ivil Appeal No 1187 NT of 1976
From the Judgment and order dated 22775 of the Bombay High Court in ITR No 95 of 1965
Harish N Salve and Mrs AK Verma for the Appellants
SC Manchanda KP Bhatnagar and Ms A Subhashini for the Respondent
550 The Judgment of the Court was delivered by OJHA J
This appeal by special leave has been pre ferred against the judgment dated 22nd July 1975 of the Bombay High Court in IT Ref
No 95 of 15 made under Section 661 of the Indian Income tax Act 1922
The as sessment year under reference was 11 62
Chandrakant Manilal Shah was the Karta of a Hindu undi vided family HUF and the family was carrying on business of cloth
Naresh Chandrakant one of the sons of Chandrakant Manilal Shah joined the business on a monthly salary of Rs 100 since about April 1959
It was asserted that with effect from 1st November 1959 the business had been convert ed into a partnership between Chandrakant Manilal Shah as Karta of HUF and Naresh Chandrakant
The deed of partnership executed in this behalf on 12th November 1959 indicated that Naresh Chandrakant had been admitted as a working partner with effect from 1st November 1959 having 35 per cent share in the profits and losses of the firm and the remaining 65 per cent share was held by Chandrakant Manilal as the Kartas of the HUF
An application was made for regis tration of the firm which was dismissed by the Income tax officer on the ground that there was no valid partnership
The view taken by the Income tax officer was upheld in appeal by the Appellate Assistant Commissioner
On further appeal the Income tax Appellate Tribunal also came to the same conclusion that there was no valid partnership and the business consequently must be taken to continue in the hands of the joint family
However at the instance of the asses see the following question was referred by the Tribunal to the High Court for its opinion Whether on the facts and in the circumstances of the case there was a valid partnership under Annexure A  between Shri Chandrakant as the Karta of the HUF and Shri Naresh a member of the family The High Court by the judgment under appeal answered the aforesaid question in the negative in favour of the Revenue and against the assessee
In doing so it relied on an earlier decision of that Court in Shah Prabhudas Gulabchand vs Commissioner of Income tax Bombay 119701 77 ITR page 870
It is against this judgment that the assessee has come up in appeal to this Court
It has been urged by the learned counsel for the appel lants that the mere fact that Naresh Chandrakant had neither separated from the HUF nor brought in any cash asset as his capital contribution to the partnership 551 but was contributing only his skill and labour could not in law detract from a valid partnership being created
Learned counsel for the respondent on the other hand contended that the view taken in this behalf by the Tribunal and the High Court was correct and was not only supported by the decision relied on by the High Court referred to above but also by another decision of the Gujarat High Court in Pitam berdas Bhikhabhai  Co vs Commissioner of Income tax Gujarat 1964 53 ITR page 341
Having heard learned counsel for the parties we are inclined to agree with the submission made by learned coun sel for the appellants
In our view this contention derives full support from the view of the Judicial Committee of the Privy Council in Lachhman Das vs Commissioner of Income tax Punjab 1948 16 ITR page 35
There the question which fell for consideration was Whether in the circumstances of this case there could be a valid partnership between Lachhman Das as representing a Hindu undivided family on the one hand and Daulat Ram a member of that undivided Hindu family in his individual capacity on the other In other words the question was the same as the one arising in the present case but for the difference in the factual background that whereas in the ease before the Judicial Committee the member had brought in his separate capital the member in the present case claims only to be a working partner
Does this difference in facts make a dif ference in principle That is the question
In Lachhman Das it had been urged before the High Court for the assessee that when a Karta of a HUF could enter into a partnership with a stranger as held by the Privy Council in PKPS Pichappa Chettiar vs Chockalingam Pillai AIR 1934 PC 192 there was no reason why a coparcener also could not enter into such a partnership by making contributions in his individual capacity from his separate funds
This plea was repelled by the High Court on the ground that a coparcener could not be regarded as a stranger so long as he continued his connection with his undivided family in the capacity as a coparcener
While reversing the judgment of the High Court it was held by the Privy Coun cil After careful consideration their Lordships cannot accept this vicw and on general princi ples they cannot find any sound reason to distinguish the case of a stranger from that of a coparcener who puts into the partnership what is admittedly 552 his separate property held in his individual capacity and unconnected with the family funds
Whatever the view of a Hindu joint family and its property might have been at the early stages of its development their Lord ships think that it is now firmly established that an individual coparcener while remaining joint can possess enjoy and utilise in any way he likes property which was his individu al property not acquired with the aid of or with any detriment to the joint family proper ty
It follows from this that to be able to utilise this property at his will he must be accorded the freedom to enter into contractual relations with others including his family so long as it is represented in such transac tions by a definite personality like its manager
In such a case he retains his share and interests in the property of the family while he simultaneously enjoys the benefit of his separate property and the fruits of its investment
To be able to do this it is not necessary for him to separate himself from his family
This must be dependent on other con siderations and the result of a separate act evincing a clear intention to break away from the family
The error of the Income tax Offi cer lay in his view that before such a con tractual relationship can validly come into existence the natural family relationship must be brought to an end
 This erroneous view appears to have coloured this and the subsequent decisions of the Income tax author ities
In this view of the Hindu law it is clear that if a stranger can enter into partnership with reference to his own property with a joint Hindu family through its Karta there is no sound reason in their Lordships  view to withhold such opportunity from a coparcener in respect of his separate and individual property
The aforesaid view of the Privy Council was approved by this Court in Firm Bhagat Ram Mohanlal vs Commissioner of Excess Profits Tax Nagpur 1956 29 ITR page 521 but on the facts of that case it was held that the partnership set up in that case was not valid
The above principle has been applied by several High Courts to uphold the validity of a partnership between the Karta of a HUF and an individual member of the family where the latter is taken in as a working partner
In IP Munav alli vs Commissioner of Income tax Mysore 1969 74 ITR page 529 it was held by the Mysore High Court after refer ring to 553 the decision of the Privy Council in the case of Lachhmandas supra and of this Court in the case of Bhagat Ram supra So it is clear that the Supreme Court did not dissent from the opinion expressed by the Privy Council that in respect of their separate or undivided property the coparcen ers of a Hindu joint family even though they had not become divided from one another and there had been no partition of the family properties could become partners of a firm of which the joint Hindu family represented by its karta is itself a partner
If a partner by putting into the partnership by way of his capital his separate property or the property which he obtained at a partition on division and thus can become a partner with the family represented by its karta it is difficult to understand how such a partnership cannot come into being and why a coparcener who continues to remain a member of the copar cenary cannot become a working partner of a firm of which he and the family represented by its karta are the partners
In Lachhman Das s case the coparcener placed at the disposal of the firm as his capital his separate property and in the case of a working partner he con tributes his
skill or labour or both as the case may be
If the partnership is permissible in one case it would be difficultto assign any reason for reaching the conclusion that it is not permissible in the other In Ramchand Nawalrai vs Commissioner of Income tax MP 119811 130 ITR page 826 it was held by the Madhya Pradesh High Court as hereunder it will be clear from the facts of the case of Firm Bhagat Ram Mohanlal that the question whether a coparcen er can enter into a valid partnership with the karta of his family by contributing merely skill and labour did not arise for decision
The only question in the case was whether the individual members of a HUF can without contributing anything become members of a partnership constituted between the karta and strangers
This question had necessarily to be answered in the negative on the settled view that when a karta enters into a partnership with strangers it is the karta alone who becomes the partner
The observations of the Supreme Court that p526 If members of a coparcenary are to be 554 regarded as having become partners in a firm with strangers they would also become under the partnership law partners inter se and it would cut at the very root of the notion of a joint undivided family to hold that with reference to coparcenary properties the mem bers can at the same time be both coparceners and partners as contained in the passage quoted above must be limited to the facts on which Firm Bhagat Ram Mohanlal s case was decided
The Supreme Court in the same passage referred to the decision of the Privy Council in Lachhrnandas  case and did not disapprove of it
If a coparcener by contrib Uting his separate property can enter into a valid partnership with the karta of his fami ly as held by the Privy Council in Lachhman das  case there seems no valid reason why a coparcener cannot by contributing merely his skill and labour enter into a partnership with the karta
If the former does not cut at the root of the notion of the joint Hindu family the latter also does not
Even in the case of the former the partnership property will consist of the contribution made by the karta from the coparcenary property and the contribution made by the coparcener of his individual property Both taken together would become partnership property in which all the partners would have interest in proportion to their share in the joint venture of the busi ness of partnership Narayanappa vs Bhaskara Knshnappa   1304 para 5
If in such a situation the coparcener entering into the partnership can be a partner in relation to coparcenary property contributed for the partnership business there can be no difficulty in holding that the same result would follow when the coparcener entering into a partnership only contributes his skill and labour
In the former case as stated by the Privy Council in Lachhmandas  case  the coparcener entering into the partnership retains his share and interest in the family property while simultaneously enjoying the benefit of his separate property and the fruits of its investment
In the same way it can be said that in the latter case the coparcener retains his share and interest in the property of the family while simultane ously enjoying the benefits of his skill and labour which he contributes as consideration for formation of the partnership and for sharing profits
Learned standing counsel for the department further sub 555 mitted that as the profits earned by a part nership in which the contribution of capital is only of joint family funds from the side of the karta would ensure to the benefit of the entire joint family being earned with the help of the joint family funds a coparcener who only contributes his skill and labour for becoming a partner cannot claim any share in the profits as his separate property and therefore there cannot be any valid partner ship
Learned counsel in this connection relied upon the case of V D Dhanwatey vs CIT Dhanwatey s case has to be read along with the case of CIT vs DC Shah In Dhanwatey s case 19681 68 ITR 365 SC a karta of a HUF who entered into a partnership was paid a salary from the partnership and it was held that the salary income was the income of the HUF
The basis of the decision was that the salary was paid because of the investments of the assets of the family in the partnership business and there was a real and sufficient connection between the investments from the joint family funds and the remuneration paid to the karta
In Shah s case also the karta entered into a part nership and was paid remuneration
But as the remuneration was paid for the specific acts of management done by the karta resting on his personal qualification and not because he represented
the HUF it was held that the remuneration was his individual income
Apply ing the same principle if a coparcener be comes a working partner in a partnership with the karta and gets a share in profits in consideration of the skill and labour contrib uted by him his share in the profits would be his separate property for the profits coming to his share would be directly related to his skill and labour and not to be investments of the joint family funds in the business
The question however whether a coparcener enter ing into a partnership with the karta does really contribute any labour or skill for the management of the partnership business in which he is given a share in profits is a question of fact which will have to be deter mined in the light of the circumstances of each case
In case it is found that there is no real contribution of skill or labour by the coparcener for sharing the profits the part nership will be held to be unreal and ficti tious but that is an entirely different thing from saying that there cannot at all be a valid partnership between the karta and a coparcener when the latter only con 556 tributes his skill and labour and is merely a working partner
In our opinion the argument that as the capital investment in the partner ship is only of the funds of the undivided family there cannot be any partnership cannot be accepted
The conclusion reached by us is fully support ed by a decision of the Mysore High Court in IPMunavalli vs CIT  with which we respectfully agree
The Bombay High Court in Shah Prabhudas Gulabchand vs CIT took a contrary view
With great respect and for the reasons give above we are unable to agree with In Commissioner of Income tax Lucknow vs Gupta Brothers  the Alla habad High Court took the same view when it said  The observations of the Privy Council that a partnership can be formed with a junior member by the karta qua his separate property is by way of illustration of a particular eventuality when the separate property consti tutes consideration for the induction of a junior member into the partnership
It cannot be read as being exhaustive of cases where consideration may take other forms
Now as labour and skill would also be consideration as contemplatedby the Contract Act a valid partnership had come into existence which ought to have been registered
 Learned counsel for the respondent has laid considerable emphasis on two points
Firstly it was urged that Hindu Law does not recognise any contract among the coparceners inter se except in two cases namely where there is a partial partition and where a coparcener has separate property and brings in such separate property as capital towards consid eration for becoming a partner
While elaborating the first point it has been urged that if even in a case where there is neither partial partition nor any separate property is brought in by the coparcener as consideration for the part nership it is held that a valid partnership can still come into existence it would create an anomalous situation inasmuch as such coparcener would be having an interest in the coparcenary property both as a coparcener and partner
Reliance in
this behalf has been placed on the following observations made in the case of Bhagat Ram Mohanlal supra If members of a coparcenary are to be regard ed as having become partners in a firm with strangers they would also become under the partnership law partners inter se and it would 557 cut at the very root of the notion of a joint undivided family to hold that with reference to coparcenary properties the members can at the same time be both coparceners and part ners
The second point emphasised by learned counsel for the respondent is that skill and labour cannot be treated as property
It must be confessed that the observations made in  the case of Bhagat Ram Mohanlal supra relied upon do appear to support the contention of the Revenue
In the case of Firm Bhagat Ram Mohan Lal vs CEPT1956 29 ITR 521 SC a partnership had been entered into in 1940 between Mohan Lal M and two outsiders RG M admittedly representing a HUF consisting of himself and his two brothers Chotelal C and Bansilal B
In 1944 the HUF got divided and conse quently the firm was reconstituted with five partners viz the two outsiders RG M C and B This according to the Revenue had resulted in a change in the persons carrying on the business leading to certain consequences adverse to the assesses in the context of the Excess Profits Tax Act
The firm attempted to get over the difficulty in two ways a It was contended that even initially in 1940 the firm must be considered as having been constituted with all the five persons R G M C and B as partners in other words when M entered into the partnership on behalf of the HUF the consequence was that not only he but his two undivided brothers B  C also became partners in the firm in their individu al capacity and b It was suggested that when M entered into the partnership agreement in 1940 all the three coparceners M C  B could be regarded as having entered into the contract as kartas of ie representing the HUF
Both these contentions were negatived
So far as the first contention was concerned the Court observed that it could be disposed of as being an afterthought opposed to the factual findings in the case
However the Court proceeded to observe that it was difficult to visualise a situation which the appellants contended for of a HUF entering into a partnership with strangers through its karta and the junior members of the family also becoming its partners in their personal capacity
After referring to Lachman Das supra and Sunder Singh Majithia vs CIT where divided members of a family were held competent to carry on the erstwhile joint family business in partnership the Court pointed out 558 But in the present case the basis of the partnership agreement of 1940 is that the family was joint and that Mohanlal was its karta and that he entered into the partnership as karta on behalf of the joint family
It is difficult to reconcile this position with that of Chotelal and Bansilal being also partners in the firm in their individ ual capacity which can only be in respect of their separate or divided property  Emphasis supplied
This was followed by the observations on which Sri Manchanda learned counsel for the Revenue has placed con siderable reliance
Similarly so far as contention b was concerned the Court observed that even if such a conten tion could be raised consistently with the principles of Hindu LAW  it was in the teeth of the pleadings in the case and so could not be allowed to be raised
These passages no doubt suggest that in the Court s view an undivided member of a HUF cannot be a partner along with the karta of the family except where he furnishes capital in the form of property belonging to him in his individual right or ob tained by him on a partition of the family and that the Court left open the question whether more than one member of a HUF can represent the family in a partnership with outsid ers
It will be apparent that this Court had rejected both contentions of the assessee as being an afterthought or contrary to the factual findings in the case
This was sufficient to dispose of the case
However the further expressions of opinion coming from such an eminent Judge as Venkatarama Ayyar J are entitled to the greatest weight and respect
We however think that the scope of these observations made in the context of the special facts and circumstances of the case has been magnified by the learned counsel for the Revenue
We may observe at the outset that his basic postulate that under the Hindu Law there can be no contract inter se between the undivided members of the family is basically incorrect
This Court has recognised the validity of such contract in various situations
For in stance an undivided member of a HUF including its karta can be employed by the HUF for looking after the family business and paid a remuneration therefor vide Jitmal Bhuramal vs CIT  S C  and Jugal Iri shore Baitleo Sahai vs CIT 1967  63  ITR 238 SC Again on the second contention which was left open subsequent decisions of this Court have held that it is open to more than one member of a HUF to represent the family in partner ship with strangers
In Commissioner of Income tax vs Sir Hukumchand Mannalal and Co  it was 559 held by this Court The Indian Contract Act imposes no disability upon members of a Hindu undivided family in the matter of entering into a contract inter se or with a stranger
A member of a Hindu undivided family has the same liberty of contract as any other individual it is re stricted only in the manner and to the extent provided by the Indian Contract Act
Partner ship is under section 4 of the Partnership Act the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all if such a relation exists it will not be invalid merely because two or more of the persons who have so agreed are members of a Hindu undivid ed family This position has also been recognised in Ratanchand Darbarilal vs Commissioner of Income Tax In that case there were two firms one at Katni and one at Satna constituted by two members of an undivided family with others
The question posed however was whether the Satna firm could be treated as an independent unit of assessment
This Court held that it was a question of fact on which the Tribunal s findings were conclusive
In this view it left unanswered as academic the following ques tion on which the Commissioner had sought a reference Whether on the facts and in the circum stances of the case the Appellate Tribunal was justified in directing that the firm owning the Satna business should be registered in spite of the fact that the members of the two HUFs entered as partners inter se without their effecting in the first instance a sever ance of joint status by partitioning either partially or totally the assets of the re spective HUFs However in the course of its judgment the Court observed The High Court obviously fell into an error in proceeding on the footing that without a partition or a partial partition
some of the members belonging to the Hindu undivided family could not constitute themselves into a partnership firm
We do not think this view is correct in law
It is a well settled proposi tion applicable to Hindu Law that members of the joint family and even coparceners can without disturbing the status of a joint family or the coparcenary acquire separate property or run independent business for themselves
 560 Turning now to the specific observations on which reliance has been placed we do not think that they should be read as permitting a partnership between the karta of a HUF and its individual member only when he brings in some capital but not otherwise
In the context in which they were made it is seen that they were only limited to point out that there was no claim before the Court as in Lachmandas or Majithia that the other member had brought in any sepa rate or divided
property as capital
On the contrary the claim was that the coparceners of the HUF other than the karta who was the co nominee partner should be regarded as partners though they had not entered into any such agree ment and had placed neither capital nor services at the disposal of the firm
It was this claim that was held un tenable
Much more significance cannot be read into these observations for if construed too strictly and in the manner suggested they will militate against the possibility of a valid partnership being formed in two classes of cases about which there can be no doubt
The first is where an undivided member seeks to become a partner by furnishing capital which has been held permissible in Lachmandas and approved in Firm Bhagat Ram Mohanlal itself
The other is the case of a partnership firm on which more than one part ner represents a HUF the validity of which has been upheld in the cases referred to earlier
The observations cannot therefore be read as precluding altogether a claim by an undivided member of a HUF that he has in fact agreed to become a partner along with the karta for genuine and valid reasons
In our view the Allahabad Madhya Pradesh and Mysore decisions rightly held that the observations in Finn Bhagat Ram Mohanlal do not militate against the formation of a valid partnership in such cases
This takes us on to the second point made by Sri Man chanda that though an undivided member can by contributing separate capital enter into a partnership with the karta qua the family business he cannot do so by offering as his contribution to the firm not material capital but only his labour and skill
With regard to this submission made by the learned counsel for the respondent that skill and labour cannot be equated with property it may not be out of place to refer to some earlier history
As has been stated in Mulla s Hindu Law before the commencement of the hereinafter referred to as the Act it was settled law that income earned by a member of a joint family by the practice of a profession or occupation requiring special training was joint family property if such training was imparted at the expense of joint family proper ty
This being so if such a member of a joint family were to enter into a partnership with the karta of the family to carry on business the fruits even of his skill and labour would have been property of the joint 561 family and the very purpose of entering into a partnership namely having a share of his own in the profits of the business would have been defeated
In this state of law if an agreement was reached between such member of the joint family and the karta that out of the profits of the business a defined share will be payable to and be the separate property of such member the agreement would have been illegal
Indeed such a member would have been getting a separate share in the profits of the business without making any contribution of his own
However an almost complete transformation in the legal position was brought about by the Act
Sections 2 and 3 of the Act which are relevant in this behalf read as hereunder 2
In this Act unless there is anything repugnant in the subject or context a acquirer means a member of a Hindu undivided family who acquires gains of learn ing b gains of learning means all acquisitions of property made substantially by means of learning whether such acquisitions be made before or after the commencement of this Act and whether such acquisitions be the ordinary or the extraordinary result of such learning and c  learning means education whether elementary technical scientific special or general and training of every kind which is usually intended to enable a person to pursue any trade industry profession or avocation in life
Notwithstanding any custom rule or inter pretation of the Hindu law no gains of learn ing shall be held not to be the exclusive and separate property of the acquirer merely by reason of a his learning having been in whole or in part imparted to him by any member living or deceased of his family or with the aid of the joint funds of his family or with the aid of the funds of any member thereof or b himself or his family having while he was acquiring his learning been maintained or supported wholly or in part by the joint funds of his family or by the funds of any member thereof
 562 As seen above the definition of the term learning is very wide and almost encompasses within its sweep every acquired capacity which enables the acquirer of the capacity to pursue any trade industry profession or avocation in life
 The dictionary meaning of skill inter alia is the familiar knowledge of any science art or handicraft as shown by dexterity in execution or performance technical ability and the meaning of labour inter alia is physi cal or mental exertion particularly for some useful or desired end Whether or not skill and labour would squarely fall within the traditional jurisprudential connotation of property eg jura in re propria jura in re aliena corpo real and incorporeal etc
may be a moot point but it cannot be denied that skill and labour involve as well as generate mental and physical capacity
This capacity is in its very nature an individual achievement and normally varies from individual to individual
It is by utilisation of this capacity that an object or goal is achieved by the person possessing the capacity
Achievement of an object or goal is a benefit
This benefit accrues in favour of the individual possessing and utilising the capacity
Such individual may for consideration utilise the capacity possessed by him even for the benefit of some other individual
The nature of consideration will depend on the nature of the contract between the two individuals
As is well known the aim of business is earning of profit
When an individual contrib utes cash asset to become partner of a partnership firm in consideration of a share in the profits of the firm such contribution helps and at any rate is calculated to help the achievement of the purpose of the firm namely to earn prof it
The same purpose is undoubtedly achieved also when an individual in place of cash asset contributes his skill and labour in consideration of a share in the profits of the firm
Just like a cash asset the mental and physical capac ity generated by the skill and labour of an individual is possessed by or is a possession of such individual
Indeed skill and labour are by themselves possessions
Any posses sion is one of the dictionary meanings of the word proper ty 
In its wider connotation therefore the mental and physical capacity generated by skill and labour of an indi vidual and indeed the skill and labour by themselves would be the property of the individual possessing them
They are certainly assets of that individual and there seems to be no reason why they cannot be contributed as a consideration for earning profit in the business of a partnership firm
They certainly are not the properties of the HUF but are the separate properties of the individual concerned
To hold to the contrary we may observe would also be incompatible with the practical economic and social reali ties of present day living
We no longer live in an age when every member of a HUF considered it his duty to place his personal skill and labour at the services of the family with no quid pro quo except the right to share ultimately on a partition in its general prosperity
Today where an undi vided member of a family 563 qualifies in technical fields may be at the expense of the family he is free to employ his technical expertise else where and the earnings will be his absolute property he will therefore not agree to utilise them in the family business unless the latter is agreeable to remunerate him therefor immediately in the form of a salary or share of profits
Suppose a family is running a business in the manufacture of cloth and one of its members becomes a tex tile expert there is nothing wrong in the family remunerat ing him by a share of profits for his expert services over and above his general share in the family properties
Like wise a HUF may start running a diagnostic laboratory or a nursing home banking on the services of its undivided mem bers who may have qualified as nurses and doctors and prom ising them a share of profits of the business  by way of remuneration
This will of course have to be the subject matter of an agreement between them but where there is such an agreement it cannot be characterised as invalid
It is certainly illogical to hold that an undivided member of the family can qualify for a share of profits in the family business by offering moneys either his own or those de rived by way of partition from the family but not when he offers to be a working partner contributing labour and services or much more valuable expertise skill and knowl edge for making the family business more prosperous
For the reasons discussed above we have reached the conclusion that the decisions referred to above which sup port the contentions of learned counsel for the appellants lay down the correct legal position
The two decisions relied on by the learned counsel for the respondent in the cases of Pitamberdas Bhikhabhai and Co and Shah Prabhudas Gulabchand of the Gujarat and Bombay High Courts respective ly turned on their particular facts and if read as laying down a contrary rule do not lay down good law
In this view of the matter it cannot be said that when a coparcener enters into a partnership with the karta of a HUF and con tributes only his skill and labour no contribution of any separate asset belonging to such parruer is made to meet the requirement of a valid partnership
Reverting to the facts of the instant case it is noteworthy that it is not the case of the Revenue that the partnership between Chandrakant Manilal Shah as karta of HUF and Naresh Chandrakant was fictitious or invalid on any other ground
Consequently the judgment of the High Court cannot be sustained
In view of the foregoing discussion this appeal suc ceeds and is allowed
The judgment of the High Court is set aside and the question referred to the High Court is an swered in the affirmative in favour of the assessee and against the Revenue
In the circumstances of the case however there shall be no order as to costs
NPV Appeal allowed


Summary:
Section 3 of the Water Prevention of Pollution and Control Cess Act 1977 provided that water cess was payable by every person carrying on any specified industry and every local authority for the purposes of the 
Specified industry was defined in the Act meaning any industry specified in Schedule 1
There were 15 items under Schedule I including processing of animal or vegetable products industry under Entry 15
The question for consideration in the batch of appeals writ petitions and transferred cases arising out of the notices issued by the concerned assessing authorities de manding water cess from the sugar manufacturers was whether sugar manufacturing industry fell under Entry 15 of Schedule I of the 
Disposing of the appeals writ petitions and transferred cases this Court HELD 1
In the context in which the word vegetable  is used in Entry 15 Schedule I of the  vegetable product  means product of or made of or out of 524 vegetable Vegetables  as understood in common parlance are not products of manufacture unless it is said that agricul ture is an industry for certain purposes and vegetables are products of that industry
In order to bring an industry within any of the entries in Schedule 1 it has to be seen what is the end product produced by that industry
Sugarcane is not a vegetable though it may be an agricultural product
If the botanic meaning of vegetable as referring to any and every kind of plant life is to be given then some of the industries listed in Schedule I like Paper Industry and Textile Industry and even Chemical Industry which are cov ered by other entries could also be brought within Entry 15
The word vegetable  in the context does not attract the botanic meaning
The sugar manufacturing industry does not therefore come within Entry 15 of Schedule I of the Cess Act
Consequently the manufacture of alcohol from molasses which is a by product of manufacture of sugar could not be considered to be an industry within Entry 15 of Schedule I 534 C E F 21 The word vegetable  has been defined in many ways
From the botanic point of view vegetable  may include any plant but in common parlance it is understood as referred to edible plants or parts of edible plants
Unless the botani cal meaning is given to the word vegetable  it is not possible to conclude sugarcane as vegetable
528 C 22 Pollution Act may be a regulating Act but Cess Act is a fiscal enactment
Therefore the Court has to look merely at what is clearly said
There is no room for any intendment and no room for bringing within the provision of the Cess Act anything by implication
533 EF State of West Bengal  Ors
vs Washi Ahmed Etc
  Member Secretary Andhra Pradesh State Board for Prevention and Control of Water Pollution vs
Andhra Pradesh Rayons Ltd and others   Ms Motipur Zamind ary Co P Ltd vs The State of Bihar 1962 Suppl
1 SCR 498 and Rajasthan State Electricity Board vs The Cess Appel late Committee  Anr JT  referred to
World Book Concise Oxford Dictionary 3rd Ed
p 1365 Webster s International Dictionary and Encyclopaedia Brit tannica Vol 23 referred to
23 Construction of words and the meaning to be given for such words shall normally depend on the nature scope and purpose of the statute in which it is occurring and to the fitness of the matter to the 525 statute
The meaning given to the same word occurring in a social security measure or a regulating enactment may not be apposite or
appropriate when the same word is interpreted with reference to a taxing state
The Cess Act is a fiscal enactment
534 B 31
Processing of vegetable products industry is nor mally understood in the sense that it relates to processing of vegetables which even after processing retain its char acter as vegetable
530 H531A 32 Processing as generally understood in marine agri cultural and food products industries is an action opera tion or method of treatment applying it to something
It is refining development preparation or converting of material especially that in a raw state into marketable form
In manufacture something is brought into existence which is different from that originally existed in the sense that the thing produced is by itself a commercially different commod ity whereas in the case of processing it is not necessary to produce a commercially different article
531 CD 33 Processing essentially effectuates a change in form cantour physical appearance or chemical combination or otherwise by artificial or natural means and in its more complicated form involves progressive action in performing producing or making something
533 AB CST v
ARAladin AIR 1964 Guj 27
CIT vs Farruk habad Cold Storage  Union of India vs Delhi Cloth and General Mills AIR 1963 SC 79 and Corn Products Refining Co vs Federal Trade Commission CCA7  referred to