53. Lastly, Mr. Anjaneyulu urged upon us the following consideration. He said that if we hold that the subsidy concerned herein constitutes income and is, accordingly, includible in the assessable income of the assessee, more than half of it would be taken away by the State in the shape of taxes and that this may have never been the intention of the state while extending this subsidy. Firstly, the subsidy is given by the State Government while the income-tax is levied by a statute made by Parliament. Secondly, in construing a taxing statute, we are expected to go strictly by the letter of law and are not to be swayed by considerations, viz., whether the assessee is suffering hardship or that he is getting away with a bonanza. The language of the enactment is the guide to its intention and in view of the well-established proposition that subsidy given to an undertaking to assist or improve its business constitutes income of such an undertaking, we have no other option but to hold that the amount concerned herein does constitute income in the hands of the assessee for the relevant assessment year and has to be assessed as such.
54. The question referred to us is, accordingly, answered in the following terms :
 On the facts and in the circumstances of the case, the amount of Rs. 14,655 received by the assessee from the Government of Andhra Pradesh for the relevant accounting period was liable to be included in the total income assessable for the assessment year 1974-75.
55. We answer the reference in favour of the Department.


Union Of India (Uoi) And Ors. vs Vazir Sultan Tobacco Co. Ltd., ... on 18 May, 1977

JUDGMENT B.J. Divan, C.J.

1. All these matters relate to the same point viz. the question of post-manufacturing costs in the context of Section 4 of the Central Excises and Salt Act, 1944 (hereinafter referred to as 'the Act'). The writ appeals are against the decision of our learned brother Ramchandra Raju, J. in a group of matters which he disposed of by a common judgment and since the same question arises in each of these matters, we will dispose of this group of matters by this common judgment.

2. The respondent in Writ Appeal No. 252 of 1976 is Vazir Sultan Tobacco Company Ltd., and the respondent in Writ Appeals Nos. 435, 550, 553 and 560 of 1976 is National Tobacco Co. Ltd. The petitioner in W.P. No. 3114 of 1975 is the Andhra Sugars Ltd., Tanuku.


3. Under the provisions of the Act and the rules made thereunder with effect from 1968, the Government of India introduced a procedure known as "Self Removal Procedure". Under this procedure, the manufacturers could clear the excisable goods without prior assessment by the Central Excise Officer or his counter-signature on the gate pass at the time of clearance of the goods. But, under this Scheme, there was an obligation on the manufacturers to submit to the appropriate Excise Authorities from time to time price lists in the prescribed form for their approval for the purpose of levying excise duty. Till the decision of Ihe Supreme Court in A. K. Roy v. Voltas Ltd., AIR 1973 SC 225 Vazir Sultan Tobacco Co. Ltd., and the National Tobacco Company Ltd., were showing in their price lists the price which the. wholesaler was paying to the case of both these companies, the manufacturer sells the goods to the distributor, the distributor sells the goods to the wholesaler and the wholesaler, in his turn, sells the goods to the retailer. Up to the time of the decision in Voltas case, the price lists were being submitted on the basis of the price which the distributor was charging to the wholesaler. But, in the Voltas case the Supreme Court clarified the legal position behind the concept of "wholesale cash price" mentioned in Section 4 of the Act and it was made clear, according to those two manufacturers, that only the manufacturing costs and the manufacturers profits were includible in the wholesale cash price. All post-manufacturing costs were deductible from the price paid by the wholesaler. According to the two companies, in declaring the "wholesale cash price," they are also entitled to exclude from the price which they charge to their distributors the selling expenses, advertising expenses and freight which they incur for carrying the goods from the factory gate to any place. When the Vazir Sultan Tobacco Co., started submitting price lists since July


gate to any place. When the Vazir Sultan Tobacco Co., started submitting price lists since July 25, 1974, to the excise authorities claiming deductions or these three Items of expenditure viz., selling expenses, advertising expenses and freight from the price which the distributor was paying to the manufacturer, the excise authorities did not approve of those lists. Thereafter, Vazir Sultan Tobacco Company filed Writ Petition No. 7143 of 1974 praying for a writ of mandamus directing respondents 2 and 3, who are excise officers, to approve the price lists submitted by the company on 25-7-1974, 14-8-1974, 10-10-1974 and 16-12-1974 and also restraining the respondents from levying, collecting or recovering any excise duty from the company on the price charged by it to the distributors without excluding post-manufacturing coats and expenses and profits. The Company sought a further direction that the excise authorities should approve the price lists which may be submited by the company in which post-manufacturing costs and expenses and profits were excluded from the price realised by the comany from the distributors. The company also sought for payment of refund of the excise duty illegally recovered by inclusion in the duty illegally in the wholesale cash price of the company's products the post-manufacturing expenses and profits with regard to to lists mentioned in the writ petition.


4. As regards the National Tobacco Company after the decision in Voltas case-1977 E.L.T. (J 177), it submitted price lists dated 24-8-1973, 28-8-1973 and 18-10-1973 deducting from the price paid by the distributor to the manufactures 6.15% of the total turnover as marketing and distribution expenses ... The Assistant Collector of Central Excise, Rajahmundry. by his order dated 20-3-1974 held that the company was not entitled for deduction of 6.15% on sale price towards marketing and distribution expenses. The Inspector of Central Excise, Biccavolc, issued a demand notice for the period from Aug. 1973 to Feb. 1974. The National Tobacco Company filed Writ Petition No. 1748 of 1974 challenging this order. For the subsequent period from March 1974 to Feb. 1975, a similar order and a similar demand notice were issued by the excise officer concerned, which were challenged in W.P. No.-2274 of 1975. The order and the demand notice for the period from 1st March to 31st Aug. 1975 were challenged in W.P No. 5156 of 1975 and the order and the supplemental demand notice for the period from Aug. 1973 to Feb. 1974 were challenged in W.P. No. 2275 of 1975.

5. In all these writ petitions filed by the National Tobacco Company. Ltd., the manufacturer, prayed for the issue of writs of certiorari quashing the orders and the notices of demand basing its claim for deductions in the post-manufacturing costs.


6. In W.P. No. 3114 of 1975, Which come directly before us for disposal, the Union Carbide India Ltd., Division : National Carbon Co., Moula Ali, Secunderabad, sought deduction of post-manufacturing costs from the price lists submitted by it. The petitioner in this writ petition is a manufacturer and seller of dry cell batteries.


7. The Andhra Sugars Ltd., Tanuku is the petitioner in W. P. No. 6044 of 1975. It Manufacturers caustic soda in all three forms-Lye, Flakes and solids and clears from the factory on prices agreed to in the contracts with various customers. The question is of deduction of post-manufacturing costs from the price paid by the wholesaler or the customer to the manufacturer and here again the orders passed by the excise authorities refusing the claim of the manufacturer for the deduction of such post manufacturing costs have been challenged in this writ petition.8. In order to appreciate the controversy between the excise authorities on the one hand and the respective manufacturers on the other in this group of matters, it is necessary to refer only to two sections of the Act. Section 3 of the Act, which is the chargin section in the Act provided at the relevant time that there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and a duty on salt manufactured in, or imported by land into any part of India as, and at the rates, set forth in the First Schedule to the Act. Thus, it is clear that, so far as goods other than salt are concerned, the excise duties are levied on the production or manufacture of excisable goods. Section 4 of the Act, as it stands after its substitution by the new section with effect from 1973 by virtue of Central Excises and Salt (Amendement) Act, 1973 does not arise for consideration in this judgment. Section 4, after its substitution by Finance Act, 1955 provided as follows.


9. It is the contention of the Revenue in these writ appeals, which have been filed by the Union of India and Excise Authorities against the decision of our learned brother, Ramchandra Raju, J., allowing each of the writ petitions filed by the Vazir Sultan Tobacco Company and National Tobacco Company and granting appropriate relief in the respective writ petitions, that the case clearly falls under Section 4(a) and not under Section 4(b). The further contention is that in view of Section 4(a) and Explanation to Section 4, as it stood at the relevant time, deductions sought for by the respective manufacturers are not permissible and that the only deductions, which are permissible, are the trade discount and excise duty from the price paid by the wholesaler to whom first sales are effected by the manufacturer.

10. Since Section 4, which is the subject matter of consideration before us in the form as it stood before the substitution of new Section 4 by virtue of the Amendment Act, 1973, was enacted by a post-constitution Act, it was necessary to refer to the relevant entry in the List 1 of Seventh Schedule of the Constitution, to appreciate the background regarding the enactment of Sectior 4 and placing it on the statute book. Item 84 in List I i.e., Union List in the Seventh Schedule to the Constitution mentiones :
"84. Duties of excise on tobacco and other goods manufactured or produced in India except-
(a) alcoholic liquors for human comsumption;
(b) opium, Indian hemp and other narcotic drug and narcotics but including medicinal and toilet preparations containing alcohol or any substance included in sub-para (b) of this entry."


11. It is therefore clear, as was amply made clear by charging Section 3 of the Act, which was enacted in 1944, that excise duty could be levied only on excisable goods manufactured or produced in India. It may also be pointed out that the relevant entry in the Federal List, which was entry 45 in the relevant Schedule to the Government of India Act, 1935, was also on the same lines as Item 84 which we have referred to above and therefore it was competent to the Central Legislature in 1944 to provide only for the levy of excise duty on excisable goods produced or manufactured in India. It is clear, when one bears these constitutional entries in mind, that the taxable event in the case of excise duty is the production or manufacture of excisable goods and nothing else.

* * * *

12. It is therefore, clear that when considering Section. 4, one has to bear in mind that section provides for machinery of collection of excise duty for administrative convenience. If, in enacting Section.4 and Explanation thereto, any words are used which are capable of being construed as enabling the excise authorities to calculate the excise duty on anything other than manufacture or production of goods by the well known doctrine of "Reading Down'', which has been evolved by Courts of law, first in Australia and then followed in India, the language of Section. 4 must be confined to the power of the Legislature referable to Item 84 in the Union List in the Seventh Schedule to the Constitution, viz., that only the manufacture or production should be taken into consideration by the excise authorities while fixing the value of the goods for the purpose of excise duty when excise duty is leviable on an ad valorem basis.


13. In re: Sea Customs Act, (AIR 1963 SC 1760), the Supreme Court observed (at. p. 1776) :
 "The taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. In this connection sales tax may be contrasted which is also imposed with reference to goods sold, where the taxable event is the act of sale. Therefore, though both excise duty and sales tax are levied, with reference to goods, the two are very difficult imposts; in one case the imposition is on the act of manufacture or production while in the other, it is on the act of sale."

14. In Shinde Brothers v. Deputy Commr., , the Supreme Court after referring to the earlier cases, observed that these cases establish that in order to be an excise duty (a) the levy must be upon 'goods', and (b) the taxable event must be the manufacture or production of goods. Further the levy need not be imposed at the stage of production or manufacture but may be imposed later.

15. As we have observed earlier, if the machinery section in the Act seeks to bring within its scope any item of cost incurred by the manufacturer, which is not referable to production or manufacture of the goods, then it is not an excise duty, but something else altogether and therefore it is not within the purview of the excise anthorities functioning under the four corners of the Act and the rules made thereunder while levying excise duty.


16. The first contention of Mr. Subrahmanya Reddy, the learned Standing Counsel for the Central Government in each of these matters before us that the case falls under Section. 4(a) and not under Section. 4(b) is correct, because each of the manufacturers before us actually sells the goods manufactured by it to a wholesaler or consumer. Again, the excise authorities seek to take into consideration the entire price which the first purchaser, be it the distributor or be it the first wholesaler, pays to the manufacturer less trade discount and excise duty at the time of the removal of the goods from the factory or other premises mentioned in Section. 4(a) of the Art

17. It may be mentioned at this stage that, long before the enactment of the Act of 1944, a similar concept, which later on was enacted in Section 4(a) was embodied in the Sea Customs Act, 1878. Under Section 30 of the Sea Customs Act, it was provided :
"for the purposes of this Act the real value shall be deemed to be (a) the wholesale cash price, less trade discount for which goods of the like kind and quality are sold or are capable of being sold at the time and place of importation or exportation as the case may be without any abatement or deduction, whatever except (in the case of goods imported) of the amount of the duties payable op the importation thereof, or

(b) where such price is not ascertainable, the cost at which goods of the like kind and quality could be delivered at such place, without any abatement or deduction except as aforesaid."


18. In Ford Motor Co. v. Secy, of State-AIR 1938 P.C. 15, the Privy Council interpreted Cl (a) of Section 30 of the Sea Customs Act. The facts of the case before the Privy Council were that the Ford Motor Company of India, the appellants before the Privy Council, were importing Ford Motor vehicles into India from Canada and the questions which arose in the appeal before the Privy Council related to the amount of customs duty payable upon 256 Ford motor cars consigned to the appellants which arrived in Bombay by the S.S. "Algic" on or about 9th Jan. 1929. The appellants had a monopoly of the supply of Ford vehicles to India. Except that they sometime sold direct to their own employees or to Government, they sold in India only to authorised dealers or distributors. Each distributor had a particular district within which in was the sole agent for or retail seller of Ford vehicles. The appellants obtained from the distributors information as to their future requirements and placed consolidated orders accordingly once or twice a month wtth the manufacturers in Canada. After the Ford (Canada) received the order, they were required to build the car and a month was required for passage of time. They Sold to the dealers in large quantities Ford vehicles and all parts relating thereto. The Ford Motor Company of India (appellants) issued from time to time a price list and the terms of business were that the retail price to be charged by the distributor to the public was that stated in the price list current at the time of arrival of the vehicles in India and the price payable by the distributor to the appellants was the same price less a discount of 20 per cent. The distributor had to pay this price before obtaining delivery. Delivery was given by the appellants "free on rail" save in the case of the authorised dealers for the district of Bombay itself viz , Ford Automobiles (India),


the case of the authorised dealers for the district of Bombay itself viz , Ford Automobiles (India), Limited - to whom delivery was made at their own warehouse in Bombay. The price mentioned in the price list was in all cases for a vehicle in running order, and the same was true of the contract between the appellants and the distributors. Each of the cars now in question arrived in India packed in a case, but incompletely assembled in this respect that the battery had to be charged and fixed, the wheels, mudguards, and running boards to be fixed, and other Items of work done to put the vehicle in running order. Having no facilities for doing such work in Bombay, the appellants gave delivery of the cars in the state in which they had arrived, making an agreed allowance to their distributors against the price. For each car the allowance was 13 rupees 8 annas. On those facts the question arose as to what was the wholesale cash price to be taken into consideration for the purpose of Section 3 of the Sea Customs Act. The Privy Council held that the price, which was charged by the appellants to their distributors was a wholesale price within the meaning of Section 30. It was a cash price. The cars were invoiced a few days before arrival of the ship and the price became fixed then and not before. The sales were therefore sales at the time and place of importation in every reasonable sense. It was further held that the overhead charges had no bearing upon any matter arising under Cl. (a) of Section 30.


19. In the context of these facts while discussing the provisions of Cl. (a) of Section 30 of the Sea Customs Act, the Privy Council observed at page 18 of the report :
'If the facts of the present case and the terms of Cl. (a) be placed side by side for comparison, several points of exact agreement become clear. The appellants price to their distributors is a wholesale price within the meaning of the section as declared in 59 Ind App 258 (Vacuum Oil Co. v. Secy. of State- AIR 1932 PC 168. It is a cash price; payment was made before delivery and delivery was within a few days of the arrival of the goods. The ony discount has been deducted.

* * * * That the Legislature intended to exclude post-importation expenses need not be doubted, but it had to do this in a practicable manner without undue refinement, and it must be taken to have regard to the phrase which it employed as sufficient for the purpose if taken in a reasonable sense. The fact that the motor cars were incompletely assembled at the time of their arrival in Bombay gives rise to no difficulty; because although the car, according to the price lists in respect of this defect was an agreed allowance, and reduced the sum payable by the distributor to a price referable to the car in the condition in which it arrived in Bombay. The allowance was deducted by the customs authorities from the price to the distributors before arriving at the price upon which duty was calculated.

*                    *                    *                    *

The price upon which customs duty has been charged appears therefore to be a wholesale cash price, less trade discount, for which the goods under assessment were in fact sold at the time and place of importation."


20. It was also pointed out by the Privy Council that the goods under assessment may under Cl. (a) of Section. 30 be considered as members of their own class even although at the time and place of importation there are no other members. The price obtained for them may correctly represent the price obtainable for goods of the like kind and quality at the time and place of importation.

*                    *                    *                    *


21. Thus, in the context of Section 4 of the Central Excises and Salt Act, 1944 and especially with reference to Section 4(a), the Supreme Court has now laid down in Voltas case-1978 E.L.T. (J 177), that the real value should be found after deducting the selling cost and selling profits and that the real value can include only the manufacturing cost and the manufacturing profit. If in cartain case, there are costs necessarily incidental to manufacturing process, they can be rightly said to form part of the manufacturing costs and thus they are also to be included in the real value including only the manufacturing costs and the manufacturing profit. Anything other than the manufacturing costs and manufacturing profit is not within the purview of Section 4(a)


22. In Atic Industries v. Asst Collector, Central Excise , the facts before the Supreme Court were that the appellants before the Supreme Court carried on business of manufacturing dye stuffs in a factory situate in a small township called Atul in Bulsar district in the State of Gujarat. The dye stuffs manufactured by the appellants were, throughout the period relevant, to the appeal, sold by them in wholesale units to two wholesale buyers, namely, I.C.I. (India) Ltd., and Atul Products Ltd. These sales were effected under respective agreement entered into by them with I.C.I, and Autl. Seventy per cent of the dye stuffs manufactured by the appellants were sold to I.C.I, while the remaining 30 per cent to Atul. The price charged by the appellants to I.C.I, and Atul was a uniform price described as "the basic selling price" less trade discount of 18 per cent. I.C.I, and Atul, in their turn, resold the dye-stuffs purchased by them from the appellants to two categories of buyers. One was the category of textile mills and other large consumers, while the other was the category of distributors. The sales by I.C.I. and Atul to the textile mills and other large consumers were at the basic selling price without any discount but so far as the distributors were concerned, the sales to them by I.C.I, and Atul were at a higher price, though with trade discount. I.C.I, charged a higher price but allowed 10 per cent trade discount, while Atul charged a slightly lower price and allowed two and a half per cent trade discount. The prices were, however so adjusted that the net selling prices charged by I.C.I. and Atul to the distributors were almost the same. The distributors, in their turn, resold the dye-stuffs purchased by them from I.C.I. and Atul to the


resold the dye-stuffs purchased by them from I.C.I. and Atul to the small consumers at a slightly higher price referred to as "small consumers price". No discount was given by the distributors to the small consumers. On these facts the Supreme Court held that the assessable value of the dye-stuffs manufactured by the appellants before the Supreme Court must be taken to be the price at which they were sold by the appellants to I.C.I, and Atul less 18 per cent trade discount and not the price charged by I.C.I, and Atul to their dealers. After referring to the Voltas case, Bhagwati, J., speaking for the Court, in para 10 at page 967 of the report, pointed out:


"The wholesale dealings between the appellants and I.C.I. and Atul were purely commercial dealing at arms length and the price charged by the appellants for sales in wholesale made to I.C.I, and Atul less trade discount of 18 per cent was, therefore, clearly "wholesale cash price" within the meaning of Section. 4(a) and it did not make any difference that the wholesale dealings of the appellants were confined exclusively to I.C.I. and Atul and apart from these two, no independent buyers could purchase the dye-stuffs in 'wholesale from the appellants."


23. Mr. Subrahmanya Reddy for the appellants in the writ appeals and the respondendents in the writ petitions with which we are concerned in these cases, has very strongly relied upon the conclusion of the Supreme Court in Atic Industries v. Asst. Collector, Central Excise (supra) as set out in para 13 of the report and contended that, in the instant case, the price charged by the manufacturers to the first wholesalers, be they referred as distributors or wholesalers, is the wholesale cash price and it is that wholesale cash price less trade discount, and excise duty which should be the basis for imposition of excise duty in view of the language of Section 4. We are unable to accept this argument of Mr. Subrahmanya Reddy in its entirety. It is clear from the observations of Mathew J. in Voltas case (supra) which were approved by the Supreme Court in Atic Industries v. Assistant Collector, Central Excise (supra) that the excise duty, which is a duty payable on manufacture or production of goods, can only be on the aggregate of manufacturing costs and manufacturing profit. As we have observed above, if there are any Item of costs, which are necessarily incidental to the process of manufacture, they will also be part of the manufacturing costs. But if it can be demonstrated by a particular manufacturer that, even on the first sale to the first wholesale dealer there is an element other than that of manufacturing cost and manfacturing profit and thus the price charged to the first wholesaler includes post-manufacturing cost, such post-manufacturing cost must be eliminated by the excise authorities from their calculations. It must be pointed out that there may be two broad categories of manufacturers. The first category consists of manufacturers who only manufacture as in the case of Atic Industries case (supra) but do not sell the goods except to the first wholesaler with whom they have arrived at


but do not sell the goods except to the first wholesaler with whom they have arrived at an agreement at arms length. The second category is the category of manufacturers who not only manufacture, but also sell and incur the expenditure for the sale of goods as distinguished from manufacturing cost and manufacturing profit and if it can be demonstrated that, when the manufacturer of the second category sells the goods to the first wholesaler and incurs some post-manufacturing costs which have entered into the calculations and that the price charged to the first wholesaler by the manufacturer includes the post-manufacturing cost, then such post-manufacturing cost must be eliminated by the excise authorities from their calculations. Applying the process of 'reading down' it must be held that any Item other than manufacturing costs, including costs which are necessarily incidental to manufacturing process and manufacturing profit, must be excluded for the purpose of arriving at wholesale cash price. If such leading of post-manufacturing costs even in the price charged by the manufacturer to the first wholesaler with whem an agreement was entered into at arms length is permitted, the concept of excise duty being a duty payable on the manufacturer or production of goods, would be violated. We are therefore unable to accept this contention of Mr. Subrahmanya Reddy.


24. Mr. Subrahmanya Reddy has very strongly relied upon the decision of a Division Bench of the Gujarat High Court consisting of J.B. Mehta, Acting Chief Justice and M.P. Thakkar J., in Golden Tobacco Co. Ltd., Bombay v. Union of India - 1977 E.L.T. (J 113). The petitioner in that case sought to deduct from the price charged by them to the first Wholesaler 3% of the additional deduction as sought under the Chartered Accountant's certificate by way of marketing expenses and for consequential refund for the period between Dec. 1, 1972 to May 15, 1974. The petitioners had two cigarette factories at Bombay and Baroda. The petitioners had stated that they followed a uniform pattern for marketing goods as they sold the products manufactured by them to distributors who, in their turn, sold the same to the wholesale. dealers. The contention of the petitioner was that 3% represented the post-manufacturing costs. After considering all the relevant decisions on the point, the Division Bench of the Gujarat High Court held that the only deduction from the price which was permissible was trade discount and excise duty and no other deduction was permissible. With great respect to the learned Judges of the Gujarat High Court, we are unable to follow the conclusion of the learned Judges because the very concept of excise duty is that it is only a duty solely on the manufacture or production of the goods and nothing else and therefore any costs other than manufacturing costs in the sense we have explained above and manufacturing profit should not be allowed to enter in the wholesale cash price. It may be pointed out that, barring this decision of the Gujarat High Court, the other decision subsequent to the decisions in Voltas' case-1977 E.L.T. (J 177) and Atic Industries case (supra), the Supreme Court have taken the same view as we are taking in the instant case.


the Supreme Court have taken the same view as we are taking in the instant case.


25. In Coromandel Fertilisers Ltd., v. Union of India (Writ Petn. Nos. 1400 to 1403 of 1976 decided on 24-9-1976, a Division Bench of this Court consisting of Sambasiva Rao, J., and Punnayya J., after referring to the decisions in Voltas case (supra) and Atic Industries case (supra) observed :
 "No doubt in neither of the two cases the question of inclusion or exclusion of freight charges arose. But certainly the question of the impost of excise duty and the nature of wholesale cash price arose in the two cases, The law on the point has been made clear by the highest court of the land which is binding on all the courts in India. From what we have extracted from the decisions of the Supreme Court there cannot be any possible doubt that freight charges cannot be included in estimating the wholesale cash price, since they are not part of the manufacturing and producing cost but are only post-manufacturing expenses."

26. The Division Bench also pointed out that a similar view was adopted by the Bombay High Court in Misc. Petn. No. 293 of 1974, the Madras High Court in W.P. Nos. 2180 of 1972 and 2742 of 1975 and W.P. Nos. 2182 and 2183 of 1975 and the Karnataka High Court in W.A. No. 8 of 1975 (Kant). The Division Bench of the Gujarat High Court in Golden Tobacco Co. Ltd., Bombay v. Union of India (Spl. Civil Appln. No. 858 of 1974 (Guj) referred to the decisions of the Karnataka High Court, the Bombay High Court and the Kerala High Court, but differed from the views taken by those High Courts.


27. For the reasons stated above, we differ from the view taken by the Gujarat High Court and accept the view taken by the Division Bench of this Court consisting of Sambasiva Rao. J., and Punnayya, J., in Coramandel Fertilisers Ltd. v: Union of India (W.P. Nos. 1400 to 1403 of 1976 decided on 24-9-1976). It may be pointed out that the view which we are taking is the view which was taken by the Kerala High Court in Madras Rubber Factory v. Assistant Collector, Central, Excise, 1977 E.L.T. (J 85), by the Bombay High Court in Union of India v. Mansigka industries Private Limited, 1976 Tax LR 1971, by the Karnataka High Court in Union of India v. I.T.C. Ltd., 1976 Tax LR 2003, by the Madhya Pradesh High Court in Universal Cables v. Union of India, 1977 E.L.T. (J 92), and by the Allahabad High Court in l.T.C. Ltd. v. Union of India, 1977 E.L.T. (J 28). It may also be pointed out, us indicated by the Allahabad High Court in l.T.C Ltd v. Union of India (supra), that the Madras High Court has also taken the same view as the High Court other than Gujarat High Court. The conclusion that we have independently reached on our own is thus strengthened by the view taken by the Division Bench of this Court in Coramandel Fertilisers Ltd. v. Union of India (W.P. Nos. 1400 to 1403 of 1976) decided on 24-9-1976 : and by the view taken by the Kerala, Karnataka, Madras, Allahabad and the Bombay High Courts. In view of the near


Kerala, Karnataka, Madras, Allahabad and the Bombay High Courts. In view of the near uniformity among the views expressed by the different High Courts, we see no reason to take a different view from the one which we have independently arrived at in the instant case.


28. In t,his view we must hold that the view taken by our learned brother, Ramachandra Raju, J., in W.P. Nos. 1748 and 7143 of 1974 and 2274, 2275 and 5136 of 1975 (Andh. Pra.) was correct and that the order passed by him that the petitioners were entitled to deduct from the price which they charged their distributors any expenditure incurred by them towards sales but not connected with the manufacture or production viz., advertisement expenses, selling expenses and freight charges, must be upheld. He rightly observed that these deductions had to be worked out between the petitioners before him and the Excise Department. He rightly allowed the writ petitions.

29. we, therefore, dismiss each of the writ appeals in the group before us. We allow Writ Petitions Nos. 3114 of 1975 and 6044 of 1975 and direct the excise authorities not to take into consideration in arriving at the wholesale cash price any costs other than manufacturing costs (inclusive of costs necessarily incidental to manufacturing process) and manufacturing profit and if the price charged by the manufacturer to the first wholesaler is found to be loaded by any post-manufacturing costs, such loading is totally foreign to the concept of excise duty under the constitutional entry 84 in List I-Union List in the Seventh Schedule to the Constitution and contrary to the basic notion underlying the charging section and must be excluded.

30. As observed by our learned brother, Ramchandra Raju, J., the deductions will have to be worked out by the excise authorities in the light of the observations which we have made in this judgment.


31. Each of these writ appeals is therefore dismissed and the two writ petitions before us are allowed and the directions to the excise authorities will be issued accordingly to deduct from the wholesale cash price any post-manufacturing costs so as to exclude from the wholesale cash price, apart from trade discount and excise duty, any element other than the manufacturing costs (inclusive of costs necessarily incidental to the process of manufacture) and manufacturing profit. The appellants in the writ appeals and the respondents in the writ petitions will pay the costs to the respondents in the writ appeals and the petitioners in the writ petitions respectively. Advocate's fee Rs. 150/- in each matter.


The Chairman, A.P.S.R.T.C., ... vs Shafiya Khatoon And Ors. on 24 August, 1984

JUDGMENT Jagannadha Rao, J.
 1. The following questions arise for consideration in this appeal as to how compensation under S.110-B of the Motor Vehicles Act is to be computed, what is meant by loss to the 'dependency' and how is the 'multiplier' to be chosen, what is meant by the loss to he 'estate' and how is it to be computed, can the compensation be shared by the dependents not enumerated under the Fatal Accidents Act, 1855 and finally as to how the compensation is to be apportioned?


2. The deceased Mohd. Mahfooz was a carpenter when he died, he was aged 22 years. The accident occurred at 9.45 p.m. on 14-11-1977 at Hanamakonda when a bus belonging to the appellant Corporation bearing the number APZ 8330 knocked down the deceased. The deceased was admitted in the Mahatma Gandhi Hospital, Warangal and he expired on 21-11-1977 in the hospital at 9.00 p.m. The deceased was a carpenter owning a carpentry shop at Hunter Road and was earning Rs.400/- to Rs.500/- per month. He left behind him his mother and four unmarried sisters as his heirs and dependents who filed O.P. No. 11/1978 on 5-61978 claiming Rs.72, 000/- towards the dependency, at the rate of Rs.1500/- p.a. for 48 years and Rs.500/- towards damages to his clothing articles and cycle. The Corporation was impleaded as the Ist respondent and the driver as the 2nd respondents.
3. The Tribunal held that the accident occurred on account of the negligence of the appellant's driver. It accepted that the deceased was aged 22 years at his death, that he was earning Rs.400/- to Rs.500/- P.M. as a carpenter and would have given for the family at least Rs.1500/- per annum for a period of 48 years i.e., Rs.72, 000/- inasmuch as he would have lived up to 70 years. An award was passed for the other damages of Rs.500/- towards loss of clothing articles and cycle, in all making up a total of Rs.72, 500/-. Interest was granted at 6% p.a from the date of petition i.e., 5-6-1978.


4. Against the above award, the Corporation has filed the present appeal.

5. We are not inclined to disturb the finding of the lower Court that the appellant's driver was negligent. The finding in this regard is based on the evidence of P.W. 2, another cyclist who was cycling by the side of the deceased, the wound certificate Ex. A-1 and the other circumstances. This finding is therefore confirmed.
6. Sri C. Ananda Rao, the learned counsel for the Corporation contends that the Tribunal erred in taking a multiplier of 48. He also contended that the sisters of the deceased are not among the dependents enumerated in the Fatal Accidents Act, 1855, that the provisions of S.110-B are merely procedural and that they cannot confer any rights on the sisters of the deceased for claiming share in the dependency. He placed reliance on the decision of the Supreme Court in N.I. Insurance Company v. Shanti Misra .
7. On the other hand, it is contended by the learned counsel for the respondents Sri K.F. Baba, that the multiplier adopted under law, be Rs.2400/- p.a. and not Rs.1500/- p.a. He also contended that the sisters of the deceased are entitled to be in the dependency in view of the special provisions of S.11 of the Motor Vehicles Act which according to him are wider than those under the Fatal Accidents Act, 1855. He contends that the provisions of S.110-B are also substantive in nature. According to him the sisters of the deceased are entitled to a share in the dependency in view of the decision of a Division Bench of this Court in Vanguard Insurance Company v. C. Hanumantha Rao (1975) 1 Andh WR 327 1975 Acc C.J. 344.


8. We shall firstly address ourselves to these twin concept of loss to the dependency and loss to the estate.

9. The loss of the benefit to the dependents' is a concept derived from the English Fatal Accidents Act, 1846, known as the Lord Campbells Act. The corresponding law in India is the Fatal Accidents Act (Act 13 of 1855).

10. The loss of 'benefit to the estate' of the deceased is the loss arising to the estate under the heads of mental and physical pain, loss of expectation of life and loss of amenities. The compensation payable in this regard is made to survive to his legal representatives under the Legal Representatives Suits Act. 1855 read with S.306 of the Indian Succession Act, 1925. The corresponding law in England in this regard is the Law Reform (Miscellaneous Provisions) Act. 1934. The Indian Legislature would seem to have anticipated the English Stature of 1934 by several decades.

11. As there is a fatal accident in this case, the provisions of the Fatal Accidents Act. 1955 and of the Legal Representatives Suits Act read with S.306 of the Indian Succession Act 1925 apply and allow damages to be claimed after the death of the person killed in the accident. The damages are ascertained and shared and apportioned under S.110-B of the Motor Vehicles Act.
12. We shall now deal with the various components of the above-said 'compensation'.


(A) Loss of Benefit to the Dependents and the Multiplier:
13. The Fatal Accidents Act, 1855 provides that whenever the death of a person shall be caused by wrongful act, neglect or default, and the act, neglect or default is such as would (if death had not ensued) have entitled the party injured to maintain an action and recover damages in respect thereof, the party who would have been liable to death had ensued shall be liable to an action or suit for damages notwithstanding the death of the person injured. Even such action or suit shall be for the benefit of the wife husband, parent or child, if any, the deceased and the Court may 'apportion' the damages 'as it may think fit.'


14. Damages under this head are restricted to the financial loss A basic figure regarding the net contribution for the support of the dependents which would have been derived from the future income of the deceased is arrived at. Then an estimate of the probable length of time for which the earnings or contribution would have continued is made, and then a convenient 'multiple' is determined - a number of years purchase - which will reduce the total loss to its 'present value' after taking into account the provide risks of rise of fall in the income. Thereafter all contingencies such as the possibility of the widow remarrying or the dependant dying earlier have to be taken into account. We shall explain this question in detail presently.
15. The mode of estimating the present value of the loss of benefit to the dependants by applying the 'multiplier' method was first dealt with by Lord Wright in Davis v. Powell Duffryn Association Collieries limited (1942) Ac 601 = (1942) 1 All ER 657 (HL) and by Lord Simon in Nance v. British Columbai Electric Railway Company Ltd. (1951) A.C. 601 = (1951) 2 All ER 448 (P.C.) and has been consistently followed in England. Australia, Newzealand etc. This method was explained in Davis case (1942) A.C. 601) (page 617) by Lord Wright:


"The starting point is the amount of wages which the deceased was earning, the ascertainment of which to some extent may depend on the regularity of his employment. Then there is an estimate of how much was required or expended for his own personal and living expenses. The balance will give a datum of basic figure which will generally be turned into a lump sum by taking a certain number of years purchase. That sum however, has to be taxed down by having due regard to uncertainties for instance, that the widow might have again married and thus ceased to be dependant, and other like matters of speculation and doubt."
16. The multiplier method has been consistently applied by our Supreme Court in various cases Subba Rao, J. (as he then was) referred to the above rulings in the decision of the Supreme Court in Gobald Motor Service Limited v. R.M.K. Veluswami . In Municipal Corporation of Delhi v. Subhagwanthi , after referring to the above passage from Lord Wright's judgment. Ramaswami J. applied a multiplier of 15 in respect of a person who died at the age of 30 years. A few years later, in C.K. Subrahmonia Iyer v. T. Kunhi Kuttan Nair Hegde J. also referred to the above English cases and after quoting a passage from Windfiled on Torts (7th Edn. At pages 135, 136) observed:
"as a general rule parents are entitled to recover the present cash value of the prospective service of the deceased minor child. In addition they may receive compensation for loss of pecuniary benefit reasonably to be expected after the child attains majority."


Coming to Sheikpura Transport Company v. N.I.T. Company Limited in respect of a person who died at the age of 42 years, Hegde J. adopted a multiplier of 15. In Hardeep Kaur v. State of Punjab the deceased was 25 years of age and a multiplier of 20 was adopted by Jaganmohan Reddy J. Similarly in Madhya Pradesh S.R.T.C. v. Sudhakar AIR 1977 SC 1189 Krishna Iyer & A.C. Gupta, JJ. Observed:
"a method of assessing damages, usually followed in England, as appears from Mallet v. M.C. Monagle (1970) A.C. 166 = (1969) 2 All ER 178 annual 'dependency' by a number of 'years' purchase. (p.178) that is the number of years the benefit was expected to last taking into consideration the imponderable factors infixing either the multiplier or the multiplicand."
There the deceased died at the age of 23 years and had 35 years of service and a multiplier of 20 was used against the annual sum payable to the dependents and it was observed;
"In a decision of the Kerala High Court relied on by the appellant (P.B. Kader v. Thatchamma ) to which on of us was a party the rare method of assessing compensation was adopted. Krishna Iyer J. who delivered the Judgment in the Kerala case P.B. kader v. Thatchmma explained that standardised methods have been devised for calculating the value of the dependency of the 'present value' of the pecuniary benefit that the deceased would have conferred upon the dependents in the future. In the Kerala case Krishna Iyer, J. finally observed as follows:


"As I mentioned earlier there are two ways of which the present value of the dependents can be worked out: either you fix the multiplier, disregarding the fact of lump sum payable now, and the, with reference to the relevant annuity tables read down that figure into the present value; or alternatively you reduce the multiplier having in mind the thought that a lump sum is being paid now in the place of staggered payments over the years. Courts in England have learned towards the latter method and in arriving at the multipliers mentioned above I have adopted the same course."
17. Thus in England as well as in India, the multiplier method is applied to compute the 'present value' of the future benefit to the dependents.
The British Law Commission has observed:
"the multiplier has been remains and should continue to remain, the ordinary, the best and only method of assessing the value of a number of future annual sums (Working paper No. 27- 1970)


18. With regard to the choice of the multiplier, Judges select the same from their experience. But there is every possibility of the awards being arbitrary or speculative if it is left to the uncontrolled discretion of the Court. Lord Goddard in Heatley v. Steel Company of Wales (1953) 1 All ER 489 pointed out that Judges were likely to act arbitrarily or on speculative grounds. The present case is an example of the use of a multiplier of 48 for which there is neither precedent nor scientific basis.
19. We are of the view that it is necessary to judicially define the scope of the discretion in the selection of the 'multiplier' as well as the 'multiplicand' (the annual dependency) so that it may not be exercised arbitrarily.
20. It is in this context that the annuity tables become useful. Their use will help in selecting a multiplier appropriate to the age of the deceased at his death with reference to his working age or the age up to which the deceased would have earned for his dependents.
21. At one time it was thought that these tables do not take into consideration the probabilities but they consider only the chances that they do not take into account various 'contingencies', or that they give a false appearance of accuracy and precision in a sphere where conjectural estimates have to play a large part. (Per Lord person in Taylor v. O Connor (1970) 1 All ER 365.


22. But it has been explained that these misgivings have no true basis. Prof. Street on Law of Damages (1962) Ed. Page 111) shows that the House of Lords had earlier allowed the use of the annuity tables in 1880 in order to value reversionary interests in property M Donald v. M Donald (1880) 5 A.C. 519. These tables are widely used in computation of death duties or for evalution of pensionary benefits of a person unlawfully dismissed. In fact, Lord Denning advocated the actuary's assistance in Hodges v. Hindland & Wolff Limited (1965) 1 WLR 523 as follows:
"The Judges do take actuarial considerations into account. They often take a number of years' purchase. If the evidence of an actuary would be helpful in any case, I know of no rule o law which prevents it being entertained."
The British Law Commission has clearly accepted the use and relevancy of the annuity tables prepared by actuaries in its Working Paper No. 27 (1970-71). It observed:
"The actuarial method of calculation, whether from expert evidence or from tables, continues to be technically relevant and technically admissible but its usefulness is confined, except perhaps in very unusual cases, to an ancilliary means of checking a computation already made by the multiplier method."


And also recommended legislative action to reaffirm the efficacy of the actuarial tables or the evidence of actuaries (vide Actuarial Assessment of Damages. The Thalidomide case - by Mr. J. H. Prevett in Vol. 35 Modern Law Review (1972) (P. 140 at P.146). Kemp & Kemp on 'Quantum of Damages' (1967) have compared the multiplies chosen by Judges from experience and found a close proximity between them and those arrived at from the annuity tables.
23. The position in the United States is no different. In the American Restatement of the Law of Torts (Vol. 4) (1939) it is stated at para 924.


"For this purpose, it is permissible to use mortality tables and other evidence as to the average expectation of life."
In fact, some American States such as North Carolina and Wisconsin have laid down statutory tables for use in personal injury actions. Actuarial tables are widely used by Courts in the U.S., Canada, Australia and Sought Africa (Street, 1962 PP. 114, 137). Using life-expectancy, pension plans compute differently for men and women were held by the American Supreme Court to be discriminatory City of Los Angeles v. Manhart (1978) 435 U.S. 702.


24. We are adverting in detail to the Tables only for the purpose of enabling across-check of the Judge's multiplier chosen from experience.
25. We shall now advert to the scientific basis on which these annuity tables are prepared combining (i) mortality tables, and (ii) the formula for reduction of the prospective loss to its 'present value'. Munkaman's Damages (3rd Ed. P.54) has set out the actuarial basis of these tables. A detailed analysis is also given in 'Judicial Attitudes towards actuarial evidence by M/s. K. Richanrds and R. Kidner in Vol. 124. New Law Journal (1974) page 105 as set out hereunder:


26. They explain that these tables are prepared after taking into account the chances of premature death of the deceased at any later date and after making suitable deduction for a lump sum payment. They first direct the estimation of the annual dependency (we shall deal with it in detail later) taking into account the future salary increments and inflation, at 5% compound interest per annum. From the English Mortality Table No. 12 (1960-62) the probability of a male aged 30 surviving until age 35 can be calculated as 0.989 (i.e. he has got 98.9% chance of reaching that age until 50 is 0.95; until age 60 is 0.83 and so on. Th3se figures help in calculating the 'Expected value' of the dependency in any year i.e., the estimate of the dependency multiplied by the probability that the man would have remained alive to provide it for his wife and family. If the annual dependency of a lecturer, on date of his death at 30 years is 4, 500, the probability of his living to provide for his family till 35 years is 0.989 and the expected value of the dependency in the 35th year will be 4, 451 (0.989 X 4, 500). For each future year, this expected value is to be calculated till (say) 65 years of for life.


27. But before totalling them, each expected-value for 'each' of the future years has to be reduced to its 'present value'. Since a pound received in future is not equivalent to a pound received now. Pounds in the future must be discounted. For example if a 100 is invested at 5% p.a. for one year, it will be worth 105. The 'discounted' or present value of 105 received in one year's time at a rate of discount of 5% is 100. Similarly the present value of 100 to be received in the 5th year from now, using a discount rare of 5% will be 78.35 (by using the compound interest or equivalent formula).


28. We have seen that if the annual dependency in the 30th year is 4500, the estimated value of the dependency in the 35th year is 4451. Reducing it to its present value, it will be 4451 X 0.7835, giving 3487. It is these reduced values that are to be totalled for the 31st, 32nd, 33rd, 34th, 35th and so on till the 65th year, to provide a final present value of damages for all these years.
29. These two processes i.e., probabilities of death and the conversion to present value are combined into a single annuity table providing a multiplier which will, when applied against the annual dependency, give the present value of the total 'expected values' or prospective loss. Mr. J.H. Prevett in his Article already referred to (Vol. 35 Modern Law Review) stat4es that the association of a survival probability and a rate of discount lies at the root of the actuary's technique of arriving at the 'present value'. The tables (prepared by Mr. J.H. Prevett) are set out in Kemp & Kemp 'Quantum of Damages (1967 Ed. Pp. 40 to 51) and the authors observe (at page 36):
"It will be apparent that in the preparation of these tables both discount and mortality have been taken into account."
And that once the multiplier is chosen form the Table, we have only to provide for other 'contingencies' and adjust the multiplier suitably.


30. There are several tables provided in Kemp & Kemp on 'Quantum of Damages' (1967 Ed) as also fresh tables in their 1982 Ed. The multipliers in the latter edition are higher in view of the improved health conditions in England. Having regard to Indian conditions, we are of the view that the Table No. IV (General Mortality Males) in the 1967 Ed. And which is prepared by calculating present value at 51/2 discount rate are useful for cross checking the multiplier which the Court might otherwise fix from its experience Table No. IV gives multipliers for those earning up to the end of their life and also those who learn up to 65 years. We are extracting the table in so far as those earning up to 65 years and the multipliers in cases of those earning for life i.e., beyond 65 years are mentioned in brackets. Conversely, if the earning capacity is to cease at the 55th or 60th year the multipliers in Table IV have to be slightly reduced. The Table is based on mortality figures for males and in cases where the deceased is a female, the multipliers from the Table are to be slightly reduced.
31. The other tables which adopt lesser rates of interest between 3% to 5% for reduction Value in Rupees of prospective loss of Rs.100/- per annum payable monthly or weekly.


Age  Males (ceasing at age 65 )    Multiplier             Earners for life
20  1649     16.49    (17.00)
21              1639    16.39    (16.92)
22  1628     16.28    (16.85)
23  1616    16.16    (16.76)
24  1604    16.04    (16.68)
25  1592    15.92    (16.59)
26  1578    15.78    (16.49)
27         1564    15.64    (16.39)
28  1549    15.49    (16.28)
29  1533    15.33    (16.16)
30  1516    15.16     (16.04)
31  1498    14.98    (15.91)
32  1480    14.80    (15.78)
33  1460    14.60    (15.64)
34  1440    14.40    (15.49)
35  1418    14.18    (15.34)
36  1396    13.96    (15.18)
37  1372    13.72    (15.02)
38  1348    13.48    (14.84)
39  1322    13.22    (14.66)
40  1295    12.95    (14.48)


40  1295    12.95    (14.48)
41  1267     12.67    (14.28)
42  1237    12.37    (14.08)
43  1206    12.06    (13.87)
44  1174    11.74    (13.65)
45  1140    11.40    (13.43)
46  1105    11.05    (13.20)
47  1069    10.69    (12.96)
48  1030    10.30    (12.72)
49   991     9.91    (12.47)
50   949     9.49    (12.21)
51   906     9.06                   (11.95)
52   860     8.60           (11.68)
53   813     8.13     (11.40)
54   763     7.63           (11.13)
55   712     7.12           (10.85)
56   658     6.58           (10.57)
57   601     6.01    (10.28)
58   541     5.41    (10.00)
59   478     4.78      (9.72)
60   412     4.12     (9.43)
61   341     3.41     (9.15)
62   265     2.65     (8.88)
63   184     1.84     (8.60)


63   184     1.84     (8.60)
64    96     0.96     (8.32)
65   ---     ----     (8.05)


of the annual dependency to 'present values' give higher multipliers than those in Table IV. It will be noticed that the higher the interest rate adopted (for reduction to present values), the lower will be the multiplier and vice versa. We have adopted the table No. IV prepared at 51/2% compound interest rate as being applicable to our country inasmuch as this rate can be treated as in vogue during stable periods of our country as pointed out by Lord Diplock in Mallet v. Mc. Monagle (1970-AC 166). We shall revert to this aspect while dealing with the question of 'inflation'.
32. The assumption of certain critics that the multipliers from the Table are likely to be on the high side because they do not take into consideration (i) the chances of the deceased dying earlier than heir normal life span or (ii) the factum of a lump sum payment are, from what we have seen to be the basis of the Tables, not correct as explained by several leading writers (see Street, Law of Damages 1962 Ed. O, 120 and the two articles, one by Mr. J.H. Prevett in (1972) 36 Modern law Review p. 140 at p.150 and the other by M/s K. Richards & R. Kidner (1974)124 Net law Journal passages 105 at 106 already referred to).

33. But the critics are justified in stating that the multipliers from the Tables are to be adjusted or reduced for certain other 'contingencies' and this is fully accepted by the authors of the tables and the actuaries.


34. Contingencies which are 'negative' or necessitate a reduction in the multiplier chosen from the Table are:
(i) the chances of premature death of the dependents:
(ii)the chance of marriage or remarriage of the female dependents; (iii) the chance of the deceased falling sick or his earning coming down due to holidays, strikes, unemployment, sickness and industrial disablement etc. According to Prof. Street, the items in the last contingency (iii) require a reduction of the multiplier by 2% to 6%

35. The 'contingency' which has a positive content is the one pertaining to 'inflation' as stated by this Court in Polavarapu Somarajyam v. A.P.S.R.T.C. where this Court referred to the three earlier rulings of the House of Lords in Mallet v. Mc. Monagle (1970 AC 166). Taylor v. O' Connor (1070- 1 All ER 365) and Cookson v. Knowles (1977-3 WLR 279). In the first of these cases that is Mallet's case (1970-AC 166) Lord Dilpock stated that in computing damages under the Fatal Accidents Act. 1885, it was more practicable for Courts.


"..........to leave out of account the risk of further inflation.......... On the other hand.......money should be treated as retaining its value at the date of judgment and in calculating the present value of annual payments which would have been received in future years interest rates appropriate to times of stable currency such as four per cent to five per cent should be adopted."
Views to the same effect were expressed in the second case Taylor v. O' Connor (1970-1 All ER 365) by Viscount Dilhorne and Lord person but Lord Reid different. However on the facts of Taylor's case (1970-1 All ER 365) it was found that the award being sufficiently large, investment thereof by the dependents in interest-earning investments might result in charge to income tax on the interest and the multiplier was therefore slightly increased to compensate for tax rather than for inflation. In the third case Cookson v. Knowles (1977-3 WLR 279) Lord Diplock reiterated his views in Mallet's case (1970-AC 166) that future inflation is taken care of in a rough and ready way because the conventional multipliers applied by Judges "are higher as being the result of applying an interest rate of 4 to 5 per cent" whereas, actual rates of interest are much higher and higher interest rates would have otherwise yielded smaller multipliers.


36. We have seen that the 'conventional multipliers, used by Judges from experience or those taken from annuity tables are based on a interest rate between 3% to 51/2% per annum compound - for reducing prospective earnings to present values. It would be anomalous, as pointed out by Lord Diplock, to take advantage of a higher multiplier obtained by use of lower rates of interest obtaining during stable periods of currency and asking for a further increase of the multiplier for offsetting inflation and higher rates of interest obtaining or obtainable in future. The reason is that the multiplier would have otherwise been smaller if current rates of interest at 8% to 10% granted by Nationalised Banks are used for reducing future earnings to their 'present value'. However in exceptional cases such as Taylor's case (1970-1 All ER 365) where the award is huge and investment in current deposits would result in liability to income tax it would be permissible to increase the multiplier slightly to off set the deduction.


37. Recently in Lim poh Choo v. Camden and Islington Area Health Authority (1980) A.C. 174, the House of Lords speaking through Lord Scarman reviewed the above cases and accepted the vi3w of Lord Diplock in Mallet's case (1970-A.C. 166), that the conventional multiplier takes care of inflation but in exceptional cases such as Taylor's case (1970-1 All ER 365) where there was chance of incidence of income -tax, the multiplier could be increased and to that extent inflation was relevant. The approach of Lord Diplock has been accepted by the British law Commission in the Report on personal Injury Litigation Assessment of Damages (No. 56 paras 217, k227 to 230 and Working paper 41, para 190) which recommended that the inflation-factor should be included in the actuarial tables. We have already seen that interest rates and multipliers are in inverse proportion.


38. We shall now proceed to deal with the computation of the 'annual dependency' which is the multiplicand. Start with the deceased net income at the date of his death, estimate how much of this he spends on himself, and then, if his pattern of life justifies the assumption take the remainder as his net income as being spent for the benefit of his dependents (kemp & Kemp 4th Ed, 1975. Vo. 1, pp. 235-236). In Adsett v. West (1983) 3 WLR 437, Mc. Cullough J. pointed out that customary calculations and estimates which have been made for many years in cases under the Fatal Accidents Act reveal that the deceased would roughly have spent only about a third or less of his income upon himself. In our view, this may vary between 35% to 50%. Further the deceased's liability to income-tax must be taken into account in arriving at his net annual income (British Transport Corporation v. Gourley (1956) A.C. 185).
39. The product of the multiplier and the multiplicand gives the compensation payable under the Fatal Accidents Act. The said product need not be reduced by the collateral benefits received by the dependents on the event of the death of the victim - such as insurance, provident fund etc. Parry v. Cleaver (1970) A.C. 1. The compensation under the Fatal Accidents Act is not to be distributed equally among the recipients but is to be apportioned (as we shall explain later) according to their needs and expected tenure of life.


40. In case the recipients under the Fatal Accidents Act. 1855 receive any amounts from the estate, the award under the former is to be reduced by the share from the estate.

41. In Graham v. Dodds (1983) 2 All ER 953 the House of Lords held that in fatal accident cases the multiplier and the annual dependency have to be worked out with reference to the date of death of the victim and not as on date of trial.

42. We shall work out an illustration. Assume that the age of the deceased at his death was (say) 24 years. Taking the monthly value of the total income at Rs.800/- P.M. taking into account the usual deductions and the absence of income-tax at that level the amount which the deceased would have spent upon himself may be around Rs.350/- leavingRs.450/- towards monthly dependency. The annual dependency could be Rs.5400/-. The multiplier from the table would be 16.04 for a person earning up to 65 years. Assuming that the deceased would have retired from service at 55 years, and that he does not belong to the classes of law or high mortality groups, and taking into consideration the chances of his widow or children dying early, the chances of the deceased falling sick or earning less, etc. a multiplier of 14 would be proper. The award under the Fatal Accidents Act would be Rs.75, 000/- as being the present value of the prospective loss. As we shall point out below this is to be apportioned between the widow and children according to their needs and expected life span and if these persons should get a share from the loss to the estate', the same is to be deducted from the amount apportioned under the Fatal Accidents Act.


(A) Loss To The Estate:
43. The loss to the estate is to be recovered by these who are entitled to the estate under the law - the heirs on intestacy or the legatees administrators or executors in cases of testamentary succession. The right survives the deceased in England under the provisions of the Law Reform (Miscellaneous Provisions) Act, 1934 and in India under the Legal Representatives' suits Act, 1855 read with S.306 of the Indian Succession Act, 1925. Under S.2 of the Fatal Accidents Act, 1855 a claim for the estate and a claim for the dependency can be combined in the same action.

44. The loss to the estate comprises of damages that are payable to the deceased towards physical injuries sustained by him as representing pain and suffering (see Compensation for pain & suffering by Arye Miller at p.554 of International & Comparative law Quarterly, 1982, p.554) and for loss of amenities for the period between the time of accident and the time of death, together with a conventional small sum towards loss of expectation of life. These are all treated as non-pecuniary benefits.


45. But in the decision in Pickett v. Gritish Rail Engineering Ltd. (1980) A.C. 136 = (1979) 1 All ER 774 (HL) the House of Lords added to this head, a separate item called the 'lost earnings' for the 'lost years'. Their Lordships held that a person's interest in his 'good health' and 'sound earning' is a valuable assets distinct from his 'expectation of life' and that he should be duly compensated for the 'loss of earnings' for the 'lost years'. Damages wee awarded to the widow under this head for the deceased's pain and suffering, loss of expectation of life and also 'loss of earnings' for the 'lost years'. The loss of earnings had to be calculated by arriving at the annual loss of earnings for the future years and applying the multiplier formula and reducing the same to the present values. This was applied by the house of Lords in Gammel v. Wilson (1982) A.C. 27= (1981) 1 All ER 578 to the case of the death of the victim of the accident.
46. In cases where the recipients of the dependency and the recipients of the estate were the same, it was found as a result of these rulings that they would receive more under the claim to the estate in an action under the Law Reforms Act, 1934 rather than under the Fatal Accidents Act for the multiplier under the claim to the estate need not be reduced for the contingency of the chances of death or marriage or remarriage of the legal heirs. Thus the status quo ante before Gammel v. Willson (1982 A.C. 27) was again restored.


47. We are of the view that it is not necessary or desirable to adopt the English rule in Gammel v. Willson (1982 A.C. 27) in our law. The results in England were found unsatisfactory and had to be eliminated by statute. We therefore hold the loss to the 'estate' cannot be increased by computing the 'lost earnings' for the 'lost years'. We respectfully dissent from the contrary view taken by the Madhya pradesh High Court in Ramesh Chandra v. M.P.S.RAT.C. . The other items under this head already adverted to however remain.
(A) Deduction for Avoiding Double-Benefit


48. During the course of our discussion we have pointed out that in cases where the recipients of the dependency under the Fatal Accidents Act and the loss to the estate are the same, the compensation obtained by a person under the Fatal Accidents Act, after apportionment, is to be reduced by the amount he receives as heir to the 'loss to the estate'. The balance that remains payable under the Fatal Accidents'. Award has of course to be added to the share obtainable towards 'loss to the estate' and the sum total is recoverable from the defendants. In case however the recipients under the Fatal Accidents Act are different from those of 'the loss to the estate', there is no question of such a deduction. This is clear from the decisions in Rose v. Ford (1973) A.C. 826 at 835. And Davis v. Powell Dufferyn Collieries (1942-A.C. 601). The deduction procedure is accepted by our Supreme Court in Gobald Motor Service Limited v. R.M.K. Veluswamy where Subba Rao, J. (as he then was) observed:
"If the claimants under both the heads are the same, and if they get compensation for the entire loss caused to the estate, they cannot claim again under the head of personal loss to capitalised income that might have been spent on them if the deceased were alive".
That leads us to the question as to who the recipients under the head of 'loss to the dependency' and 'loss to the estate' should be.

(A) Who Are Persons Entitled Under (A) and Under (B):
49. The next question that arises for consideration is: "Whether the apportionment of the dependency under the Fatal Accidents Act, 1855 is to be limited to the enumerated class of persons under S.1-A of the Fatal Accidents Act, 1855?"


50. Under S.1-A of the said Act the apportionment of the dependency is to be made between the wife, husband, parent and child, if any, of the deceased. Section 4 of the said Act states the word 'parent' shall include the father, mother, grandfather and grandmother and that the word 'child' shall include the son, daughter, grandson, granddaughter, step-son and step-daughter.
51. It is contended by Sri K.F. Baba, the learned counsel for the respondents that the provisions of S.110-B of Motor Vehicles Act are wider in scope than the provisions of S.1A of the Fatal Accidents Act, 1855, that the apportionment under the Motor Vehicles Act is at the discretion of the Court and that therefore the brothers and sisters of the deceased, if they are otherwise legal representatives of the deceased according to their personal law, would also be entitled for an apportionment of the dependency.
52. Section 110-B of the Motor Vehicles Act provides that the tribunal shall hold an enquiry into the claims of the parties and shall make an 'award determining the amount of compensation which appears to it to be just and specifying the person or persons to whom compensation shall be paid'.


53. In our view the provisions under S.110B of the Motor Vehicles Act, 1939 not only empower the Tribunal to make an award which is 'just' but also empower the said Tribunal to specify the person or persons to whom the compensation shall be paid, thereby permitting apportionment of compensation payable under the Fatal Accidents Act to persons other than those enumerated in the Fatal Accidents Act 1855. In our view all the legal representatives of the deceased according to the personal law applicable to the deceased will be entitled to apportionment of the dependency according to their needs and according to their age and that apportionment is not limited to the class of persons enumerated under S.1-A of the Fatal Accidents Act read with S.4 thereof. The observations of their Lordships of the Supreme Court in relation to the wider scope of S.110-B of the Motor Vehicles Act 1939 in Sheikpura Transport Company v. N.I.T. Insurance Company are in our view apposite. Hegde, J. of the Supreme Court observed:
"Under S.110-B of the Motor Vehicles Act 1939 the Tribunal is required to fix such compensation which appears to it to be just.
 The power given to the Tribunal in the matter of fixing compensation under that provision is wide. Even if we assume (we do not propose to decide that question in this case) that compensation has to be fixed on the same basis as required to be done under the Fatal Accidents Act 1855 (Act 13 of 1855), the pecuniary loss to the aggrieved party would depend upon data which cannot be ascertained accurately but must necessarily be an estimate or even partly a conjecture. (Emphasis ours).


54. The liberal view permitting apportionment of the dependency between all the legal representatives of the deceased - without being restricted to the persons enumerated under the Fatal Accidents Act - taken by us has also been taken by a Full Bench of the Punjab & Haryana High Court consisting of Chinnappa Reddy, M.R. Sharma and Harbanslal, JJ. In Jokhiram v. Naresh Kantha, , Damayant Devi v. Sita Devi, 1972 ACCC.J. 334 (Punj & Har) and by a Division Bench of the karnatka High Court in K.S.R.T. Corporation v. Peerappa, , by the Madras High Court in Mohd. Habibullah v. Seethammal, , the Himachal Pradesh High Court in State v. Dole Ram, and the Gujaat High Court in Megjibhai v. Chaturbhai, . The liberal vies which we have adopted was also taken earlier by a Division Bench of this Court in Vanguard Insurance Company v. C. Hanumantha Rao (1975-1 Andh WR 327).
55. For the reason given above, we respectfully dissent from the judgments of the following High Courts viz., Delhi High Court in Dewan Hari Chand v. Delhi Municipality, AIR 1981 Delhi 71, the kerala High Court in P.B. Kader v. Thatchamma the Madhya Pradesh High Court in Budha v. Union of India, and the Madras High Court in Perumal v. Elluswamy Reddiar (1974 1 Mad LJ 292 = 1974 Acc CJ 82.


56. The learned counsel for the appellant placed reliance upon another judgment of the Supreme Court in N.I. Insurance Company v. Shanti Misra . A reading of the judgment would show that their Lordships were only concerned with Ss. 110-A and 110-F of the Motor Vehicles Act and held that the said two sections only dealt with the procedural law and not with the substantive law relating to compensation. In our view that judgment was concerned with the question as to the forum before which a claim under the Motor Vehicles Act should be adjudicated and was confined to two sections viz., S.110-A and 110-F and is therefore clearly distinguishable. In our opinion the decision of the Supreme Court in Sheikpura Transport Company v. N.I.T. Company (AIR 1917 KLSC 1624) which directly deals with S.110-B is in point and binding on us.
57. We may point out that in England and list of statutory dependents has been periodically enlarged ksubs3quent to 1846 in several statutes such as the Fatal Accidents Act. 1959, the Fatal Accidents Act 1976 and the Administration of Justice Act, 1982. Under the English statutory law the brother, sister, uncle or aunt of the deceased and the persons related by adopted or half blood and the illegitimate off-spring are entitled to the apportionment of the dependency. The recipients are in three classes viz., the dependents, the mourners, apart from the beneficiaries of the estate (see New law Journal. Vol. 133 pp. 307 and 321 by Mr. Tom Harvery).


58. We have also pointed earlier that under S.1-A of the Fatal Accidents Act. 1855 the Court may give such "damage as it may think proportioned to the loss resulting from such death to the par4ie respectively, for whom and for whose benefit such action shall be brought and the amount so recovered......shall be divided amongst the before-mentioned parties or any of them, in such shares as the Court by its judgment or decree shall direct."

The Court therefore has the power to apportion the dependency between the recipients individually. The entitlement of each person is to a separate award and not just to a joint-interest in a global sum.

59. The compensation payable to the dependents of the deceased is determined and apportioned by the Tribunal constituted under the Motor Vehicles Act. 1939 but the survival of the right in respect of the damages to the dependents and to the legal heirs could only be traced to the Fatal Accidents Act, 1855 read with S.306 of the Indian Succession Act. 1925. Once the right survives, the Tribunal exercises various powers of the Motor Vehicles Act. 19939. Under S.110-B of the Act, it has power to "make an award determining the amount of compensation which appears to it to be just and specifying the person or persons to whom compensation shall be paid......."
The Tribunal therefore has power to apportion the dependency among the dependents under the Fatal Accidents Act, 1855 in accordance with their needs and life-span. But so far as the 'loss to the estate' is concerned, the Tribunal has to divide the same in accordance with the personal law applicable to the deceased in case of intestacy or to the legal representatives, administrators, executors or legatees in accordance with law or any other testamentary directions.

60. We shall now proceed to apply the above principles to the facts of the case.


60. We shall now proceed to apply the above principles to the facts of the case.

61. The first step is to determine the annual dependency of the 'multiplicand'. In our view, the evidence of P.W. 1. the mother of the deceased and of P.W. 2, the husband of one of the married sisters is to the effect that the deceased was having a carpentry and painting workshop and that he was earning, on an average, about Rs.400/- to Rs.500 P.M. at the time of his death. We determine the average monthly net earning at Rs.400 and consider that the deceased would have given Rs.200/- P.M. to his dependents. The annual dependency thus works out to a sum of Rs.2, 400/-. We are not inclined to go by the rough figure of Rs.1500/- P.A. mentioned by the claimants for that figure is clearly contrary to the conventional figure is clearly contrary to the conventional figure adopted towards the dependency. Thus the annual dependency will be Rs.2, 400 and for such an income there is no incidence of income-tax.


62. The next step is to arrive at the appropriate multiplier. The decesed having died at the age of 22 years, we consider that a multiplier of 16 would be reasonable.
63. We now proceed to cross-check the multiplier with reference to the annuity tables. The deceased not being a salaried employee liable to retirement, it is reasonable to assume that his earning capacity extends beyond 65 years. For a person dying at 22, and earning beyond his 65th year, the multiplier would be 16.85. This multiplier has to be reduced for the 'contingencies' - namely, the chances of the mother dying, the sisters marrying soon, the deceased falling sick or his earning capacity being diminished. We are of the view that the multiplier of 16.85 from the Table is to be reduced to 16. Thus the multiplier of 16 selected by us compares favourably with the one arrived at by use of the actuarial or annuity tables. Therefore it is clear that the multiplier of 48 adopted by the Tribunal is hopelessly arbitrary.
64. The compensation payable to the dependency under the Fatal Accidents Act, 1855 comes to Rs.2400 x 16 = Rs.38, 400/-.


65. As the same is not high when apportioned, it is not likely to result in any diminution towards income-tax on any investments so as to fall within the exception in Limpoh Choo's case (1980-A.C. 174). As the multiplier of 16 is arrived at by reducing the prospective loss to its 'present value' by applying a standard rate of 51/2% compound for future years, it will not be reasonable to treat any investment of the dependency at rate higher than 51/2% so as to provide further for inflation or income-tax.
66. The next question is the loss to the estate. We confirm the loss to the estate at Rs.500/-
67. The further question is as to who are entitled to receive these sums. The dependency, according to the liberal view accepted by us, is to go to all the legal heirs of the deceased who died interstate. The heirs are the mother and sister, married and unmarried. But the married sisters, not being any longer dependent get nothing. The dependency goes to the mother and the unmarried sisters.
68. The dependency of Rs.38, 400/- has however to be apportioned between the mother and the unmarrieds isters according to their needs and span of life. The loss to the estate, namely Rs.500/- has to be divided according to Mahomedan law between the mother and sisters of the deceased. Therefore, the amount received by each of the claimants from the estate has to be deducted from the amount each is apportioned from the dependency.
69. On the facts of this case, the claimants having already withdrawn 'jointly' one half of the award of Rs.72, 500 - with interest, we do not propose to make the above calculation. Suffice it to say that the amount receivable by the claimants 'jointly' would be as follows:


(a) towards dependency under Fatal accidents Act, 1855 (Rs.38, 400 - Rs.500) Rs.37, 900.00
 (b) towards the loss to the estate Rs. 500.00 ___________ Total Rs.38, 400.00 ___________


70. In the result, the award made by the Tribunal is set aside and the appeal allowed in part and an award of Rs.38, 400 with interest at 6% P.A. from 5-6-78, the date of the petition, is substituted. There shall be no order as to costs in the C.M.A.
71. With regard to the mode of payment of compensation award under the Motor Vehicles Act, 1939, it would in our opinion, be desirable that the Tribunals should issue payments under 'Account-payee' cheques or similar orders, directly to the parties or their legal guardians upon verification of their identity.
72. Compensation cases raise issue of social, economic and financial policy not amenable to Judicial reform but can be resolved by the legislature only after full consideration of factors which cannot be brought into clear focus, or be weighed and assessed, in the courses of the forensic process. The judge - however wise, creative, and imaginative he may - is "Cabi" c. cribb'd confin'd bound in not as was Macbeth, to his "saucy doubts and fears" but by the evidence and arguments of litigants. It is this limitation, inherent in the forensic process, which sets bounds to the scope of judicial law reform (per Lord Scarman at .1813 of Lim Poh Choo's case (1980-A.C. 174).


73. The reform must therefore come from Parliament. The Fatal Accidents Act, 1855 requires to be made up to date in the light of the experience of the English Fatal Accidents Acs of 1959 and 1976. Similarly the legal Representatives Suits Act 1855 and S.306 of the Indian Succession Act 1925 require to be brought in line after examining the amendments to the Law Reforms (Miscellaneous Provisions) Act, 193 (Sic). The widespraed reforms made under the Administration Justice Act 1982 have also to be taken into account. The law has to be simplified and adjusted to suit Indian conditions.


74. Lord Hailsham, while introducing the Administration of justice Bill, 1982 spoke of the need for 'darning' the statute from time to time, like darning old socks. Perhaps, as pointed out by M/s. Andrew Borkowski & K. Stanton (Vol. 46, Modern Law Review, 1983, P. 191) it is necessary to buy 'new socks' rather than darn the old ones.
75. Appeal partly allowed.


Addl. Commissioner Of Income-Tax ... vs Dargapandarinath Tuljayya & Co. on 10 December, 1975

JUDGMENT Chinnappa Reddy, J.


1. The respondent-assessee, a firm, failed to file its returns for the years 1965-66 to 1969-70, within the time stipulated by the Act. The firm submitted an explanation that the returns could not be filed in time because the person who was in-charge of the accounts of the firm was unable to attend to its affairs for some time owing to some personal reasons. The Income-tax Officer did not accept the explanation. He levied penalties. The assessee preferred revision petitions before the Commissioner of Income-tax. Before the Commissioner it was represented that the delay was due to family troubles. The Commissioner did not accept the explanation. He rejected the revision petitions. The assessee filed writ petitions in the High Court. Obul Reddy J. (as he then was) quashed the orders of the Commissioner on the ground that penalties could only be imposed if it was found that the assessee acted deliberately in defiance of the law or was guilty of contumacious or dishonest conduct or acted in conscious disregard of his obligations and not otherwise. He directed the Commissioner to reconsider the matters. The Commissioner has preferred these writ appeals.
 2. We find it extremely difficult to agree with the view expressed by Obul Reddy J, But that view was approved by a Division Bench of this court consisting of Obul Reddy C J. and Punnayya J. in Additional Commissioner of Income-tax v. Narayanadas Ramkishan . In the circumstances, we think that the question should be resolved by a Full Bench.


3. We would, however, like to express our view in the matter. Section 271(1)(a) of the Income-tax Act provides that if the Income-tax Officer is satisfied that any person "has without reasonable cause" failed to furnish the returns of total income, etc., he may levy a penalty on such person. All that the Income-tax Officer has to be satisfied about is that the failure of the assessee to submit return is "without reasonable cause" neither more nor less. Parliament has thus prescribed an objective test to determine the mental state of the person proposed to be proceeded against. There is no reason for importing the doctrine of mens rea into a situation where the requisite mental state is already defined. More about it later. Nor is there any reason for qualifying the failure to furnish a return with expressions like "contumacious", "dishonest", "in deliberate defiance of law", etc. To do so is to rewrite Section 271(1)(a).
 4. The doctrine of mens rea, in origin and in practice, is a rule of construction. In England, in 18th and 19th centuries, with the growth of statute law, a conflict arose between the common law and the statute law. The common law judges and lawyers evolved a rule of construction to avoid the conflict. They said :
 "It is a sound rule to construe a statute in conformity with the common law rather than against it, except where and so far the statute is plainly intended to alter the course of the common law."
 Now, it was one of the principles of English common law that mens rea was an essential ingredient of an offence. An application of the rule of construction to this principle meant that there was no presumption that mens rea was excluded from statutory offences. This led to the development of a presumption stated thus by Wright J :


"There is a presumption that mens rea, an evil intention or a knowledge of the wrongfulness of the act, is an essential ingredient in every offence, but that presumption is liable to be displaced either by the words of the statute creating the offence or by the subject-matter with which it deals, and both must be considered." [Sherras v. De Rutzen [1895] 1 QB 918 (QB)].
 This presumption or rule of construction is a sound rule to apply where traditional crime is given statutory form or where a new crime is added to the general criminal law. But it has no application or it is of very weak application to offences created by modern, social, industrial, fiscal and economic legislation. Some judges have altogether denied the existence of any such presumption in the case of modern statutory offences while other judges have "manifested a marked tendency to readily displace or minimise the application of the presumption". Vide Stephen J. in Cundy v. Le Cocq [1884] 13 QBD 207 (QB), Kennedy L.J. in Hobbs v. Winchester Corporation [1910] 2 KB 471 (CA) and Donovan J. in Regina v. St. Margaret's Trust Ltd. [1958] 1 WLR 522 (C Cr App). We may refer here to Bruhn (Jacob) v. The King [1909] AC 317, 324 (PC), where dealing with a case arising out of a contravention of revenue laws, Lord Atkinson said:
 "In many cases connected with the revenue certain things are prohibited unless done by certain persons, or under certain conditions. Unless the person who does one of these things can establish that he is one of the privileged class, or that the prescribed conditions have been fulfilled, he will be adjudged guilty of the offence, though in fact he knew nothing of the prohibition."


In. Lim Chin Aik v. The Queen [1963] AC 160 (PC), the Privy Council recognised that where "public welfare offences" (which most modern statutory offences are) were concerned there was a presumption of strict liability and the presumption of mens rea was displaced. In Indo-China Steam Navigation Co. Ltd. v. Jasjit Singh [1964] 34 Comp Cas 435 (SC) the Supreme Court attached great importance to the social purpose of the legislation rather than to the so called presumption relating to mens rea. In State of Maharashtra v. Mayer Hans George [1965] 35 Comp Cas 557 (SC) the Supreme Court expressed the view that the rule of construction laid down by the Court of Criminal Appeal of England in Regina v. St. Margaret's Trust Ltd. [1958] 1 WLR 522 (C Cr App) was nearer to the point having regard to the objects and purposes of the legislation with which they were dealing. In Nathulal v. State of Madhya Pradesh , Subba Rao J. held that mens rea was an essential ingredient of a criminal offence but, all the same, accepted the position that the rule relating to mens rea was a rule of construction. He observed:


"It is, however, a sound rule of construction which is adopted in England and also accepted in India, to construe a provision which creates an offence in conformity with the common law rather then against it except where the statute expressly or by necessary implication excludes mens rea." If the true position is that the principle of mens rea is a rule of construction raising a presumption that criminal intent is not to be considered as excluded unless so excluded expressly or by necessary implication, it must follow that where the requisite mental state is defined by the statute itself (as, for instance, in the present case) there is no scope for the application of the doctrine of mens rea. In India, the requisite mental state is almost always defined by the statute itself, and generally, there is no scope for application of the doctrine of mens rea. The question of the application of the doctrine of mens rea arises only in cases where the requisite mental state is not defined by statute. In such cases, it is necessary first to consider the words in their true and natural sense; to consider the object of the statute; if necessary, to consider further the attendant circumstances such as the nature of the duty imposed and on whom, whether a particular construction will render the Act effective or ineffective to achieve its object, whether it will permit the observance of the statute. If the evidence afforded by these considerations is insufficient to conclude whether mens rea is included or excluded as an ingredient of the offence then only recourse should be had to the presumption. As we said earlier, in the present case. Parliament has provided an objective test to determine the mental element. There is, therefore, no occasion to invoke the doctrine of mens rea.
 We would further like to point out that it is wrong to classify proceedings for levy of penalty under taxation statutes as offences of a criminal nature. In Corpus Juris Secundum, Vol. 85, p. 580, it is said.


"A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws. "
 In Ummali Umma v. Inspecting Assistant Commissioner of Income-tax [1967] 64 ITR 669, 676 (Ker), Mathew J. said :
 "I cannot say that the penalty imposed under Section 28 of the repealed Act or under Section 271 of the Act was or is imposed on the basis that it was or is an offence. For the offence punishment was or is prescribed such as imprisonment, fine or both. The imposition of penalty on the basis of an act or omission by an assessee is not because the act or omission constitutes an offence, but because that act or omission would constitute an attempt at evasion. Therefore, penalty is exacted not because an act or omission is an offence but because it is an attempt at evasion of tax on the part of the assessee."
 In R.C.No. 64/1970 [Commissioner of Income-tax v. Maduri Rajeswar [1977] 107 ITR 832, 836 (AP)] a Division Bench of this court of which one of us was a member observed :
 "The objects of the two provisions appear to be different: the one entailing the prosecution and punishment is to vindicate public justice by punishing the offender, whereas the object of penalty proceedings is to render evasion unprofitable and to secure to the State the compensation for damages or attempted evasions."


In W.Ps. Nos. 7974 and 7839/1973 [Kashiram v. Income-tax Officer ] the question of the constitutional validity of Section 140A(3) was raised before us. In that case, we had occasion to point out that the provision of levy of penalty for failure to pay the tax on self-assessment was no more than a mere provision ensuring compliance with Sub-section (1), making such non-compliance unprofitable. We also observed as follows :
 "Now, there are provisions in the Income-tax Act providing for levy of penalties for non-compliance with the provisions relating to filing of return, non-furnishing of accounts or particulars, failure to pay advance tax, concealment or evasion of income-tax, etc. Criminal prosecution is also provided for by Chapter 22 of the Act in certain cases which, inter alia, include failure to file a return of income, failure to produce accounts and documents, making of false statements and declaration, failure to deduct and pay tax when required to do so. These provisions relating to levy of penalties and criminal prosecutions are twin sanctions provided by law for ensuring compliance with law on the part of the assessees."
 We may mention that in Abraham v. Income-tax Officer , the Supreme Court held that the character of penalty was that of an additional tax. In Collector of Malabar v. Ebrahim Hajee [1957] 32 ITR 124 (SC), the Supreme Court held that even the provision for arrest for nonpayment of taxes was only a measure to compel payment of taxes and not a measure of punishment.


5. Obul Reddi C.J. referred to the observations of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26, 29 (SC), where, dealing with the provision for levy of penalty under the Orissa Sales Tax Act, the Supreme Court observed:
 "Under the Act penalty may be imposed for failure to register as a dealer: Section 9(1), read with Section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out."


We think that the Supreme Court was merely trying to explain the possible manner in which discretion may be exercised for imposing a penalty. They were emphasising that mere failure to register as a dealer ought not to attract a penalty. In each case the discretion to levy penalty had to be exercised, not mechanically, but, judicially after taking into account all the facts and circumstances of the case relevant for the exercise of discretion. It is no authority for the proposition that under Section 271(1)(a) of the Act the Income-tax Officer must find some extra mental element in addition to finding that the assessee had failed to furnish a return "without reasonable cause".
 The views expressed by us are shared by a Full Bench of the Kerala High Court in Commissioner of Income-tax v. Gujarat Travancore Agency [FB] and a Full Bench of the Orissa High Court in Commissioner of Income-tax v. Gangaram Chapolia [FB].
 6. In the light of this discussion we are unable to agree with the view expressed by Obul Reddy C.J. and Punnayya J. in Additional Commissioner of Income-tax v. Narayanadas Ramkishan . We, therefore, direct that the papers may be placed before the Honourable the Chief Justice for the constitution of Full Bench.
JUDGMENT Sambasiva Rao, J.


7. Is there an occasion to introduce the doctrine of mens rea into Section 271(1)(a) read with Sub-clause (i) of that section of the Income-tax Act, 1961? Seeking an answer to this question, these four writ appeals have been directed by Chinnappa Reddy and Jeevan Reddy JJ. to be placed before a Full Bench.