dedol-hf/india-case-legal-rag huggingface dataset:
as  owner and two of the Bagarias, respondents Nos. 1 and  2
in appeal No. 95 in their capacity of usufructuary   mortga-
gee,   and awarded a sum of Rs. 1,58,000 to the  respondents
Nos.  1, 2 and a as compensation for their rights as  perma-
nent  tenants of the premises in question.  Subsequently,  3
separate petitions of reference were filed
337
by  the  a claimants against the Collector's award  and  the
reference  made  by the Collector in pursuance  thereof  was
registered as apportionment case No. 95 of 1935 in the Court
of  the Calcutta Improvement Tribunal.  Meanwhile,  Deosaran
Singh  and  Ram  Lakshman Singh, who had put  in  claims  as
shebaits, retired from the contest, and the President of the
Tribunal  appointed  one  Narendra Nath Rudra  as  the  next
friend of the deity to represent and protect its  interests.
On the 31st August, 1938, the President of the Tribunal gave
his decision, by which he substantially upheld the award  of
the Collector, but modified it in one respect only.  He held
that  the usufructuary mortgage, on the basis of  which  re-
spondents 1 and 2 had put in a claim, had been paid off  and
therefore  they were not entitled to any  compensation,  and
the  whole  sum of Rs. 31,740 should be paid to  the  deity.
Respondents 1 to 3 however were held entitled to the sum  of
Rs. 1,58,000 as permanent tenants, on the ground that leases
had  been  created for legal necessity  and  therefore  were
binding  on the deity,  He also held that the deity was  not
entitled to question the leases by virtue of article 134 (a)
of the Limitation Act. Regarding costs, he directed that all
costs incurred on behalf of the deity should be paid out  of
the  compensation  money  lying in deposit  in  court.   Two
appeals  were thereafter preferred to the High Court by  the
two  main contesting parties and ultimately both  these  ap-
peals were dismissed, and the High Court upheld the decision
of  the  Tribunal.  Subsequently, the present  appeals  were
preferred to this Court, the deity having obtained a certif-
icate granting leave to appeal from the High Court, and  the
Bagaria  respondents having obtained special leave from  the
Privy Council to prefer a cross appeal.
    The main questions which arise in these appeals are :--
    (1)  whether  the two mourasi mokrari leases,  to  which
reference  has been made were justified by legal  necessity;
and
44
338
    (2)  whether  the mortgages on the basis  of  which  the
Bagarias  had  laid  their claim to  compensation  had  been
satisfied.
    The  first  question arises in Appeal No.  05,  and  the
second question arises in Appeal No. 96.
   So  far as the question of legal necessity is  concerned,
there  are concurrent findings of the Tribunal and the  High
Court against the appellant in appeal No. 95, but we allowed
his counsel to argue the question at some length, because it
was urged before us that on the facts of the case the  point
in  issue was not a question of fact but one of  mixed  fact
and law, especially as the decision of the High Court turned
upon the construction of the leases and the inference  drawn
from  the fact that the permanent nature of the tenancy  had
remained unquestioned for a very long period.
     The tenancy in question came into existence as long ago
as  1869, and it is not surprising that no  direct  evidence
bearing  on the issue of legal necessity is  available  now.
We  have  therefore to fall back upon the  recitals  in  the
documents,  to ascertain the circumstances under  which  the
documents,  exhibits L and K, were executed, because  it  is
well settled that if all the original parties to the  trans-
action and those who could have given evidence on the  rele-
vant  points have passed away, a recital consisting  of  the
principal  circumstances of the case assumes greater  impor-
tance  and cannot be lightly set aside. [See  Banga  Chandra
Dhar Biswas v. Jagat Kisore Chowdhuri(1) 1- It appears to us
that the recitals in the documents afford valuable evidence,
because  the tenancies were created by two pious ladies  who
were  keenly interested in the sheba of the deity  and  with
regard  to whom it was not suggested that they  expected  to
derive  any  personal  advantage from  the  transactions  in
question.   It seems to us most unlikely that they would  be
parties to any untrue recitals merely to support the  trans-
action.   It  may  be recalled here that  in  1848,  certain
properties belonging to the deity had been sold for  arrears
of rent, and Jiban Kumari
(1) 43 I.A. 249.
339
had  been supplementing the income of the residue  from  her
own  properties for meeting the expenses of performing  cer-
tain essential services to the deity, such as jatra,  mahot-
sob, etc. We also find from the arpannama that the value  of
the  property  which is the subject matter  of  the  mokrari
kabuliyat   dated the 30th September, 1869 (exhibit  L)  was
Rs. 2,000 in 1848, that it was not in the khas possession of
Muni Bibi but had been let out to a tenant and that its  net
income  was Rs. 20 p.m. At the time when the  arpannama  was
executed, Muni Bibi clearly thought that the sum of _Rs.  20
p.m.,  if  included  in the expenses for the  sheba  of  the
deity,  would enable the sheba to be carried on without  any
extraneous help.  From the recitals in exhibit L, it appears
that  the  house bearing No. 140, Cotton Street,  was  in  a
dilapidated condition and had collapsed in the rains of 1270
B.S.  (1868  A.D.),  and Muni Bibi was unable  to  bear  the
expenses  of constructing a new building at the place.   The
problem before her therefore was whether the deity should go
without  any income from this property, or she should  enter
into such an arrangement as would secure a permanent  income
for the expenses of the deity, which should not in any  case
be  less than the income which the property had  theretofore
yielded.   She decided to choose what must have appeared  to
her  to  be  the better and more prudent  course,  with  the
result  that she got a sum of Rs. 500 cash for the deity  as
the  price of the materials which were sold to  the  lessee,
and  also secured a regular monthly income of Rs. 25.  There
can be no doubt that the transaction was in the best  inter-
ests of the deity and clearly beneficial to it.
    A reference to the arpannama shows that the house was in
the  possession  of  a, tenant even in 1848,  and  from  the
recitals  in  the document it is clear that what  Muni  Bibi
contemplated was that the house should continue to remain in
the possession of a tenant, and the rent of the house should
be  used for the sheba of the deity.  At that time, she  did
not contemplate any other mode of using the property she was
going to dedicate.  We do not know who was the tenant of the
340
house in 1848 and what were the commitments of Muni Bibi  at
that time, but, even apart from these facts, it is difficult
to believe that a devout person like her, who was not only a
shebait  but also the widow of the founder of the deity  and
who  had  shown  such keen interest for the  upkeep  of  the
worship of the deity, should have entered into the  transac-
tion in question unless she considered it absolutely  neces-
sary to do so. The contention put forward before us is  that
it has not been shown that there was no other course open to
Muni Bibi than to. grant a permanent lease in respect of the
property,  but it is manifest that at this distance of  time
no evidence can be available to show the actual pressure  or
necessity  which impelled Muni Bibi to adopt the course  she
did.   It is now well settled that where the validity  of  a
permanent lease granted by a shebait is called into question
a long time after the grant, although it is not possible  to
ascertainfully  what the circumstances were in which it  was
made,  the court should assume that the grant was  made  for
necessity so as to be valid beyond the life of the  grantor.
[See  Bava Magniram Sitgram v. Kasturbhai Manibhai(1)].   In
the  present case, the circumstances which can  be  gathered
from  the recitals together with the fact that the  document
has remained unquestioned for more than half a century, seem
to us to be quite sufficient to support the conclusion  that
the grant was made for legal necessity and is binding on the
deity.  On  the facts narrated, it would appear  that  there
were several shebaits between the death of Muni Bibi and the
commencement  of the present litigation, but the  lease  was
never impugned as being beyond the power of the shebait  who
granted  it.  On the other hand, we find that the  permanent
character of the lease was recognized in a deed executed  by
Gourimoni  on the 18th October, 1873 (exhibit Y), and  in  a
mortgage  deed executed by Raghubar Dayal, the  guardian  of
Gopaldas,  on  the  31st August, 1878.   The  properties  in
question were subsequently mortgaged by Kali Charan Dutt and
Gopaldas, but neither of these persons nor
(1) 41 I. A. 54.
341
the  mortgagees ever came forward to question the  permanent
nature of the tenancy.
    The  counsel for the appellant relied upon  exhibit  VI,
which is a copy of the judgment of the High Court in a  suit
instituted by Nabakishore Dutt in 1995 against the  Adminis-
trator-General of Bengal for the rent of the house in  ques-
tion.  It  appears from this judgment that the  tenancy  was
admitted  by the defendant and it was also admitted  by  him
that  rent was due, but he claimed that he was  entitled  to
insist upon a receipt specifying the money to have been paid
as  mourasi mokrari rent. The learned Judge, who dealt  with
the  case,  however, thought that the point  raised  by  the
defendant  did  not strictly speaking arise in  a  suit  for
rent,  which according to him could not be converted into  a
suit for declaration of title, and on that basis, he  passed
a decree in favour of the plaintiff.  The judgment does  not
say in so many words that Nabakishore resisted the claim  as
to the tenancy being mourasi mokrari, but, however that  may
be, assuming that such an assertion was really made by  him,
it  cannot affect the character of a tenancy which  had  re-
mained unquestioned for nearly half a century.
    The legal position with regard to 141, Cotton Street, is
almost  identical with that of the adjoining  premises  with
which  we have already dealt. As has been already stated,  a
mourasi  mokrari tenancy was created by Jiban Kumari on  the
8th  December,  1869,  as is evidenced by  exhibit  K.  This
document recites among other things that the house which was
the subject of the lease, "stands in need of repairs and for
want  of  such repairs there is  chance   of   some  portion
thereof breaking down  during  the year."  It  also  recites
that  whatever  income  was  derived  till  then  from  that
house  was  derived by letting it out on rent and  that  the
mourasi tenancy was being created for the purpose of repair-
ing the house and keeping it in existence. At the end of the
document,  it  is stated that "the shebait  shall  keep  the
kabuliyat and patta in force and shall on taking the sum  of
Rs.  90  as rent, defray the expenses of the  sheba  of  the
deity." It is
342
noteworthy that the actual dedication of this property  took
place on the 15th January, 1872, more than 2 years after the
kabuliyat.  On  that  date, a registered deed  of  gift  was
executed  by  Jiban Kumari in favour of  Srimathi  Gourimoni
Debi and it was recited therein that the income of the house
was being dedicated by the former to the sheba of the deity.
There was also a further clause in that deed to the  follow-
ing effect :--
    "In  accordance with the terms of the solenama  the  ex-
penses  of  the Iswar seba shall be met from the  income  of
those properties which have been dedicated for the  perform-
ance  of the work of the said seba and the amount  by  which
the  expenses  for the festivals would fall  short  and  the
expenses  which would be incurred for repairs to  house  for
sheba  of  the  said Thakur shall be met  and  the  Tahailia
(attendant)  and  the Brahman cook and  the  Brahman  priest
(now)  employed  and  to be  employed  hereafter  shall  get
(their) salaries, from the income of the said property."  On
reading  this document along with the solenama and the  mok-
rari  lease  granted by Jiban Kumari, it  appears  that  she
dedicated the property after having created a mokrari lease,
that  what she purported to dedicate was the income  derived
by  way of rent from the mourasi mokrari tenancy,  and  that
she had dedicated this income for specific purposes with the
object of making up the deficit in the income received  from
other  debutter properties. If it is held that Jiban  Kumari
was an absolute owner of the property at the time the moura-
si  mokrari lease was granted and afterwards  she  dedicated
only  the  income of the property then the  permanent  lease
cannot  be assailed.  If, on the other hand, it is  held  on
reading  the  solenama  that Jiban Kumari had  only  a  life
estate  in  the  house and it was one of the  terms  of  the
solenama that after her death the expenses of the deity were
to  be borne out of the income from the house, then in  that
case  the question may arise as to whether she was  entitled
to  create  a  lease beyond her lifetime.  Such  a  question
however does not need an elaborate answer, because the  same
considerations which apply to 140, Cotton Street. will
343
apply  to this house, and the presumption  as  to  necessity
which is raised by the long lapse of time, would arise  here
also. This presumption is considerably strengthened here  as
well  as in the case of the lease granted by Muni  Bibi,  by
the fact that the grantor of the lease was so devoted to the
object  of the endowment that it does not seem  likely  that
she  would  have granted a permanent lease  unless  she  was
impelled  to  do so by absolute necessity. It  seems  to  us
therefore that the view taken by the High Court is  substan-
tially correct and the respondents Nos. 1 and 2 are entitled
to compensation as permanent lessees.  In this view,  Appeal
No. 95 must fail, and it is dismissed.
    As  to Appeal No. 96, it has been concurrently found  by
the  President of the Tribunal and the High Court  that  the
appellants  have  failed to prove by  proper  evidence  that
there  is  any money still due to them on  the  usufructuary
mortgage  executed by Gopaldas in 1886. In arriving at  this
finding,  they have dealt with every possible argument  that
could be urged and was urged on behalf of the appellants  to
show  that the mortgage had not been satisfied.  This  court
has  repeatedly  held that it will not  generally  interfere
with  concurrent  findings on a pure question of  fact,  and
nothing has been shown on behalf of the appellants to induce
us  to depart from this rule.  In the result Appeal  No.  96
also is dismissed.
    Having regard to the circumstances of the case, we shall
make  no  order  as to costs in  either  of  these  appeals.
                                          Appeals dismissed.
    Agent  for  the  appellant in Civil Appeal  No.  95  and
respondent in Civil Appeal No. 96: Sukumar Ghose.
    Agent for respondents Nos. 1 to 3 in Civil Appeal No. 95
and  appellants  Nos. 1 to 3 in Civil Appeal  No.  96:S.  C.
Banerjee.
    Agent for respondent No. 4 in Civil Appeal No. 95:  P.K.
Chatterjee.
344
PETITIONER:
EASTERN INVESTMENTS LTD.
        Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX,WEST BENGAL.
DATE OF JUDGMENT:
04/05/1951
BENCH:
BOSE, VIVIAN
BENCH:
BOSE, VIVIAN
KANIA, HIRALAL J. (CJ)
SASTRI, M. PATANJALI
DAS, SUDHI RANJAN
CITATION:
 1951 AIR  278            1951 SCR  594
 CITATOR INFO :
 R          1960 SC 738  (7,8)
 F          1961 SC1028  (7)
 R          1965 SC 321  (16)
 R          1966 SC  54  (5)
 F          1966 SC1053  (17)
R          1966 SC1514  (11)
 APL        1967 SC1475  (4)
 RF         1977 SC2394  (6)
 APR        1979 SC 373  (3)
 RF         1979 SC1441  (21)
 R          1987 SC1723  (5,7)
ACT:
    Indian Income-tax Act  (XI  of 1922),  s. 12  (2)--Busi-
ness  expenditure--Interest on debentures--Reducing  capital
of  company by taking over shares and giving  debentures  to
shareholder--Income  of company reduced--Interest on  deben-
tures, whether allowable.
HEADNOTE:
A  private limited company formed for dealing in  shares
and securities had a share capital of 250 lacs of rupees  of
which shares of the face value of 50 lacs were held by A and
the  remaining  shares were held by his  nominees.   As  the
company  was  in  need of money it was  resolved,  with  the
consent of A, to reduce the share capital by 50 lacs by  the
company taking over the 50 lacs shares which were held by  A
and giving to A instead debentures of the face value of  Rs.
50  lacs  carrying interest at 5 per cent. per  annum.   The
Income-tax Appellate Tribunal and
(1) 76 I.A, 74.
595
the  High  Court held that the interest  on  the  debentures
could not be allowed as business expenditure under s. 12 (2)
of  the Income-tax Act, the main grounds on which this  con-
clusion was arrived at being (i) the purpose of the transac-
tion was to effect the conversion,  (ii) the taxable  income
of the company was reduced,  (iii)  it was the same   person
who  brought about the transaction to whom the  share  money
was  paid and who took the debentures, (iv) the  transaction
was  more in the interest of that person than  the  company,
(v)  the capital of the company could have been  reduced  in
other ways:
    Held by the Full Court KANIA C.J. PATANJALI SASTRI,  DAs
and  Bose, JJ.) that the test for deciding whether  the  ex-
penditure  was  allowable under s. 12 (2)  was  whether  the
transaction was properly entered into as part of the  compa-
ny's ordinary undertakings to facilitate the carrying on  of
its  business for the purpose of earning income, and in  the
absence of fraud the High Court was not justified in  coming
to  the conclusion that the interest on the  debentures  was
not  allowable  on the considerations mentioned  above.   On
the facts it was clear that the transaction was entered into
in  order to facilitate the carrying on of the  business  of
the company and that it was made on the ground  of   commer-
cial   expediency.   The  interest  on  the  debentures  was
accordingly  allowable under s. 12 (2). Farmer  v.  Scottish
North American Trust Ltd. [1912] A.C. 118 referred to.
JUDGMENT:
    CIVIL  APPELLATE  JURISDICTION.  Civil  Appeal No. 89 of
1950.  Appeal against the Judgment and Order dated 5th July,
1949, of the High Court of Judicature at Calcutta (G. N. Das
and Mukherjee JJ.) in Income-tax Reference No. 11 of 1948.
    S. Mitra (S. N. Mukherjee, with him) for the appellant.
    M.C.  Setalvad, Attorney-General for India (S.M.  Sikri,
with him) for the respondent.
    1951. May 4. The Judgment of the Court was delivered by
    Boss J.--This is an assessee's appeal from a judgment of
the High Court at Calcutta delivered on a reference made  to
it under section 66(1 )of the Incometax Act.
    The question submitted for the High Court'S opinion  was
as follows:--
596
   "Whether in the circumstances of this case, the  interest
paid  by the assessee on debentures was incurred solely  for
the  purpose  of making or earning such income,  profits  or
gains which are assessable under sub-section (1) of  section
12."
   The assessee is a private limited company which was incor-
porated  on 3rd January, 1927.  It is an investment  company
known  as the Eastern Investments Limited.  The objects  set
out  in the memorandum of association are to buy,  sell  and
otherwise  deal with shares, securities, bonds and so  forth
generally.  The company was originally formed for acquiring,
holding  and  otherwise dealing with shares  and  Government
securities which had previously belonged to one Lord  Cable.
The share capital of the company at the date of its incorpo-
ration  was  250  lacs and consisted  partly  of  preference
shares  and partly of ordinary shares. Of these  Lord  Cable
held  the majority including the 50,000 ordinary  shares  of
the  face  value  of Rs. 50,00,000 with which  we  are  here
concerned.  The  rest of the share capital was held  by  the
nominees of the late Lord Cable.
    Lord  Cable died on the 28th of March, 1937, leaving  an
estate  in Great Britain as well as in India.  One  Geoffrey
Lacy  Scott  was appointed administrator of  his  estate  in
India  and  held  these 50,000 shares in  question  in  that
capacity.
   According  to the statement of the case drawn up  by  the
Income-tax Appellate Tribunal in its. reference to the  High
Court,  "money was needed by the executors of  Lord  Cable",
and  accordingly  the administrator of the estate  in  India
reached an agreement with the company on 9th February, 1937,
the terms of which were as follows :-
      The company agreed to reduce its share capital by  Rs.
50  lacs and to do it by taking over from Scott  the  50,000
shares  mentioned above which stood in Lord Cable's name  at
the  rate  of Rs. 100 a share. Scott on his part  agreed  to
forego cash payment and agreed instead to receive debentures
of the face value of
597
Rs.  50  lacs  carrying interest at 5 per  cent.  per  annum
"redeemable  at the option of the registered holder  at  any
time". The sanction of the Calcutta High Court was  obtained
in  due  course  and the agreement was carried  out  by  the
parties.
    The  5 per cent. interest paid to Scott on these  deben-
tures  forms the subject-matter of the question  before  the
Court. The company claims to deduct this from its income  as
part  of  its working expenses under section 12 (2)  of  the
Income-tax  Act,  that is to say, to use the  words  of  the
section, as
    "expenditure (not being in the nature of capital expend-
iture) incurred solely for the purpose of making or  earning
such income, profits or gains."
    This  contention failed before the Income-tax  Appellate
Tribunal  and also before the High Court. It was agreed  all
through that the expenditure was not in the nature of  capi-
tal expenditure, but the view of the Income-tax Commissioner
is  that (a) it is not expenditure incurred for the  purpose
of earning the income, profits and gains of the company  and
(b)  that even if it is, it is at any rate  not  expenditure
incurred solely for that purpose. In general, the Income-tax
Appellate Tribunal and the High Court both took that view.
    The grounds on which these conclusions were based may be
summarised as follows:
    (1)  the  purpose  of the agreement was  to  effect  the
conversion without in any way disturbing the holding of  the
investments  of the company or interfering with the  earning
of its income;
    (2) by this transaction the taxable income of the compa-
ny was diminished;
    (3) There was complete identity of the person who --
    (a)  brought about this transaction  without  disturbing
the affairs of the company,
(b) to whom the share money was repaid. and
(c) who took up the debentures;
77
598
and   (4) that the transaction was more in the  interest  of
the shareholder Scott than that of the company.
The  decision of this appeal rests on the true  construc-
tion  of  section 12 (2). In our Opinion, the  law  on  this
point  has been correctly summarised in the judgment of  the
High Court.  The following principles are relevant:
     (a) though the question must be decided on the facts of
each case, the final conclusion is one of law: Indian  Radio
& Cable Communications Ltd. v. The Commissioner  of  Income-
tax,  Bombay(1) and Tara Hydro-Electric Agencies Ltd. v. The
Commissioner of Income-tax, Bombay(2);
     (b)  it is not necessary to show that  the  expenditure
was a profitable one or that in fact any profit was  earned:
Moore v. Stewart & Lloyds(3) and Usher's case(4);
     (c)  it is enough to show that the money  was  expended
"not of necessity and with a view to a direct and  immediate
benefit  to the trade, but voluntarily and on the ground  of
commercial expediency. and in order indirectly to facilitate