judgement:
Civil Appeal Nos.
1847 1848/72.
979 From the Judgment and Order dated 30 4 1970 of the Calcutta High Court in Income Tax Reference No. 128 of 1966.
V. section Desai, P. V. Kapur, section R. Agarwal, R. N. Bajoria, A. T. Patra and Praveen Kumar for the Appellant.
J. Ramamurthy and Miss A. Suhbashini for the Respondent.
The Judgment of the Court was delivered by BHAGWATI, J.
These appeals by special leave are directed against a judgment of the Calcutta High Court answering the first question referred to it by the Tribunal in favour of the Revenue and against the assessee.
There were in all five questions referred by the Tribunal but questions Nos. 2 to 5 no longer survive and these appeals are limited only to question No. 1.
That question is in the following terms: "Whether on the facts and in the circumstances of the case, the assessee 's claim for the exchange loss of Rs. 11 lakhs for the assessment year 1957 58 and Rs. 5,50,000/ for the assessment year 1959 60 in respect of remittances of profit from Pakistan was not allowable as a deduction? Since there are two assessment years in regard to which the question arises, there are two appeals one in respect of each assessment year, but the question is the same.
W will briefly state the facts as that is necessary for the purpose of answering the question.
The assessee is a limited company having its head office in Calcutta.
It has inter alia a cotton mill situate in West Pakistan where it carries on business of manufacturing and selling cotton fabrics.
This textile mill was quite a prosperous unit and in the financial year ending 31st March, 1954, being the accounting year relevant to the assessment year 1954 55, the assessee made a large profit in this unit.
This profit obviously accrued to the assessee in West Pakistan and according to the official rate of exchange which was then prevalent, namely, 100 Pakistani rupees being equal to 144 Indian rupees, this profit, which may for the sake of convenience be referred to as Pakistan profit, amounted to Rs. 1,68,97,232/ in terms of Indian rupees.
Since the assessee was taxed on actual basis, the sum of Rs. 1,68,97,232/ representing the Pakistani profit was included in the total income of the assessee for the assessment year 1954 55 and the assessee was taxed accordingly after giving double taxation relief in accordance with the bilateral agreement between India and Pakistan.
It may be pointed out that for some time, after the partition of India.
there continued to be parity in the rate of exchange between India and 980 Pakistan but on 18th September 1949, on the devaluation of the Indian rupee, the rate of exchange was changed to 100 Pakistani rupees being equal to 144 Indian rupees and that was the rate of exchange at which the Pakistani profit was converted into Indian rupees for the purpose of inclusion in the total income of the assessee for the assessment year 1954 55.
The rate of exchange was, however, once again altered when Pakistani rupee was devalued on 8th August, 1955 and parity between Indian and Pakistani rupee was restored.
The assessee thereafter succeeded in obtaining the permission of the Reserve Bank of Pakistan to remit a sum of Rs. 25 lakhs in Pakistani rupees out of the Pakistani profit for the assessment year 1954 55 and pursuant to this permission, a sum of Rs. 25 lakhs in Pakistani rupees was remitted by the assessee to India during the accounting year relevant to the assessment year 1957 58.
The assessee also remitted to India during the accounting year relevant to the assessment year 1959 60 a further sum of Rs. 12,50,000/ in Pakistani rupee out of the Pakistani Profit for the assessment year 1954 55 after obtaining the necessary permission of the Reserve Bank of Pakistan.
But by the time these remittances came to be made, the rate of exchange had, as pointed out above, once again changed to 100 Pakistani rupees being equal to 100 Indian rupees and the amounts received by the assessee in terms of Indian rupees were, therefore, the same, namely, Rs. 25 lakhs and Rs. 12,50,000.
Now, the profit of Rs. 25 lakhs in terms of Pakistani rupees had been included in the total income of the assessee for the assessment year 1954 55 as Rs. 36 lakhs in terms of Indian rupees according to the prevailing rate of exchange of 100 Pakistani rupees being equal to 144 Indian rupees and, therefore, when the assessee received the sum of Rs. 25 lakhs in Indian rupees on remittance of the profit of Rs. 25 lakhs in Pakistani rupees on the basis of 100 Pakistani rupees being equal to 100 Indian rupees, the assessee suffered a loss of Rs. 11 lakhs in the process of conversion on account of appreciation of the Indian rupee qua Pakistani rupee.
Similarly, on remittance of the profit of Rs. 12,50,000 in Pakistani currency the assessee suffered a loss of Rs. 5,50,000/ .
The assessee claimed in its assessments for the assessment years 1957 58 and 1959 60 that these losses of Rs. 11 lakhs and Rs. 5,50,000/ should be allowed in computing the profits from business.
This claim was however rejected by the Income Tax Officer.
The assessee carried the matter in further appeal to the Tribunal but the Tribunal also sustained the disallowance of these losses and rejected the appeals.
The decision of the Tribunal was assailed in a reference made at the instance of the assessee and Question No. 1 which we have set out above was referred by the Tribunal for the opinion of the High Court.
On the reference the High Court took substantially the same view as 981 the Tribunal and held that no loss was sustained by the assessees on remittance of the amounts from West Pakistan and that in any event the loss could not be said to be a business loss, because it was not a loss arising in the course of business of the assessee but it was caused by devaluation which was an act of State.
The High Court accordingly answered the question in favour of the Revenue and against the assessee.
The assessee thereupon preferred the present appeal after obtaining certificate of fitness from the High Court.
The first question that arises for consideration is whether the assessee suffered any loss on the remittance of Rs. 25 lakhs and Rs. 12,50,000/ in Pakistani currency from West Pakistan.
These two amounts admittedly came out of Pakistan profit for the assessment year 1954 55 and the equivalent of these two amounts in Indian currency, namely, Rs. 36 lakhs and Rs. 18 lakhs respectively.
was included in the assessment of the assessee as part of Pakistan profit.
But by the time these two amounts came to be repatriated to India, the rate of exchange had undergone change on account of devaluation of Pakistani rupee and, therefore, on repartition, the assessee received only Rs. 25 lakhs and Rs. 12,50,000/ in Indian currency instead of Rs. 36 lakhs and Rs. 18 lakhs.
The assessee thus suffered a loss Rs. 11 lakhs in one case and Rs. 5,50,000/ in other in the process of conversion of Pakistani currency into Indian currency.
It is no doubt true and this was strongly relied upon by the High Court for taking the view that no loss was suffered by the assessee that the books of account of the assessee did not disclose any loss nor was any loss reflected in the balance sheet or profit and loss account of the assessee.
The reason was that though, according to the then prevailing rate of exchange, the equivalent of Pakistani profit in terms of Indian rupee was Rs. 1,68,97,232/ and that was the amount included in the assessment of the assessee for the assessment year 1954 55, the assessee in its books of account maintained at the Head Office did not credit the Pakistani profit at the figure of Rs. 1,68,97,232/ , but credited it at the same figure as in Pakistani currency.
The result was that the loss arising on account of the depreciation of Pakistani rupee vis a vis Indian rupee was not reflected in the books of account of the assessee and hence it could not figure in the balance sheet and Profit and Loss Account.
But it is now well settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessees has earned any profit or suffered any loss.
The assessee may, by making entries which are not in conformity with the proper accountancy principles, conceal profit or show loss and the entries 10 699SCI/7 982 made by him cannot, therefore, be regarded as conclusive one way or the other.
What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee.
Here, it is clear that the assessee earned Rs. 36 lakhs and Rs. 18 lakhs in terms of Indian rupees in the assessment year 1954 55 and retained them in West Pakistan in Pakistani currency and when they were subsequently remitted to India, the assessee received only Rs. 25 lakhs and Rs. 12,50,000/ and thus suffered loss of Rs. 11 lakhs and Rs. 5,50,000/ in the process of conversion on account of alteration in the rate of exchange.
It is, therefore, not possible to accept the view of the High Court that no loss was suffered by the assessee on the remittance of the two sums of Rs.25 lakhs and Rs. 12,50,000/ from West Pakistan.
This view which we are taking is clearly supported by the decision of this Court in Commissioner of Income Tax vs Tata Locomotive Engineering Company (1) which we shall discuss a little later.
That takes us to the next and more important question whether the loss sustained by the assessee was a trading loss.
Now this loss was obviously not an allowable deduction under any express provision of section 10(2), but if it was a trading loss, it would be liable to be deducted in computing the taxable profit of the assessee under section 10(1).
This indeed was not disputed on behalf of the Revenue but the serious controversy raised by the Revenue was whether the loss could at all be regarded as a trading loss.
The argument which found favour with the High Court was that the loss was caused on account of devaluation of the Pakistani rupee which was an act of the sovereign power and it could not, therefore, be regarded as a loss arising in the course of the business of the assessee or incidental to such business This argument is plainly erroneous and cannot stand scrutiny even for a moment.
It is true that a loss in order to be a trading loss must spring directly from the carrying on of business or be incidental to it as pointed out by Venkatarama Iyer, j., speaking on behalf of this Court in Badri Das Dage vs C.I.T. (2) but it would not be correct to say that where a loss arises in the process of conversion of foreign currency which is part of trading asset of the assessee, such loss cannot be regarded as a trading loss because the change in the rate of exchange which occasions such loss is due to an act of the sovereign power.
The loss is as much a trading loss as any other and it makes no difference that it is occasioned by devaluation brought about by an act of State.
It is not the factor or circumstance which causes the loss that is material in determining the true 983 nature and character of the loss, but whether the loss has occurred in the course of carrying on the business or is incidental to it.
If there is loss in a trading asset, it would be a trading loss, whatever be its cause, because it would be a loss in the course of carrying on the business.
Take for example the stock in trade of a business which is sold at a loss.
There can be little doubt that the loss in such a case would clearly be a trading loss.
But the loss may also arise by reason of the stock in trade being stolen or burnt and such a loss, though occasioned by external agency or act of God, would equally be a trading loss.
The cause which occasions the loss would be immaterial : the loss, being in respect of a trading asset, would be a trading loss.
Consequently, we find it impossible to agree with the High Court that since the loss in the present case arose on account of devaluation of the Pakistani rupee and the act of devaluation was an act of sovereign power extrinsic to the business, the loss could not be said to spring from the business of the assessee.
Whether the loss suffered by the assessee was a trading loss or not would depend on the answer to the query whether the loss was in respect of a trading asset or a capital asset.
In the former case, it would be a trading loss, but not so in the latter.
The test may also be formulated in another way by asking the question whether the loss was in respect of circulating capital or in respect of fixed capital.
This is the formulation of the test which is to be found in some of the English decisions.
It is of course not easy to define precisely what is the line of demarcation between fixed capital and circulating capital, but there is a well recognised distinction between the two concepts.
Adam Smith in his `Wealth of Nations ' describes `fixed capital ' as what the owner turns to profit by keeping it in his own possession and `circulating capital ' as what he makes profit of by parting with it and letting it change masters.
`Circulating capital ' means capital employed in the trading operations of the business and the dealings with it comprise trading receipts and trading disbursements, while `fixed capital means capital not so employed in the business, though it may be used for the purposes of a manufacturing business, but does not constitute capital employed in the trading operations of the business.
Vide Golden Horse Shoe (new) Ltd. vs Thurgood.,(1) If there is any loss resulting from depreciation of the foreign currency which is embarked or adventured in the business and is part of the circulating capital, it would be a trading loss, but depreciation of fixed capital on account of alteration in exchange rate would be a capital loss.
Putting it differently, if the amount in foreign currency is utilised or intended to be utilised in the course of business or for a trading purpose or for effecting a 984 transaction on revenue account, loss arising from depreciation in its value on account of alteration in the rate of exchange would be a trading loss, but if the amount is held as a capital asset, loss arising from depreciation would be a capital loss.
This is clearly borne out by the decided cases which we shall presently discuss.
We will first refer to the English decisions on the subject for they are quite illuminating.
The first decision to which we should call attention is that in Landes Brothers vs Simpson(1).
There the appellants who carried on business as fur and skin merchants and as agents were appointed sole commission agents of a company for the sale, in Britain and elsewhere, of furs exported from Russia, on the terms, inter alia, that they should advance to the company a part of the value of each consignment.
All the transactions between the appellants and the company were conducted on a dollar basis, and owing to fluctuations in the rate of exchange between the dates when advances in dollars were made by the appellants to the company against goods consigned and the dates when the appellants recouped themselves for the advances on the sale of the goods, a profit accrued to the appellants on the conversion of prepaid advances into sterling.
The question arose whether this profit formed part of the trading receipts of the appellants so as to be assessable to tax.
Singleton, J., held that the exchange profit arose directly in the course of the appellants ' business with the company and formed part of the appellants ' trading receipts for the purpose of computing their profits assessable to income tax under Case I of Schedule D.
The learned Judge pointed out that "the profit which arises in the present case is a profit arising directly from the business which had to be done, because the business was conducted on a dollar basis and the appellants had, therefore, to buy dollars in order to make the advances against the goods as prescribed by the agreements.
The profit accrued in this case because they had to do that, thereafter as a trading concern in this country re transferring or re exchanging into sterling.
" Since the dollars were purchased for the purpose of carrying on the business as sole commission agents and as an integral part of the activity of such business, it was held that the profit arising on retransfer or re exchange of dollars into sterling was a trading profit falling within Case I of Schedule D.
This decision was accepted as a correct decision by the Court of Appeal in Davis vs Shell & Co. of Chine Ltd.(2) 985 We may then refer to the decision of the Court of Appeal in Imperial Tobacco Co. vs Kelly(1).
That was a case of a company which, in accordance with the usual practice, bought American dollars for the purpose of purchasing in the United States, tobacco leaf.
But before tobacco leaf could be purchased, the transaction was interrupted by the outbreak of war and the company had, at the request of the Treasury, to stop all further purchases of tobacco leaf in the United States.
The result was that the company was required to sell to the Treasury and owing to the rise which had in the mean time occurred in the dollar exchange, the sale resulted in a profit for the company.
The question was whether the exchange profit thus made on the dollars purchased by the company was a trading profit or not ? The Court of Appeal held that it was a trading profit includible in the assessment of the company under Case I of Schedule D and Lord Green, Master of the Rolls delivering the main judgment, said : "The purchase of the dollar was the first step in carrying out an intended commercial transaction, namely, the purchase of tobacco leaf.
The dollars were bought in contemplation of that and nothing else.
The purchase on the facts found was, as I say, a first step in the carrying out of a commercial transaction, " "The Appellant Company having provided themselves with this particular commodity "namely, dollars" which they proposed to exchange for leaf tobacco, their contemplated transactions became impossible of performance, or were not in fact performed.
They then realised the commodity which had become surplus to their requirements".
When I say "surplus to their requirements" I mean surplus to their requirements for the purpose and the only purpose for which the dollars were acquired." "In these circumstances, they sell this surplus stock of dollars : and it seems to me quite impossible to say that the dollars have lost the revenue characteristic which attached to them when they were originally bought, and in some mysterious way have acquired a capital character.
In my opinion, it does not make any difference that the contemplated purchasers were stopped by the operation of Treasury or Governmental orders, if that were the case; nor is the case affected by the fact that the purchase was under a Treasury requisition and was not a voluntary one.
It would 986 be a fantastic result, supposing the Company had been able voluntarily, at its own free will, to sell these surplus dollars, if in that case the resulting profit should be regarded as income, whereas if the sale were a compulsory one the resulting profit would be capital.
That is a distinction which, in my opinion, cannot possibly be made." "To reduce the matter to its simplest elements, the Appellant Company has sold a surplus stock of dollars which it had acquired for the purpose of affecting a transaction on revenue account.
If the transaction is regarded in that light, any trader who, having acquired commodities for the purpose of carrying out a contract, which falls under the head of revenue for the purpose of assessment under Schedule D, Case I, then finds that he has bought more than he ultimately needs and proceeds to sell the surplus.
In that case it could not be suggested that the profit so made was anything but income.
It had an income character impressed upon it from the very first.
" This decision clearly laid down that where an assessee in the course of its trade engages in a trading transaction, such as purchase of goods abroad, which involves as a necessary incident of the transaction itself, the purchase of currency of the foreign country concerned, then profit resulting from appreciation or loss resulting from depreciation of the foreign currency embarked in the transaction would prima facie be a trading profit or a trading loss.
The last English decision to which we may refer in this connection is Davis vs The Shell Company of Chine, (supra).
The Company made a practice of requiring its agents to deposit with the company a sum of money usually in Chinese dollars which was repayable when the agency came to an end.
Previously the Company had left on deposit in Shanghai amounts approximately equal to the agency deposits, but because of the hostilities between China and Japan, the Company transferred these sums to the United Kingdom and deposited the sterling equivalents with its parent company which acted as its banker.
Owing to the subsequent depreciation of the Chinese dollar with respect to sterling, the amounts eventually required to repay agency deposits in Chinese currency were much less than the sums held by the Company to meet the claims and a substantial profit accrued to the Company.
The question arose whether this exchange profit was a trading profit or a capital profit.
The Court of 987 Appeal held that it was a capital profit not subject to income tax and the argument which found favour with it may be stated in the words of Jenkins, L. J., who delivered the main judgment : "I find nothing in the facts of this case to divest those deposits of the character which it seems to me they originally bore, that is to say the character of loans by the agents to the company, given no doubt to provide the company with a security, but nevertheless loans.
As loans it seems to me they must prima facie be loans on capital, not revenue account; which perhaps is only another way of saying that they must prima facie be considered as part of the company 's fixed and not of its circulating capital.
As appears from what I have said above, the evidence does not show that there was anything in the company 's mode of dealing with the deposits when received to displace this prima facie conclusion.
In my view, therefore, the conversion of company 's balance of Chinese dollars into sterling and the subsequent re purchase of Chinese dollars at a lower rate, which enabled the company to pay off its agents ' deposits at a smaller cost in sterling then the amount it had realised by converting the deposits into sterling, was not a trading profit, but it was simply the equivalent of an appreciation in a capital asset not forming part of the assets employed as circulating capital in the trade." Since the Court took the view that the deposits were in the nature of fixed capital, any appreciation in their value on account of alteration in the rate of exchange would be on capital account and that is why the Court held that such appreciation represented capital profit and not trading profit.
That takes us to the two decisions of this Court which have discussed the law on the subject and reiterated the same principles for determining when exchange profit or loss can be said to be trading profit or loss.
The first decision in chronological order is that reported in Commissioner of Income Tax, Bombay City vs Tata Locomotive and Engineering Co. Ltd. (supra).
There the assessee, which was a limited company carrying on business of locomotive boilers and locomotives, had, for the purpose of its manufacturing activity, to make purchases of plant and machinery in the United States.
Tata Ink, New York, a company incorporated in the United States, was appointed by the assessee as its purchasing agent in the United States 988 and with the sanction of the Exchange Control Authorities the assessee remitted a sum of $ 33,850/ to Tata Ink, New York for the purpose of purchasing capital goods and meeting other expenses.
The assessee was also the selling agent of Baldwin Locomotive Works of the United States for the sale of their products in India and in connection with this work, the assessee incurred expenses on their behalf in India and these expenses were reimbursed to the assessee in the United States by paying the amount to Tata Ink, New York.
The assessee also earned a commission of $ 36,123/ as selling agent of Baldwin Locomotive Works and this amount received as commission was taxed in the hands of the assessee in the relevant assessment year on accrual basis after being converted into rupees according to the then prevailing rate of exchange and tax was paid on it by the assessee.
Now these amounts paid by Baldwin Locomotive Works in reimbursement of the expenses and by way of commission were not remitted by the assessee to India but were retained with Tata Ink, New York for the purchase of capital goods with the sanction of the Exchange Control Authorities.
The result was that there was a balance of $. 48,572.30 in the assessee 's account with Tata Ink, New York on 16th September, 1949 when, on devaluation of the rupee, the rate of exchange which was Rs. 3.330 per dollar shot upto Rs. 4.775 per dollar.
The consequence of this alteration in the rate of exchange was that the assessee found it more expensive to buy American goods and the Government of India also imposed some restrictions on imports from the United States and the assessee, therefore, with the permission of the Reserve Bank of India, repatriated $ 49,500/ to India.
The repatriation of this amount at the altered rate of exchange gave rise to a surplus of Rs. 70,147/ in the process of converting dollar currency into rupee currency.
The question arose in the assessment of the assessee to income tax whether that part of the surplus of Rs. 70,147/ , which was attributable to $ 36,123/ received as commission from Baldwin Locomotive Works was a trading profit or a capital profit.
The matter was carried to this Court by the Revenue and in the course of the judgment delivered by Sikri, J., this Court pointed out that the answer to the question : ". . depends on whether the act of keeping the money, i.e., $ 36,123/02, for capital purposes after obtaining the sanction of the Reserve Bank was part of or a trading transaction.
If it was part of or a trading transaction then any profit that would accrue would be revenue receipt; if it was not part of or a trading transaction, then the profit made would be a capital profit and not taxable.
There is no doubt that the amount of $ 36,123.02 was a revenue 989 receipt in the assessee 's business of commission agency.
Instead of repatriating it immediately, the assessee obtained the sanction of the Reserve Bank to utilise the commission in its business manufacture of locomotive boilers and locomotives for buying capital goods.
That was quite an independent transaction, and it is the nature of this transaction which has to be determined.
In our view it was not a trading transaction in the business of manufacture of locomotive boilers and locomotives; it was clearly a transaction of accumulating dollars to pay for capital goods, the first step to the acquisition of capital goods.
If the assessee had repatriated $ 36,123.02 and then after obtaining the sanction of the Reserve Bank remitted $ 36,123.02 to the U.S.A., Mr. Sastri does not contest that any profit made on devaluation would have been a capital profit.
But, in our opinion, the fact that the assessee kept the money there does not make any difference specially, as we have pointed out, that it was a new transaction which the assessee entered into, the transaction being the first step to acquisition of capital goods.
" This Court held that the act of retaining $ 36,123/ in the United States for capital purposes after obtaining the sanction of the Reserve Bank of India was not a trading transaction in the business of manufacture of locomotive boilers and locomotives, but it was clearly a transaction of accumulating dollars to pay for capital goods, the first step in the acquisition of capital goods and the surplus attributable to $ 36,123/ was, therefore, capital accretion and not profit taxable in the hands of the assessee.
It would, thus, be seen that the test applied by this Court was whether the appreciation in value had taken place in a capital asset or in a trading asset or in other words, in fixed capital or in circulating capital and since the amount of $ 36,123/ , though initially a trading receipt, was set apart for purchase of capital goods and was thus converted into a capital asset or fixed capital, it was held that appreciation in its value on conversion from dollar currency to rupee currency was a capital profit and not a trading profit.
The position was the same as if the assessee had repatriated $ 36,123/ in the relevant assessment year in which it was earned and then immediately remitted an identical amount to the United States for the purchase of capital goods and profit had accrued on subsequent repatriating of this amount on account of alteration in the rate of exchange.
990 The other decision to which we must refer is the one in Commissioner of Income Tax, Mysore vs Canara Bank Ltd.(1).
The assessee in this case was a public limited company carrying on the business of banking in India and it had opened a branch in Karachi on 15th November, 1946.
After the partition in 1947, the currencies of India and Pakistan continued to be at par until the devaluation of the Indian rupee on September 18, 1949.
On that day the Karachi branch of the assessee had with it a sum of Rs. 3,97,221/ belonging to its Head Office.
As Pakistan did not devalue its currency, the old parity between Indian and Pakistani rupee ceased to exist.
The exchange ratio between the two countries was, however, not determined until 27th February, 1951 when it was agreed that 100 Pakistani rupees would be equivalent to 144 Indian rupees.
The assessee did not carry on any business in foreign currency in Pakistan and even after it was permitted to carry on business in Pakistani currency on 3rd April, 1951, it carried on no foreign exchange business.
The amount of Rs. 3,97,221/, which was lying with the Karachi branch remained idle there and was not utilised in any banking operation even within Pakistan.
On July 1, 1953, the State Bank of Pakistan granted permission for remittance and two days later, the assessee remitted the amount of Rs. 3,97,221/ to India.
This amount, in view of the difference in the rate of exchange became equivalent to Rs. 5,71,038/ in terms of Indian currency and in the process, the assessee made a profit of Rs, 1,73,817/ .
The question arose in the assessment of the assessee whether this profit of Rs. 1,73,817/ was a revenue receipt or a capital accretion.
Ramaswami, J., speaking on behalf of this Court, pointed out that the amount of Rs. 3,97,221/ was lying idle in the Karachi branch and it was not utilised in any banking operation and the Karachi branch was merely keeping that money with it for the purpose of remittance to India and as soon as the permission of the State Bank of Pakistan was obtained, it remitted that money to India.
This money was "at no material time employed, expended or used for any banking operation or for any foreign exchange business".
It was, to use the words of Ramaswami, J., "blocked and sterilised from the period of the devaluation of the Indian rupee upto the time of its remittance to India".
Therefore, even if the money was originally stock in trade, it "changed its character of stock in trade when it was blocked and sterilised and the increment in its value owing to the exchange fluctuation must be treated as a capital receipt".
Since the sum of Rs. 3,97,221/ was, on the finding of fact reached by the Revenue authorities, held on capital account and not as part of the circulating capital em 991 barked in the business of banking, it was held by this Court that the profit arising to the assessee on remittance of this amount on account of alteration in the rate of exchange was not a trading profit but a capital accretion.
The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circulating capital embarked in the business.
But if on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature.
Now, in the present case, no finding appears to have been given by the Tribunal as to whether the sums of Rs. 25 lakhs and Rs. 12,50,000/ were held by the assessee in West Pakistan on capital account or Revenue account and whether they were part of fixed capital or of circulating capital embarked and adventured in the business in West Pakistan.
If these two amounts were employed in the business in West Pakistan and formed part of the circulating capital of that business, the loss of Rs. 11 lakhs and Rs. 5,50,000/ resulting to the assessee on remission of these two amounts to India.
On account of alteration in the rate of exchange, would be a trading loss, but if, instead, these two amounts were held on capital account and were part of fixed capital, the loss would plainly be a capital loss.
The question whether the loss suffered by the assessee was a trading loss or a capital loss cannot, therefore, be answered unless it is first determined whether these two amounts were held by the assessee on capital account or on revenue account or on revenue account or to put it differently, as part of fixed capital or of circulating capital.
We would have ordinarily, in these circumstances, called for a supplementary statement of case from the Tribunal giving its finding on this question, but both the parties agreed before us that their attention was not directed to this aspect of the matter when the case was heard before the Revenue Authorities and the Tribunal and hence it would be desirable that the matter should go back to the Tribunal with a direction to the Tribunal either to take additional evidence itself or to direct the Income Tax Officer to take additional evidence and make a report to it, on the question whether the sums of Rs. 25 lakhs and Rs. 12,50,000/ were held in West Pakistan as capital asset or as trading asset or, in other words, as part of fixed capital or part of circulating capital in the business.
The Tribunal will, on the basis of this additional evidence and in the light of the law laid down by us in this judgment, determine whether the loss 992 suffered by the assessee on remittance of the two sums of Rs. 25 lakhs and Rs. 12,50,000/ was a trading loss or a capital loss.
We accordingly set aside the order of the High Court and send the case back to the Tribunal with a direction to dispose it of in accordance with the directions given by us and in the light of the law laid down in this judgment.
There will be no order as to costs of the appeal.
P.H.P. Appeals allowed and case remanded.

summary/full:
It has inter alia a Cotton Mill situated in West Pakistan where it carries on business of manufacturing and selling cotton fabrics.
For the accounting year relevant to the assessment year 1954 55, the assessee made a large profit in the unit in West Pakistan.
The Pakistan profit, according to the official rate of exchange, which was then prevalent, namely, 100 Pakistani rupees being equal to 144 Indian rupees amounted to Rs. 1,68,97,232 in terms of Indian rupees.
Since the assessee was taxed on accrual basis, the sum of Rs. 1,68,97,232 representing the Pakistani profit was included in the total income of the assessee for the assessment year 1954 55 and the assessee was taxed accordingly after giving double taxation relief in accordance with the bilateral agreement between India and Pakistan.
On 8th August, 1955, the Pakistani rupee was devalued and parity between Indian and Pakistani rupee was restored.
The assessee thereafter succeeded in obtaining the permission of the Reserve Bank of Pakistani to remit a sum of Rs. 25 lakhs in Pakistani rupees out of the Pakistani profit for the assessment year 1954 55.
The profit of Rs. 25 lakhs in terms of Pakistani rupees had been included in the total income of the assessee for the assessment year 1954 55 as Rs. 36 lakhs in terms of Indian rupees according to the then prevailing rate of exchange and, therefore, when the assessee received the sum of Rs. 25 lakhs on remittance of the profit of Rs. 25 lakhs in Pakistani rupees during the assessment years 1957 58, the assessee suffered a loss of Rs. 11 lakhs, in the process of conversion on account of appreciation of the Indian rupee qua Pakistani rupee.
Likewise, in the assessment year 1959 60, a further sum of Rs. 12,50,000 was remitted by the assesses to India out of the Pakistani profit for the assessment year 1954 55 and suffered a loss of Rs. 5,50,000.
The assessee claimed in its assessment for the year 1957 58 and 1959 60 that these losses of Rs. 11 lakhs and Rs. 5,50,000 should be allowed in computing the profit from business.
The Income Tax Officer and the Tribunal disallowed the claim.
On a reference to the High Court, the High Court took the view that no loss was sustained by the assessee on remittance of the amounts from West Pakistan and that in any event, the loss could not be said to be a business loss because it was not a loss arising in the course of business of the assessee but it was caused by devaluation which was an act of State.
The High Court accordingly answered the question in favour of the Revenue and against the assessee.
Disposing of the appeals by special leave the Court, 977 ^ HELD: The first question that arises is whether the assessee suffered any loss on the remittance of Rs. 25 lakhs and Rs. 12,50,000.
These two amounts admittedly came out of the Pakistani profit for the assessment year 1954 55 and the equivalent of these two amounts in Indian currency, namely, Rs. 36 lakhs and Rs. 18 lakhs respectively was included in the assessment of the assessee as part of Pakistani profit but by the time these amounts came to be repatriated to India, the rate of exchange had undergone change on account of devaluation of Pakistani rupee and, therefore, on repatriation, the assessee received only Rs. 25 lakhs and Rs. 12.50 lakhs in Indian currency instead of Rs. 36 lakhs and Rs. 18 lakhs.
The assessee thus suffered a loss of Rs. 11 lakhs in one case and Rs. 5.50 lakhs in the other case.
The fact that no loss was reflected in the books of the two accounts of the assessee was not a conclusive factor and the High Court ought not to have relied on it.
It is now well settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss.
[981 A D, 982 A B C] Commissioner of Income Tax vs Tata Locomotive Engineering Co., relied on.
The question arising in the case is whether the loss sustained by the assessee was a trading loss and if it was a trading loss whether it would be liable to be deducted in computing the taxable profit of the assessee under Sec.
10(1) of the Income Tax Act, 1922.
The argument which found favour with the High Court was that because the devaluation was an act of the sovereign power, it could not be regarded as a loss arising in the course of the business of the assessee or incidental, to such business, is plainly erroneous.
It is true that a loss in order to be a trading loss must spring directly from the carrying on of business or be incidental to it, but it would not be correct to say that where a loss arises in the process of conversion of foreign currency which is part of trading asset of the assessee, such loss cannot be regarded as a trading loss because the change in the rate of exchange which occasions such loss is due to an act of the sovereign power.
[982 D G] Badri Das Dada vs C.I.T., relied on.
It is not the factor or circumstance which caused the loss that is material in determining the true nature and character of the loss, but whether the loss has occurred in the course of carrying on the business or is incidental to it.
If there is a loss in trading asset, it would be a trading loss, whatever be its cause, because it would be a loss in the course of carrying on the business.
If the stock in trade of a business is stolen or burnt the loss, though occasioned by external agency or act of God would clearly be a trading loss.
Whether the loss suffered by the assessee is a trading loss or not, would depend on the answer to the query whether the loss is in respect of a trading asset or a capital asset.
In the former case, it would be a trading loss but not so in the latter.
The test may be formulated in another way by asking the question whether the loss is in respect of circulating capital or in respect of fixed capital.
It is, of course, not easy to define precisely what is the line of demarcation between fixed capital and circulating capital but there is a well recognised distinction between the two concepts.
Adam Smith in his 'Wealth of Nations ' describes fixed capital as what the owner turns to profit by keeping it in his 978 own possession and circulating capital as what he makes profit of by parting with it and letting in change masters.
Circulating capital means capital employed in the trading operations of the business and the dealings with it comprise trading receipts and trading disbursements, while 'fixed capital ' means capital not so employed in the business, though it may be used for the purposes of a manufacturing business but does not constitute capital employed in the trading operations of the business.
[982 H, 983 A F] Golden Horse Shoe (new) Ltd. vs Thurgood, ; approved.
Landes Bros. vs Simpson ; Davis vs Shell & Co. of Chine Ltd. ; Imperial Tobacco Co. vs Kelly; ; referred to with approval.
Commr.
of Income tax.
Bombay City vs Tata Locomotive & Engineering Co. Ltd. approved.
Commr.
of Income tax, Mysore vs Canara Bank Ltd. approved.
It is clear from the authorities that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assesses on Revenue account or as trading asset or as part of circulating capital embarked in the business.
But if, on the other hand, the foreign currency is held as a capital asset or as fixed capital, such profit or loss would be of capital nature.
[991 B C] In the present case, no finding has been given by the Tribunal as to whether the sum of Rs. 25 lakhs and Rs. 12.50 lakhs were held by the assessee in West Pakistan on capital account or Revenue account and whether they were a part of fixed capital or of circulating capital embarked and adventured in the business in West Pakistan.
If these two amounts were employed in the business in West Pakistan and formed part of the circulating capital of that business, the loss of Rs. 11 lakhs and Rs. 5.50 lakhs resulting to the assessee on remission of these two amounts on account of alterations in the rate of exchange, would be a trading loss, but if instead these two amounts were held on capital account and mere part of fixed capital the loss would plainly be a capital loss.
[991 C E] The Court was, therefore, unable to answer the question whether the loss suffered by the assessee was a trading loss or a capital loss.
Ordinarily, the Court would have called for a supplementary statement of the case, from the Tribunal but since both the parties agreed that it would be proper that the matter should go back to the Tribunal with a direction to the Tribunal either to take additional evidence itself or to direct the Income Tax Officer to take additional evidence and make a report, the Court made an order accordingly and directed the tribunal to dispose of the case on the basis of the additional evidence and in the light of the law laid down in the Judgment.
[991 E H]


judgement:
Civil Appeal Nos.
2084 2085/74.
Appeals by Special Leave from the Judgment and Order dated 10/11/10/1974 of the Bombay High Court in First Appeal No. 160 and 173 of 1966.
U. R. Lalit, V. N. Ganpule and Mrs. V. D. Khanna for the appellant.
B. D. Bal, P. H. Parekh and M. Mudgal for the Respondent.
The Judgment of the Court was delivered by DESAI, J.
These two appeals by special leave arise from a suit filed by the respondents plaintiffs for recovering possession of land bearing Survey Nos.
487/1 to 487/6 situated at Shirwal Peta Khandala from the appellant defendant.
During the pendency of this suit a portion of the land in dispute was acquired under the Land Acquisition Act and as both the plaintiffs and the defendant laid a claim to compensation, a reference was made under section 30 of the Land Acquisition Act for determining the eligibility for the amount of compensation.
The trial Court decreed the plaintiffs ' suit and First Appeal No. 160 of 1966 was preferred by the defendant to the High Court of 958 Bombay.
Following the decision of the trial Court, the reference under section 30 of the Land Acquisition Act was answered in favour of the plaintiffs respondents and the defendant preferred First Appeal No. 173 of 1966 to the High Court.
Both the appeals were heard together and by its judgment dated 10/11 October, 1974 a Division Bench of the High Court dismissed both the appeals with costs.
Thereupon the appellant preferred the present two appeals.
As both the appeals arise from a common judgment, they were heard together and are being disposed of by this common judgment.
Facts necessary for appreciating the point of law canvassed in these appeals lie within a narrow compass.
One Dattatraya Govind Kulkarni, husband of plaintiff No. 1 and father of plaintiffs 2 to 6 had borrowed a Tagai loan of Rs. 12,000/ by making an application Exhibit 129 accompanied by prescribed form, Ext. 128 on 7th February, 1949.
The loan was borrowed for constructing wells in Survey Nos. 167 and 170 and he offered as security the lands bearing Survey Nos. 165, 166, 167, 170 and 172.
In the application Ext.
129 that accompanied the prescribed form it was stated that wells have to be sunk to bring barren land under cultivation.
In other words, the loan was for improvement of the land.
The loan was advanced and the borrower failed to repay the loan as per the stipulations.
A revenue recovery proceeding was commenced and as by the sale of the land offered as security the Government could not reimburse itself the total amount outstanding, a proclamation of sale was issued and ultimately the suit land was auctioned and it was purchased by the defendant and the sale in his favour was confirmed and he was put in possession on 20th May, 1960.
The plaintiff stated that prior to the date of auction there was a partition between the father and his sons on 6th July, 1956 evidenced by Ext.
53 and at this partition the suit land with its sub divisions came to the share of the plaintiffs and therefore, the father had no saleable interest in the suit land and it could not have been sold at a revenue auction for recovering the personal debt of the father.
So contending, the plaintiffs brought an action for a declaration that the sale is not binding upon them and possession may be restored to them.
The trial Court held that the suit land was joint family property consisting of Dattatraya and his sons but as there was an effective partition prior to the revenue sale and the partition being a genuine one, the subsequent sale is not binding upon the plaintiffs to whose share the suit land was allotted at the partition and, therefore, the sale was void and the plaintiffs are entitled to be put back in possession.
959 The High Court in appeal by the present appellant examined the question of the validity of the revenue sale in the context of the provisions of the ( 'Loans Act, for short) and held that the auction sale of the lands at the relevant time standing in the names of the plaintiffs, the land being not one in respect of which the Tagai loan was advanced, or which was offered as security for that loan, would not be binding upon the plaintiffs as the plaintiffs were not borrowers within the meaning of section 7(1) of the Loans Act and the plaintiffs ' suit on this ground was rightly decreed.
The submission on behalf of the defendant that Tagai loan was a debt and that it was incumbent on the sons of Dattatraya under the doctrine of pious obligation of the sons of a Hindu father to pay their father 's debts which were not tainted with immorality or illegality, was not accepted and the High Court held that this doctrine of pious obligation cannot be extended to the debts contracted under the Loans Act as the Act applies to all citizens of India irrespective of their religion.
With these findings the appeals were dismissed.
Mr. U. R. Lalit, learned counsel for the appellant urged that Tagai loan was borrowed by Dattatraya, the father for improvement of lands bearing Survey Nos. 167 and 170 which were joint family property and the debt represented by Tagai loan would be joint family debt incurred by the manager for the benefit of the joint family or for the benefit of the estate of the joint family and, therefore, the joint family property, irrespective of the fact whether it was offered as security for the loan or whether it benefited by the loan, would be liable for the repayment of the loan notwithstanding the fact that a partition has taken place before the suit land, which again is a joint family property, was brought to revenue auction.
It was also urged that the partition is not genuine and that it is a sham and bogus one and in fact there was no partition in the eye of law.
It was further urged that the pious obligations of the sons of a Hindu father to pay the debt incurred by the father not tainted with illegality or immorality to the extent of the joint family property in their hands would certainly apply to loan borrowed under the Loans Act and the expression "borrower" under the Loans Act can as well include a joint Hindu family and thereby making the entire joint family property liable for repayment of the loan.
Mr. Bal, learned counsel for the plaintiffs respondents contended that Tagai loan was not a joint family debt nor in borrowing the loan the father was acting as Karta but was acting in his personal capacity, nor the loan was for the benefit of the joint family estate.
It was said that the Loans Act being a complete Code in itself and only 960 recognised borrower in his individual capacity, one cannot import the concept of Karta of a joint family borrowing under the Loans Act in his representative capacity so as to make the joint family property liable for such loans.
The principal contention which goes to the root of the matter is whether the Tagai loan borrowed by Dattatraya, the father, was borrowed in his personal capacity for his personal use or as Karta of the joint family for the benefit of the joint family or joint family estate.
If the loan was borrowed by Dattatraya, the father, as Karta of the joint Hindu family for the benefit of the family, certainly it would be a joint family debt and all the joint family property would be liable for this debt.
Even if there is a subsequent partition before the debt is repaid, the creditor can proceed against the joint family property in the hands of any of the coparceners because the joint family property is liable for the joint family debts.
The Karta or the Manager of a joint Hindu family has implied authority to borrow money for family purposes and such debts are binding on other coparceners and the liability of the coparceners in such a case does not cease by subsequent partition (See Para 240, Mulla 's Hindu Law, 14th Edn., p. 298).
Where father is the Karta of a joint Hindu family and the debts are contracted by the father in his capacity as manager and head of the family for family purposes, the sons as members of the joint family are bound to pay the debts to the extent of their interest in the coparcenary property.
Further, where the sons are joint with their father and the debts have been contracted by the father for his own personal benefit, the sons are liable to pay the debts provided they were not incurred for illegal or immoral purposes.
This liability arises from an obligation of religion and piety which is placed upon the sons under the Mitakshara Law to discharge the father 's debts, where the debts are not tainted with immorality.
This liability of the sons to pay the father 's debts exists whether the father be alive or dead, (para 290, Mulla 's Hindu Law, 14th Edn., p. 354).
A further requirement is that for an effective partition of a Mitakshara joint Hindu family a provision for the joint family debts should be made.
In order to determine what property is available for partition, provision must first be made for joint family debts which are payable out of the joint family property, personal debts of the father not tainted with immorality, maintenance of dependent female members and of disqualified heirs, and for the marriage expenses of unmarried daughter.
This must be so because partition is of joint family property and if joint family debts are repaid before the partition only the residue would be available for partition.
Therefore, if partition is effected before paying 961 the debts, provision to pay the debts should be made so as to determine the residue available for partition.
Having cleared the ground in law, let us look at facts which have been found by the Courts on appreciation of evidence and which unless found to be utterly unconscionable this Court would not interfere with.
The trial Court found that the suit property was joint family property and the High Court has not departed therefrom.
In fact, in an earlier suit filed by these very plaintiffs being Special Suit No. 14 of 1958 it has been in terms stated that the lands described in para 1 of the plaint Ext.
37 which include the suit land, were originally owned by joint family of plaintiffs and Dattatraya.
Therefore, on plaintiffs ' own admission the suit land was joint family property of plaintiffs and Dattatraya.
The next important question is whether the Tagai loan was the personal debt of Dattatraya or was debt incurred by him as Karta of the joint family for the benefit of the joint family.
We would only look at uncontroverted salient features of the evidence.
Prescribed form of application, Ext.
128 with application Ext.
129 would show that the loan was borrowed for constructing wells for improvement in the potentiality of the lands bearing Survey Nos. 167 and 170.
It was submitted that these lands, for the improvement of which the loan was borrowed, were not joint family property.
There again, a reference may be made to the admission of the plaintiffs in plaint Ext.
37 which also includes lands bearing Survey Nos. 167 and 170 being described by the plaintiffs themselves as joint family property.
The High Court held that Dattatraya borrowed the loan for improvement of the land.
Therefore, Dattatraya, the father, borrowed loan in his capacity as the father for improvement of joint family lands and for this purpose offered as security three other pieces of land which were joint family property.
In the face of this unimpeachable evidence the statement in Ext.
128, the application for loan, that Dattatraya was the full owner of the lands therein mentioned would not convey the idea that it was his separate property.
It is not necessary that Karta acting in his capacity as Karta to describe himself as Karta to affirm his representative capacity.
Whether he has acted in his personal capacity or representative capacity can be gathered from all the surrounding circumstances and in this case they are eloquent, in that he mortgaged or gave as collateral security joint family property, to wit land, and it extends to whole of the interest of the family and is not confined to Karta 's share, and therefore, he must be deemed to have acted in the transaction on behalf of the family (see Mulla 's Hindu Law, 14th Edn., page 313, article 251).
It was, however, stated that agriculture 962 was not the avocation of the joint family and, therefore, the father as the Karta did not have the implied authority to borrow loan so to be binding on the joint family property.
One has merely to look at the content of the application for loan, Ext. 129 made by Dattatraya to the Mamlatdar, Taluka Vichitragad, for advancing loan to him, to dispel the contention.
The application recites that applicant Dattatraya, the father had undertaken extensive work to bring barren land under cultivation to raise sufficient crops as well as to improve the quality of Land and for improving the quality of agriculture he had undertaken, loans should be advanced to him.
Mr. Bal, however, pointed out that Dattatraya was carrying on some business which would be evident from Ext.
23, a copy of execution application No. 87/60 filed by Bhor State Bank Ltd., against one Pandurang Krishnaji Kamble and Dattatraya Govind Kulkarni in which the occupation of Dattatraya is shown as business; and Ext.
22 being a copy of Execution Application No. 92/57 in which his occupation is shown as general agent, and Ext.
120 a copy of the decree in Special Civil Suit No. 2/49 wherein the occupation of Dattatraya is shown as business and which further shows that Dattatraya had running account with one Raghunath Shridhar Phadke in which Dattatraya had withdrawn Rs. 56,800/ and had credited Rs. 41,000/ and after adding interest leaving a debit balance of Rs. 19,238 14 00.
It was urged that if all these aspects are taken into consideration, it would appear that agriculture was not the occupation of the joint family.
Now, as against this, one may also refer to Ext.
24 a copy of the BADR Execution Application No. 294/56 for executing an Award made under the Bombay Agricultural Debtors ' Relief Act against Dattatraya which would show that Dattatraya was an agriculturist by occupation and his debts were adjusted by the Courts set up under the Bombay Agriculture Debtors ' Relief Act and this could have only been done if his principal occupation was agriculture.
Therefore, mere description of Dattatraya 's avocation in Exts. 22, 23 and 120 is hardly determinative of the occupation of Dattatraya or his family.
It may be that over and above agriculture Dattatraya may have been carrying on some side business but if his application Ext.
129 shows that he had on his own showing 160 bighas of land most of which are admittedly shown to be joint family property, it cannot be denied that agriculture was one of the occupations of Dattatraya and he was carrying on that avocation as Karta of the joint family consisting of himself and his minor sons.
Now, if agriculture was one of the occupations of the joint family and if loan was borrowed for the purpose of improving the joint family lands, the loan would ipso facto be for legal necessity and it would be joint family debt for which all the joint family property would be liable.
963 If thus the loan for the recovery of which the suit property was brought to auction was joint family debt and if the suit property was joint family property, certainly it would be liable to be sold for recovery of joint family debt.
The question, however, is: does the subsequent partition make any difference in respect of the liability of the joint family property for the joint family debts ? That would necessitate examination of the circumstances in which the partition was brought about though we are not inclined to examine the question whether the partition was a sham or bogus transaction or was a motivated one with a view to defeating the creditors of the joint family.
The partition is evidenced by a registered deed, Ext.
79 dated 6th July 1956.
Partition is between father and his minor sons.
There is no dispute that on that date the debt of Tagai loan was outstanding as well as there were certain other debts.
In the partition deed Ext.
79 there is no express or implied provision for the repayment of joint family debts or even outstanding debts of Dattatraya, the father.
There was some suggestion that the property which was allotted to Dattatraya was sufficient for discharging the debts outstanding on the date of partition.
That at least is not borne out by the partition deed nor has Dattatraya gone into the witness box to say that such was the position.
Therefore, taking into consideration the recitals in the partition deed as well as the relevant evidence on record the position is clear that no provision was made at the time of partition for the joint family debts or alternatively outstanding debts incurred by the father.
It is not for a moment suggested that on this account the partition is bogus and sham, an argument which was put forward before the High Court and negatived.
The substance of the matter is that if at a partition amongst the members of the joint family no provision is made for joint family debts, then despite the partition and allotment of shares to different coparceners the joint family property in their hands which they acquired by partition would still be liable for the joint family debts.
The Judicial Committee in Sat Narain vs Das(1), pointed out that when the family estate is divided, it is necessary to take account of both the assets and the debts for which the undivided estate is liable.
After affirming this ratio, this Court in Pannalal & Anr.
vs Mst Naraini & Ors.(2) observed as under: ". the right thing to do was to make provision for discharge of such liability when there was partition of the 964 joint estate.
If there is no such provision, "the debts are to be paid severally by all the sons according to their shares of inheritance", as enjoined by Vishnu (Vishnu, Chap.
6, verse 36).
In our opinion, this is the proper view to take regarding the liability of the sons under Hindu law for the pre partition debts of the father.
The sons are liable to pay these debts even after partition unless there was an arrangement for payment of these debts at the time when the partition took place.
This is substantially the view taken by the Allahabad High Court in the Full Bench case referred to above and it seems to us to be perfectly in accord with the principles of equity and justice".
If thus the partition makes no provision for repayment of just debts payable out of the joint family property, the joint family property in the hands of coparceners acquired on partition as well as the pious obligation of the sons to pay the debts of the father will still remain.
This position of law was reaffirmed in Vriddhachalam Pillai vs Shaldean Syriam Bank Ltd. & Anr.(1).
The only effect of partition is that after the disruption of joint family status by partition the father has no right to deal with the property by sale or mortgage even to discharge an antecedent debt nor is the son under a legal obligation to discharge the post partition debts of the father.
Assuming we are not right in holding that the debt, was for the benefit of the estate of the joint family and, therefore, a joint family debt, and assuming that Mr. Bal is right in contending that it was the personal debt of the father, yet the doctrine of pious obligation of the son to pay the father 's debt would still permit the creditor to bring the whole joint family property to auction for recovery of such debts.
Where the sons are joint with their father and debts have been contracted by the father for his personal benefit, the sons are liable to pay the debts provided they were not incurred for an illegal or immoral purpose.
This liability to pay the debt has been described as pious obligation of the son to pay the father 's debt not tainted with illegality or immorality.
It was once believed that the liability of the son to pay the debts contracted by the father, though for his own benefit, arises from an obligation of religion and piety which is placed upon the sons under the Mitakshara law to discharge the father 's debts, where the debts are not tainted with immorality, yet in course of time this liability has passed into the realm of law.
965 In Anthonyswamy vs M. R. Chinnaswamy Koundan (dead) by l.r.s. & Ors.(1), following the decision in Muttayan vs Zamindar of Sivagiri(2), this Court held that this obligation of the son to pay the father 's debt not tained with illegality or immorality was not religious but a legal obligation and the rule would operate not only after the father 's death but even in the father 's life time and the pertinent observation is as under: "It is evident therefore that the doctrine of pious obligation is not merely a religious doctrine but has passed into the realm of law.
The doctrine is a necessary and logical corollary to the doctrine of the right of the son by birth to a share of the ancestral property and both these conceptions are correlated.
The liability imposed on the son to pay the debt of his father is not a gratuitous obligation thrust on him by Hindu law but is a salutary counter balance to the principle that the son from the moment of his birth acquires along with his father an interest in joint family property".
It is not the case of the plaintiffs that the debt contracted by the father for which the property was sold was tainted with illegality or immorality or that it was ayyravaharik in the sense opposed to good morals.
Therefore, even assuming that there was a partition, the debt being antecedent debt for which no provision was made in the partition and the debt having not been shown to be tainted with illegality or immorality, the sons were liable to pay this debt to the extent the joint family property came in their hands.
Viewed from either angle, the property sold was liable for the discharge of the debt of Dattatraya, the father, and even if it came in the hands of the sons on partition, the debt admittedly being a pre partition debt not shown to be tainted with illegality or immorality, could be recovered from the joint family property in the hands of the sons.
Mr. Bal, however, raised an interesting contention that if the joint family property which came in the hands of the sons on partition was to be sold for recovery of the debt of the father after partition a suit would have to be filed by the creditor and if the property in the hands of the son was to be made liable for discharge of the debt, the sons ought to be joined as parties to the suit because only in such an event the sons could set up the defence of the debt being tainted 966 with illegality or immorality.
Where a revenue sale takes place, it was said, the sons would have no opportunity to contest the character of the debt, and, therefore, any sale in such circumstances, of the property that has fallen to the shares of the sons at a partition, subsequent to the partition would be void as against the sons.
In support of the submission reliance was placed on an observation in Pannallal 's case (supra) that a decree against the father alone obtained after partition in respect of such debt cannot be executed against the property that is allotted to the sons and that a separate and independent suit must be filed against the sons before their shares can be reached.
After observing that a son is liable even after partition for the pre partition debts of his father which are not immoral or illegal, this Court proceeded to examine the question as to how this liability is to be enforced by the creditor, either during the life time of the father or after his death.
After taking note of a large number of decisions in which it was held that a decree against the father alone obtained after partition in respect of such debt cannot be executed against the property that is allocated to the sons on partition and a separate and independent suit must be instituted against the sons before their shares can be reached, it was held that the principle underlying these decisions is sound.
This Court approved the decision in Jagnarayan vs Somaji (1).
It may be noted that decree for the pre partition debt was made after partition when in the suit father after partition could not represent the sons.
This very question again came up before this Court in section M. Jakati & Anr.
vs section M. Borkar & Ors.(2) In that case the Deputy Registrar of Co operative Societies had made an order against Mr. Jakati for realisation of the amount and an item of property belonging to the joint family of Jakati was attached by the Collector and duly brought to sale under section 155 of the Bombay Land Revenue Code.
The sale was held on 2nd February, 1943 and confirmed on 23rd June, 1943.
In the meantime.
On January 15, 1943, one of the sons of Jakati instituted a suit for partition and separate possession of his share in the joint family property and contended inter alia that the sale in favour of the first respondent was not binding on the joint family.
If the order of the Deputy Registrar was to be treated as a decree, the sale under section 155 of the Bombay Land Revenue Act being execution of that decree, was after the institution of the suit for partition and therefore it was contended that a partition after the decree but before the auction sale limited the efficacy of the sale to the share of the father even though the sale was of a whole estate including the interest of the sons, because after the partition the 967 father no longer possessed the power to sell the shares of sons to discharge his debts.
Negativing this contention it was held as under: "But this contention ignores the doctrine of pious obligation of the sons.
The right of the pre partition creditor to seize the property of the erstwhile joint family in execution of his decree is not dependant upon the father 's power to alienate the share of his sons but on the principle of pious obligation on the part of the sons to discharge the debt of the father.
The pious obligation continues to exist even though the power of the father to alienate may come to an end as a result of partition.
The consequence is that as between the sons ' right to take a vested interest jointly with their father in their ancestral estate and the remedy of the father 's creditor to seize the whole of the estate for payment of his debt not contracted for immoral or illegal purpose, the latter will prevail and the sons are precluded from setting up their right and this will apply even to the divided property which, under the doctrine of pious obligation continues to be liable for the debts of the father.
Therefore where the joint ancestral property including the share of the sons has passed out of the family in execution of the decree on the father 's debt the remedy of the sons would be to prove in appropriate proceedings taken by them the illegal or immoral purpose of the debt and in the absence of any such proof the sale will be screened from the sons ' attack, because even after the partition their share remains liable".
The High Court while examining the ratio in Jakati 's (supra) case observed that even though Ganpatrao Vishwanathappa Barjibhe vs Bhimrao Sahibrao Patil(1), was referred to therein it was not specifically overruled and, therefore, the trial Court was right in relying upon it and incidentally itself relied on it.
In that case it was held that in order to make the share of sons liable after partition they should be brought on record.
This Court referring to Ganpatrao (1) observed that the decision should be confined to the facts of that case and further observed as under : "Therefore where after attachment and a proper notice of sale the whole estate including the sons ' share, which was attached, is sold and the purchaser buys it intending it to be the whole coparcenary estate, the presence of the sons eo nomine is not necessary because they still have the right 968 to challenge the sale on showing the immoral or illegal purpose of the debt.
In our opinion where the pious obligation exists and partition takes place after the decree and pending execution proceedings as in the present case, the sale of the whole estate in execution of the decree cannot be challenged except on proof by the sons of the immoral or illegal purpose of the debt and partition cannot relieve the sons of their pious obligation or their shares of their liability to be sold or be a means of reducing the efficacy of the attachment or impair the rights of the creditor.
" The binding ratio would be one laid down in Jakati 's (supra) case and it cannot be ignored by merely observing that a different approach in Ganpatrao (supra) case holds the field for the High Court as it was not overruled in Jakati 's case.
It is thus crystal clear that the pious obligation of the sons continues to be effective even after partition and if the creditor in execution of a decree obtained prior to partition seizes the property in execution without making sons parties to the suit and the property is sold at an auction and the purchaser is put in possession and the property thus passes out of the family in execution of the decree on the father 's debt, the remedy of the sons would be to challenge the character of the debt in an appropriate proceeding brought by them.
The sale cannot be voided on the only ground that the sale of the property took place after partition and the property sold was one which was allotted to the sons on partition once the property is liable to be sold for recovery of debt of the father incurred prior to partition and which is not tainted with illegality or immorality.
Partition in such a situation merely provides a different mode of enjoyment of property without affecting its liability for discharge of pre partition debts.
In the present case the sons have filed the suit and in this suit issue No. 6 framed by the learned trial judge was whether the Tagai loan of Rs. 12,000/ was incurred by Dattatraya as manager of the family, for legal necessity and the family has benefited by it, and this issue was answered in the affirmative, meaning the debt is not shown to be tainted with illegality or immorality.
No submission was made to us by Mr. Bal on behalf of the respondents that the debt was tainted with illegality or immorality.
In such a situation unless in this suit the sons challenged the character of the debt and established to the satisfaction of the Court that the debt was tainted with illegality or immorality, they cannot obtain any relief against the purchaser who purchased the property at an auction held by the Civil Court or by the revenue authorities for recovering the debt of the father which the sons 969 were under a pious obligation to pay.
Therefore, even if the plaintiffs were not parties to the proceedings held by revenue authorities for sale of the land involved in this dispute, once the sale took place and it was confirmed and purchaser was put in possession, the sons can successfully challenge the sale by establishing the character of the debt thereby showing that they were not bound to pay it and, therefore, their share in the property cannot be sold to discharge the debt.
They cannot succeed merely by showing, as is sought to be done in this case, that as the sale took place subsequent to partition and as they were not parties to the proceedings the sale is not binding on them.
This clearly merges by reading Pannalal and Jakati cases (supra) together.
The loan sought to be recovered was a Tagai loan advanced under the Loans Act.
The amount can be recovered as arrears of land revenue.
Chapter XI of the Bombay Land Revenue Code provides procedure for realisation of land revenue, recovery to be made as if they are arrears of land revenue and other revenue demands.
Section 150 provides that an arrear of land revenue may be recovered inter alia by sale of the defaulter 's immovable property under section 155.
Section 155 provides that the Collector may cause the right, title or interest of the defaulter in any immovable property other than the land on which the arrear is due to be sold.
The sale is subject to sanction and confirmation.
The first contention is that the Collector is authorised to cause the right, title or interest of the defaulter in any immovable property which is sought to be sold in a revenue auction and in this case as the sale was after the partition the defaulter Dattatraya had no interest in the property brought to auction and, therefore, no title passed to the auction purchaser.
This submission overlooks again the pious duty of the sons to pay the father 's debt as also the right of the creditor to recover debts from the joint family property in the hands of the coparceners.
In Jakati 's case (supra) this was the exact contention and after comparing the parallel provision in the Code of Civil Procedure, viz., "the right, title or interest of the judgment debtor", this Court held that it is a question of fact in each case as to what was sold in execution of the decree.
This Court affirmed the ratio in Rai Babu Mahabir Prasad vs Rai Markunda Nath Sahai(1), that it is a question of fact in each case as to what was sold, viz., whether the right, title or interest of the debtor or defaulter was sold or the whole of the property was put up for sale and was sold and purchased.
It 970 was concluded that where the right, title and interest of the judgment debtor are set up for sale as to what passed to the auction purchaser is a question of fact in each case dependent upon what was the estate put up for sale, what the Court intended to sell and what the purchaser intended to buy and did buy and what he paid for.
There is not the slightest doubt that the whole of the property was sold in the instant case and that was intended to be sold and the purchaser purchased the whole of the property and the certificate was issued in respect of sale of the property and, therefore, it is futile to say that only the right, title and interest of Dattatraya was sold and that as he had no interest in the property sold on the date of auction sale, nothing passed to the purchaser.
Assuming, for a moment that if the sale takes place after the partition, to such a proceeding the sons should be a party before the liability arising out of the doctrine of pious obligation to pay the father 's debt is enforced against the joint family property in the hands of the sons, evidence reveals that the sons were fully aware of the intended sale and not only they knew of the intended sale but possession was taken from them by the purchaser after notice to them.
Proceedings for the recovery of the amount of Tagai loan of Rs. 12,000/ were commenced much prior to 25th April, 1955 because the first proclamation of sale in respect of four pieces of land was issued on 25th April, 1955.
79 would show that no bid was received whereupon the Kamgar Patil offered a nominal bid of Re. 1/ for four pieces of land.
It may here be mentioned that this sale was challenged by none other than Dattatraya and it was quashed and he had taken back the land included in the proclamation Ext.
Thus the recovery of the loan started prior to partition which took place on 6th July, 1956.
Where a loan is taken under the Loans Act and it is being recovered as arrears of land revenue, the order of the revenue authority to recover the amount would tantamount to a decree and when a proclamation of sale is issued it amounts to execution of the decree, to borrow the phraseology of the Code of Civil Procedure.
It is thus clear that execution started prior to the partition.
Undoubtedly the proclamation for sale of suit land was issued on 22nd January, 1957 as per Ext.
80 and that was subsequent to the partition but when different properties are brought to auction by different sale proclamations it is nonetheless an execution proceeding.
The sale proclamation was issued under the provisions of the land revenue code.
Amongst others the proclamation of sale is to be fixed on the property which is to be auctioned.
After the sale was confirmed, the purchaser was required to be put in possession.
The plaintiff claimed to be in possession and yet the revenue officer on 20th May, 1960 as per Ext.
82 handed over possession of 971 the land involved in the dispute to the purchaser.
It would be advantageous to point out here that the plaintiffs served notice dated 2nd February, 1957 which would mean that the notice was served prior to the date of the auction.
The plaintiffs therein referred to the proclamation of sale for the land involved in dispute and they also referred to the proclamation of sale for the land involved in dispute and they also referred to the attachment of the land.
They also referred to the date of intended auction sale and they called upon the Collector not to proceed with the sale.
The plaintiffs thereafter filed their first suit being Special Suit No. 14/58, certified copy of the plaint of which is Ext.
37, which would show that it was filed on 6th April, 1957.
In this plaint they sought a declaration that the sale held on 26th May, 1955 and 6th April, 1957 be declared illegal.
It was alleged in the plaint that Dattatraya was a drunkard and was in bad company and had borrowed the Tagai loan for his own vices and in collaboration with the concerned officers of the revenue department and the loan could never be said to be a Tagai loan.
Amongst others, the State of Bombay was impleaded as party defendant.
Subsequently this suit was withdrawn and the present suit was filed deleting State of Bombay as party.
From this narration of facts it clearly emerges that the plaintiffs had the knowledge of the proclamation of sale and yet no attempt was made by them either to appear before the Collector who had issued the proclamation or as was now sought to be urged, offered to repay the loan.
If after this specific knowledge that proceeding for recovery of Tagai loan had commenced and during its pendency the partition was brought about and yet on the subsequent sale the revenue authority sold the whole of the property and the purchaser intended to buy the whole of the property, the only way the sons can challenge this sale is by establishing the character of the debt as being tainted with illegality or immorality and the purchaser would be entitled to defend his purchase and possession on all the contentions which would negative the plaintiffs ' case including the one about the pious obligation of the sons to pay the father 's debt.
Therefore, there is no force in the contention that as the plaintiffs were not parties to the recovery proceedings the sale is not binding on them.
That brings us to the last contention which has found favour with the High Court.
The contention is that a loan borrowed under the provisions of the Loans Act could always be in the individual and personal capacity of the borrower and the Loans Act being applicable to all the communities in this country, it does not admit of a person borrowing loan in his representative capacity as Karta of the joint family and, thereby making joint family property liable for the discharge 972 of the debt.
Section 5 prescribes the mode of dealing with the applications for loans and section 6 provides for the period for repayment of loans.
Then comes section 7 which is material.
It provides for the mode of recovery of the loans borrowed under the Act.
Section 7 reads as under: "7.
(1) Subject to such rules as may be made under section 10, all loans granted under this Act, all interest (if any) chargeable thereon, and costs (if any) incurred in making the same, shall, when they become due, be recoverable by the Collector in all or any of the following modes, namely: (a) from the borrower as if they were arrears of land revenue due by him; (b) from his surety (if any) as if they were arrears of land revenue due by him; (c) out of the land for the benefit of which the loan has been granted as if they were arrears of land revenue due in respect of that land; (d) out of the property comprised in the collateral security (if any) according to the procedure for the realisation of land revenue by the sale of immovable property other than the land on which that revenue is due: Provided that no proceeding in respect of any land under clause (c) shall affect any interest in that land which existed before the date of the order granting the loan, other than the interest of the borrower, and of mortgages of, or persons having charges on, that interest, and where the loan is granted under section 4 with the consent of another person, the interest of that person, and of mortgagees of, or persons having charges on, that interest.
(2) When any sum due on account of any such loan, interest or costs is paid to the Collector by a surety or an owner of property comprised in any collateral security, or is recovered under sub section (1) by the Collector from a surety or out of any such property, the Collector shall, on the application of the surety or the owner of that property (as the case may be), recover that sum on his behalf from the borrower, or out of the land for the benefit of which the loan has been granted, in manner provided by sub section (1).
(3) It shall be in the discretion of a Collector acting under this section to determine the order in which he will resort to the various modes of recovery permitted by it.
" 973 The loan can be recovered from the borrower as if it were an arrear of land revenue due by him or from his surety by the same procedure or out of the land for the benefit of which the loan has been granted by following the same procedure or out of the property comprising as collateral security, if any, according to the procedure for realisation of land revenue by sale of immovable property or by the sale of immovable property other than the land on which the land revenue is due.
Now the word 'borrower ' is not defined.
Could it be said that a borrower for the purpose of section 7 can be an individual and no other person ? The High Court observed that the Act is applicable to all communities in India and not merely to Hindus and there are many communities which do not have the system of joint family and if the legislature intended to include in the word 'borrower ' manager of a family, it should have said so in express terms.
There is nothing in the language of section 7 which would show that the borrower must always and of necessity be an individual.
Even if the Act applies to other communities which do not have the system of joint family, that by itself would not exclude the manager of a joint Hindu family from becoming a borrower under section 7.
If the construction as suggested by the High Court is accepted it would put joint Hindu family at a disadvantage in borrowing loans under the Loans Act because the Karta of a joint Hindu family, if he has no separate property of his own, and if he cannot borrow the loan in his representative capacity, has no security to offer, nor could he take advantage of the beneficial provision of the Act for improving the land belonging to the joint Hindu family.
We see no justification for restricting the word 'borrower ' to be an individual alone.
In fact the Act itself contemplates joint borrowers.
Section 9 provides for joint and several liability of joint borrowers.
A Karta of a joint Hindu family therefore can be a borrower in his representative capacity.
If the Karta of a joint Hindu family is considered eligible for becoming a borrower would it run counter to the position of other communities in which there is no concept of a joint family and joint family properties ? In the absence of any such concept a borrower other than a Hindu can offer all the property at his disposal even if he has not sons, as security for the loan to be borrowed because in other communities governed by their personal laws the son does not acquire interest in the ancestral properties in the hand of the father from the time of his birth.
But in Hindu law there are two seemingly contrary but really complimentary principles, one the principle of independent coparcenary rights in the sons which is an incident of birth, giving to the sons vested right in the coparcenary property, and the other the pious duty of the sons to discharge their father 's debts not tainted with immorality or illegality, 974 which lays open the whole estate to be seized for the payment of such debts (see Jakati 's case) (Supra).
Now, if the sons of a Hindu father take interest in the ancestral property in the hands of the father by the incident of birth, they also incur the corresponding obligation of discharging the debts incurred by the father either for his own benefit or for the benefit of the joint family from the property in which the sons take interest by birth.
Such a concept being absent in communities not governed by Hindu law in this behalf, the father would be free to encumber the property and the sons in such communities would neither get interest by birth nor the liability to pay the father 's debt and would not be able to challenge the sale or property for discharge of the debt incurred by the father.
Therefore, the expression 'borrower ' in section 7 need not be given a restricted meaning merely because the Act applies to all communities.
Hence a father who is the Karta of the joint family consisting of himself and his sons can become a borrower in his capacity as Karta and if the loan is for legal necessity or for the benefit of the joint family estate he would render the joint family property liable for such debt and if it is for his personal benefit the joint family property even in the hands of the sons would be liable if the debt is not tainted with illegality or immorality.
The High Court said that such liability which arises from the obligation of religion and piety cannot be extended to the loans borrowed under the Loans Act because there is no such obligation in other communities to which the Act applies.
In reaching this conclusion the High Court overlooked the principle that this doctrine of pious obligation is not merely a religious duty but has passed into the realm of law (see Anthonyswamy), (supra).
On the facts of that case this principle was applied to parties belonging to Tamil Vannian Christians.
Viewed from this angle, the High Court was in error in holding that Dharmashastras of Hindus never contemplated improvement loans being given by the Governments of the day which were usually monarchies and, therefore, a debt of the kind which is contemplated under the Loans Act could never have been under the contemplation of the writers like Brihaspati and Narada in whose texts the pious liability is imposed on the sons and others.
It is not possible to subscribe to this view for the reasons hereinbefore mentioned.
The decisions in Sankaran Nambudripad vs Ramaswami Ayyar,(1) and Chinnasami Mudaliar vs Tirumalai Pillai,(2) do not touch the question herein raised and are of no assistance in the matter.
It, therefore, clearly transpires that Dattatraya had borrowed a loan from the Government under the Loans Act for the benefit of 975 joint family property.
It was being recovered as arrears of land revenue.
The property which is the subject matter of dispute in this proceeding was joint family property.
It was sold at a revenue auction and the whole of the property was sold and the whole of it was purchased by the purchaser.
The debt of Tagai loan for which the property was sold is not shown to be tainted with illegality or immorality or avyavaharik.
Therefore, the suit property was liable to be sold at court auction for two reasons, one that the debt was joint family debt for the benefit of the joint family estate and, therefore, all segments of the joint family property were liable for the discharge of the debt, and secondly, under the doctrine of pious obligation of the sons to pay the father 's debt.
In the present proceedings no attempt was made to establish that the debt was tainted with illegality or immorality.
Therefore, the sale is valid and the purchaser acquired a full and complete title to the property.
The sale is not void.
Part of the property is acquired and the compensation is taken by the plaintiffs subject to the orders of the Court.
Accordingly, both these appeals are allowed and the plaintiffs ' suit is dismissed but in the facts and circumstances of this case, with no order as to costs throughout.
N.V.K. Appeals allowed.

dataset_name: IN-Abs

summary/full:
The respondents ' father took a Tagai loan from the Government for the purpose of digging wells in his land by offering his land as security for the loan.
When he failed to repay the loan, the suit land was auctioned under the revenue recovery proceeding and it was purchased by the appellants.
In a suit for recovery of possession, the respondents alleged that their father had no saleable interest in the land because, prior to the date of auction.
in the partition between themselves and their father, the suit land came to their share and therefore the land which belonged to them could not have been sold in an auction for recovering a personal debt of their father.
The trial court declared the sale as void.
The High Court affirmed the trial Court 's order.
In appeal to this Court the respondents contended that the debt was not a joint family debt; neither was the father acting as Karta of the joint family nor was the loan for the benefit of the joint family and therefore the joint family property could not be made liable for such loan.
Allowing the appeals the Court, ^ HELD: 1 (a) The suit land was joint family property of the respondents and their father.
[961C] (b) If the loan, for the recovery of which the suit property was brought to auction, was joint family debt and if the suit property was joint family property it would be liable to be sold for recovery of joint family debt.
[963A] (c) Whether the Karta acted in his personal capacity or representative capacity has to be gathered from all the surrounding circumstances.
The father borrowed the loan in his capacity as Karta of the joint family for improvement of the joint family lands and for this purpose he offered as security the land which was joint family property.
It is not necessary that the Karta acting in his capacity as Karta should describe himself as Karta to affirm his representative capacity.
Therefore he must be deemed to have acted in the transaction on behalf of the family.
[961G H] 956 (d) Agriculture was one of the occupations which the father was carrying on as Karta of the joint family.
If agriculture was one of the occupations of the joint family and if the loan was borrowed for the purpose of improving the joint family lands, the loan would ipso facto be for legal necessity and it would be joint family debt.
[962H] (e) Where the sons are joint with their father and debts have been contracted by the father for his personal benefit the sons are liable to pay the debts provided they were not incurred for illegal or immoral purpose.
This liability to pay the debt had been described as pious obligation of the son to pay the father 's debt if it is not tainted with illegality or immorality.
[960F] Muttayan vs Jamindar of Sivagiri, [1883] 9 I.A. 128 Anthonyswmy vs M. R. Chinnaswamy Koundan (dead) by L. Rs. Ors.
; ; referred to.
(f) If at a partition amongst the members of the joint family no provision was made for joint family debts, then despite the partition and allotment of shares to different coparceners, the joint family property acquired by partition would still be liable for the joint family debts.
[964D] Sat Narain vs Das, [1936] 63 I.A. 384; Pannalal & Anr.
vs Mst.
Naraini & Ors.
; at 558; Vriddhachalam Pillai vs Shaldean Syrian Bank Ltd. & Anr. ; ; referred to (g) In the instant case the property sold was liable for the discharge of the father 's debt.
The debt being a pre partition debt which was not shown to be tainted with illegality or immorality, could be recovered from the joint family property in the hands of the sons.
[965F] (h) The pious obligation of the sons continues to be effective even after partition.
If the creditor, in execution of a decree, obtained prior to partition, seizes the property in execution without making the sons parties to the suit and the property was sold at an auction and the purchaser was put in possession, the remedy of the sons would be to challenge the character of the debt in an appropriate proceeding.
The sale cannot be voided on the only ground that it took place after partition and the property sold was one which was allotted to the sons on partition.
Partition in such a situation merely provides a different mode of enjoyment of property without affecting the joint family 's liability for discharge of pre partition debts.
[968D F] section M. Jakati & Sons & Anr.
vs section M. Barkar & Ors., referred to.
(i) In the instant case the debt was not shown to be tainted with illegality or immorality.
Therefore, even if the respondents were not parties to the proceeding held by the Revenue Authorities, once the sale was confirmed and the purchaser was put in possession, the sons can challenge the sale only by establishing the character of the debt.
[968G, 969A] (2) The loan sought to be recovered being Tagai loan advanced under the Loans Act, it can be recovered as arrears of land revenue.
The Bombay land Revenue Code, provides procedure for realisation of land revenue, recovery of which could be made as if it was arrears of land revenue and other revenue demands.
[969C] 957 (3) When a loan was taken under the Loans Act and was being recovered as arrears of land revenue, the order of the Revenue Authority would tantamount to a decree and when a proclamation of sale was issued it amounted to execution of the decree.
[970F] 4 (a) The High Court was wrong in holding that since the Act was applicable to all communities in India and not merely to the Hindus, if it legislature intended to include manager of a family in the word 'borrower ', it should have said so in express terms.
There is nothing in the language of section 7 of the Loans Act to show that the borrower must always and of necessity be an individual.
If the construction suggested by the High Court is accepted it would put the joint Hindu family at disadvantage in borrowing loans under the Loans Act because the Karta of a joint Hindu family, if he has no separate property of his own, and if he cannot borrow the loan in his representative capacity, has no security to offer.
Nor would he be able to take advantage of the beneficial provision of the Act for improving the land belonging to the joint Hindu family.
[973C E] (b) Moreover there is no justification for restricting the word 'borrower ' to be an individual alone.
The Act itself contemplates joint borrowers.
A Karta of a joint Hindu family can be a borrower in his representative capacity.
[973F] Sankaran Nambudripad vs Ramaswami Ayyar, Madras 691; Chinnaswami Mudaliar vs Trimalai Pillai, Madras 572, inapplicable.