Appeal No 3522NT of 1979
From the Order dated 2411979 of the Punjab and Haryana High Court in Income Tax Case No50 of 1978
WITH CA NOS 2456NT78 5987 88NT901368NT821549 57NT93  1558NT93
GVishwanatha Iyer C Ramesh TV Ratnam and Ayyam Perumal for P Parmeswaran for the Appellants
CS Aggarwal for BV Desai for the Respondents
The Judgment of the Court was delivered by BP JEEVAN REDDY J
Civil Appeal No2456NT of 1978
This appeal is preferred against the judgment and order of the Punjab and Haryana High Court dismissing an application filed by the Revenue under Section 2562 of the Income Tax Act
The question which the Revenue wanted to raise reads thus Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the receipt of Rs138577 realised 1 per bilty per customer through the bills and credited to a separate account called DHARMADA was not assessable to tax as revenue receipt The case of the Revenue briefly stated is to the following effect the assessee is a private Ltd company engaged in the business of transport
During the accounting period ending January 31 1970 relevant to the assessment year 1970 71 the respondent collected an amount of Rs138577 on account of DHARMADA
The Income Tax Officer called upon the respondent assessee to explain why the said amount should not be treated as its trading receipt
The respondent s case was that according to the custom prevailing in the transport business he two collected Re1 876 per bilty for spending on charitable purposes
He stated that out of this amount collected a major portion was spent on charity and that the balance of Rs8871 was carried over in the separate account kept for DHARMADA
His case was that this amount was never credited to his income account and it always constituted a distinct account
This explana tion was not accepted by the Income Tax Officer who included the said amount of Rs138577 in the business income of the respondent
On appeal the Appellate Assistant Commissioner accepted the respondent s contention and deleted the said addition
The Tribunal confirmed the same
However says the counsel the true state of affairs is disclosed from the assessees  own letter extracted in the assessment order
When called upon to explain the collection of the said amount and its purpose the assessee submitted a reply in writing stating as under It is customary in the Transport business to collectcharge DHARMADA at the rate of Re1 per Bilty
Not only this but also all the Transport Companies chargecollect this customary Dharmada
This amount is meant for distribution to the poor relatives of labourers working in the business premises and also to give at the time of marriages of girls in their families
This is just to get full cooperation from them
The company has nothing to do with this collection as it has to distribute the same
 It is thus evident says the counsel for the Revenue that the amount though collected in the name of Dharmada was neither meant for charity nor was it ever spent on charitable purposes
Distribution of the said money among the poor relatives of the labourers working in the business premises of the assessee and also to give at the time of marriages of girls in their families cannot be called a charitable purpose
Indeed according to the respondent himself these amounts were distributed among them with a view to get full cooperation from them
 According to learned counsel the assessee is really using the money collected in the name of Dharmada for his own business purposes
In the above circumstances say the counsel the High Court ought to have directed the Tribunal to state the aforesaid question under Sec2562 of the Act 877 So far as inclusion of amounts collected as Dharmada which are kept in a separate account and are utilised for charitable purposes is concerned there can be no dispute that they are not liable to be included in the income of the assessee vide CL T vs Bijli Cotton Mills P Ltd but the Revenue s case herein is that though collected in the name of Dharmada these amounts were neither meant for any charitable purpose nor were they spent on charitable purposes
In support of the same they rely upon the aforesaid written reply of the respondent assessee itself
In our opinion this was a proper case where the High Court ought to have directed the Tribunal to state the said question under Section 2562 of the Act
We do not think it necessary to say more than this on this occasion lest it may prejudice the case of the parties at the hearing of the reference
The appeal is accordingly allowed the judgment and order of the High Court is set aside and the application filed by Revenue under Section 2562 is allowed
The Tribunal shall state the aforesaid question for the opinion of the High Court under Section 2562 of the Act
No order as to costs
CIVIL APPEAL NO3522NT179 1368NT182 5987 88 NT190 AND SLP C No8353185
These appeals and Special Leave Petition pertain to the very same assessee who is the respondent in Civil Appeal No2456NT of 1978
For the reasons given hereinabove leave is granted in SLP C No8353 of 1985 and all these appeals are allowed in the same terms as the appeal No2456NT of 1976
SLP C NOS 3257 3265 OF 1979
The facts in these Special Leave Petitions are identical to the facts in Civil Appeal No2456NT of 1978 though the assessee is different
The assessee too is engaged in transport business
No separate argument is addressed in these matters
Leave granted in all these Special Leave Petitions
For the reasons stated in the judgment in Civil Appeal No2456NT of 1978 these appeals too are allowed and the Tribunal is directed to state the following question for the opinion of the High Court under Section 2562 of the Act
878 Whether on the facts and in the circumstances of the case the Appellate Tribunal is right in Law in holding the of Rs5506 Rs26039 Rs33385 Rs49634 and Rs57902 charged in bilties  in the assessment years 1967 68 to 1971 72 are not assessable to tax as revenue receipts
it No costs
GN Appeals allowed


Summary:
The question for determination in this appeal was whether an agreement of partnership with the object of entering into wagering transactions was illegal within the meaning of section 23 Of the Indian Contract Act
The appellant and the respondent No 1 entered into a partnership with the object of entering into forward contracts for the purchase and sale of wheat with two other firms and the agreement between them was that the respondent would enter into the contracts on behalf of the partnership and the profit or loss would be shared by the parties equally
The transactions resulted in loss and the respondent paid the entire amount due to the third parties
On the appellant denying his liability for the half of the loss the respondent sued him for the recovery of the same and his defence inter alia was that the agreement to enter into the wagering contracts was unlawful under section 23 Of the Contract Act
The trial Court dismissed the suit
The High Court on appeal held that though the wagering contracts were void under section 30 Of the Indian Contract Act the object of the partnership was not unlawful within the meaning of the Act and decreed the suit
It was contended on behalf of the appellant 1 that a wagering contract being void under section 30 Of the Contract Act was also forbidden by law within the 407 meaning of S23 Of the Act that 2 the concept of public policy was very comprehensive in India since the independence and such a contract would be against public Policy 3 that wagering contracts were illegal under the Hindu Law and 4 that they were immoral tested by the Hindu Law doctrine of pious obligation of sons to discharge the father s debts
Held that the contentions raised were unsustainable in law and must be negatived
Although a wagering contract was void and unenforceable under section 30 Of the Contract Act it was not forbidden by law and an agreement collateral to such a contract was not unlawful within the meaning of section 23 Of the Contract Act
A partnership with the object of carrying on wagering transactions was not therefore hit by that section
Pringle vs Jafer Khan All 443 Shibho Mal vs Lachman Das All 165 Beni Madho Das vs Kaunsal Kishor Dhusar All
452 Md Gulam Mustafakhan vs Padamsi AIR 1923 Nag
48 approved
ThacKer vs Hardy  Read vs Anderson  Bridger vs Savage  Hyams vs Stuart King  Thwaites vs Coulthwaite  Brookman vs Mather and Jaffrey  Co vs Bamford 1921 2 KB 351 Ramloll Thackoorseydass vs Soojumnull Dhondmull 1848 4 MlA 339 Doolubdas Pettamberdass vs Ramloll Thackoorseydass and Ors
1850 5 MIA 109 Raghoonauth Shoi Chotayloll vs Manickchund and Kaisreechund 1856 6 MIA 251 referred to
Hill vs William Hill  considered
The doctrine of public policy was only a branch of the com mon law and just like its any other branch it was governed by precedents  its principles had been crystallised under different heads and though it was permissible to expound and apply them to different situations it could be applied only to clear and undeniable cases of harm to the public
Although theoretically it was permissible to evolve a new head of public policy in exceptional cirumstances such a course would be inadvisable in the interest of stability of society
Shrinivas Das Lakshminarayan vs Ram Chandra Ramrattandas ILR  Bhagwanti Genuji Girme vs Gangabisan Ramgopal ILR  and Gopi Tihadi vs Gokhei Panda ILR 1953 Cuttack 558 approved
Egerton vs Brownlow    Janson vs Driefontein Consolidated Mines Ltd  Fender vs St John Mildmay 1938 AC 1 and Monkland vs Jack Barclay Ltd  referred to
Like the common law of England which did not recognise any principle of public policy declaring wagering contracts illegal the Indian Courts both before and after the passing of Of 1848 and also after the enactment of the  held that wagering contracts were not illegal as being contrary to public policy and collateral contracts in respect of them were enforceable in law
Ramloll Thackoorseydass vs Soojumnull Dhondmull 1848 4 MIA 339 referred to
Gambling or wagering contracts were never declared to be illegal by courts in India as being contrary to public policy as offending the principles of ancient Hindu Law and it was not possible to give a novel content to that doctrine in respect of gaming and wagering contracts
The State of Bombay vs R M D Chamaybaugwala   considered
The common law of England and that of India never struck down contracts of wager on the ground of public policy and such contracts had always been held not to be illegal although the statute declared them to be void
The moral prohibitions in Hindu Law texts against gambling were not legally enforced but were allowed to fall into desuetude and it was not possible to hold that there was any definite head or principle of public policy evolved by courts or laid down by precedents directly applicable to wagering contracts
There was neither any authority nor any legal basis for importing the doctrine of Hindu Law relating to the pious obligation of sons to pay the father s debt into the dominion of  contracts
Section 23 Of the Contract Act was inspired by the common law of England and should be construed in that light  The word  immoral  was very comprehensive and varying in its contents and no universal standard could be laid down
Any law therefore based on such fluid concept would defeat its purpose
The provisions of section 23 of the indicated that the Legislature intended to give that word a restricted meaning
The limitation imposed on it by the expression  the Court regards it as immoral  clearly indicated that it was also a branch of the common law and should therefore be confined to principles recognised and settled by courts
judicial decisions confined it to sexual immorality and wager could not be brought in as new head within its fold