents was entire and indivisible and the remuneration or commission became due by the companies to the managing agents only on completion of definite periods of service and at stated intervals ; that complete perfor mance was a condition precedent to the recovery of wages or salary in respect thereof and the remuneration payable constituted a debt only at the end of each period of service completely performed, no remuneration or commission being payable to the managing agents for broken periods; that no income was earned by or accrued to M/s. E. D. Sassoon & Co., Ltd. and as the transfer of the agencies did not include any income which E. D. Sassoon & Co., Ltd. had earned, they were not liable to be taxed under the Income Tax Act.
But that was a case dealing with liability of the assessees who did not receive any income and to whom no income had accrued to pay (1)[1955] 1 S.C. R. 313.
270 income tax on the amounts of remuneration paid to their transferees.
The court was not called upon to apply to income received by the assessee the principle of apportionment under r. 9 of Sch.
1 of the Excess Profits Tax Act, or any provision similar thereto.
It is r. 9 of Sch.
I which attracts the principle of apportionment.
The rule enunciated in M/s, E. D. Sassoon & Co. 's case (1) has therefore no application to this case, and the High Court was right in holding that the assessment made by the Excess Profits Tax Officer by apportionment of the commission income between the chargeable accounting periods was correct.
The appeals therefore fail and are dismissed with costs.
One hearing fee.
Appeals dismissed.

summary/full:
Under an agreement dated July 11, 1945, the appellants were appointed managing agents of the Coimbatore Spinning and Weaving Co. Ltd., for 20 years, and certain remuneration was provided for them including 10% commission on the net profits of the company due and payable yearly immediately after the accounts of the company were closed and commissions on purchases and capital expenditure of the company.
Prior to October 1, 1944, the appellants were the managing agents of the Coimbatore Mills Agency Ltd., who were the managing agents of the Coimbatore Spinning and Weaving Co. Ltd. The year of account of the appellants ended on March 31, of the company on June 30, and of the Agency Company on September 30.
For the assessment year 1945 46 the appellants submitted a return of their income which included the stipulated remuneration and commissions.
This return was accepted by the Income tax Officer, and Excess Profits Tax liability for the chargeable accounting period ending March 31, 1945, was also worked out on that basis.
A return of income was submitted by the appellants for the assessment year 1946 47 which included commission for the period 1 4 45 to 30 6 45 on purchases of cotton and stores and on capital expenditure.
The Tax Officer directed that the commission on purchases and capital expenditure be taken into account 272 for the year April 1, 1945, to March 31, 1946, and that the receipts be computed accordingly.
The assessment for 1945 46 was then reopened under section 34 of the Income tax Act under section 15 of the Excess Profits Tax Act and as a result of apportionment made by the application of r. 9 of Sch.
1 of the Excess Profits Tax Act, the liability of the appellants for Income tax and Excess Profits 'fax was revised and fresh assessments were made.
The orders of assessment were confirmed by the appellate authorities.
Held, that as in the instant case the chargeable accounting period for the assessment of Excess Profits Tax and the year of account of the company did not tally, by the assessment of income made on the assumption that they did tally, there had resulted under assessment and it was open to the Tax Officer to take action under section 15 of the Excess Profits Tax Act.
The Excess Profits Tax Officer acted properly in apportioning under r. 9 of Sch. 1 the commission received by the appellants.
Rule 9 of Sch. 1 of the Excess Profits Tax Act is enacted in general terms and it is applicable to all contracts which are intended to be operative for fixed periods.
If, for the performance of the entire contract, remuneration is payable at certain rates the profits earned out of that remuneration must be apportioned in the manner prescribed by 19 if the performance of the contact extends beyond the accounting period.
E. D. Sassoon & Co., Ltd. vs The Commissioner of Income tax, Bombay City; , , distinguished.


judgement:
Appeal No. 73 of 1950.
Appeal from the Judgment and Decree dated the 26th January, 1944, of the High Court of Judicature at Patna (Fazl Ali C. J. and Chatterji J.) in Appeal from Original Decree No. 4 of 1941, arising out of Judgment and Decree dated the 20th September, 1940, of the Court of the Additional Subordinate Judge of Hazaribagh in Title Suit No. 45 of 1939.
section N. Mukherjee for the appellant.
Gangacharan Mukherjee and A. N. Sinha for the respondents.
October 23.
The judgment of the Court was delivered by BHAGWATI J, 110 BHAGWATI J.
The judgment of the Court was delivered by BHAGWATI J.
110 BHAGWATI J.
The question that arises for our consideration in this appeal is whether prior to the enactment of section 65 A of the Transfer of Property Act in 1929 a mortgagor in possession had the power to grant a permanent lease of the mortgaged property so as to bind the mortgagee.
One Raja Nilkanth Narain Singh was the owner of Gadi Sirampur and he executed the 1st August, 1914, a simple mortgage of Gadi Sirampur in favour of the Chota Nagpur Banking Association Limited.
In 1920 the Bank filed a suit against his son Wazir Narain Singh to enforce the mortgage security and obtained a mortgage decree the 29th November, 1921.
The Bank purchased a third share of Gadi Sirampur in execution of that decree the 28th October, 1922.
Proceedings were taken to set aside this sale.
During the pendency of these proceedings it appears that the 5th November, 1925, Wazir Narain Singh granted a permanent lease of four villages Nawadih, Koldih, Pandna and Chihutia by a registered Patta to one Hiraman Ram who was the Manager and Karta of his joint Hindu family.
The Permanent lease was taken by him in his own name and in the name of his son Chohan Ram.
An agreement was subsequently arrived at between the Bank and Wazir Narain Singh that if Wazir Narain Singh paid to the Bank or before the 16th August, 1926, the sum of Rs. 1,10,631 4 0 the sale would be set aside.
Wazir Narain Singh executed the 14th August, 1926, a mortgage of Gadi Sirampur in favour of the Manager of the Court of Wards in charge of the plaintiff 's estate during his minority to secure repayment of a sum of Rs. 1,47,000 and out of the same satisfied the dues of the Bank and the sale in favour of the Ban was accordingly set aside.
The plaintiff through the Manager of the Court of Wards filed a suit the 4th February, 1929, to enforce this mortgage and he impleaded as co defendants in that suit Hiraman Ram as defendant 20 and his father Dilo Ram as defendant 19.
A final decree for sale was passed the 18th September, 1931, and the 111 Plaintiff purchased Gadi Sirampur at the auction sale held in execution of this decree the 6th April, 1935.
Delivery of possession was obtained by the plaintiff through the Court the 16th February, 1936.
Dilo Ram died after the mortgage decree but Hiraman Ram and his son Chohan Ram continued in actual possession of the disputed villages and the plaintiff therefore filed the 16th November, 1939, the suit, out of which this appeal arises, in the Court of the Additional Subordinate Judge of Hazaribagh against Hiraman Ram and Chohan Ram, defendants 1 and 2, for khas possession of these villages.
The plaintiff contended that he was subrogated to the position of the Bank, that the decree which had been passed in the mortgage suit was binding the defendants, that he was the auction purchaser in execution of that mortgage decree and that the Patta being subsequent to the plaintiff 's mortgage thus came to an end and he was entitled to recover khas possession from the defendants.
Defendant 2 filed his written statement contesting the plaintiff 's claim.
He denied that the plaintiff.
was subrogated to the position of the Bank.
He contended that the decree in the mortgage suit was not binding him as he was not :a party to that suit.
lie further contended that the Patta could not be put an end to by the auction sale of the mortgaged property.
The defendant I filed a separate written statement.
He denied that he was the Manager and Karta of the joint Hindu family.
He also contended that there was a partition amongst the members of the joint family within a year after their possession of the properties in suit and the properties had been allotted at that partition to the defendant 2.
The trial Court hold that, the plaintiff was subrogated to the position of the Bank.
It also held that the defendant 1 was the Manager and Karta of the joint family and that the defendant 2 was fully represented in the mortgage suit, that the decree in the mortgage suit was binding the defendants and that the plaintiff was entitled to recover possession 112 of the said properties and mesne profits from the defendants.
The defendants appealed against this decree to the High Court of Judicature at Patna.
The High Court negatived the contention in regard to constructive res judicata which was urged behalf of the plaintiff.
It then considered the further contention that Wazir Narayan Singh had, after creating the mortgage in favour of the Bank no power to grant the permanent lease in question to the defendants.
After considering all the authorities which were cited before it, it came to the conclusion that the question whether Wazir Narayan Singh had got such power or not had to be determined with reference to the provisions of section 66 of the Transfer of Property Act and the crucial test was whether the lease rendered the mortgagee 's security insufficient.
In spite of the fact that there was no allegation in the plaint that the defendant 's lease had the effect of rendering the security of the Bank insufficient, the High Court went into this question and a calculation of some figures came to the conclusion that the lease of the disputed villages in favour of the defendants did not in any way render the security of the bank insufficient.
It therefore held that the lease was valid and was not affected by the plaintiff 's mortgage, decree or by the execution sale under that decree and accordingly dismissed the plaintiff 's suit.
The plaintiff obtained leave to appeal to the Privy Council from this decision of the High Court and the appeal was admitted the 9th January, 1946.
Both the Courts below found that the plaintiff was subrogated to the position of the Bank.
They also found that the defendant 2 was sufficiently represented in the mortgage suit.
These findings were not challenged before us and the only question which survived for our consideration was whether Wazir Narayan Singh had the power to grant a permanent lease to the defendants so as to bind the plaintiff.
The question whether Wazir Narayan Singh had such power has got to be determined under the law as it stood prior to the enactment of section 65 A of 113 the Transfer of Property Act by Act XX of 1929.
The mortgagor 's power to lease the mortgaged property was the subject matter of conflicting judicial decisions.
Relying upon the rule of English common law under which the mortgagor had no power to lease, it was held in some cases that a mortgagor could not ordinarily without the concurrence of the mortgagee execute a lease which could be binding the mortgagee.
In other cases a distinction was drawn between English mortgages and other mortgages and it was considered that the mortgagor in India remained the owner and when in possession could prima facie exercise the rights of ownership inclusive of the power to grant leases of the mortgaged property.
The Question was decided with reference to section 66 of the Transfer of Property Act and it was held that the mortgagor could grant leases which were not wasteful in their effect the mortgagee 's security.
This was the principle deduced by Jenkins C.J. in Balmukund vs Motilal(1) from the old case of Banee Pershad vs Beet Bhunjun Singh(1).
This line of reasoning was not adopted in other cases which laid down a different rule, viz., that a mortgagor in possession might grant a lease conformable to usage in the ordinary course of management but was not competent to grant a lease unusual terms or authorise the use of land in a manner, or for a purpose, different from the mode in which he himself had used it before he granted the mortgage.
This was laid down by Sir Ashutosh Mukherjee J. in Madan Mohan Singh vs Raj Kishore Kumari(3)and was followed in a number of cases.
There was thus a conflict of decisions which was sought to be resolved by the enactment of section 65 A of the Transfer of Property Act which dealt with the mortgagor 's power to lease while lawfully in possession of the mortgaged property.
"It is an elementary rule that though a mortgagor may assign the mortgaged premises, the assignee can only take subject to the encumbrances, and if the (1) (2) (i868) (3) (i9i6) 114 property is sold or foreclosed by the mortgagee, any interest which the mortgagor may have created since the mortgage will be destroyed" '.
(Ghosh Mortgage, Vol.
I, p. 212.) As was observed by Lord Selborne in Corbett vs Plowden(1), "If a mortgagor left in possession, grants a lease without the concurrence of the mortgagee (and for this purpose, it makes no difference whether it is an equitable lease by an agreement under which possession is taken or a legal lease by actual demise), the lessee has a precarious title, inasmuch as although the lease is good as between himself and the mortgagor who granted it, the paramount title of the mortgagee may be asserted against both of them.
" It does not however follow that a lessee from the.
mortgagor acquires no interest whatever in the property demised to him.
A person taking a lease from a mortgagor after the mortgage does acquire an interest in the equity of redemption and can claim to redeem that footing.
But this right of redemption does not necessarily mean that a lease of this character is always operative against the mortgagee.
Merely because a lessee acquires an interest in the mortgaged property which is sufficient to enable him to redeem the mortgage it does not follow that the interest which the lessee has thus acquired is operative against the mortgagee.
The true position is somewhere in the middle of these two extremes.
The mortgagee is not normally bound by the acts of the mortgagor with reference to the mortgaged property. " But if a mortgagee takes his security with knowledge of the purposes to which the land is applied and allows the mortgagor to remain in possession he *ill be bound by the acts done by the mortgagor in accordance with the usual course." (Ghosh Mortgage, Vol.
I, p. 212.) As indicated in the observations of Sir James Parke in Pope vs Briggs (2) the mortgagor might be considered as acting in the nature of a bailiff or agent for the mortgagee.
Con sequently, if the mortgagor, after he has granted the (1) at p. 681.
(2) (1829) 9 Barn.
& Cres.
245 at p. 258. 115 mortgage, deals with the property in the usual course of management, the interest created by him may be rightly deemed operative against the mortgagee.
An illustration of this view is found in the ease of Moreland vs Richardson(1) where a person took a mortgage of a burial ground and it Was held that, as the object of the burial ground is to grant rights of burial, this ' being the mode in which such property is dealt with, the mortgagee was not entitled to disturb the graves of those who had been: buried the land, while the mortgagor continued to hold it.
, The mortgagor could thus in the usual course of management create a ten ancy from year to year in the case of agricultural land or from month to month in the case of property consisting of houses and his dealings with the mortgaged property in the usual course of management would be operative against the mortgagee.
[Per Mukherjee J. in Madan Mohan Singh vs Raj Kishore Kumari(2)] "Whether the mortgagor possesses any larger powers of leasing is however very questionable.
The only reported case in which such a power was recognized is Banee Pershad vs BeetBhunjun Singh(1) but the report in Sutherland is very meagre.
The judgment too does not give forth any certain sound (sic.).
It is only said that a mortgagor is not restricted in the management of the property by making a mortgage and that so long as nothing takes place to impair the value of the mortgagee 's security the mortgagor does not exceed his powers in making a lease for a term.
The learned judges add perhaps somewhat unnecessarily that their decision should not go beyond the particular facts of the case before them." (Ghosh Mortgage, Vol.
I, p. 213.) This case of Banee Pershad vs Beet Bhunjun Singh(3 was considered by Jenkins C. J. in Balmukund vs Motilal(4) as an authority for the proposition that as long as nothing took place which impaired the value or impeded the operation of the mortgage, the mortgagor in creating a temporary lease acted within his powers and these observations of Jenkins C.J. were (1) ; (2) at pp.
91, 92.
(3) (4) , 116 considered by the Courts as justifying the applicability of the provisions of section 66 of the Transfer of Property Act while determining the binding nature of the leases created by.
the mortgagor in possession the mortgagee.
; Mukherjee J. had occasion, to consider this very case in Madan Mohan Singh vs Raj Kishore kumari(1) and he cited it in support of the proposition that the interest created by the mortgagor while dealing with the mortgaged property in the usual course of management could be rightly deemed operative against the mortgagee.
The following observations of Mukberjee J. in this connection at page 91 are very apposite: "As the case is very imperfectly reported, we have examined the record and ascertained the questions in controversy.
The proprietor of an estate mortgaged it the 12th March, 1861.
the 7th July, t862, the mortgagor granted an ijara potta of the property for a term of ten years.
The mortgagee subsequently sued the mortgagor alone and got a decree; at the execution sale which followed, the property was sold the 24th December, 1863.
The purchaser sued the 12th March, 1867, to eject the lessee, the ground that as he had acquired the property in the condition in 'Which it was when mortgaged, the lease, which would otherwise run till the 7th July, 1872, did not bind him. 'The Court of first instance overruled this contention 'as too broadly formulated, and held that as the mortgagor had in good faith granted the lease for a limited term a fair and reasonable rent, the mortgagee or the purchaser in execution of his decree could not repudiate it, specially as the mortgage deed did not prohibit the grant of temporary leases to middlemen or cultivators.
appeal, the District Judge affirmed this view and declined to accept the broad contention that leases of all descriptions granted by a mortgagor were void as against the mortgagee.
second appeal to this Court, Jackson and Mitter JJ.
took substantially the same view.
" (1) 117 These observations of Mukherjee J. point out what was the ratio decidendi of that case.
The question of the sufficiency or insufficiency of the security was not really gone into but the Court considered that the lease was granted in good faith, was for a limited term and stipulated a fair and reasonable rent and it was therefore operative against the mortgagee.
The Court was really guided by the consideration that the mortgagor dealt with the property in the usual course of management and the interest which was thus created by the mortgagor in the usual course must rightly be deemed operative against the mortgagee. ,The case of Banee Pershxd vs Beet Bhunjan Singh(1) therefore is really no authority for the wide proposition that a mortgagor was not restricted in the management of the property by making a mortgage and that so long as nothing took place,to impair the value, or impede the operation of the mortgage the mortgagor would be well within his powers in making a lease for a term.
In our opinion section 66 of the Transfer of Property Act has nothing to do with the mortgagor 's power to lease the mortgaged property.
Section 66 is a statutory, enactment of the powers of the mortgagor in.possession in regard to waste of mortgaged property.
The mortgagor in possession is not liable for what in terms of the English Law of Real Property is known as permissive waste, i.e., for omission to repair or to prevent natural deterioration.
He is however liable for destructive waste is acts which are destructive or permanently injurious to the mortgaged property if the security was insufficient or would be rendered insufficient by such acts.
This section therefore has no application to the grant of a lease by the mortgagor in possession.
The only relevant consideration is whether, the mortgagor in possession having the authority to deal with the property in the usual course of management, the lease granted by him can be rightly deemed operative against the mortgagee.
, The true position has been stated in the following terms by,, Mukherjee, in Madan Mohan Singh vs Baj Kishore Kumar(2) (i) 16 (2) at page 92.
118 "The true position thus is that the mortgagor in possession may make a lease conformable to usage in the ordinary course of management, for instance, he may create a tenancy from year to year in the case of agricultural lands or from month to month in the case of houses.
But it is not competent to the mortgagor to grant a lease unusual terms, or to alter the character of the land or to authorise its use in a manner or for a purpose different from the mode in which he himself had used it before he granted the mortgage.
" The question whether the mortgagor in possession has power to lease the mortgaged property has got to be determined with reference to the authority of the mortgagor as the bailiff or agent for the mortgagee to deal with the property in the usual course of management.
It has to be determined general principles and not the distinction between an English mortgage and a simple mortgage or con siderations germane to section 66 of the Transfer of Property Act.
Having regard therefore to the position that section 66 has no application to leases of the mortgaged property, the decision of Jenkins C.J. in Balmukund vs Motilal(1) and the cases following that line of reasoning do not govern the question before us.
While we are this subject we would like to em phasise that it is for the lessee if be wants to resist the claim of the mortgagee to establish that the lease in his favour was granted the usual terms in the ordinary course of management.
Such a plea if established and it must not be overlooked that the burden of proof in this matter is upon him would furnish a complete answer to the claim of the mortgagee.
If the lessee failed to establish this position he would have certainly no defence to an action at the instance of the mortgagee.
No allegation was made behalf if of the defendants that the grant of the permanent lease was a dealing with the mortgaged property in the usual course of management by the mortgagor, In the absence of (9) , 119 any such plea we are of the opinion that there was No. answer to the plaintiff 's claim and the permanent lease granted by Wazir Narayan to the defendants could not prevail against the plaintiff.
We have therefore come to the conclusion that Wazir Narayan Singh had no power to grant the permanent lease in question to the defendants, that the same was not binding and operative against the plaintiff, that the defendants had ample opportunity to@ redeem the mortgage if they so desired but did not choose to exercise their right of redemption, that the execution sale of Gadi Sirampur including the four villages in question was binding them and that the plaintiff was entitled to khas possession of the four villages of which the defendants were in wrongful possession.
The appeal is allowed.
The decree passed by the High Court dismissing the plaintiff 's suit is set aside and the decree passed by the trial court in favour of the plaintiff is restored with costs throughout.
Appeal allowed.
Agent for respondent No. 1: B. B. Biswas.

summary/full:
Under the law as it stood prior to the enactment of section 65 A of the Transfer of Property Act, by Act XX of 1929, the question whether the mortgagor in possession had powar to lease the mortgaged property has got to be determined with reference to the 109 authority of the mortgagor as the bailiff or agent of the mortgagee to deal with the property in the usual course of management.
It has to be determined general principles and not the distinction between an English mortgage and a simple mortgage or the considerations germane to s.66 of the Transfer of Property Act, and the true position is that the mortgagor in possession may make a lease conformable to usage in the ordinary course of management; for instance, he may create a tenancy from year to year in the case of agricultural lands or from month to month in the case of houses.
But it is not competent to him to grant a lease unusual terms or to alter the character of the land or to authorise its use in a manner, or for a purpose, different from the mode in which he himself had used it before he granted the mortgage.
And it is for the lessee, if he wants to resist the claim of the mortgagee, to establish that the lease in his favour was granted the usual terms in the ordinary course of management.
Where a mortgagor granted a permanent lease of the mortgaged property in the year 1925 and the High Court upheld the lease as against a person who had purchased the properties in a sale held in execution of a decree obtained by the mortgagee the mortgage, the ground that the lease did not impair the security of the mortgagee: Held, that the lease was not binding the mortgagee or the auction purchaser as it was not a lease granted in the usual course of management, even though it did not impair the security.
Madan Mohan Singh vs Raj Kishore Kumari , approved.
Balmukund vs Motilal (1915) 20 C.W.N. 350, dissented from.
Banee Prasad vs Beet Bhunjun Singh , explained.