civil appellate jurisdiction civil appeal number 1 197
 nt  of 1974.
appeal by special leave from the judgment and order
dated 3-8-1973 of the calcutta high companyrt in income tax
reference number 109 of 1968.

pal t. a. ramachandran d. n. gupta for the
appellant. t. desai b. b. ahuja miss a. subhashini for the
respondent. 1375
the judgment of the companyrt was delivered by
bhagwati j.-this appeal by special leave raises the
vexed question whether a particular expenditure incurred by
the assessee is of capital or revenue nature. this question
has always presented a difficult problem and companytinually
baffled the companyrts because it has number been possible
despite occasional judicial valour to formulate a test for
distinguishing between capital and revenue expenditure which
will provide an infallible answer in all situations. there
have been numerous decisions where this question has been
debated but it is number possible to reconcile the reasons
given in all of them since each decision has turned upon
some particular aspect which has been regarded as crucial
and numbergeneral principle can be deduced from any decision
and applied blindly to a different kind of case where the
constellation of facts may be dissimilar and other factors
may be present which may give a different hue to the case. often cases fall in the border line and in such cases as
observed by lord m. r. in inland revenue v. british salmon
ero engines limited 1  the spin of companyn would decide the
matter almost as satisfactorily as an attempt to find
persons. but this is number one of those border line cases. the answer to the question here is fairly clear. but first
let us state the necessary facts. the assessee is a limited companypany carrying on business
of manufacture of jute. it has a factory with a certain
number of looms situate in west bengal. it is a member of
the indian jute mills association  hereinafter referred to
as the association . the association companysists of various
jute manufacturing mills as its members and it has been
formed with a view to protecting the interests of the
members. the objects of the association inter alia are  i
to protect forward and defeat the trade of members  ii  to
impose restrictive companyditions on the companyduct of the trade
and  iii  to adjust the production of the mills in the
membership of the association to the demand of the world
market. it appears that right from 1939 the demand of jute
in the world market was rather lean and with a view to
adjusting the production of the mills to the demand in the
world market a working time agreement was entered into
between the members of the association restricting the
number of working hours per week for which the mills shall
be entitled to work their looms. the first working time
agreement was entered into on 9th january 1939 and it was
for a duration of five years and on its expiration the
second and thereafter the third working time agreements
each for a period of five years and in . more or less
similar terms were entered into on 12th june 1944 and 25th
numberember 1949 respectively. the third working time agreement
was about to expire on 11th december 1954 and since it
1376
was felt that the necessity to restrict the number of
working hours per week still companytinued a fourth working
time agreement was entered into between the members of the
association on 9th december 1954 and it was to remain in
force for a period of five years from 12th december 1954. we
are companycerned in this appeal with the fourth working time
agreement and since the decision of the companytroversy before
us turns upon the interpretation of its true nature and
effect we shall refer to some of its relevant provisions. the first clause of the fourth working time agreement
 hereinafter referred to as the working time agreement  to
which we must refer is clause  4  which provided that
subject to the provisions of clauses 11 and 12  no
signatory shall work more than forty five hours of work per
week and such restriction of hours of work per week shall
continue in force until the number of working hours allowed
shall be altered in accordance with the provisions of
clauses 7 1   2  and  3 . clause  5  then proceeded to
explain that the number of working hours per week mentioned
in the working time agreement represented the extent of
hours to which signatories were in all entitled in each week
to work their registered companyplement of looms as determined
under clause  13  on the basis that they used the full
complement of their loomage as registered with and certified
by the companymittee. this clause also companytained a provision for
increase of the number of working hours per week allowed to
a signatory in the event of any reduction in his loomage. it
was also stipulated in this clause that the hours of work
allowed to be utilised in each week shall cease at the end
of that week and shall number be allowed to be carried forward. the number of working hours per week prescribed by clause
 4  was as indicated in the opening part of that clause
subject inter alia to the provision of clause  10  and under
that clause a joint and several agreement companyld be made
providing that throughout the duration of the working time
agreement members with registered companyplements of looms number
exceeding 220 shall be entitled to work upto 72 hours per
week. clause 6 a  enabled members to be registered as a
group of mills if the happened to be under the companytrol of
the same managing agents or were companybined by any arrangement
or agreement and it was open to any member of the group of
mills so registered to utilise the allotment of hours of
work per week of other members in the same group who were
number fully utilising the hours of work allowable to them
under the working time agreement provided that such
transfer of hours of work was for a period of number less than
six months. then followed clause 6 b  which is very material
and it provided inter alia as follows-
subject to the provisions of sub-clauses  i  to

signatories to this agreement shall be entitled
to transfer in
1377
part or wholly their allotment of hours of work per
week to any one or more of the other signatories and
upon such transfer being duly effected and registered
and a certificate issued by the companymittee the
signatory or signatories to whom the allotment of
working hours has been transferred shall be entitled to
utilise the allotment of hours of work per week so
transferred. there were four companyditions precedent subject to which the
allotment of hours of work transferred by one member to
anumberher companyld be utilised by the latter and those of them
were as under

numberhours of work shall be transferred unless
the transfer companyers hours of work per week
for a period of number less than six months

all agreements to transfer shall as a
condition precedent to any rights being
obtained by transferees be submitted with an
explanation to the companymittee and the
committees decision whether the transfer
shall be allowed shall be final and
conclusive. if the companymittee sanctions the transfer it
shall be a companydition precedent to its
utilisation that a certificate be issued and
the transfer registered. this transaction of transfer of allotment of hours of work
per week was companymonly referred to as sale of looms hours by
one member to anumberher. the companysequence of such transfer was
that the hours of work per week transferred by a member were
liable to be deducted from the working hours per week
allowed to such member under the working time agreement and
the member in whose favour such transfer was made was
entitled to utilise the number of working hours per week
transferred to him in addition to the working hours per week
allowed to him under the working time agreement. it was
under this clause that the assessee purchased loom hours
from four different jute manufacturing companycerns which were
signatories to the working time agreement for the aggregate
sum of rs. 203255/- during the year 1st august 1958 to
31st july 1959. in the companyrse of assessment for the
assessment year 1960-61 for which the relevant accounting
year was the previous year 1st august 1958 to 31st july
1959 the assessee claimed to deduct this amount of rs. 203255/- as revenue expenditure on the ground that it was
part of the companyt of operating the looms which companystituted
the profit making apparatus of the assessee. the claim was
disallowed by the income-tax officer but on appeal the
1378
appellate assistant companymissioner accepted the claim and
allowed the deduction on the view that the assessee did number
acquire any capital asset when it purchased the loom hours
and the amount spent by it was incurred for running the
business or working it with a view to producing day-to-day
profits and it was part of operating companyt or revenue companyt of
production. the revenue preferred an appeal to the tribunal
but the appeal was unsuccessful and the tribunal taking the
same view as the appellate assistant companymissioner held that
the expenditure incurred by the assessee was in the nature
of revenue expenditure and hence deductible in companyputing the
profits and gains of business of the assessee. this view
taken by the tribunal was challenged in a reference made to
the high companyrt at the instance of the revenue. the high
court too was inclined to take the same view as the
tribunal but it felt companypelled by the decision of this
court in companymissioner of income tax v. maheshwari devi jute
mills limited   to decide in favour of the revenue and on that
view it overturned the decision of the tribunal and held
that the amount paid by the assessee for purchase of the
loom hours was in the nature of capital expenditure and was
therefore number deductible under section 10 2   xv  of the
act. the assessee thereupon preferred the present appeal by
special leave obtained from this companyrt. number an expenditure incurred by an assessee can qualify
for deduction under section 10 2   xv  only if it is
incurred wholly and exclusively for the purpose of his
business but even if it fulfils this requirement it is number
enumbergh it must further be of revenue as distinguished from
capital nature. here in the present case it was number
contended on behalf of the revenue that the sum of rs. 203255/- was number laid out wholly and exclusively for the
purpose of the assessees business but the only argument was
and this argument found favour with the high companyrt that it
represented capital expenditure and was hence number deductible
under section 10 2  xv . the sole question which therefore
arises for determination in the appeal is whether the sum of
rs. 203255/- paid by the assessee represented capital
expenditure or revenue expenditure. we shall have to examine
this question on principle but before we do so we must
refer to the decision of this companyrt in maheshwari devi jute
mills case  supra  since that is the decision which weighed
heavily with the high companyrt in fact companypelled it to
negative the claim of the assessed and held the expenditure
to be on capital account. that was a companyverse case where the
question was whether an amount received by the assessee for
sale of loom hours was in the nature of capital receipt or
revenue receipt. the view taken by this companyrt was that it
was in the. 1379
nature of capital receipt and hence number taxable. it was
contended on a behalf of the revenue relying on this
decision that just as the amount realised for sale of loom
hours was held to be capital receipt so also the amount
paid for purchase of loom hours must be held to be of
capital nature. but this argument suffers from a double
fallacy. in the first place it is number a universally true
proposition that what may be a capital receipt in the hands
of the payee must necessarily be capital expenditure in
relation to the payer. the fact that a certain payment
constitutes income or capital receipt in the hands of the
recipient is number material in determining whether the payment
is revenue or capital disbursement qua the payer. it was
felicitously pointed out by macnaghten j. in race companyrse
betting companytrol board v. wild   that a payment may be a
revenue payment from the point of view of the payer and a
capital payment from the point of view of the receiver and
vice versa. therefore the decision in maheshwari devi jute
mills case  supra  cannumber be regarded as an authority for
the proposition that payment made by an assessee for
purchase of loom hours would be capital expenditure. whether
it is capital expenditure would have to be determined having
regard to the nature of the trans action and other relevant
factors. but more importantly it may be pointed out that
maheshwari devi jute mills case  supra  proceeded on the
basis that loom hours were a capital asset and the case was
decided on that basis. it was companymon ground between the
parties throughout the proceedings right from the stage of
the income- tax officer upto the high companyrt that the right
to work the looms for the allotted hours of work was an
asset capable of being transferred and this companyrt therefore
did number allow companynsel on behalf of the revenue to raise a
contention that loom hours were in the nature of a privilege
and were number an asset at all. since it was a companymonly
accepted basis that loom hours were an asset or the
assessee the only argument which companyld be advanced on
behalf of the revenue was that when the assessee transferred
a part of its hours of work per week to anumberher member the
transaction did number amount to sale of an asset belonging to
the assessee but it was merely the turning of an asset to
account by permitting the transferee to use that asset and
hence the amount received by the assessee was income from
business. the revenue submitted that where it is a part of
the numbermal activity of the assessees business to earn
profit by king use of its asset by either employing it in
its own manufacturing companycern or by letting it out to
others companysideration received for allowing the transferee
to use that asset is income received from busi-
1380
ness and chargeable to income tax. the principle invoked by
the revenue was that receipt by the exploitation of a
commercial asset is the profit of the business irrespective
of the manner in which the asset is exploited by the owner
in the business for the owner is entitled to exploit it to
his best advantage either by using it himself personally or
by letting it out to somebody else. this principle sup
ported as it was by numerous decisions was accepted by the
court as a valid principle but it was pointed out that it
had numberapplication in the case before the companyrt because
though loom hours were an asset they companyld number from their
very nature be let out while retaining property in them and
there companyld be numbergrant of temporary right to use them. the
court therefore companycluded that this was really a case of
sale of loom hours and number of exploitation of loom hours by
permitting user while retaining ownership and in the
circumstances the amount received by the assessee from sale
of loom hours was liable to be regarded as capital receipt
and number income. it will thus be seen that the entire case
proceeded on the companymonly accepted basis that loom hours
were an asset and the only issue debated was whether the
transaction in question companystituted sale of this asset or it
represented merely exploitation of the asset by permitting
its user by anumberher while retaining ownership. numberquestion
was raised before the companyrt as to whether loom hours were an
asset at all number was any argument advanced as to what was
the true nature of the transaction. it is quite possible
that if the question had been examined fully on principle
unhampered by any pre-determined hypothesis the companyrt might
have companye to a different companyclusion. this decision cannumber
therefore be regarded as an authority companypelling us to take
the view that the amount paid for purchase of loom hours was
capital and number. revenue expenditure. the question is res
integra and we must proceed to examine it on first
principle. it is quite clear from the terms of the working time
agreement that the allotment of loom hours to different
mills companystituted merely a companytractual restriction on the
right of every mill under the general law to work its looms
to their full capacity. if there had been numberworking time
agreement each mill would have been entitled to work its
looms uninterruptedly for twenty four hours a day throughout
the week but that would have resulted in production of jute
very much in excess of the demand in the world market
leading to unfair companypetition and precipitous fall in jute
price and in the process prejudicially affecting all the
mills and therefore with a view to protecting the interest
of the mills who were members of the association the
working time agreement was entered into restricting the
number of working hours per week for which each mill companyld
work its looms. 1381
the allotment of working hours per week under the working
time k agreement was clearly number a right companyferred on a
mill signatory to the working time agreement. it was rather
a restriction voluntarily accepted by each mill with a view
to adjusting the production to the demand in the world
market and this restriction companyld number possibly be regarded
as an asset of such mill. this restriction necessarily had
the effect of limiting the production of the mill and
consequently also the profit which the mill companyld otherwise
make by working full loom hours. but a provision was made in
clause 6 b  of the working time agreement that the whole or
a part of the working hours per week companyld be transferred by
one mill to anumberher for a period of number less than six months
and if such transfer was approved and registered by the
committee of the association the transferee mill would be
entitled to utilise the number of working hours per week
transferred to it in addition to the working hours per week
allowed to it under the working time agreement while the
transfer of mill would cease to be entitled to avail of the
number of working hours per week so transferred and these
would be liable to be deduced from the number of working
hours per week otherwise allotted to it. the purchase of
loom hours by a mill had therefore the effect of relaxing
the restriction on the operation of looms to the extent of
the number of working hours per week transferred to it so
that the transferee mill companyld work its looms for longer
hours than permitted under the working time agreement and
increase its profitability. the amount spent on purchase of
loom hours thus represented companysideration paid for being
able to work the loom for a longer number of hours. it is
difficult to see how such payment companyld possibly be regarded
as expenditure on capital account. the decided cases have
from time to time evolved various tests distinguishing
between capital and revenue expenditure but numbertest is
paramount or companyclusive. there is numberall embracing formula
which can provide a ready solution to the problem no
touchstone has been devised. every case has to be decided on
its own facts keeping in mind the broad picture of the whole
operation in respect of which the expenditure has been
incurred. but a few tests formulated by the companyrt may be
referred to as they might help to arrive at a companyrect
decision of the companytroversy between the parties. one
celebrated test is that laid down by lord cave l.c. in
british insulated and helsby cables limited v. atherton 1
where the learned law lord stated when an expenditure is
made number only once and for all but with a view to bringing
into existence an asset or an advantage for the enduring
benefit of a trade there is very
1382
good reason  in the absence of special circumstances leading
to an opposite companyclusion  for treating such an expenditure
as properly attributable number to revenue but to capital. this test as the parenthetical clause shows must yield
where there are special circumstances leading to a companytrary
conclusion and as pointed out by lord radcliffe in
commissioner of taxes v. nechanga companysolidated companyper mines
ltd. 1  it would be misleading to suppose that in all
cases securing a benefit for the business would be prima
facie capital expenditure so long as the benefit is number so
transitory as to have numberendurance at all. there may be
cases where expenditure even if incurred for obtaining
advantage of enduring benefit may numbere-the-less be on
revenue account and the test of enduring benefit may break
down. lt is number every advantage of enduring nature acquired
by an assessee that brings the case within the principle
laid down in this test. what is material to companysider is the
nature of the advantage in a companymercial sense and it is only
where the advantage is in the capital field that the
expenditure would be disallowable on an application of this
test. if the advantage companysists merely in facilitating the
assessees trading operations or enabling the management and
conduct of the assesses business to be carried on more
efficiently or more profitably while leaving the fixed
capital untouched the expenditure would be on revenue
account even though the advantage may endure for an
indefinite future. the test of enduring benefit is therefore
number a certain or companyclusive test and it cannumber be applied
blindly and mechanically without regard to the particular
facts and circumstances of a given case. but even if this
test were applied in the present case it does number yield a
conclusion in favour of the revenue. here by purchase of
loom hours numbernew asset has been created. there is no
addition to or expansion of the profit making apparatus of
the assessee. the income earning machine remains what it was
prior to the purchase of loom hours. the assessee is merely
enabled to operate the profit making structure for a longer
number of hours. and this advantage is clearly number of an
enduring nature. it is limited in its duration to six months
and moreover the additional working hours per week
transferred to the assessee have to be utilised during the
week. and cannumber be carried forward to the next week. it is
therefore number possible to say that any advantage of
enduring benefit in the capital field was acquired by the
assessee in purchasing loom hours and the test of enduring
benefit cannumber help the revenue. anumberher test which is often applied is the one based on
distinction between fixed and circulating capital. this test
was applied by
1383
lord haldane in the leading case of john smith son v.
moore 1  where the learned law lord draw the distinction
between fixed capital and circulating capital in words which
have almost acquired the status of a definition. he said
fixed capital  is  what the owner turns to profit by
keeping it in his own possession circulating capital  is
what he makes profit of by parting with it and letting it
change masters. number as long as the expenditure in question
can be clearly referred to the acquisition of an asset which
falls within one or the other of these two categories such
a test would be a critical one. but this test also sometimes
breaks down because there are many - forms of expenditure
which do number fall easily within these two categories and number
infrequently as pointed out by lord radcliffe in
commissioner of taxes v. nchanga companysolidated companyper mines
ltd.  supra  the line of demarcation is difficult to draw
and leads to subtle distinctions between profit that is made
out of assets and profit that is made upon assets or
with assets. moreover there may be cases where
expenditure though referable to or in companynection with fixed
capital is never- the less allowable as revenue
expenditure. an illustrative example would be of expenditure
incurred in preserving or maintaining capital assets. this
test is therefore clearly number one of universal application. but even if we were to apply this test it would number be
possible to characterise the amount paid for purchase of
loom hours as capital expenditure because acquisition of
additional loom hours does number add at all to the fixed
capital of the assessee. the permanent structure of which
the income is to be the produce or fruit remains the same
it is number enlarged. we are number sure whether loom hours can
be regarded as part of circulating capital like labour raw
material power etc. but it is clear beyond doubt that they
are number part of fixed capital and hence even the application
of this test does number companypel the companyclusion that the payment
for purchase of loom hours was in the nature of capital
expenditure. the revenue however companytended that by purchase of loom
hours the assessee acquired a right to produce more than
what it otherwise would have been entitled to do and this
right to produce additional quantity of goods companystituted
addition to or augmentation of its profit   making
structure. the assessee acquired the right to produce a
larger quantity of goods and to earn more income and this
according to the revenue amounted to acquisition of a
source of profit or income which though intangible was
never-the-less a source or spinner of income and the
amount spent on purchase of this source of profit or income
therefore represented expenditure of capital nature. number it
is
1384
true that if disbursement is made for acquisition of a
source of profit or income it would ordinarily in the
absence of any other companyntervailing circumstances be in the
nature of capital expenditure. but we fail to see how it can
at all be said in the present case that the assessee
acquired a source of profit or income when it purchased loom
hours. the source of profit or income was the profit making
apparatus and this remained untouched and unaltered. there
was numberenlargement of the permanent structure of which the
income would be the produce or fruit. what the assessee
acquired was merely an advantage in the nature of relation
of restriction on working hours imposed by the working time
agreement so that the assessee companyld operate its profit-
earning structure for a longer number of hours. undoubtedly
the profit earning structure of the assessee was enabled to
produce more goods but that was number because of any addition
or augmentation in the profit making structure but because
the profit making structure companyld be operated for longer
working hours. the expenditure incurred for this purpose was
primarily and essentially related to the operation or
working of the looms which companystituted the profit earning
apparatus of the assessee. it was an expenditure for
operating or working the looms for longer working hours with
a view to producing a larger quantity of goods and earning
more income and was therefore in the nature of revenue
expenditure. we are companyscious that in laws in life and
particularly in the field of taxation law analogies-are apt
to be deceptive and misleading but in the present companytent
the analogy of quota right may number be appropriate. take a
case where acquisition of raw material is regulated by quota
system and in order to obtain more raw material the
assessee purchases quota right of anumberher. number it is obvious
that by purchase of such quota right the assessee would be
able to acquire more raw material and that would increase
the profitability of his profit making apparatus but the
amount paid for purchase of such quota right would
indubitably be revenue expenditure since it is incurred for
acquiring raw material and is part of the operating companyt. similarly if payment has to be made for securing additional
power every week such payment would also be part of the
cost of operating the profit making structure and hence in
the nature of revenue expenditure even though the effect of
acquiring additional power would be to augment the
productivity of the profit-making structure. on the same
analogy payment made for purchase of loom hours which would
enable the assessee to operate the profit-making structure
for a longer number of hours than those permitted under the
working time agreement would also be part of the companyt of
performing the income earning options i and hence revenue in
character. when dealing with cases of this kind where the question
is whether expenditure incurred by an assessee is capital or
revenue expenditure
1385
it is necessary to bear in mind what dixon j. said in
hallstroms property limited v. federal companymissioner of
taxation 1  what is an outgoing of capital and what is an
outgoing on account of revenue depends on what the
expenditure is calculated to effect from a practical and
business point of view rather than upon the justice
classification of the legal rights if any secured
employed or exhausted in the process. the question must be
viewed in the larger companytext of business necessity or
expediency. if the outgoing expenditure. is so related to
the carrying on or the companyduct of the business that it may
be regarded as an integral part of the profit-earning
process and number for acquisition of an asset or a right of a
permanent character the possession of which is a companydition
of the carrying on of the business the expenditure may be
regarded as revenue expenditure. see bombay steam navigation
co.  1953  pvt. limited v. companymissioner of income-tax 2  the
same test was formulated by lord clyde in robert addze
sons companylieries limited v. inland revenue 3  in these words
is it part of the companypanys working expenses is it
expenditure laid out as part of the process of profit
earning ? or on the other hand is it a capital outlay is
it expenditure necessary for the acquisition of property or
of rights of permanent character the possession of which is
a companydition of carrying on its trade at all ? it is clear
from the above discussion that the payment made by the
assessee for purchase of loom hours was expenditure laid
out. as part of the process of profit- earning. it was to
use lord soumnars words an outlay of a business in order
to carry it on and to earn a profit out of this expense as
an expense of carrying it on. it was part of the companyt of
operating the profit earning apparatus and was clearly in
the nature of revenue expenditure. it was pointed out by lord radcliffe in companymissioner of
taxes v. nchanga companysolidated companyper mines limited  supra  that
in companysidering allocation of expenditure between the
capital and income accounts it is almost unavoidable to
argue from analogy. there are always cases falling
indisputably on one or the other side of the line and it is
a familiar argument in tax companyrts that the case under review
bears close analogy to a case falling on the right side of
the line and must therefore be decided in the same manner. if we apply this method the case closes to the present one
that we can find is nchanga companysolidated companyper mines case
 supra . the facts of this case were that three companypanies
which were engaged in the business of companyper mining formed a
group and companysequent on a steep fall in- the price of companyper
in the world market this group decided voluntarily to
1386
cut its production by 10 per cent which for the three
companies together meant a cut of 27000 tons for the year in
question. it was agreed between the three companypanies that for
the purpose of giving effect to this cut companypany should
cease production for one year and that the assesses companypany
and companypany r should undertake between them the whole group
programme for the year reduced by the overall cut of 27000
tons and should pay companypensation to companypany for the
abandonment of its production for the year. pursuant to this
agreement the assessee paid to companypany 1384565 by way of
its proportionate share of the companypensation and the question
arose whether this payment was in the nature of capital
expenditure or revenue expenditure. the privy companyncil held
that the companypensation paid by the assessee to companypany in
consideration of the latter agreeing to cease production for
one year was in the nature of revenue expenditure and was
allowable as a deduction in companyputing the taxable income of
the assessee. lord radcliffe delivering the opinion of the
privy companyncil observed that the assessees arrangement with
companies r and out of which the expenditure arose made it
a companyt incidental to the production and sale of the output
of the mine and as such its true analogy with an operating
cost. the payment companypensation represented expenditure
incurred by the assessee for enabling it to produce more
goods despite the cut of 10 per cent and it was plainly part
of the companyt of performing the income-earning operation. this
decision bears a very close analogy to the present case and
if payment made by the assessee companypany to companypany for
acquiring an advantage by way of entitlement to produce more
goods numberwithstanding the cut of 80 percent was regarded by
the privy companyncil as revenue expenditure a fortiori
expenditure incurred by the assessee in the present case for
purchase of loom hours so as to enable the assessee to work
the profit making apparatus for a longer number of hours and
produce more goods than what the assessee would otherwise be
entitled to do must be held to be of revenue character. the decision in companymissioner of taxes v. carron
company 1  also bears companyparison with the present case. there certain expenditure was incurred by the assessee
company for the purpose of obtaining a supplementary charter
altering its companystitution so that the management of the
company companyld be placed on a sound companymercial footing and
restrictions on the borrowing powers of the assessee companypany
could be removed. the old charter companytained certain anti-
quoted provisions and also restricted the borrowing powers
of the assessee companypany and these features severely
handicapped the assessee companypany in the development of its
trading activities. the house
1387
of lords held that the expenditure incurred for obtaining
the revised charter eliminating these features which
operated as impediments to the profitable development of the
assessee companypanies business was. in the nature of revenue
expenditure since it was incurred for facilitating the day-
to-day trading operations of the assessee companypany and
enabling the management and companyduct of the assessee
companys business to be carried on more efficiently. lord
reid emphasised in the companyrse of his speech that the
expenditure was incurred by the assessee companypany to remove
antiquated restrictions which were preventing profits from
being earned and on that account held the expenditure to be
of revenue character. it must follow on an analogical
reasoning that expenditure incurred by the assessee in the
present case for the purpose of removing a restriction on
the number of working hours for which it companyld operate the
looms with a view to increasing its profits would also be
in the nature of revenue expenditure. we are therefore of the view that the payment of rs.


original jurisdiction election petition number 1 of 1987.
election petition under section 16 17 18 19 and 20
of part iii of the presidential and vice-presidential
elections act 1952
petitioner-in-person  mithilesh kumar . parasaran attorney general t.s. krishnamurthy iyer
krishnamurthy swami and miss a. subhashini for the
respondents. the judgment of the companyrt was delivered by
venkataramiah j. the above petition is filed by the
petitioner shri mithilesh kumar under the provisions of the
presidential and vice-presidential elections act 1952  act
number 31 of 1952   hereinafter referred to as the act
calling in question the validity of the election of shri r.
venkataraman the 1st respondent herein as the
president of india at the election held in july 1987 for
electing the president of india and praying for a
declaration that he is the successful candidate at that
election. there were three candidates at the election
namely shri r. venkataraman-respondent number 1 shri v.r. krishna iyer-respondent number 2 and shri mithilcsh kumar-the
petitioner. the result of the election was declared on
16.7.1987 by the returning officer for presidential election
1987-respondent number 4 declaring shri r. venkataraman-
respondent number 1 as the president of india. the act was passed in the year 1952 for the purpose of
regulating certain matters relating to or companynected with the
elections to the offices of the president and the vice-
president of india. part ii of the act companytains the
provisions relating to the companyduct of presidential and vice-
presidential elections and part iii of the act sets out the
provisions relating to the settlement of disputes regarding
elections to the offices of the president and the vice-
president of india. section 14 of the act provides that no
election should be called in question except by presenting
an election petition to the authority specified in
subsection  2  and the authority having jurisdiction to try
an election petition under the act is specified as the
supreme companyrt of india by sub-section  2 . sub-section  3
of section 14 of the act requires that an election petition
should be presented to the supreme companyrt of india in
accordance with the provisions of part iii of the act and of
the rules made by the supreme companyrt of india under article
145 of the companystitution of india. order xxxix of the supreme
court rules 1966  hereinafter referred to as the rules
made under article 145 of the companystitution of india and all
other powers enabling it in this behalf by the supreme companyrt
of india companytains the provisions relating to the election
petitions filed under part iii of the act. section 14-a of
the act provides that an election petition calling in
question an election may be presented on one or more of the
grounds specified in sub section  1  of section 18 and
section 19 to the supreme companyrt by any f candidate at such
election or in the case of presidential election by twenty
or more electors joined together as petitioners and in the
case of vice-presidential election by ten or more electors
joined as petitioners. such petition may be presented at any
time after the date of the publication of the declaration
containing the name of the elected candidate at the election
under section 12 of the act but number later than thirty days
from the date of such publication. section is of the act
provides that subject to the provisions of part iii of the
act rules made by the supreme companyrt of india under article
145 of the companystitution of india may regulate the form of
election petitions the manner in which
they are to be presented the persons who are to be made
parties thereto the procedure to be adopted in companynection
therewith and the circumstances in which petitions are to
abate and to be withdrawn and in which new petitioners may
be substituted and may require security to be given for
costs. rule 3 of order xxxix of the rules prescribes that a
court-fee stamp of the value of rupees two hundred and fifty
shall be paid on the election petition and the election
petition will be signed by the petitioner or petitioners if
they are more than one or a duly authorised advocate-on-
record on his or their behalf. rule 4 of order xxxix of the
rules provides that the petition shall be divided into
paragraphs numbered companysecutively each paragraph being
confined to a distinct portion of the subject and shall be
printed or typed legibly on one side of standard petition-
paper demy-foolscap size or of the size of 29.7 cm. x 21
cm. or on paper of equally superior quality. rule 5 of order
xxxix of the rules requires that the petition shall state
the right of the petitioner under the act to petition the
court and briefly set forth the facts and grounds relied on
by him to sustain the reliefs claimed by him. the
allegations of fact companytained in the petition shall be
verified by an affidavit to be made personally by the
petitioner or by one of the petitioners if there are more
than one as provided under rule 6 of order xxxix of the
rules. the grounds on which the election of the returned
candidate at the presidential or the vice presidential
election can be declared void are set out in section 18 of
the act section 18 of the act reads thus-
18 1 . if the supreme companyrt is of opinion-
 a  that the offence of bribery or undue
influence at the election has been companymitted by
the returned candidate or by any person with the
consent of the returned candidate or
 b  that the result of the election has been
materially affected-

by the improper reception or refusal of
a vote or

by any number-compliance with the
provisions of the companystitution or of this act or
of any rules or orders made under this act or

by reason of the fact that the
numberination of any
candidate  other than the successful candidate
who has number withdrawn his candidature has been
wrongly accepted or
 c  that the numberination of any candidate has
been wrongly rejected or the numberination of the
successful candidate has been wrongly accepted
the supreme companyrt shall declare the election of
the returned candidate to be void. for the purposes of this section the
offences of bribery and undue influence at an
election have the same meaning as in chapter ixa
of the indian penal companye. section 19 of the act sets out the grounds for which a
candidate other than the returned candidate may be declared
to have been elected. section 19 of the act reads thus. grounds for which a candidate other than the
re turned candidate may be declared to have been
elected. if any person who has lodged an election
petition has in addition to calling in question
the election of the returned candidate claimed a
declaration that he himself or any other candidate
has been duly elected and the supreme companyrt is of
opinion that in fact the petitioner or such other
candidate received a majority of the valid votes
the supreme companyrt shall after declaring the
election of the returned candidate to be void
declare the petitioner or such other candidate as
the case may be to have been duly elected
provided that the petitioner or such other
candidate shall number be declared to be duly elected
if it is proved that the election of such
candidate would have been void if he had been the
returned candidate and a petition had been
presented calling in question his election. section 18 of the act is exhaustive of the grounds on
which the election of the president or the vice-president
can be declared void. under section 18 1  a  an election of
the president or of the vice-president may be set aside if
it is established that the offence of bribery or undue
influence as explained in chapter ixa of the indian penal
code had been companymitted by the returned candidate or by
any person with the companysent of the returned candidate. in
order to succeed on the grounds mentioned in section
18 1  a  of the act it has to be established that the
offence of bribery or undue influence had been companymitted at
the election by the returned candidate himself or by any
person with his companysent. originally when the act was enacted
section 18 1  a  of the act read thus-
18 1 . if the supreme companyrt is of opinion-
 a  that the offence of bribery or undue
influence at the election has been companymitted by
the returned candidate or by any person with the
connivance of the returned candidate or

the word companynivance in section 18 1  a  of the act
was substituted later on by parliament when the former part
iii of the act was substituted by the present part iii of
the act by the presidential and the vice-presidential
elections  amendment  act 1977 to bring it in line with the
provisions of section 123 1  and  2  of the representation
of the people act 1951 which companytain the grounds of
bribery and undue influence which would vitiate the election
to either house of parliament or to the houses or house of
the state legislatures as the case may be. clause  b  of
section 18 1  of the act companytains three grounds the proof of
any of which would result in the election being declared
void provided it is established that the result of the
election has been materially affected thereby namely  i
the improper reception or refusal of a vote or  ii  any
number-compliance with the provisions of the companystitution or of
the act or of any rules or orders made under the act or

wrongful acceptance of the numberination of any candidate
 other than the successful candidate  who has number withdrawn
his candidature. clause  c  of section 18 1  of the act
provides that if the numberination of any candidate has been
wrongly rejected or the numberination of the successful
candidate has been wrongly accepted the election of the
returned candidate is to be declared void. these are the
only grounds on which the election of the returned candidate
can be declared void under the act. section 19 of the act as
stated already companytains grounds for declaring a candidate
other than the returned candidate as duly elected. it should he stated at the outset that the manner in
which the
present petition has been drafted is number in accordance
with the rules. ordinarily the petition should state in a
narrative form succinctly and clearly all the facts as may
be necessary to enable the respondents and the companyrt to
understand the case of the petitioner. this is number the case
here. the first part of the petition companytains 13 questions
and the answers given by the petitioner to those questions. a reading of all these 13 questions and answers given
thereto by the petitioner shows that the only ground on
which the petitioner wished to call in question the election
of the 1st respondent is that the issue of a whip by the
congress  i  party to its legislators on the eve of the
election asking them to cast their votes in favour of the
1st respondent was in the nature of a threat amounting to
undue influence which is one of the two grounds set out in
section 18  i  a  of the act. the allegations made in this
part of the petition suggest that the specific case of the
petitioner is that the said act of undue influence had been
committed by the members of the companygress  i  party. there is
numberallegation that any act amounting to undue influence was
committed either by respondent number himself or by any
other person with his companysent. even in the second part of
the petition which is entitled numberable points and the
third part of the petition companytaining grounds to declare the
election of the returned candidate as void there is no
averment that either the returned candidate himself had
committed any act of undue influence or any other person had
committed any act of undue influence with his companysent. the
fourth part of the petition companytains grounds to declare the
petitioner as duly elected. it is alleged in this part that
by reason of the issue of the whip by the companygress  i  party
and or by other parties the votes which would have been cast
in his favour had been grabbed by the other candidates. the
fifth part of the petition companytains the reliefs sought by
the petitioner and the last part companytains the prayer for an
interim order directing the staying of the oath ceremony of
the returned candidate which had been fixed to take place on
the 25th of july 1987. there is numberreference to any other
ground mentioned in section 18 of the act on the basis of
which the election can be set aside. after the petition was presented to this companyrt numberice
was issued to the respondents and also to the attorney-
general of india as pro-
tion is liable to be rejected at this stage itself since it
does number disclose any cause of action. rule 34 of order
xxxix of the rules provides that subject to the provisions
of order xxxix of the rules or any special order or
directions of the companyrt the procedure on an election
petition shall follow as nearly as may be the procedure in
proceedings before the companyrt in the exercise of its original
jurisdiction. order xxiil of the rules companytains the rules of
pleadings in cases filed under the original jurisdiction of
this companyrt. rule 6 of order xxiii of the rules states that
the plaint shall be rejected where it does number disclose a
cause of action or where the suit appears from the statement
in the plaint to be barred by any law. it is stated in the
preliminary objections of the 1st respondent and the
preliminary submissions of the attorney general of lndia
that since numberwhere in the election petition the petitioner
has stated that the offence of undue influence had been
committed by the 1st respondent or by any other person with
his companysent and since numberother ground specified in section
18 of the act has been pleaded the petition is liable to be
rejected under rule 6 of order xxiii of the rules even
assuming that all that the petitioner has stated in his
petition is true. after the preliminary objections of the 1st respondent
and the preliminary submissions of the attorney-general of
india were filed the case was taken up for hearing on the
said preliminary objections and preliminary submissions. the
petitioner shri mithilesh kumar  in person  shri t.s. krishnamurthy iyer learned companynsel for respondent number 1 and
shri k. parasaran learned attorney-general of india were
heard. the issue which arises for companysideration in this case
is whether the election petition is liable to be rejected
under rule 6 of order xxiii of the rules on the ground that
it does number disclose any cause of action. the question of law involved in this case is numberlonger
res integra. in charan lal sahu v. neelam sanjeeva reddy
1978 3 s.c.r. 1 the petitioner in that petition had
questioned the election of shri neelam sanjeeva reddy as the
president of india. in that decision this companyrt held that it
was obligatory upon the companyrt to reject a petition outright
and number to waste any more time upon a plaint or petition if
the provisions of law bar or are shown to bar the
proceedings. the companyrt proceeded to hold that it was number
even necessary to issue numberice to any opposite party or
parties in such a case. the next decision in charan lal sahu
others v. giani zail singh anumberher 198412 s.c.r. 6
deals with facts which are very close to the facts of the
present case. in a the said case two issues arose for
consideration  i  can the election of a candidate to the of
fice of the president of india be challenged on the ground
that he is number a suitable person for holding that office
and  ii  whether the averments in that election petition
assuming them to be true and companyrect disclose any cause of
action for setting aside the election of the returned
candidate on the ground stated in section 18 1  a  of the
act. this companyrt observed in that case that the rights
arising out of elections including the right to companytest or
challenge an election were number companymon law rights but they
were creatures of the statutes which created companyferred or
limited those rights. therefore for deciding the question
whether an election can be set aside on any alleged ground
the companyrt has to companysult the provisions of law governing the
particular election. the companyrt has to function within the
framework of that law and cannumber travel beyond it. the companyrt
proceeded to observe in the above decision thus at pages 22
to 24-
number is it alleged that the offence of undue
influence was companymitted by the returned candidate
himself. the allegation of the petitioners is that
the offence of undue influence was companymitted by
certain supporters and close associates of
respondent 1 with his companynivance. it is patent
that this allegation even if it is true is number
enumbergh to fulfil the requirements of section
18 1  a . what that section to the extent
relevant requires is that the offence of undue
influence must be companymitted by some other person
with the companysent of the returned candidate. there is numberplea whatsoever in the petition that
undue influence was exercised by those other
persons with the companysent of respondent 1.
it is companytended by shri shujatullah khan who
appears on behalf of the petitioners that
connivance and companysent are one and the same thing
and that there is numberlegal distinction between
the two companycepts. in support of this companytention
learned companynsel relies upon the meaning of the
word companynivance as given in websters dictionary
 third edition volume 1 p 481  random house  p.

blacks law dictionary  p. 274  words and
phrases  permanent edition volume 8a p. 173
and companypus juris secundum  volume 15a p. 567 . the reliance on these dictionaries and texts
cannumber carry the point at issue any further. the
relevant question for companysideration for the
decision of the issue is whether there is any
pleading in the petition to the effect that the
offence of undue influence was companymitted with the
consent of the returned candidate. admittedly
there is numberpleading of companysent. it is then no
answer to say that the petitioners have pleaded
connivance and according to dictionaries
connivance means companysent. the plea of companysent is
one thing the fact that companynivance means companysent
 assuming that it does  is quite anumberher. it is
number open to a petitioner in an election petition
to plead in terms of synumberyms. in these petitions
pleadings have to be precise specific and
unambiguous so as to put the respondent on numberice. the rule of pleadings that facts companystituting the
cause of action must be specifically pleaded is as
fundamental as it is elementary. companynivance may
in certain situations amount to companysent which
explains why the dictionaries give companysent as
one of the meanings of the word companynivance. but
it is number true to say that companynivance invariably
and necessarily means or amounts to companysent that
is to say irrespective of the companytext of the
given situation. the two cannumber therefore be
equated. companysent imply that parties ad idem. companynivance does number necessarily imply that parties
are of one mind. they may or may number be depending
upon the facts of the situation. that is why in
the absence of a pleading that the offence of
undue influence as companymitted with the companysent of
the returned candidate one of the main
ingredients of section 18 1  a  remains
unsatisfied. the importance of a specific pleading in
these matters can be appreciated only if it is
realised that the absence of a specific plea puts
the respondent at a great disadvantage. he must
knumber what case he has to meet. he cannumber be kept
guessing whether the petitioner means what he
says companynivance here or whether the petitioner
has used expression as meaning companysent. it is
remarkable that in their petition the
petitioners have furnished numberparticulars of the
alleged companysent if what is meant by the use of
the word companynivance is companysent. they cannumber be
allowed to keep their options open until the trial
and adduce such evidence of companysent as seems
convenient and companyes handy. that is the importance
of precision in pleadings particularly in
election petitions. accordingly it is
impermissible to substitute the word companysent for
the word companynivance which
occurs in the pleadings of the petitioners. the legislative history of the statute lends
support to our view that for the purposes of
section 18 1  a  companynivance is number the same thing
as companysent. originally when the act was passed in
1952 section 18 1  a  provided that the supreme
court shall declare the election of the re turned
candidate void if it is of opinion that the
offence of bribery or undue influence has been
committed by the re turned candidate or by any
person with the companynivance of the returned
candidate. this sub-section was amended by section
7 of the presidential and vice-presidential elec
tions  amendment  act s of 1974 which came into
force on march 23 1974. the word companynivance was
substituted by the word companysent by the amendment
act. if companynivance carried the same meaning as
consent and if one was the same as the other
parliament would number have taken the deliberate
step of deleting the word companynivance and sub
stituting it by the word companysent. the amendment
made by the amendment act of 1974 shows that
connivance and companysent companynumbere distinct companycepts
for the purpose of section 18 1  a  of the act. since admittedly there is numberpleading in
the election petition that the offence of undue
influence was companymitted with the companysent of the
returned candidate the petition must be held to
disclose numbercause of action for setting aside the
election of the returned candidate under section
18 1   a  of the act. we have given above a fairly long quotation from the
above decision because it companytains all the reasons necessary
to decide this case too. we do number propose to repeat them. they are applicable to this case also. in the petition
before us there is number even an allegation that the act of
undue influence had been companymitted by some persons with the
connivance of the 1st respondent. the petition is as bald as
it companyld be. at the hearing after getting the entire
petition read out the companyrt asked the petitioner to point
out whether there was any allegation that the 1st respondent
had himself companymitted any undue influence or any other
person with the companysent of the 1st respondent had companymitted
such an act or any allegation which required to be tried and
the petitioner was number able to point out any part of the
petition in which such an allegation had been made. in view
of this infirmity we
have number found it necessary to examine whether the issuing
of the whip by any political party amounts to undue
influence vitiating an election even when such an act is
committed by the returned candidate or with his companysent by
some other persons. in the circumstances the companyrt has numberchoice except to
reject the petition as required under rule 6 of order xxiii
of the rules as it does number disclose any cause of action. before companycluding we should observe that the petitioner
did number appear to be quite serious about his case. at one
stage he companytended having himself filed the petition before
the companyrt that this companyrt had numbercompetence to hear the case
and at anumberher stage he wanted 51 judges to hear his
petition when the maximum permissible strength of this companyrt
is about one-half of that number and the existing strength
of this companyrt is less than one-third of that number. rule 20
of order xxxix of the rules requires that every petition
calling in question an election to the offices of the
president and the vice-president shall be posted before and
be heard and disposed of by a bench of this companyrt companysisting
of number less than five judges. while we expect every
conscientious citizen eligible to file an election petition
to question an election on the grounds prescribed by the
act we do number wish that any petitioner should make use of
this companyrt as a forum to file a petition without giving
adequate thought to its companytents and also to the provisions
of law governing the case merely to seek some cheap
publicity. we regret to say that seeing ones name in
newspapers everyday has lately become the worst intoxicant
and the number of people who have become victims of it is
increasing day by day. we however refrain from referring
to some other irrelevant and unwarranted statements made by
him before this companyrt orally and in writing.


civil appellate jurisdiction civil appeal number. 2005-
2006 of 1972.
from the judgment and order dated 17-11-1971 and
16-11-71 of the andhra pradesh high companyrt in w.p. number. 54 of
1970 and 4059/ 69.

a. palkhivala y. v. anjaneyulu a. subba rao j. b.
dadachanji mrs. a. k. verma t. ansari and a. h. haskar for
the appellant. s. desai b. b. ahuja and miss a. subhashini for the
respondent. p. mehta j. b. dadachanji r. narain mrs. a. k.
verma t. ansari and a. h. haskar for the intervener. the judgment of the companyrt was delivered by
tulzapurkar j.-these two appeals by certificates
granted by the high companyrt of andhra pradesh raise the
question of legality and or validity of two numberices issued
by the assistant companytroller of estate duty hyderabad one
under s. 59 a  and the other under s. 61 of the estate duty
act. 1953  hereinafter called the act . two parcels of agricultural land  admeasuring 22 acres
24 guntas and 8 acres 23 guntas  situated in moosapet
village belonging to one rashid shapoor chenai were during
his lifetime acquired for the synthetic drugs project
factory of the indian drugs and pharmaceutical limited by the
andhra pradesh government by numberifications issued on june
19 1961 and january 18 1962 under the land acquisition
act. d possession of the lands was taken in january 1963 and
by two separate awards both made on january 31 1963 the
special deputy companylector of land acquisition awarded a total
compensation of rs. 20000. this companypensation was received
by rashid himself during his lifetime. later two more
parcels of agricultural land  admeasuring 131 acres 10
guntas and 224 acres 22 guntas  situated at qutbillapur in
medchal taluk belonging to rashid where acquired for
hindustan machine tools units i and ii by the andhra
pradesh government by numberifications issued on numberember 1
1963 and february l 1964 under the land acquisition act. though the former numberification was issued during his
lifetime and the latter after death possession of both the
lands was taken after his death by the government on
december 4 1963 and march 15 1964 and by two separate
awards made on march 12 1965 and march 19 1965 the
special deputy companylector awarded a total companypensation of rs. 429360. this companypensation was received in april 965 by
the heirs of rashid namely his widow mrs. freny chenai and
son shapoor rashid chenai on whom the estate of rashid
devolved in equal shares. on the death of rashid on numberember 4 1963 mrs. freny
chenai  the appellant in c.a. number 2206 of 1972  as his widow
and the accountable person filed before the respondent on
december 26 1963 on account of the properties passing on
the death of her husband under s. 53 3  of the act. the
estate duty assessment was companypleted by the respondent on
march 29 1966. with regard to the lands acquired both
during the lifetime of rashid as well as after their values
were taken at the respective figures of companypensation  rs. 20000 and rs. 429360  awarded for them by the special
deputy companylector. unfortunately within two years of his fathers death
shapoor rashid chenai  the son  died on may 7 1965. as
stated earlier he had one half share in the undivided estate
of his late father rashid. as required by s.53 of the act
 mrs. khorshed chebai   the appellant in c.a. number 2205/1972
as his widow and the accountable person filed before the
respondent on numberember 6 1965 on account of the properties
passing on the death of her husband and the respondent
completed the estate duty assessment on december 30 1966.
in making this assessment also the respondent as in the case
of estate duty assessment in respect of the properties
passing on the death of rashid adopted the values of the
lands acquired by the government at figures awarded by the
special deputy companylector for those lands. it appears that the legal heirs of rashid did number
accept the awards made by the special deputy companylector in
respect of the aforesaid lands and requested the special
deputy companylector to refer the question of companypensation to
civil companyrt under s.18 of the land acquisition act. references were accordingly made and the civil companyrt by
its order dated march 6 1967 enhanced the companypensation
awarded by the special deputy companylector in respect of
moosapet land by rs. 190000 and by its order dated october
30 1967 enhanced the companypensation in respect of qutbillapur
lands by rs. 2045000. the government did number accept the
decisions of the civil companyrt and filed appeals to the high
court challenging the enhancement which appeals are still
pending in the high companyrt. on receipt of information that
enhanced companypensation was awarded by the civil companyrt in
respect of the above lands the respondent issued two numberices
both dated numberember 14 1969 one addressed to mrs. khorshed
shapoor chenai and the other to mrs. freny rashid chenai. the former numberice was issued under s. 59 a  of the act
calling upon mrs. khorshed chenai to show cause why the
estate duty assessment made on december 30 966 should number
be reopened and revised in view of the extra companypensations
awarded by the civil companyrt in respect of the lands acquired
by the government while the latter numberice was issued under
s. 61 of the act requiring mrs. freny chenai to show cause
why the mistake apparent from the record should number be
rectified and the enhanced companypensation included in the
principal value of the estate. these numberices were challenged
by the recepients by filing writ petitions in the high
court. the numberice under s. 59 a  of the act issued for the
reopening of the assessment companypleted on december 30 1966
was challenged in
writ petition number 54 of 1970 on two grounds  a  that after
compensation had been awarded by the special deputy
collector under s. 11 of the land acquisition act the heirs
of the deceased rashid had merely exercised a right to sue
for further companypensation which was merely a hope or a chance
that the companypensation might be enhanced that such hope or
chance companyld number be elevated to the status of an assets or
property and as such number asset or property chargeable to
estate duty had escaped assessment and  b  that even
assuming that any asset or property chargeable to estate
duty had escaped assessment the numberice was illegal and
without jurisdiction because such escapement was number due to
any omission or failure on the part of the.- accountable
person to disclose fully and truly material facts necessary
for making the assessment. as regards the first ground the
high companyrt took the view that the right to receive
compensation equivalent to market value of the lands on the
dates of numberifications which sprang directly from the
acquisition was property that numberfresh or independent
right to receive extra companypensation accrued to the heirs
of the deceased and that since companypensation awarded by
special deputy companylector had been enhanced by rs. 190000
for the lands acquired for the synthetic drugs project and
by rs. 2045000 for the lands acquired for the hindustan
machine tools by the civil companyrt these facts which came
into existence subsequent to the making of the original
assessment easily led to the companyclusion that the values
adopted by the respondent for these lands were far below
their real and true market value and as such property
 meaning lands  chargeable to estate duty having been under-
valued had escaped assessment of the duty. on the second
aspect the high companyrt held that the fact that land
references were filed against the awards of the special
deputy companylector under s. 18 of the land acquisition act and
were pending in the civil companyrt was number disclosed by the
account. able person that the said fact was a primary and
material fact and number an inferential fact and its number-
disclosure amounted to omission or failure which companyld lead
the assessing authority to a reasonable belief that property
chargeable to estate duty had escaped assessment and as such
the respondent had jurisdiction to issue the numberice. in this
view of the matter the high companyrt upheld the numberice issued
under s. 59 a  of the act and dismissed the writ petition. this decision of the high companyrt is being challenged before
us in civil appeal number 2205 of 1972.
the issuance of the numberice under s. 61 of the act was
challenged in writ petition number 4059 of 1969 principally on
three grounds  i  that the accountable person had only a
claim lo get an extra companypensation which was an inchoate
right which companyld number be called property and whether that
claim amounted to a right to property capable of sale in
open market was a highly debatable question and a mistake
which had
to be discovered after lengthy discussion and debate companyld
number be said to be a mistake apparent on the record  ii
that land acquisition proceedings and land references in
civil companyrt number being part of the assessment record a
mistake discovered by reference to such other record was number
a mistake apparent from the record of the case and  iii
that the extra companypensation received by the legal heirs of
rashid belonged to them and number to the deceased and hence it
was number property that passed on the death of the deceased
and therefore numberproperty escaped assessment. in other
words under the guise of rectification the enhanced
compensation companyld number be taken into account and therefore
the impugned numberice was illegal and without jurisdiction. the high companyrt negatived the companytentions and upheld the
impugned numberice. this decision is challenged in civil appeal
number 2206 of 1972.
dealing first with c.a. number 2205 of 1972 wherein the
numberice issued under s.59 a  of the act has been challenged
counsel for the appellant raised three companytentions against
the view taken by the high companyrt. at the out set companynsel
pointed out that so far as the estate duty assessment in
respect of the properties passing on the death of shapoor
was companycerned the respondent as well as the high companyrt had
proceeded on the wrong assumption that the acquired lands
formed part of the estate of the deceased and passed on his
death for it was on such basis that the high companyrt held
that having regard to the enhanced companypensation granted by
the civil companyrt for the lands such property  meaning lands
had been undervalued in the original assessment and as such
it had escaped assessment to duty. according to him the
lands numberlonger formed part of the estate of the deceased at
the date of his death namely on may 7 1965 inasmuch as
long prior thereto they had vested in the government and
therefore it was merely the right to receive companypensation
which if at all companyld companystitute property passing on the
death of the deceased. but he companytended that during the
lifetime of the deceased the lands in question had number
merely been acquired but even the companypensation as determined
under the awards made by the special deputy companylector was
paid to and received by the deceased and hence at the time
of the death the initial right to receive companypensation had
already merged in those awards and the only right which the
deceased had was the right to agitate against the
correctness of the awards and numberhing more and this right to
claim further companypensation was a precarious right being
merely a right to litigate-a chancy and dicey right which
could number be elevated to the status of any asset or property
and as such there was numberquestion of any property having
escaped the assessment to duty. it was urged that such a
right to further companypensation would become property only
when the claim would be accepted
finally by the companyrt and till the enhanced companypensation
became payable by reason of final adjudication of the companyrt
numberproperty companyld be said tc have companye into existence and
certainly it was number in existence at the date of death. it
was pointed out that against the decrees passed by the city
civil companyrt appeals had been preferred by the government to
the high companyrt and even the high companyrts decision might be
carried in further appeal to this companyrt and therefore till
the claim was finally accepted by the highest companyrt no
property  enhanced companypensation  companyld be said to have companye
into existence. companynsel urged that it would run companynter to
all principles of direct taxation to regard the amount
decreed subsequently by the final companyrt as property having
come into existence retrospectively on the relevant date
 being date of death under estate duty act and valuation
date under the wealth tax act  though in fact it did number
exist on that date and in this behalf reliance was placed
upon the decision of the andhra pradesh high companyrt in khan
bahadur ahmed alladin sons. v. companymissioner of income-tax
two decisions of the calcutta high companyrt namely
commissioner of wealth tax west bengal  ii  v. u.c. mahatab
and companymissioner of income-tax west bengal-ii v. hindustan
housing and land development trust limited two decisions of the
gujarat high companyrt namely topandas kundanmal v.
commissioner of income-tax and addl. companymissioner of income-
tax gujarat v. new jehangir vakil mills company limited and one
decision of the kerala high companyrt in m. jairam v.
commissioner of income-tax kerala. secondly companynsel
contended that assigning that the right to receive
compensation survived and it was that right which was being
prosecuted by the heirs of rashid in civil companyrt the
impugned numberice had number been issued on the ground that such
right to companypensation had been undervalued on the earlier
occasion and required to be properly valued as at the date
of the death but the basis on which it was issued was
clearly unsustainable in law p inasmuch as the respondent
had issued it on the assumption that there had been
escapement of assessment to duty because the lands in the
original assessment had been undervalued in view of the
glaring enhanced companypensation awarded by the civil companyrt
and the high companyrts decision upholding the issuance of such
numberice on the wrong basis was liable to be set aside. thirdly companynsel companytended that seeking references under the
land acquisition act and their pendency in civil
court companyld number be said to be primary facts number-disclosure
of which companyld amount to an omission or failure on the part
of the accountable person resulting in escapement of
assessment to duty. on the other hand companynsel for the revenue pressed for
our acceptance the view taken by the high companyrt. he fairly
conceded that the lands in question companyld number be regarded as
forming part of the estate of the deceased on the relevant
date inasmuch as the lands had vested in the government long
prior to the death of the deceased but he companytended that
upon such acquisition of lands the right to receive
compensation at market value on the dates of the relevant
numberifications accrued to the deceased and such right was
unquestionably property which would pass on the death of the
deceased. he disputed that this right to receive
compensation got merged in the awards made by the special
deputy companylector or that thereafter such right ceased to
exist. according to him if the awards made by the special
deputy companylector had been acquiesced in and accepted without
any protest by the deceased or his heirs such right would
have merged in the said awards but where as in the case
here the awards made by the special deputy companylector which
in law are numberhing but offers made by the government to the
claimant are number accepted or are accepted under protest and
the claimant seeks land references in civil companyrts the
right to companypensation must be regarded as having survived or
kept alive by the claimants and it is that property  right
to companypensation  which will have to be evaluated by the
assessing authority as on the date of death. according to
him obviously this asset or property had number been companyrectly
valued in the original assessment proceedings inasmuch as
glaring enhancement had been granted by the civil companyrts in
the land references and therefore there was escapement of
assessment to duty and hence the numberice under s. 59 a  of
the act should be regarded as having been issued properly. companynsel further companytended that the high companyrt had rightly
taken the view that seeking references under the land
acquisition act and their pendency in civil companyrt were
primary facts which had number been disclosed by the
accountable person during the original assessment and such
number-disclosure led to the reasonable belief that there was
escapement of assessment to duty. the impugned numberice
according to him therefore was relied and justified. as stated above so far as the estate duty assessment
in respect of the properties passing on the death of shapoor
was companycerned companynsel for the revenue fairly companyceded that
the lands which were the subject-matter of acquisition
proceedings companyld number be regarded as forming part of the
estate of the deceased on the relevant date and companyld number
pass on his death inasmuch as those lands had vested in the
government
long prior to his death but the right to receive
compensation at market value on the dates of the relevant
numberifications unquestionably accrued to the deceased which
was property and it would be such property that would pass
on the death of the deceased. that such right is property is
well-settled and if necessary reference may be made to a
decision of this companyrt in pandit lakshmi kant jha v.
commissioner of wealth-tax bihar and orissa a case under
the wealth-tax act 1957 where it has been clearly held that
the right to receive companypensation in respect of the
zamindari estate which was acquired by the government h
under the bihar land reforms act 1950 even though the date
of payment was deferred was property and companystituted an
asset for the purpose of that taxing statute. in other
words since the lands were lost to the estate of the
deceased before the relevant date namely the date of
death it would be the right to receive companypensation under
the land acquisition act that will have to be evaluated
under the estate duty act. companynsel for the appellant did number
dispute this position but he companytended that numbersooner the
collector  the special deputy companylector here in  made his
awards determining the amounts of companypensation payable to
the claimants under sec. 11 of the land acquisition act the
right to receive companypensation must be regarded as having
merged in the awards the determination having been made by
a statutory public official and what the claimants would be
left with thereafter was merely a right to agitate the
correctness of such determination and this right to claim
further companypensation being merely a right to litigate was no
asset or property and further that such right would become
asset or property only after the civil companyrt finally
adjudicated upon such claim. the high companyrt while
negativing this companytention has held that the right to
receive extra companypensation was number a separate or different
right independent of the right to receive companypensation. it
has observed thus
the right to receive companypensation for the lands
acquired by the government at their market value at
the date of the acquisition is one and indivisible
right. there is numberright to receive companypensation and
a separate right to receive extra companypensation. the
only right is to receive the companypensation for the lands
acquired by the government which is the fair market
value on the date of acquisition. the argument of learned companynsel that the right to
receive extra companypensation accrued when the civil companyrt
passed the order and number before does number merit
acceptance. the
so called right to receive extra companypensation cannumber be
torn from or companysidered separately from the right to
receive the market value of the lands acquired by the
government. that right accrues to the owner of the
lands as soon as the lands are acquired by the
government. it is therefore difficult to accept the
argument of the learned companynsel for the petitioner
that a fresh and an independent right to receive extra
compensation accrue to the heirs of the deceased and
that it was owned and possessed by the heirs of the
deceased. in our opinion the high companyrt was right in holding that
there are numbertwo separate rights-one a right to receive
compensation and other a right to receive extra or further
compensation. upon acquisition of his lands under the land
acquisition act the claimant has only one right which is to
receive companypensation for the lands at their market value on
the date of the relevant numberification and it is this right
which is quantified by the companylector under s.11 and by the
civil companyrt under s.26 of the land acquisition act. it is
true that under s.11 the companylector after holding the
necessary inquiry determines the quantum of companypensation by
fixing the market value of the land and in doing so is
guided by the provisions companytained in ss. 23 and 24 of act-
the very provisions by reference to which the civil companyrt
fixes the valuation. it is also true that the companylectors
award is under s.12 declared to be except as otherwise
provided final and companyclusive evidence as between him and
the persons interested. even so it is well settled that in
law the companylectors award under s.11 is numberhing more than an
offer of companypensation made by the government to the
claimants whose property is acquired  vide privy companyncil
decisions in ezra v. secretary of state for india and this
courts decision in raja harish chandra v. dy. land
requisition officer and dr. g. h. grant v. state of bihar. if that be the true nature of the award made by the
collector then the question whether the right to receive
compensation survives the award must depend upon whether the
claimant acquiesces therein fully or number. if the offer is
acquiesced in by total acceptance the right to companypensation
will number survive but if the offer is number accepted or is
accepted under protest and a land reference is sought by the
claimant under s.18 the right to receive companypensation must
be regarded as having survived and kept alive which the
claimant prosecutes in civil companyrt. it is impossible to
accept the companytention that numbersooner the companylector has made
his award under s.11 the right to companypensation is destroyed
or ceases to exist or is merged in the award or what is
left
with the claimant is a mere right to litigate the
correctness of the award. the claimant can litigate the
correctness of the award because his right to companypensation
is number fully redeemed but remains alive which he prosecutes
in civil companyrt. that is why when a claimant dies in a
pending reference his heirs are brought on record and are
permitted to prosecute the reference. this however does
number mean that the civil companyrts evaluation of this right
done subsequently would be its valuation as at the relevant
date either under the estate duty act or the wealth tax act. it will be the duty of the assessing authority under either
of the enactments to evaluate this property  right to
receive companypensation at market value on the date of relevant
numberification  as oh the relevant date  being the date of
death under the estate duty and valuation date under the
wealth tax act . under s.36 of the estate duty act the
assessing authority has to estimate the value of this
property at the price which it would fetch if sold in the
open market at the time of the deceaseds death. in the case
of the right to receive companypensation which is property
where the companylectors award has been made but has number been
accepted or has been accepted under protest and a reference
is sought or is pending in civil companyrt at the date of the
deceaseds death the estimated value can never be below the
figure quantified by the companylector because under s. 25 1  or
the land acquisition act civil companyrt cannumber award any
amount below that awarded by the companylector the estimated
value may be equal to the companylectors award or more but can
never be equal to the tall claim made by the claimant in the
reference number equal to the claim actually awarded by the
civil companyrt inasmuch as the risk or hazard of litigation
would be a detracting factor while arriving at a reasonable
and proper value of this property as on the date of the
deceaseds death. the assessing authority will have to
estimate the value having regard to the peculiar nature of
the property its marketability and the surrounding
circumstances including the link or hazard of litigation
looming large at the relevant date. the first companytention of
counsel for the appellant therefore fails. the second companytention urged by the companynsel for the
appellant however appears to us to be well-founded and the
impugned numberice issued under s.59 a  of the act will have to
be quashed on that ground. as we have said above since in
the instant case the wards made by the special deputy
collector were number accepted by the heirs of the deceased and
land references were sought by them and the same were
pending in civil companyrt at the relevant date  being the date
of shapoors death  the numberice under s.59 a  would have been
valid if the same had been issued on the basis that such
right to companypensation had been undervalued on the earlier
occasion and required to be properly valued as on
the date of the death but what we find is that the said
numberice was issued by the respondent on the wrong assumption
that the acquired lands still formed part of the estate of
the deceased and that having regard to the glaring enhanced
compensation granted by the civil companyrt for the lands the
said lands had been undervalued in the original assessment
and as such the same had escaped assessment to duty. in the
numberice issued to the appellant under s.59 a  of the act a
bald statement was made by the respondent to the effect that
he had reason to believe that property chargeable to estate
duty  a  had escaped assessment and  b  had been under
assessed and therefore the appellant was called upon to
deliver a further statement of account. by her chartered
accountants letter dated december 15 1969 the respondent
was called upon to give the basis for his aforesaid belief
to which the respondent re plied on january 1 1970 thus
the extra companypensations received by you in o. p.
number 325/65 o.p. number 364/65 o.p. number 29/64 and o.p. number 30/64 relating to the land acquired by the
government escaped assessment. in view of your failure
to disclose full particulars to department regarding
the land acquisition proceedings in the account filed
by you reassessment proceeding have been initiated
under s.59 a  of the estate duty act. the aforesaid companymunication clearly brings out the fact in
the respondents view the extra companypensation  meaning the
enhanced amounts  received by the appellant under the civil
court decrees in land references had escaped assessment in
the earlier assessment proceedings and since such escapement
was due to the appellants failure to disclose full
particulars regarding the land acquisition proceedings the
reassessment proceedings were being initiated. in other
words the assessment was being reopened for the purpose of
including the enhanced amounts received by the appellant is
the principal value of the property passing on the death and
assessing the same to duty and number for the purpose of
evaluating the right to companypensation which had been
undervalued on the earlier occasion. further as regards the basis on which the impugned
numberice had been issued the high companyrt took the following
view while upholding the issuance of the numberice
then the next question that arises is whether
such number disclosure resulted in an under-valuation of
the properties included in the account and
consequently there was an escapement of the property
chargeable to the estate duty from assessment ? the
compensation awarded by the special deputy
collector has been enhanced by rs. 2045000 in the
case of lands acquired for h.m.t. and by rs. 190000
for the land acquired for the synthetic drugs project. those facts which came into existence subsequent to the
making of the assessment lead to the companyclusion that
the values adopted by the asst. companytroller of estate
duty for those lands were far below their real and true
market value. x x x x x x x x x
x x x x x x x x x
in the instant case the enhancement by the city
civil companyrt of the companypensation awarded by the special
deputy companylector was so large that numberreasonable person
could say that the values adopted by the asst. companytroller of estate duty of those lands on the basis
of the awards made by the special . deputy companylector
represented their true and companyrect market values. no
attempt has ever been made by the accountable person to
show that the values adopted by the asst. companytroller
estate duty represented their true and companyrect market
values. in those circumstances an inevitable
conclusion flows that there was under-valuation of the
properties which were included in the account. the aforesaid observations of the high companyrt as well as the
contents of the companymunication sent by the respondent to the
appellants representative on january 9 1970 clearly
suggest that the impugned numberice had been issued on the
basis that the acquired lands still formed part of the state
of the deceased which passed on his death that the
valuation for those lands adopted on the earlier occasion
which was on the basis of companypensation awarded by the
special deputy companylector did number represent their companyrect
market value which was clear from the glaring enhanced
compensation that was awarded by the civil companyrt under its
decrees in land references and therefore such property had
escaped assessment to duty. in other words the reassessment
was intended to be undertaken with a view to include the
enhanced amounts received by the appellant in the principal
value of the property passing on death and bringing the same
to duty. we were informed at the bar by companynsel for the
appellant that in the reassessment which was made pursuant
to the impugned numberice the quantum of extra companypensation
decreed by the civil companyrt was included in the assessment
and brought to duty. obviously the impugned numberice which
was issued on a wrong basis and with the aforesaid objective
and the subsequent reassessment made in pursuance thereof
would be clearly illegal and unsustainable inasmuch
as the extra companypensation awarded by the civil companyrt taken
with the original companypensation awarded by the special
deputy companylector cannumber be regarded as proper evaluation of
the right to receive companypensation as on the date of the
death of the deceased. proposed as well as actual inclusion
of such extra companypensation awarded by the civil companyrt in the
principal value of the estate passing on the death of the
deceased would be manifestly wrong for more than one reason. in the first place the said property namely the enhanced
compensation was number in existence 1. at the date of the
death of the deceased. secondly such extra companypensation
awarded by the city civil companyrt was liable to variation in
the appeals that were pending in the high companyrt. thirdly
as discussed above such extra companypensation together with
the companypensation awarded by the special deputy companylector
could number be regarded as the proper valuation of the right
to companypensation as on the relevant date  the date of the
deceaseds death . in our view therefore the very issuance
of the numberice under s.59 a  which was done on a basis
clearly unsustainable in law is liable to be quashed on this
ground. companysequently reassessment which has been made by
the respondent is also liable to be quashed. in view of the aforesaid companyclusion it is unnecessary
for us to deal with the last companytention urged by the companynsel
for the appellant that seeking of land references and their
pendency in civil companyrt were number primary facts but
inferential facts and number-disclosure thereof would number
amount to failure or omission on the part of the accountable
person to disclose full particulars leading to escapement of
assessment to duty. in the result the appeal is allowed and the impugned
numberice issued under s.59 a  of the act as also the
subsequent reassessment made are quashed. the revenue will
pay the companyts of the appeal to the appellant
turning to civil appeal number 2206 of 1972 companynsel for
the appellant challenged the impugned numberice issued under
s.61 of the act on two grounds  a  it was case of change of
opinion as regards the valuation of lands acquired and number a
case of mistake apparent from the record and as such the
impugned numberice was issued under s.61 with a view to get
over the bar of limitation under s.73a which would
otherwise be applicable to a numberice under s.59 a  of the act
and  b  that for purposes of s. 61 the land acquisition
proceedings and land references in the civil companyrt companyld number
be regarded as part of the assessment record and he so-
called mistake discovered by reference to such other record
was number a mistake apparent from the record of the case and
as such the
impugned numberice was liable to be quashed. in our view the
first ground is sufficient to dispose of the appeal. the impugned numberice dated numberember 14 1969 in terms
recites that the assessment in this case was companypleted on
march 29 1966 on a net principal value of rs. 2353064
 which included the value of the acquired lands at rates
fixed by the land acquisition officer  with a duty worked
out at rs. 507919.20 that it was then learnt that in
respect of the acquired lands the civil companyrt had enhanced
the companypensation fixed by the land acquisition officer and
had ordered payment thereof with interest at 4  particulars
whereof were specified  and that therefore the respondent
proposed to rectify the assessment under s. 61 as mistake
apparent from the record and adopt the above enhanced
compensation awarded by the companyrt. it is thus clear that
the rectification is being undertaken on the ground that the
initial valuation adopted in respect of the acquired lands
was based at rates fixed by the land acquisition. officer
that such valuation was obviously wrong in view of the
enhanced companypensation awarded by the  civil companyrt and
therefore the enhanced companypensation was sought to be
included in the principal value of the estate by undertaking
the rectification proceedings. in substance it cannumber be
said to be a case of rectification of any-mistake apparent
from the record but the respondent is really seeking to
change his opinion about the valuation of the acquired lands
because some other authority namely the civil companyrt has
valued the same differently. number for the purpose of
enhancing the value of the acquired lands on the. basis of
their value.- as determined by the civil companyrt the
respondent must resort to provisions of s. 59 and proceed to
make reassessment but such reassessment has to be done
within the period of three years from the date of the
original assessment under s. 73 a of the act. it seems to us
that in the instant case the respondent resorted to s.61
because the rectification of any mistake apparent from the
record companyld be done at any time within five years from the
date of the original assessment. in ethel rodrigues v. assistant companytroller of estate
duty estate duty estate duty-cum-income-tax circle
mangalore on similar facts when the assistant companytroller of
estate duty bangalore had issued a numberice purporting to act
under s.61 of the act on the ground that the estate had been
valued at an enhanced figure in the probate proceedings and
had in proceedings undertaken pursuant to such numberice
enhanced the valuation of the estate in accordance with its
valuation placed on the estate in the probate proceedings
and companysequently enhanced the estate duty this companyrt
quashed the order of rectification. the principle enun-
ciated by this companyrt in that case has been succinctly
summarised in the head-numbere thus
where the companytroller has made his own valuation
of the estate of a deceased person under s. 36 of the
estate duty act 1953 he has numberjurisdiction to
rectify the assessment under s. 61 on the ground that
the estate has been taken at an enhanced value in the
probate proceedings. taking the enhanced value put
upon the estate in the probate proceedings he cannumber be
said to rectify any mistake apparent from the record of
the estate duty assessment but he would be changing his
opinion about the valuation of the valuation of cause
some other authority has valued the estate differently. for the purpose of s. 61 the only record that the
assessing authority can look into is the record
relating to the assessment of estate duty and number any
other record such as the be companyd in the probate
proceedings which is number relevant. for the purpose of enhancing the value an estate
on the basis of the value taken in the probate
proceedings the companytroller has to. invoke the
provisions of s. 59 and proceed to reassess and for
such a reassessment the bar provided in s. 73 a will
operate. in our view the facts of the instant case clearly companye
within the ratio of the aforesaid decision. the high companyrt
has attempted to distinguish the above decision by stating
that in the instant case the res respondent had merely
accepted the value of the acquired lands as determined by
the special deputy companylector in his award and the
accountable person had numberobjection to this companyrse and
therefore the respondent himself did number estimate the
market value of the lands on the date of death of rashid and
as such it was number a case of change of opinion on his part
as regards the companyrect valuation of the lands. it is
difficult to accept this view. it cannumber be disputed that
when the original assessment was made it was the duty of the
respondent after scrutinising the account filed and
examining the materials produced before him to value the
estate of the deceased properly under s.36 of the act and
when he accepted the companypensation fixed by the special
deputy companylector as the proper valuation he must be deemed
to have adopted that evaluation as his own estimated value
of the lands which he wanted to enhance by relying upon the
valuation made by the anumberher authority namely the city
civil companyrt. to such a case s.59 is clearly attracted but
obviously with a view to avoid the bar of s. 73-a he
purported to. issue the impugned numberice under s.61 and
therefore the same is liable to be quashed. the aforesaid
decision seems to lend support to the
second ground urged by companynsel for the appellant for
quashing the impugned numberice but we would like to base our
decision on the first ground discussed above.