57. In Shiv Shakti Co-operative Housing Society, Nagpur v. Swaraj Developers, , the maintainability of the revision application after the Amendment Act 46 of 1999, which was given effect from 1.7.2002 was, the issue considered. The Supreme Court observed in Paras 15 and 16 thus:
"15. Language of Sections 96 and 100 of the Code which deal with appeals can be compared with Section 115 of the Code. While in the former two provisions specifically provide for right of appeal, the same is not the position vis-a-vis Section 115. It does not speak of an application being made by a person aggrieved by an order of Subordinate Court. As noted above, it is a source of power of the High Court to have effective control on the functioning of the Subordinate Courts by exercising supervisory power.


Vallabhaneni Lakshmana Swamy And ... vs Valluru Basavaiah And Ors. on 23 April, 2004

16. An appeal is essentially continuation of the original proceedings and the provisions applied at the time of institution of the suit are to be operative even in respect of the appeals. That is because there is a vested right in the litigant to avail the remedy of an appeal. As was observed in K. Eapen Chako v. The Provident Investment Company (P) Ltd., AIR 1976 SC 2610 only in cases where vested rights are involved, a legislation has to be interpreted to mean as one affecting such right to be prospectively operative. The right of appeal is only by statute. It is necessary part of the procedure in an action, but "the right of entering a Superior Court and invoking its aid and interposition to redress the error of the Courts below. It seems to this paramount right, part of the progress of the inferior Tribunal." (Per Westbury See: Ag v. Sillem, 33 J.Ex 209). The appeal, strictly so-called, is one in which the question is, whether the order of the Court from which the appeal is brought was right on the materials which that Court had before it" (Per Lord Devuil Ponnamal v. Arumogam, 1905 AC 390. The right of appeal, where it exists, as a matter of substance and not of procedure (Colonial Sugar Refining Company v. Irving, 1905 AC 368).
Finally, the Court held:


Finally, the Court held:
"32. A plain reading of Section 115 as it stands makes it clear that the stress is on the question whether the order in favour of the party applying for revision would have given finality to suit or other proceeding. If the answer is 'yes' then the revision is maintainable. But on the contrary, if the answer is 'no' then the revision is not maintainable. Therefore, if the impugned order is of interim in nature or does not finally decide the lis, the revision will not be maintainable. The legislative intent is crystal clear. Those orders, which are interim in nature, cannot be the subject-matter of revision under Section 115. There is marked distinction in language of Section 97(3) of the Old Amendment Act and Section 32 (2) (i) of the Amendment Act. While in the former, there was clear legislative intent to save applications admitted or pending before the amendment came into force. Such an intent is significantly absent in Section 32 (2) (i). The amendment relates to procedures. No person has a vested right in a course of procedure. He has only the right of proceeding in the manner prescribed. If by a statutory change the mode of procedure is altered the parties are to proceed according to the altered mode, without exception, unless there is a different stipulation.


33. Section 6 of the General Clauses Act has no application because there is no substantive vested right available to a party seeking revision under Section 115 of the Code. In Kolhapur Canesugar Works Ltd. and another v. Union of India and Ors., it was observed that if a provision of statute is unconditionally omitted without a saving clause in favour of pending proceedings, all actions must stop where the omission finds them, and if final relief has not been granted before the omission goes into effect, there is no scope for granting it afterwards. There is modification of this position by application of Section 6 of the General Clauses Act or by making special provisions. Operation of repeal or deletion as to the future and the past largely depends on the savings applicable. In a case where a particular provision in the statute is omitted and in its place another provision dealing with the same contingency is introduced without a saving clause in favour of pending proceedings, then it can be reasonably inferred that the intention of the Legislature is that the pending proceedings shall continue but a fresh proceeding for the same purpose may be initiated under the new provision."
58. In a recent judgment of the Division Bench of this Court in S. Shiva Raja Reddy v. S. Raghu Raj Reddy, (DB), in which one of us (BRSRJ) is a party has to consider "Whether Section 100-A C.P.C. is retrospective and no Letters Patent Appeal will lie against a judgment is of a Single Judge passed in an appeal from an original decree or order and whether all such of those Letters Patent Appeals filed prior to 1.7.2002 alone are saved?"


59. It is to be noted that by virtue of Act 46 of 1999, Section 100-A was substituted in place of Section 100-A of 1976 Act. Section 100-A of 1976 reads thus:
 "No further appeal in certain cases:-Notwithstanding anything contained in any Letters Patent for any High Court or in any other instrument having the force of law or in any other law for the time being in force where any appeal from an appellate decree or order is heard and decided by a Single Judge of a High Court, no further appeal shall He from the judgment, decision or order of such Single Judge in such appeal or from any decree passed in such appeal".
and the substituted Section vide Act 46 of 1999 reads thus:
"100-A. No farther appeal in certain cases:--Notwithstanding anything contained in any Letters Patent for any High Court or in any other instrument having the force of law or in any other law for the time being in force;
(a) where any appeal from an original or appellate decree or order is heard and decided, by a Single Judge of High Court, no further appeal shall lie from the judgment, decision or order of such Single Judge".


(b) ..............."
Under Section 32(g) of Chapter 4 of Act 46 of 1999, all those appeals admitted prior to the Act coming into force were saved. However, Section 100 was further amended and were brought to Code of Civil Procedure through Act No. 22 of 2002 and Section 100-A of the Principal Act was also substituted by the following:
 "100--A. No further appeal in certain cases :--Notwithstanding anything contained in any Letters Patent for any High Court or in any instrument having the force of law or in any other law for the time being in force, where any appeal from an original, or appellate decree or order is heard and decided by a Single Judge of a High Court, no further appeal shall lie from the judgment and decree of such Single Judge"
The said provision fell for consideration before the Division Bench. The substituted provision came into force with effect from 1.7.2002. The question was as to whether the provision is retrospective in its nature and if so, the extent of its retrospective operation.


60. The Division Bench referred to various decisions. Some of them are referred to hereinabove and concluded that taking away right of a party to prefer a further appeal as against the decree and judgment of a learned Single Judge of the High Court to a Division Bench, would not amount to taking away substantive right of any fundamental importance. The right of appeal is against the decree and judgment against the decree of a Subordinate Judge was well protected and was not taken away by the amended provision. While deliberating on the issue as to whether any party to a Us has a vested right to have his appeal to be heard by more than one Judge of the High Court, the learned Division Bench observed that right of appeal is not a mere right of procedure, but is a substantial right and also a vested right and such a right to enter the Superior Court accrues to the litigant and exists as on from the date of the lis commences. The right is to be governed by law prevailing at the date of institution of the suit. But, however, such a right of appeal can be taken by an enactment either by expressly or necessary intendment and observed that a provision may in its operation be retrospective, and yet the extent of its retrospective character need not extend so far as to affect pending suits, when the language of the statute does not compel them to do so. Interpreting the expression, "no further appeal shall lie from the judgment and decree of such Single Judge", the Bench observed that retrospective operation of Section 100-A would not extend to and be . applicable even to such of those Letters Patent Appeals which are already admitting and pending adjudication and that the provision is limited to the extent of taking away the right accrued in favour of a litigant to prefer Letters Patent Appeals arising out of the suits instituted or filed before 1.7.2002 and finally, the Division Bench observed that no further appeal against an order of the Single Judge shall He and be entertained after


Division Bench observed that no further appeal against an order of the Single Judge shall He and be entertained after 1.7.2002.


61. Finally, the Division Bench held that the appeals already filed, admitted and pending final disposal are in no way affected by the newly amended provision. Its retrospective effect is not so sweeping even to affect those appeals. Those appeals were subjected to threshold scrutiny and having found a prima facie case for correction of the judgments rendered by the learned Single Judge. The Division Bench admitted the same and they are awaiting final adjudication. There is nothing either expressly or by necessary implication in order to hold that the newly inserted provision affects even the appeals that were already admitted and accordingly, declared that all the Letters Patent Appeals presented or filed before 1.7.2002 are maintainable whether they have been admitted or not. To this extent, these appeals are excluded from the operation of the newly inserted provision.

62. From the aforesaid case law and the statements made by various Law Lords, the following principles (illustrative not exhaustive) would emerge:
1. Every legislation is a prima fade prospective unless it is expressly or by necessary implication made to have retrospective effect on the principle of "Nova comtitutio futuris formam imponere debet now Paranteritus" means - A new law ought to regulate which is to follow, not the past.

2. All laws which effect substantive rights generally operate prospectively and there is a presumption against their retrospectivity if they affect the vested right and obligation unless the legislative intent is clear and unambiguous.

3. While considering the question of retrospective operation of the statute, the right affected must be first considered, whether there is a vested right. The amendment must be considered as a prospective so as to not to cause vested right and if the right is merely procedural, normally it is not treated as a vested right.

4. The intention of the Legislature is always be to gather the words always used by it in plain, grammatical meaning.


5. Retrospective operation of a statute is not to be given so as to impair the existing right or obligation, otherwise than as regards a matter of procedure, unless that effect cannot be effected without doing violence to the knowledge of the enactment. A statute, which impairs vested right or legality of the past transactions or the obligation of a contract should not be held to be retrospective.

6. Even in respect of the amendments, substantive rights cannot be taken away by subsequent amendment, unless specifically enacted by the legislation.

7. The law which only affects the procedural rights is presumed to be retrospective, unless such a construction is textually inadmissible.

8. A statute, which not only changes the procedure, but also creates new rights and obligations, shall be construed to be prospective unless otherwise provided either expressly or by necessary implication.

9. Whether the amendment is brought during the pendency of the suits or actions, whether such amendment has retrospective effect or prospective effect has to be considered with reference to object of the amendment, unless it is expressly provided in the statute. But, however, if the rights and procedures are dealt with together, if the procedural alterations are inextricably linked with the changes simultaneously, it is not permissible to give retrospective effect of operation. Unless, Legislature has enacted such an intention, there is always general presumption that the statute is deemed to be prospective unless otherwise expressly provided.


10. The question whether statute or any provisions in it has retrospective operation has to be determined with reference to the intention of the legislation and it is to be gathered from the language with reference to the object and nature of the rights affected the circumstances under which the statute came to be. The statute which is not declaratory of pre-existing law nor the matter relating to procedure, but affects vested rights cannot be given a greater prospective, retrospective effect than it renders necessary. The test when decided a particular provision of law has to be given retrospective effect or not is not merely considered whether a law of procedure or substantive law, but also any alleged questions existing rights including the rights of action which are substantive rights. If a law destroys an existing right or places language a restriction on it, no retrospective effect would be given unless statute is expressly enacted to that effect.

11. No person can have a vested right in the course of procedure and the plaintiff or defendant has a right of prosecution or defence in the manner prescribed for the time being and if the procedure is altered during the pendency of action, the altered procedure ought to be adopted. Legislature can always provide that pending proceedings shall be effected by an amendment Act, though in the absence of such any express provision amending Act cannot be held to be govern the pending proceedings.

12. A new law bringing about a change in forum does not affect pending actions unless there is clear expression to the said effect.

13. Right of appeal is substantive right and it cannot be impaired as taken away by a statute retrospectively unless by specific provision in enactment or by necessary intendment, This right vests with the suitor at the time of institution of original proceedings. Any change in the law relating to appeals after institution of original proceedings which adversely touches this right is presumed not to be retrospective.


14. A change of forum except in pending proceedings is a matter of procedure and therefore, if a new Act requires certain type of original proceedings to be instituted before a special Tribunal constituted under the Act to the exclusion of Civil Court, all proceedings of that type whether based on old or new causes of action will have to be instituted before the Tribunal.

15. The statutes providing for new remedies for enforcement of a existing right are treated as procedural and applied to future as well as the past causes of action.

16. The classification of statute as either substantive or procedural does not necessarily determine whether it may have a retrospective operation. But, a statute of limitation is generally regarded as procedural. However, if its application to a past cause of action has effect of reviving or extinguishing a right of suit such an operation cannot be said to be procedural. Consequently such procedural law is prospective in operation.

17. In the words of Dixon CJ "The general rule of the common law is that a statute changing the law ought not, unless the intention appears with reasonable certainty, to be understood as applying to facts or events that have already occurred in such a way as to confer or impose or otherwise affect rights or liabilities which the law had defined by reference to the past events. But, given rights and liabilities fixed by reference to the past facts, matters or events, the law appointing or regulating the manner in which they are to be enforced or their enjoyment is to be secured by judicial remedy is not within the application of such a presumption".


18. In the words of S.R. Das, the cordinal rule of construction, however, in the absence of anything in the enactment to show that it has a retrospective operation, it cannot be so construed as to have altering the law applicable to a claim in litigation at the time when the Act was passed. Therefore, if Legislature intends to apply a statute to the pending proceedings, it must indicate an express provision to that effect.

19. In matters of substitution by an amendment, it has to be construed that there is no real distinction between the repeal and an amendment. Whether a provision of an Act is omitted by an Act and the said Act simultaneously re-indicates new provision which substantively covers with certain modifications. In that event, such re-enactment is recorded as having force continuously and modification are treated as changes with effect from the date of the enforcement of the re-enacted provision.

20. It makes no difference in application to these principles that the amendment is by substitution or otherwise. However, the statutes dealing with the procedures in contrast with the substantive rights are presumed to be retrospective, unless such a conclusion is textually inadmissible. If the new Act affects the matters of procedure, then only prima facie it applies to all actions pending as well as future.

21. While the law relating to forum and limitation is procedural in nature while the law relating to right of action and right of appeal even though remedial is substantive in nature, that a procedural statute should not generally be speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished. A statute which not only changes the procedure but also creates new rights and obligations shall be construed to be prospective, unless otherwise provided either expressly or by necessary implication,


22. A statute which takes away or impairs vested rights acquired under existing laws, or creates a new obligation or imposes a new duty or attaches a new disability in respect of transactions already past must be presumed to be intended not to have a retrospective effect and as a logical corollary of the general rule, that retrospective operation is not taken to be intended unless that intention is manifested by express words or necessary implication, and there is a subordinate rule to the effect that a statute or a section in it is not to be construed so as to have larger retrospective operation than its language renders necessary.


23. Where the rights and procedure are dealt with together, the intention of Legislature may well be that old rights are to be determined by the old procedure and the new rights under substituted section by the new procedure. If the procedural alteration is closely and inextricably linked with the changes simultaneously introduced, it is not possible to give retrospective effect to the procedure unless the Legislature has indicated such an intention either by express words or by necessary implication."
63. Keeping in view the aforesaid principles, it has to be considered whether the amendment Act is retrospective in operation. The Andhra Pradesh Civil Court Act is a consolidated Act, which came into effect with effect from 1.11.1972. The Act repealed certain Acts referred to supra. The pecuniary and territorial jurisdiction as well as appellate jurisdiction together with fora is contained in various provisions of the Act. A right to appeal is a substantive right and it inheres to the party from the date when action is instituted and enures till the end of the litigation viz., appeal, second appeal etc. The pecuniary limits together with fora were being awarded from time to time by appropriate amendments. Initially, the appeal against the decree of Additional Judge, City Civil Court laid before the Chief Judge if the value of appeal was not more than Rs. l5,000/-and to the High Court if the value is more than Rs. 15,000/-. Subsequently, the value was being substituted as Rs. 30,000/-, Rs. 1,00,000/-and presently Rs. 3,00,000/-.


64. It is beyond pale of controversy that a vested right cannot be affected by an amending Act retrospectively unless specifically expressed or by necessary intendment. Per contra a procedural law or adjectival law is presumed to have retrospective effect. But, as already observed in various cases, the clear cut distinction between laws of procedure and substantive law is not possible and hence the language, object and reasons and the circumstances under which the adjectival law is brought into effect has to be considered. It is not a rule of thumb that procedural law is always retrospective. In the picturesque aphorsm of Therman Arnold "Substantive law is canonised procedure. Procedure is unfrocked substantive law" (XLV Harvard Law Journal 617 and 645). Even a procedural law which not only changes the procedure but also creates new rights and obligations have to be construed to be prospective as such a law cannot have the effect on vested rights which were already accrued and put into action. The Supreme Court in a very recent case Kapilnath 's case (supra) has categorically held that even the procedural law if it is sought to be made applicable to the pending matter, the legislation has to specifically contain such expression and in the absence of such a provision, the adjectival law has to be construed to be prospective and not retrospective in operation


65. Even if we go by the language of the amendment, the Act contained expression as "an appeal shall lie" would only refer to action in futuro and not in presenti. As early as 1909 the English Court in Smithies v. National Association of Operative Plasterers, while agreeing with Lord Chief Justice, Vaughan Williams LJ, said "We are all agreed on this point. It is a proposition founded in common sense that, where vested rights have already accrued, and legislation is passed which uses words expressive of futurity, such as "shall" or "shall not", which prima facie would appear to be meant to be applicable to future cases, it is not to be construed retrospectively so as to affect those vested rights, unless terms are used which clearly compel the Court to give it that construction, This is only to impute common sense to the Legislature; any reasonable person would say that clear terms ought to be used, if it is intended to divest a vested right. It is stated in Maxwell on the Interpretation of Statutes, 3rd Ed. P.333, that, where a statute is in its nature a declaratory Act, the argument that it must not be construed so as to take away previous rights is not applicable. I suggested to Mr. Shearman that he might base an argument on this passage, but he did not receive the suggestion with enthusiasm. I am clearly of opinion that the Trade Disputes Act, 1906, Section 4 is not declaratory so as to prevent the general rule against construing a statute retrospectively from applying. It is impossible, I think, to suppose that the Legislature meant that, where an action was already commenced, the passing of the Act should stop it. I think that on this preliminary point the Lord Chief Justice was quite right."


66. To the same effect, the decisions of the Supreme Court in Rajagopal Reddy 's. case (supra) and Ramesh Singh's case (supra).

67. Consequent on every amendment, there was change of forum coupled with the value of the subject-matter. It is only in case of merely procedural laws unconnected with the rights, the said law is construed to be retrospective. But, if the law is inextricably an admixture of right and remedy, such law has to be construed as having prospective operation as the vested rights cannot be interfered with except specifically expressed or by necessary implication. The right to remedy and the forum when presumed by law in an integrating manner, the later follows the former as the same is a vested right. A right of remedy without forum or vice versa, would be an ineffective right and therefore, they always travel together. In the case on hand, the right to file appeal with pecuniary limitation is intrinsically coupled with the forum. In such an event, it is not possible to divide vested right and fora and apply substantive law to the right and adjectival law to the forum. Further, we find that the destination between substantive law and procedural law is rather difficult to make out and hence any effort on the part of the Court to make an effort to divide there two areas is unwarranted. The only course left for the Court is to see whether the adjectival statute extinguished merely the remedy or the substantive right as well as the remedy. For such determination, each case has to be considered on its own facts and circumstances.


68. There is yet another reason to hold that the amendment is not retrospective. The amendment is only a substitution of the value of the appeal. No specific repeal provisions were enacted. Therefore, when substitution takes place it merely gets embebbed in Section 9 and other provisions of the Act apply from the date of substitution. The Andhra Pradesh Civil Court Act while repealing other Acts applied Sections 8 and 18 of Andhra Pradesh General Clauses Act, by which any right, privilege, obligation or liability acquired or incurred under any enactment so repealed is unaffected.


69. It is to be noted in this regard that in Maria Christiane's case (supra) the maintainability of the appeal was the subject-matter before the Supreme Court. Though, it was presented, not admitted, but continued to be in the fold of Appellant Court. The forum was constituted with effect from 15.6.1966. As on the date of the disposal of the matter, Portuguese Code was no more in existence and the Court of Judicial Commissioner was equated with that of the High Court and therefore, as on the date when the suit was dismissed on 6.6.1968, it stood transferred to Senior Judge's Court by virtue of the provisions contained in the Goa Act 6 of 1965 and in such circumstances, the Supreme Court held that the forum as created under the Goa Act has to be availed off. The Supreme Court did not consider the aspect as to whether the right to forum created has restospetive effect or prospective effect. Therefore, taking into consideration the principle laid down by the Supreme Court in this case with reference to the facts in the present case, on the date when the suit was decreed, the amended provisions relating to the pecuniary jurisdiction of Appellate Court as also the forum came into existence and therefore, the decision on the other hand, supports the case of the appellants rather than defendant and therefore, it has to be held that inasmuch as the amended Civil Court Act did not specify that the provisions would effect the pending cases, it has to be only inferred that the intention of the legislation was not to affect the cases or the appeals which were presented as also pending on the date of the amendment came into force.


70. Even the assistance sought to be taken from the judgment of the Supreme Court reported in Mukund Deo (dead) by his LRs. Kasibai v. Mahadu, , the same cannot be made applicable to the facts of this case. In that case, one Mr. Beli Ram, who was having certain lands died leaving his wife Rukhma Bai and his daughter Vitha Bai. On his death, the property devolved on his wife Rukhma Bai as a limited owner. By a deed dated 26.7.1916, she sold the lands to Mukund Deo and delivered the possession. Rukhma Bai died in the year 1940. However, the sons of Vitha Bai, daughter of Rukhma Bai brought an action if February, 1944 assailing transfer and for a decree of possession of the lands sold by Rukhma Bai, The Trial Court decreed the suit against which an appeal was filed before the Additional Sub-Judge, who reversed the decree of the Trial Court. In the Second Appeal before the High Court of Hyderabad, the judgment of the lower appellate Court was reversed restoring the decree of the Trial Court. The legal representative of Mukund Deo preferred the civil appeal before the Supreme Court. The contention before the Supreme Court was that the High Court in Second Appeal had no jurisdiction to set aside the finding of fact recorded by the first appellate Court as per Section 100 of Code of Civil Procedure. But the contention was repelled by the Supreme Court stating that when the suit was filed the lands in dispute were situate within the territory of H.E.E. the Nizam of Hyderabad and the suit filed by the respondents had to be heard and disposed of according to the relevant provisions of the Code of Civil Procedure in force in the State of Hyderabad and under Section 602 of Hyderabad Civil Court Act, the second appeal shall lie to the High Court from every decree which is passed in


Civil Court Act, the second appeal shall lie to the High Court from every decree which is passed in first appeal, thereby implying that second appeal lie with regard to the question of fact as well as the question of law.


71. The Supreme Court observed that "it is true that as a general rule, alteration in the law of procedure are retrospective, but a right of appeal to a particular forum is a substantive right and is not lost by alteration in the law, unless provision is made expressly or by necessary implication. Therefore, the Supreme Court referred to Colonial Sugar's case (supra), Delhi Cloth and General Mills's case (supra) and Garikapati Veeraiah's case (supra), observed that vested right of appeal is a substantive right and is governed by the law prevailing at the time of commencement of the suit, and comprises all successive rights of appeal from Court to Court, which really constitute one proceeding. Such a right may be taken away by a subsequent enactment expressly or by necessary intendment. The Supreme Court held that Code of Civil Procedure to the Territory of State of Hyderabad either by express or by necessary intendment invested Section 100 of the Code with retrospective operation and that the power of the High Court to deal with the appeal before it must" be with reference to procedure contained in Hyderabad Code without reference to Section 100 of Code of Civil Procedure, 1908. Thus, the Supreme Court held under the Hyderabad Code, second appeal can be raised on questions of fact and law, while under Code of Civil Procedure only substantial question can be entertained and vested right which accrue under Hyderabad code cannot be taken away retrospectively. Therefore, what was observed by the Supreme Court in this case is vested right of the Appellant in the second appeal relating to both fact and law and merely as on the date when the Code of Civil Procedure was made applicable, it cannot deny the vested right of the appellant to agitate the same before the High Court, both the questions of law and fact. But, this case also is of no avail.


72. Therefore, we are of the considered view that the reliance placed on Maria Christine De. Souza Soddar's case (supra) and Kasi Bai 's case (supra), is inappropriate to the fact situation of the present case. A principle in abstract without reference to the facts and circumstances cannot be applied to other cases. It is also to be noted that it is a case of substitution and not a complete repeal. The pecuniary jurisdiction of the Court were altered and consequently the forum also changed. Therefore, it is not a case as a case of right of appeal was taken away, while not disturbing the substantive right, if the forum is changed and the right of the appeal in the forum are so inextricable that they cannot be separated by clear cut measure. It has to be that the right of appeal as well as the forum are both substantive rights and therefore, they only apply to the cases in future and not applied to the pending cases.

73. Therefore, we reached the following conclusions :
1. That the Civil Court (Amendment) Act 30 of 1989 is applicable prospectively from 1.12.1989.

2. Even in case of suits which were filed earlier to the amendment and they are pending disposal as on the date of the amendment came into force, the appeal if any has to be necessarily filed before the Forum created under the amended Act depending on the pecuniary limits. To this limited extent, the decision in Kotina Papaiah's case (supra) and Kameshwaramma 's case (supra) and Haragopal's case (supra) stand modified.

3. Any appeal having been presented before date of amended Act coming into force and the appeals pending as on the said date are required to be disposed of by the Courts, wherever they were pending and the amendment will not have any effect on pending appeals either presented or pending.


4. The suits or petitions in which decrees were passed prior to 1.12.1989, they will be dealt with in accordance with the pre-amended procedure.

5. In the cases before us, even after the amendment came into force on 1.12.1989, number of appeals having value less than Rs. one/3 lakhs were admitted by this Court and some of them were disposed of by virtue of the judgment of the Division Bench in Kameshwaramma's case (supra) subsequent cases though in fact they do not fall within the category of either pending appeals or appeals presented, before the amendment. The pecuniary limits and forum go together and the amendment being prospective in operation, the appeals ought to have been filed before the amended forum. But, taking into consideration that large number of appeals were already admitted by this Court, and they are pending for a considerable length of time and keeping in view the maxim that "Actus curiae neminem gravabit" (An act of the Court shall prejudice no man), we declare that such of the cases which were filed subsequent to amendment are deemed to have been transferred to this Court under Section 24 of Code of Civil Procedure for their disposal in accordance with law.
74. The judgment of the Full Bench in Motichand Jain's case (supra) declaring that the Amendment Act 30 of 1989 falling under adjectival law has retrospective effect stands overruled subject to the aforesaid conclusion.

75. The Registry shall list the cases before the appropriate Court for disposal.

76. Before parting with the cases, we would like to place on record our appreciation for the able and matured submissions made by all the Counsel appearing for both the parties and the case-law cited by them has assisted this Court to clear the riddle, which has been lingering for the decades.

77. No costs.


Gadiraju Sanyasi Raju vs Kandula Kamappadu And Ors. on 26 June, 1958

ORDER Bhimasankaram, J.
 1. One of the important questions to be decided in this appeal is whether the agreement Ex. A-6 is a 'lease' falling within the ambit of Section 17(1) (d) and, therefore, comes within the mischief of Section 49 of the Indian Registration Act. The Act defines a lease as including an agreement to lease.


2. The Privy Council decision in Hemanta Kumari Debi v. Midhapur Zamindari Co. ILR 47 Cal 485 at p. 494: (AIR 1919 PC 79, at p. 80) dealt with the meaning of the phrase 'agreement to lease' and their Lordships made the following observations :
 "..... the Registration Act of 1908 provides that 'lease' includes an agreement to lease, and by Section 17 enacts that leases must be registered, the penalty for non-registration being imposed by Section 49, which provides that if not registered, no document shall affect immoveable property which it comprises or be received as evidence of any transaction affecting such property. If the document in question can be regarded as a lease within the meaning of this definition it could not be received in evidence. Then Lordships are of Opinion that it cannot be so regarded. An 'agreement for a lease', which a lease is by the statute declared to include, must, in their Lordships' opinion, be a document which effects an actual demise and operates as a lease."


3. Their Lordships were, in that case, dealing with an agreement which was not enforceable on the date when it was entered into but which could become enforceable only in case a certain event happened. Before that decision was rendered, a Full Bench of the Madras High Court had in Narayanan Chetty v. Muthiah Servai, ILR 35 Mad 63 (FB) ruled that) an agreement to execute a sub-lease and to get it registered at a future date is a lease wtthin Section 3 of the Indian Registration Act III 06 1887 and is compulsorily registerable under Clause (d) of Section 17. Some time after the case in ILR 47 Cal 485 : (AIR 1919 PC 79) was decided, a similar question came up for consideration before the Madras High Court in Swaminatha Mudaliar v. Ramaswami. Mudaliar, ILR 44 Mad 399 at p. 404 : (AIR 1931 Mad 72 at p. 73). Referring to the observations of the Privy Council in ILR 47 Cal 485 : (AIR 1919 PC 79) one of the learned Judges remarked as follows, after quoting the passage above extracted from the decision.


"Turning to Panchanan Bose v. Chandi Charan Misra, ILR 37 Cal 808 we see that the Chief Justice held that the document he was considering did not come within Section 17(1) (d) of the Registration Act and that consequently it was affected by rule contained in Clause 2 (5). In fact, the conclusion was that unless an agreement to lease had the effect of operating as an immediate demise of the property it need not be registered. It may be urged that this view practically destroys the difference between a lease and an agreement to lease, but apparently the position created by the definition section has become very anomalous and Courts have been at pains to devise a way out of the difficulty; and as the solution has emanated from such a high authority as Sir Lawrence Jenkins and has the approval of the Judicial Committee, I feel that we should accept it unreservedly.

I am DOG prepared to regard the pronouncement of the Judicial Committee as an Obiter Dictum which it is open to us to ignore, having regard to the Full Bench decision of this Court, The question was directly before the Board and they pointedly drew attention to the decision of the Chief Justice of the Calcutta High Court on the matter. I feel no compunction in respectfully accepting this view, and in holding that ILR 35 Mad 63 (FB), should no longer be regarded as good law; otherwise it would result in perjured evidence being let in to prove a supposition oral agreement in such cases."
4. The other learned Judge, Wallis C. J., however, seemed lib opine that the Court was still bound by the decision in ILR 35 Mad 63 (FB).


5. No subsequent derision binding upon us throwing light upon the meaning of the passage cited above from the Privy Council decision has been brought to our notice. We find considerable difficulty in applying the observations of their Lordships to the instrument before us. We. therefore think it desirable that the following question should be decided by a Full Bench :
 "Whether Ex. A-6 is a lease within the meaning of Section 17 (1) (d) of the Registration Act?"
 The papers will be placed before the learned Chief Justice for the constitution of a Full Bench to decide the question.

Case Note:
(i) Contract lease - Section 2 (7) of Registration Act, 1908 dispute regarding nature of agreement to lease whether agreement to lease within meaning of Section 2 (7) as gathered from intention of parties - agreement itself states that it should be regarded as lease within meaning of Section 2 (7).
(ii) Specific performance - Sections 27A and 12 of Special Relief Act, 1877 and Section 53A of Transfer of Property Act appellant suing for specific performance under Section 27A unregistered lease deed adduced as evidence - unregistered agreement of lease signed by one party under which no possession delivered not covered by Section 27A held, suit for specific performance not maintainable on basis of unregistered document.
JUDGMENT Chandra Reddy, C.J.
6. The question referred to the Full Bench is whether Ex. A-6 is a lease within the meaning of Section 17(1) (d) of the Registration Act. The fact's necessary for an appreciation of the relative contentions of the parties may be briefly set out.


7. The suit was laid by the appellant on the basis of Ex. A-6 dated 30-5-1955 an agreement to lease permanently properties mentioned therein on certain terms and conditions which would be referred to presently. The answer of the defendants was that the agreement in question was the result of fraud and misrepresentation and that the document relied on should not be received in evidence for want of registration as it fell within the scope of Section 17(1) (d) of the Indian Registration Act. The trial Court over-ruled the objection based on the provisions of the Registration Act, but dismissed the suit accepting the plea of the defendants that the instrument was brought about by fraud and misrepresentation. The aggrieved plaintiff preferred the present appeal against that judgment complaining against the finding. When the appeal came up before Justice Bhimasankaram and Justice Krishna Rao, the view of the trial court, that the document was unaffected by the provisions of Section 17(1) (d) read with Section 49 of the Indian Registration Act was canvassed before them by the respondent. As the learned Judges felt some difficulty in applying the observations of the Privy Council in ILR 47 Cal 485 : (AIR 1919 PC 79) they wanted a Full Bench to interpret the document.

8. The determination of the question as tot whether Ex. A-6 is an agreement to lease or not depends upon the meaning to be attributed to the words "agreement to lease". In other words, the exact scope of Section 2 Clause 7 of the Registration Act has to be determined. ''Lease" has been defined to include a counterpart, kabuliyat, an undertaking to cultivate or occupy, and an agreement to lease. The construction of this clause was the subject of several judicial decisions.


9. The leading case on the subject is ILR 47 Cal 485 ; (AIR 1919 PC 79). There, two actions were laid by the appellant to his Majesty in Council, one against Midnapur Zamindari and the other against the Government for recovery of possession of certain plots of land. The suit against the company was premised on terms that the company should recognise the title of the plaintiff bull should be allowed to remain in possession of the property as lessee and that the properties forming the subject-matter of the other suit should be granted a Jote settlement in the event of her succeeding in that suit.


Eventually, when the suit was decreed, the appellant refused to fulfil the terms of the compromise. This led the company to file a suit for specific performance of the agreement embodied in the compromise petition. The main defence to the action was that the compromise was unenforceable for the reason that it was not registered as required by the relevant provisions of the Registration Act. This contention was repelled by their Lordships in the view that the document in question did not create any immediate and present demise in the company. The rule was stated by there Lordships in the following words :
"xxxxx, the Registration Act of 1908 provides that 'lease' includes an agreement to lease and by Section 17 enacts that leases must be registered, the penalty for non-registration being imposed by Section 49, which provides that, if not registered, no document shall affect immoveable property which it comprises or be received as evidence of any transaction affecting such property. If the document in question can he regarded as a lease within the meaning of this definition it could not be received in evidence. Their Lordships are of opinion that it cannot be so regarded. An 'agreement for a lease' which a lease is by the statute declared to include, must, in their Lordships' opinion, be a document which effects an actual demise and operates as a lease.


They think that Jenkins C.J.. in the case of ILR 37 Cal 808 correctly stated the interpretation of Section 17 in this respect. The present agreement is an agreement that, upon the happening of a contingent event at a date which was indeterminate and, having regard to the slow progress of Indian litigation, might be far distant, a lease would be granted. Until the happening of that even* it was impossible to determine whether there would be any lease or not. Such an agreement does not. in their Lordships' opinion, satisfy the meaning of the phrase "agreement for a lease", which, in the context where it occurs and in the statute in which it is found, must in their opinion relate to some document that creates a present and immediate interest in the land."
In this decision the dictum of Jenkins C. J., in ILR 37 Cal 808 was approved. In the latter case the plaintiffs sought declaration of their right to a patta for a share in some lands and for possession thereof. The claim was based by the defendants on various grounds but in the appeal the controversy was confined to the question whether the 'solehnama' which was foundation for the suit was admissible in evidence. Jenkins, C.J., who delivered the opinion of the Court upheld the pleas of the plaintiffs that the document did not amount to a lease for the reason that it only created a right to obtain another document which alone was contemplated to operate as an actual demise. The learned Judge thought that the document was merely an agreement to create a lease at a future data the (terms of which were to be defined by a document to be executed in future.


10. Sri Ramamurthy, the learned counsel for Hie appellant seeks to bring the present case within the ambit of these rulings. His contention is that the document by itself did not form the transaction and as such it was only an agreement between the parties that some time later and on fulfilment of certain conditions a permanent lease was to be granted to the appellant. It was also urged by him that the Full Bench ruling in ILR 35 Mad 63 which laid down the proposition that an agreement to execute a sub-lease and get it registered at a future date, whether possession was given to the lessee or not, was a lease within the meaning of Section 3 of the Indian Registration Act of 1877 corresponding to Section 2(7) of the present Act requiring registration under Clause 1(d) of Section 17, is no longer good law in view of ILR 47 Cal 485 : (AIR 1919 PC 79).


11. Before we examine the soundness of this contention with reference to the terms of the document we shall also deal with the cases referred to by the counsel for the appellant. In Valiya Kalyamani v. Krishna Nambiar, AIR 1927 Mad 699 Ramesam. J., ruled that an agreement between the parties for a renewal of 'kanom' did not amount to an agreement to lease for the reason that the parties intended that the document should not operate as a present demise till the payment of a particular sum of money. The ratio of this ruling is that the demise was intended to come into existence only on the happening of some contingent event and the parties did not want that it should operate as a present demise, Suleman v. P. N. Patel, AIR 1933 Bom 381 Illustrates the same principle, namely, that if agreement Is to grant a lease in future it would not constitute an agreement, to lease within the scope of Section 2(7) of the Indian Registration Act. In that case, the defendant wrote to the plaintiff agreeing to take a flat for five years commencing from a certain day. Since on the relevant date the plaintiff had not decided which flat he would let to the defendant it was decided by Justice Wadia that the latter did not create a present demise of either the one or the other flat and consequently it was not an agreement to lease requiring registration. Trivenibai v. Leelabai, AIR 1955 Nag 170 belongs to the same category. On a reading of the whole document, the learned Judge came to the conclusion that the document was primarily meant to evidence payment that was made and was not meant to effect an actual demise in the property concerned.


12. Kanti Chandra v. Brojendra Mohan, AIR 1929 Cal 186 does not carry the appellant any farther. There, an agreement was entered into for leasing certain properties after calculation of the area of the land and for fixing the rent after measurement thereof. Pursuant to this agreement the intending lessee was put in possession of the land not for its immediate use but for clearing the jungle so that the land could be measured. In a suit for rent the question arose whether the agreement was inadmissible in evidence, not having been registered. It was answered in the negative as it was felt that the agreement was to lease the property on certain conditions such as clearing the jungle, for measuring the land, fixing the rent etc., and that there was no present right created in the land in favour of the proposed lessee.

13. It is seen that in all these cases, the instrument in question was found to be not a lease for the reason that the terms and the surrounding circumstances clearly indicated that the parties did not intend to effect a present demise in the immovable property by and under that document. If the intention of the parties as could be collected from the words of the instrument was that they should take effect as an actual demise, there could be little doubt that the instrument would constitute an agreement to lease, so as to attract Section 17(1) (d) read with Section 49 of the Registration Act.


In Purmanand Das Jiwandas v. Dharsey Virji, ILR 10 Bom 101, the opinion expressed by Sargent, C.J. and justice Bayley is that of the document tends to create a present interest although the agreement contemplated the execution of a formal document at an early date it needs registration. iT was observed that it was the paramount intention that could be gathered from the instrument itself that should prevail. The view taken in Sanjib Chandra Sanval v. Santosh Kumar Lahiri, ILR 49 Cal 507: (AIR 1922 Cal 436) is to the same effect.


14. There is an exhaustive discussion on the subject in Ramjoo Mahomed v. Haridas Mullick, ILR 52 Cal 695 : (AIR 1925 Cal 1087). Justice Page who decided the case had collected all the cases bearing on the subject. There, a suit was filed for specific performance of an alleged agreement embodied in two letters to lease a particular premises in Calcutta, that was in possession of the plaintiff and in the alternative for damages for breach thereof. The contents of the letters were as follows:
 "I do hereby agree to take by our personal settlement your house and premises No. 7, Bowbazar street on a lease for 21 years under the following terms:"
The defendant replied:


The defendant replied:
 "I do confirm your letter dated 19-11-1921. All terms will be settled on the agreement." These two letters were interpreted by the learned Judge as containing terms amounting to a present demise of the said premises and creating an immediate interest therein. In his judgment reference is made to several English decisions touching the topic. In Maldon's Case (Doe d. Jackson v. Ashburner), (1793) 5 TR 163 at p, 167, the words "you shall have a lease of my lands in D for twenty one years, paying therefor 10 shillings per annum, make a lease in writing and I will seal were interpreted as making a good lease by parol, and that the making of it in writing was but for further assurance. The proposition that a document would operate as a present demise though it has to take effect in future on either of the two dates mentioned therein whichever first happened after the lessor recovered the land in question from the person then in possession is contained in Barry v. Nugent. (1782) 3 Doug (KB) 179. The observations of Lord Ellenborough in Doe d. Walker v. Groves, (1812) 15 East 244, which are instructive have been extracted by the learned Judge:


"If by the terms of this agreement it had been provided that there should be no entry until a lease was executed I should have had considerable doubts. But as the case stands it does appear to me that the instrument must be considered as a present lease from 5-4-1798. From that period it Has the operation of a demise, not depending upon the contingency of the party's granting a future lease, which was the stipulation only for the better security of the lessee. It falls, therefore, within the case of Poole v. Bentley, (1810) 12 East 168; and in (1782) 3 Doug (KB) 179 the Court thought, notwithstanding it was agreed that leases with the usual clauses were to be drawn, that! such a stipulation did not affect the words of present demise. Here the lessee might never have the benefit of an executed lease; in the interim, therefore, this was an agreement to operate as a present demise, commencing immediately from the 5th of April; though a more formal lease was afterwards to be granted."
 It is unnecessary to multiply citation on either side since the cases referred to above lay down in clear terms the rule that should govern the interpretation of Section 2(7) of the Registration Act. The principles that emerge from the various authorities ace these.


If the conditions of a contract to lease are fully ascertained and if ie is intended that the right to possession should vest in the lessee either immediately if the term is to commence at once or in future, if it is to come into operation subsequently, the instrument has to be regarded as a lease. "Such a lease takes effect from the date fixed for the commencement of the lease without the necessity of actual entry." If, on the other hand, it is only an agreement binding one of the parties to the agreement to lease and the other to accept it, it is only an executory contract since the legal relationship of landlord and tenant would not be created by and under the instrument. Thus, the test is whether the agreement itself would confer a legal right or whether the execution of another instrument which give a legal right was in the contemplation of the parties. It should be construed to be a lease if the present demise is to be inferred from the language employed. The fact that it contains a stipulation for the execution of a formal document subsequently would not make any difference if the covenants mentioned therein are to become binding at once. If, on the other hand the terms are not fully ascertained and some at lease of the essential conditions are to be settled at a later stage even if the words used indicate a present demise, it would not be a lease as defined in In Section 2(7). It is the dominant intention of the parties that should be gathered from the language in which the document is couched that should be the criterion in deciding whether a particular instrument is an agreement to lease or merely an agreement to grant a lease m future creating a right in a party to obtain a document under certain circumstances or on the happening of a certain contingency.

15. The rules stated by Readman in his book on "Landlord and Tenant" in paragraphs 50, 51 and 52 are in conformity with the principles indicated above.


16. We do not also accede to the proposition that ILR 35 Mad 63 (FB) was overruled by Hemanta Kurmari Debi v. Midnapur Zamindari Co., ILR 47 Cal 485: (AIR 1919 PC 79) on the issue as to whether an agreement to lease would require registration even if possession of the property was not given to the proposed lessee. For one thing, no reference was made by the Privy Council to this ruling, nor could it be said that by necessary implication ILR 47 Cal 485: (Am 1919 PC 79) has nullified the effect of ILR 35 Mad 63 (PB) on this aspect of the matter. Further we are not here concerned with the answer given by ILR 35 Mad 63 (FB) on the question as to whether a lease requiring registration but not registered is receivable in evidence in a suit for specific performance of a contract or for damages for breach of contract. It was only on this issue that the majority of the Full Bench of five Judges in Muruga Mudaliar v. Subba Reddiar, expressed the opinion that ILR 35 Mad 63 (FB] should be overruled. On the other point, it was not overruled; on the other hand, it is stated specifically by Justice Viswanathan Sastry that it is still good law on the question whether such an agreement required registration or not. However, that does not help the appellant in any way for she reason that the present problem has to be solved Only with reference to the question whether the document has the effect of creating an actual demise or not.


17. Bearing in mind these principles, we shall proceed to scrutinise the terms of Ex. A-6 and consider their effect on the relevant provisions of the Registration Act. The contents of Ex. A-6 are as follows;


"We have agreed to permanently lease out to you the following lands situated in Kondadadi village in Chipurupali Sub-district belonging to us and which are in our enjoyment by virtue of purchase by individuals Nos. 1 and 2 from Kolanavadai Suryatnarayanaraju and others and from Gachamatta Peda Venkataraju and others viz., lands in Yeguvapoonu Istuva wet and dry lands in Sankarapuvani Istuva, wet and dry lands, under Routuvani tank and Chintapoonu tank istuva, together with all the trees like palm, margosa, mango etc., thereon and inclusive of mango usufruct, water rights! and fishery rights, with the stipulations that you should duly pay us a fixed cist of Rs. 1800/- annually, that you should evict the tenants from all those lands and take possession of the entire extent according to the sale deeds and get them cultivated granting sub-leases to tenants of your choice bearing the expenses thereof yourself, that you should yourself without any concern to us, look to the repairs and improvement of these lands, that you should pay the circar taxes deducting the same from out of the cist payable to us, that in regard to this permanent lease to you, you should deposit with us Rs. 12,000/- (rupees twelve thousands only), that interest thereon at Rs. 0-6-0 per cent, per mensem might be deducted from the cist payable to us and the balance alone need be paid. Should the annual cist for any year be not properly paid but default committed the stipulations as to the permanent lease are to be cancelled, and you should forfeit the deposit and surrender the lands to us, It is also agreed that you should look to she disputes and to the repairs etc., of these lands yourself reaping the benefit


you should look to she disputes and to the repairs etc., of these lands yourself reaping the benefit by an act of State or Vis Major. The lease is to be got written (on a stamp paper) and registered within a month from this date. As regards the cist due to us from the ryo's of these lands for this year pardhiva we shall transfer the Kadapas to you and on your responsibility you will recover the said cist from them yourself and debiting the public court expenses incurred in respect thereof against us, you will pay us the balance, and this transaction is unalterable. This unalterable document letter (Dastavesu Uttaram) is executed out of our free will."


It is seen that this document contains the whole bargain and the parties had agreed on all the cardinal points of the contract and no essential particulars remained to be settled at a future date. The description of the document has also to be borne in mind although the label that is given to an instrument docs not furnish conclusive test in determining the nature of the document. In the preamble it is described as a document letter (Dastavesu Uttaram) and at the end of the document the descriptsion given is 'unalterable document letter.' That a finality is given to the transaction appears from he recitals ''Sthirachittamnto and Moonohpoortigo" which expressions are meant to convey the impression that it was a solemn, document. Sri. Ramamurthy invites us to hold than this document merely conferred a right upon the proposed lessee to obtain a grant of the lease on fulfilment of certain conditions by him on the grounds that the deposit of Rs. 12,000/- was a condition precedent to the creation of a lease, that no time was fixed for the coming into operation of the lease and that lastly it contained a stipulation that the lessor should transfer the kadapas executed in his favour by the previous tenants. We do not think we can give effect to this argument. Whatever might be the force of the argument, if the condition regarding the deposit of Rs. 12,000/- is a pre-requisite to the grant of a lease, it loses all force if it is regarded as one of the several terms and conditions of the agreement. A reading of the concerned recital leaves no room for doubt in our minds that it was only one of the terms of the agreement and was not a condition precedent as contended for by the appellant. Neither the fact that a lease comes into effect at a future date or on the termination of the existing lease nor the fact that a formal document shall be executed at a subsequent stage is


termination of the existing lease nor the fact that a formal document shall be executed at a subsequent stage is conclusive in deciding the nature of the document. If it was intended that the transaction should be kept in abeyance till the execution of a formal document, it may be said that there was no concluded agreement to lease the properties. That is not the position here. It is plain from a reading of the document that the dominant intention of the parties was that it by itself should be regarded as the transaction. The circumstance that the lessor was required to transfer the kadapas executed by the previous tenants, is on the other hand a clear indication that immediate effect should be given to the document and that the lessee should he given as much possession as the property was capable of, having regard to the fact that a permanent lease was given under the agreement. That this is so is manifest from the admission of the appellant himself in his deposition in Exs. B-6 and B-6(a).


"We had a final discussion and the document was written on 30th. As Vizianagaram was far away, the defendants did not want the agreement to he written on stamp paper. Nothing remains to he done by the defendants after the execution of Ex. P-1. I have to pay them money and take possession of the lands."
18. These admissions answer the contention of the counsel for the appellant that the deposit of Rs. 12,000/- was a condition precedent to the granting of a lease and that the parties contemplated that nothing could be done till the deposit was made and that the execution of a formal document was essential before the parties could fulfil the terms of the contract. In these circumstances, we hold that Ex. A-6 is a lease within the definition of Section 2(7) of the Indian Registration Act requiring registration and Is hit by Section 17(1)(d) and Section 49 of the Indian Registration Act.

(This Appeal coming on for final hearing on Friday the 3rd July, 1959 after the expression oi opinion by the Full Bench and the Appeal having stood over for consideration till this day, the Division Bench delivered the following):
JUDGMENT Bhimasankaram, J.
19. (Dated 15-7-1959) The answer of the Full Bench to the question referred to it by us is against the appellant. Ex. A-6 the agreement on the basis of which he seeks specific performance has been held to be an agreement of lease tailing within the definition of Section 2(7) of the Indian Registrar tion Act and so being covered by Section 17(1)(d) oi the Act as within the mischief of Section 49 thereof.


20. The question however remains as to whether it is saved by the proviso to bee. 49 of the Indian Registration Act which is in these terms;
 "Provided that an unregistered document affecting immovable property and required by this Act or the Transfer of Property Act, 1882, to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877, or as evidence of part performance of a contract for the purpose of Section 53-A of the Transfer of Property Act, 1882, or as evidence of any collateral transaction not required to be effected by registered instrument."
21. Under this proviso, if the present suit is one for specific performance of a contract of lease and is thus within the scope of Chapter II of the Specific Relief Act, then Ex. A-6 should be used as evidence of such a contract; Otherwise not. Thus, in order to decide the question of the admissibility of Ex. A-6, we shall have to decide whether there can be founded on that document a claim for specific performance. The relevant sections are Sections 12 and 27-A. Section 12 is a general provision dealing with the specific enforcement of any contract, "except as otherwise provided in this Chapter." Section 27-A provides for similar enforcement of contracts of lease of a special character, subject to certain specified limitations. In order to succeed, the appellant must bring his case under one or the other of these sections.

'Now Section 27-A of the Act runs thus :

"27A. Subject to the provisions of this Chapter, where a contract to lease immoveable property is made in writing signed by the parties thereto on their behalf, either party may, notwithstanding than the contract, though required to be registered, has not been registered, sue the other for specific performance of the contract if


(a)    Where specific performance is claimed by the lessor   he has delivered possession of the property to the lessee, in part performance of the contract; and

(b) where specific performance is claimed by the lessee, he has in part performance of the contract taken possession of the property or, being already in possession, continues in possession in part performance of the contract and has done some act In furtherance of the contract :

Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.

The section applies to contracts to lease executed after the first day of April. 1930."

 In the present case, Ex. A-6 is not signed by the appellant himself (the lessee) nor has he been put in possession of the property; so it is clear that this section does not avail him. But if is contended for the appellant that Ex. A-6 embodies a contract that could be enforced under Section 12. Now, it has been held, and in our opinion rightly, that oral agreements to lease are enforceable under Section 12. Vide Gokul Chandra Law v. Haji Mohammad Din, ILR (1938) 1 Cal 563 : (AIR 1938 Pal 136). But it is not the plaintiffs case that there was a separate oral contract preceding Ex. A-6 on which a claim for specific performance could be rested.


The position then is this : Here is a written contract to lease immoveable property signed only by the lessors. That there can be a contract in writing signed only by one of the parties cannot be isputed. See Maneklal Mansukhbhai v. H. J. Ginwalla and Sons, Can a suit for specific performance be laid on the basis of this contract under Section 12 of the Specific Relief Act? If Section 27-A of the Act is to be read as intended to cover all written contracts of lease, then Sec, 12 must be held to be confined to the enforcement only of oral contracts of lease. If, on the other hand, Section 27-A is not exhaustive or all cases of written contracts, then, Section 12 may be held to extend to written contracts not covered by that section.


22. In order to answer the question so raised, it seems to us necessary to bear in mind the circumstances in which Section 27-A was enacted. That section was enacted by the legislature at the same time as it inserted Section 53-A in the Transfer of Property Act and the proviso to Section 49 in the Registration Act. This spurt of simultaneous legislation in three directions was inspired by the decision of the Privy Council in Skinner v. Skinner, ILR 51 All. 771 : 56 Ind App 363 : AIR 1929 PC 269 which has ruled that an unregistered agreement to sell immovable property which was made the foundation of a suit for specific performance could not be received in evidence as it fell within the purview of Section 17 and therefore within the prohibition of Section 49 of the Registration Act as'it originally stood. The effect of that decision was that a vendee under a written contract of sale--although such a contract was never held to be compulsorily registrable until Skinner's case, AIR 1929 PC 269 -- could not even defend the possession he had obtained thereunder and was liable to be ejected at the instance of the vendor.


In the case of a written agreement to lease, which could be read as creating a present and immediate demise and therefore compulsorily registrable, the result was similar. A lessee with such a contract could neither maintain a suit for specific performance nor defend his possession. The legislature therefore introduced Section 53-A into the Transfer of Property Act wherebv a person having the benefit of an agreement to sell or an agreement to lease is enabled to defend his possession. While Section 53-A gave only a shield, Section 27-A of the Specific Relief Act placed a weapon of attack in the hands of the lessee. He can not only defend his possession but also file a suit claiming specific performance and thus obtain a good title. This new section in the Specific Relief Act must be understood as making an exception in favour of possessory rights of persons having in their favour written contracts of lease which were hitherto inadmissible in evidence and (therefore ineffective to sustain suits for specific performance. According to well-known canons of construction, the legislature must be held to have intended than the new remedy is to be confined to cases falling within the four comers of the section.


23. We may point out, too, that if the appellant's contention is to be given effect to, the result would be that a person seeking enforcement of a contract signed by one of the parties would be in a better position than one suing on the basis of a contract signed by both the parties, because in the former case, he can seek specific performance even though he has not been put in possession. The substantial object of both Section 53-A of the Transfer of Property Act and Section 27-A of the Specific Relief Act it seems to us is to protect rights acquired under written contracts which have been partly performed. It can hardly be said therefore that the intention of the legislature was to make a written contract of lease of a compulsorily registrable character enforceable proprio vigore. In our opinion, it is clear that no suit for specific performance of a written contract to lease immoveable property can be ..... maintained unless it can be brought within the language of Section 27-A.

24. Our view that Section 27-A is exhaustive of all claims for specific performance based on written contracts is also supported by authority. Subba Rao C.J., as he then was, dealt with a case exactly like the one before us and rejected a similar argument as that now urged on behalf of the appellant in Venkateswarlu v. Kotilingam, 1956 Andh. L.T. 998. To the same effect is the ruling of the Nagpur High Court in Balram v. Mahadeo, AIR 1949 Nag 389. The learned Judges in the latter case discussed the matter at considerable length and we find ourselves in complete agreement with their reasoning.

25. If this argument fails, it is not disputed that this appeal should be dismissed.


25. If this argument fails, it is not disputed that this appeal should be dismissed.

26. Mr. Ramamurthy however has asked us to go into the evidence in order to see whether the defence on the merits is sustainable as the matter may be taken up to the Supreme Court. We may say that we are not impressed with the defendant s case that Ex. A-6 has been brought into existence under the circumstances mentioned in paragraph 6 of the written statement of the 1st defendant. Indeed, if we had been inclined to agree with the view of the lower court that the contract was unenforceable for the reasons mentioned therein, we might have spared the Full Bench the trouble of deciding the question which we ret erred to it. Further, we would add that Mr. Somasundaram for the respondents was not keen in his endeavour to support the judgment of the lower court on the basis of that finding. We do not however propose to record a definitive finding on the matter as we are clearly of the opinion than this appeal should fail for the reasons stated above.

27. This appeal is dismissed with costs.


Sujatha Rubbers vs Income-Tax Officer And Anr. on 18 December, 1991

JUDGMENT M.N. Rao, J.
1. At issue in this writ petition is the legality of the order passed by the Commissioner of Income-tax, Visakhapatnam, dated October 5, 1989, respondent No. 2 herein, under section 273A of the Income-tax Act, 1961, dismissing the application of the petitioner herein, a partnership firm carrying on business in Vijayawada, represented by its managing partner, for waiver of interest in respect of the assessment years 1982-83, 1983-84 and 1984-85 :
 "since the conditions of section 273A(1) are not satisfied."
2. The Government of India introduced a scheme called amnesty scheme to encourage assesses to file returns voluntarily assuring them that no penal action for concealment of income would be initiated if returns were filed as laid down in the scheme. The said scheme was in force from November 15, 1984 to March 31, 1987. On March 27, 1986, during the currency of the amnesty scheme, the petitioner for the assessment years 1982-83, 1983-84 and 1984-85 were completed by the first respondent, Income-tax Officer, D-Ward, Circle-II, Vijayawada, and he levied interest in respect of the completed assessments under sections 139 (8) and 217 of the Income-tax Act as detailed below :
 --------------------------------------------------------------------
Assessment    Date of completion   Interest under   Interest under
year           of assessment       section 139(8)     section 217
--------------------------------------------------------------------
                                      (Rs.)              (Rs.)
1982-83           25-3-1987           6,310              6,794
1983-84           25-3-1987           5,648              2,688


1984-85           25-3-1987           4,719              6,041
--------------------------------------------------------------------
                                     16,677             15,528
--------------------------------------------------------------------


3. Contending that no penalties were imposable in respect of the returns filed under the amnesty scheme, the petitioner preferred appeals to the Deputy Commissioner of Income-tax (Appeals), Vijayawada, who, by his order dated November 29, 1989, allowed the appeals and directed cancellation of penalties. We are informed by Shri S. R. Ashok, learned standing counsel for the Income-tax Department, that against the appellate orders of the Deputy Commissioner dated November 29, 1989, the Department has preferred appeals to the Income-tax Tribunal and the same are now pending. Simultaneously, while pursuing the remedy by way of appeals in relation to the levy of penalties, the petitioner made an application on June 17, 1987, before the second respondent, Commissioner of Income-tax, for waiver of interest under section 273A of the Act. That application was dismissed by the Commissioner holding :


"I find that the income disclosed by the assessee in the returns filed on July 23, 1986, is not true and full. In all the years under review, the Income-tax Officer has levied penalties under section 271(1) (c) and according to the provisions of section 273A (1), in cases where proceedings under section 271(1) (c) are initiated, the income disclosed by such assessee cannot be considered as a true and full disclosure. Moreover, in the instant case, the assessee has filed the revised returns of income on July 23, 1986, after survey operations had been conducted under section 133A on July 9, 1986. It may be also stated here that the disclosure made by the assessee is out of fear which is clear from the fact that the assessee has made the disclosure only after the survey operations conducted by the Department under section 133A on July, 9, 1986. Had there been no survey operations, the assessee would not have come forward with the disclosure. I will seek support for this proposition from the decision of the Allahabad High Court in the case of Hakam Singh v. CIT . In view of this discussion, I will dismiss the assessee's petition since the conditions of section 273A (1) are not satisfied."
4. Shri Y. Ratnakar, learned counsel for the petitioner, contends that the Commissioner's view that the returns filed after the commencement of survey operations are not "voluntary", is erroneous. Equally objectionable is the view that the returns were filed by the petitioner, out of fear, and therefore, they are not voluntary.


5. Opposing these contentions, Shri S. R. Ashok, learned standing counsel for the Revenue, asserts that the conduct of the petitioner disentitles him from claiming the benefit of waiver of interest under section 273A. A return filed after the survey operations have commenced will lose its voluntariness; fear of detection of concealed income was the real motive that prompted the petitioner to file the revised returns and, therefore, they are neither voluntary returns nor can good faith be discerned in them.
6. Before considering the rival contentions advanced before us, it is necessary to notice section 273A which confers power on the Commissioner to refuse or waive interest is concerned, the material portion of the section reads :
 "273A. Power to reduce or waive penalty, etc., in certain cases. -
 (1) Notwithstanding anything contained in this Act, the Commissioner may, in his discretion, whether on his own motion or otherwise, - ...
 (iii) reduce or waive the amount of interest paid or payable under sub-section (8) of section 139 or section 215 or section 217 or the penalty imposed or imposable under section 273, if he is satisfied that such person - ...


(c) in the cases referred to in clause (iii), has, prior to the issue of a notice to him under sub-section (2) of section 139, or where no such notice has expired, prior to the issue of notice to him under section 148, voluntarily and in good faith made full and true disclosure of his income and has paid the tax on the income so disclosed, and also has, in all the cases referred to in clauses (a), (b) and (c), cooperated in any enquiry relating to the assessment of his income and has either paid or made satisfactory arrangements for the payment of any tax or interest payable in consequence of an order passed under this Act in respect of the relevant assessment year..."
7. It is not in dispute that, in respect of the three assessment years, revised returns were filed by the petitioner on March 27, 1986, when the amnesty scheme was in operation. It is also not in controversy that survey operations in relation to the petitioner had already begun by the date of the filing or the revised returns under the amnesty scheme.
8. The definite stand taken in the counter-affidavit is that survey operations had commenced on July 9, 1986, and, in the course of the said operations, the petitioner furnished addresses of certain creditors to the Inspector of Income-tax who, on conducting an enquiry on July 10, 1986, could not locate the alleged creditors, and, on July 11, 1986, the Income-tax Officer issued a letter to the managing partner to produce the creditors duly posting the case to July 16, 1986 and, thereafter, it was further adjourned to July 23, 1986.


"Confronted with the factum of non-traceability of the creditors and the mechanic sheds where they were reportedly working, the assessee came forward with the revised returns. Thus, it is very clear that only after the survey operations and the gathering of the relevant material which proved the falsity of the claim of the petitioner, he chose to file revised returns making disclosure."


9. The file produced before us does not show that, on July 11, 1986, the Income-tax Officer issued a letter to the petitioner to produce the alleged creditors from whom certain amounts were claimed to have been borrowed by the assessee as disclosed in the original returns. In fact, it was only on August 4, 1986, long after the revised returns were filed by the assessee, that such a letter was issued by the Income-tax Officer. On July 9, 1986, summons were issued under section 137 of the Income-tax Act to the petitioner to produce the day book, ledger and bank account copies for the three periods specified therein, on July 11, 1986. The proceedings as recorded by the Income-tax Officer on July 11, 1986, disclose that, in response to the summons issued on July 9, 1986, the managing partner of the petitioner-firm was present and he was requested to produce the 18 persons said to be the creditors of the firm on July 16, 1986. The managing partner was also examined on July 11, 1986. On July 16, 1986, the matter was adjourned to July 17, 1986, as the officer was on leave. A representation was made by the petitioner for a short adjournment to July 23, 1986, to produce the creditors and, accordingly, the request was granted. On July 23, 1986, a letter was filed before the Income-tax Officer stating that revised returns were filed for the relevant years. It was only after the revised returns were filled that the Income-tax Officer issued a communication dated August 4, 1986, calling upon the petitioner to produce the alleged creditors. The record also contains an "enquiry report" dated July 10, 1986, of the Income-tax Inspector to the effect that the three persons mentioned in


1986, of the Income-tax Inspector to the effect that the three persons mentioned in the report and said to be the creditors of the petitioner "appear to be non-existent". What transpired up to July 11, 1986, according to the file, is that the Income-tax Inspector was asked to enquire about three of the creditors of the petitioner and he submitted a report on July 10, 1986, stating that the three persons were not available at the addresses furnished to him. What emerges from a perusal of the record is that the petitioner has not been told at any time before he filed the revised returns on July 23, 1986, that his alleged creditors were fictitious persons and, therefore, the transactions were bogus. No doubt, a survey was conducted by the date of filing the revised returns and some sort of enquiry by the Income-tax Officer was in progress at that time, but the petitioner cannot be attributed with any knowledge of the probable result of these enquiries or any adverse material appearing against him.


10. The only question that has to be considered is whether the petitioner in the revised returns filed on July 23, 1986, "voluntarily and in good faith made full and true disclosure of his income"
 as statutorily obligated under sub-clause (c) of clause (iii) of sub-section (1) of section 273A.
11. According to the impugned order, the revised returns were filed by the petitioner for two reasons : (1) they were filed "after survey operations were conducted under section 133A on July 9, 1986"; and (2) "the disclosure made by the assessee is out of fear which is clear from the fact that the assessee has made the disclosure only after the survey operations were conducted by the Department under section 133A on July 9, 1986".
12. There is no allegation that the disclosure made in the returns were not full and true. There is also no finding that the disclosure made was not in good faith. The file shows that information regarding three of the several creditors of the petitioner was not definite at that stage. The report of the Inspector that they were not available at the addresses furnished to him was a confidential one and it cannot be presumed that the petitioner became aware of the said report. In a case where a return was filed by an assessee after he was apprised of any adverse material leading to a real apprehension of penal action against him, his return could not be construed to the voluntary within the meaning of section 273A(1). But that is not the fact situation here. Survey operations followed by enquiries which have not even progressed to the extent of the assessee being apprised of the alleged adverse material collected against him could not be construed as relevant factors for rejecting the returns filed by such an assesses as not voluntary if they contained "full and true disclosure of his income."


13. The second ground on which the impugned order is based, viz., that it was out of fear because of survey operations, that the petitioner made the disclosure, slides into the first ground to a very large extent, the exclusionary part being fear as the motive prompting the assessee to file the return. We think, this ground is totally irrelevant. There is no basis for presuming that free will or a sense of commitment to the well being of the State always propels the citizens to pay taxes. An honest and well-informed citizen never consciously commits default in the payment of taxes even if the law does not contemplate penal action for non-payment is at the bottom of the success of any tax legislation and the Income-tax Act is no exception to this; Chapter XXI of the Act deals with the penalties imposable.


14. We are, therefore, inclined to think that the expression "voluntarily" occurring in sub-section (1) of section 273A could not be construed in isolation with reference to the general animus or state of mind of the assessee. From the legal obligation to file a return, no element of fear could be either attributed or inferred. The word "voluntarily", in the context of section 273A (1), therefore, has to be construed as filling of the return by the assessee without being prompted by the animus to avoid or prompt adverse exposure or penal action. The Commissioner, before rejecting the returns as not voluntary, must have material based upon which it is reasonable to infer that, in all probability, but for the filling of the "voluntary" return, the assessee would have been subjected to penal action or adverse exposure. In other words, "out of fear, an assessee has made full disclosure", by itself, without anything more, cannot be a ground for not exercising the discretion under section 273A. The fear must be traceable to the imminent or proximate exposure of the assessee to penal action but for the filling of the voluntary return under section 273A and, in order to enquire into this subjective element, there must be in existence objective facts warranting such an inference.


15. The Commissioner sought support for the conclusions reached by him from the decision of the Allahabad High Court in Hakam Singh v. CIT . In that case, the business premises of the assessee were searched by the Income-tax Department and certain books were seized on November 22, 1973. Nearly eleven months thereafter, on October 7, 1974, returns were filed and a notice was issued on March 25, 1975, by the Income-tax Officer under section 148 alleging escapement of income from assessment. Penalty proceeding were also initiated for the delay in filing the returns. These facts clearly show that there was little scope for the assessee to escape from the penal consequences and so, very rightly, the Commissioner of Income-tax held that the return filed was not voluntary under section 273A. The Allahabad High Court, after distinguishing the decision of the Gujarat High Court in Madhukar Manilal Modi v. CWT it was held that the word "voluntary" applies to disclosure of wealth but not, to filling of returns, sustained the action of the Commissioner, in the particular facts of that case, in refusing to grant relief under section 273A. The earlier view of the Allahabad High Court in Mool Chand Mahesh Chand v. CIT that a return filed in order to save oneself from a possible penal action cannot be termed as "voluntary" was followed. The facts in Hakam Singh's case are neither parallel nor similar to the facts of the case on hand and, therefore, the finding that the return filed in that case was not "voluntary" could not constitute a valid ground for refusal by the second respondent-Commissioner to exercise discretion under section 273A.


16. The decision of the Gujarat High Court in Madhukar Manilal Modi's case relates to waiver of penalty by the Commissioner under section 18(2A) of the Wealth-tax Act. The crucial words in section 18(2A) that fell for consideration before the Gujarat High Court that the assessee, "... Voluntarily and in good faith made full disclosure of his net wealth,"
 are identical to the expressions used in section 273A of the Income-tax Act. The wealth-tax returns for two earlier years were filed in that case only after the assessee was asked to do so in the course of the assessment proceedings for the year 1971-72. His request for wavier of penalty was rejected by the Commissioner on the ground that the returns filed by him were not voluntary. The Gujarat High Court held that the expression "voluntary" should not be read in the context of filing of return, but it should be read with the expression "made full disclosure of his net wealth". With great respect to the learned judges, we are unable to accept the reasoning. A return which contains true and full disclosure need not necessarily be a voluntary return. When the element of voluntariness is absent because of supervening factors like imminence of adverse exposure, "voluntariness" disappears although the return filed may contain a true and full disclosure. As a rule, therefore, it cannot be said that if the return filed contains a full disclosure, it automatically becomes "voluntary" irrespective of the circumstances under which the same was filed.


17. In Sarvaria (A. N.) v. CWT , a learned single judge of the Delhi High Court has taken the view that the filing of the return under the Wealth-tax Act after the survey operations had commenced would not render the return "not voluntary" when the return contained full disclosure of the wealth and no concealment was detected. Hira Singh v. CWT [1982] 134 ITR 438 (P&H) arose under the Wealth-tax Act. For two assessment years, the assessee, in his returns, disclosed the extent of his agricultural lands as 24 acres, 6 kanals but for the subsequent two years the extent shown by him was 9 acres 7 kanals, on the ground that his share was reduced in a partition between him and his sons. The Wealth-tax Officer accepted the extent mentioned in the returns for all the years were filed by the assessee without the issuance of any statutory notice. The Commissioner waived penalties for the assessment years 1970-71 and 1971-72 but declined to grant the relief for the remaining years. As the petitioner had correctly disclosed the particulars of his land in returns which he filed before the statutory notices were issued, the Punjab and Haryana High Court ruled that the return filed was voluntary and, on the view, set aside the order of the Commissioner of Wealth-tax.
18. In S. R. Jadav Desai v. WTO , the Karnataka High Court had taken the view that if, without notices, returns were filed under the Wealth-tax Act without any compulsion, they must be treated as voluntary returns. The following statement of law enunciated by Venkataramiah J., (as he then was), in Shankara Apaya Swami v. WTO :


"The expression 'voluntarily' means 'without compulsion' and 'good faith' means 'with due care and caution'. Hence, if the return filed by the assessee does not show that he should be considered as having satisfied the above condition"
 was followed.
18. The Kerala High Court, in Alukkas Jewellery v. CIT , preferred the view that, if a return was filed without any pressure or duress, it may be treated as voluntary. In that case, consequent on a search conducted in the premises of the assessee, both residential and business, certain books of account and jewellery were seized. In that context, viewing the overall conduct of the assessee, the Commissioner rejected the application filed under section 273A and the same was sustained by the Kerala High Court.
19. It will thus be seen that the conclusions reached in the persuasive precedents cited by both sides turned upon the facts of each case and no precise legal principle of general application is deducible from them.
20. The question was viewed by the Commissioner from a wrong perspective. He left that the returns were filed after the survey operations were completed and that is what is discernible from the words, "after conducting survey operations under section 133A on July 9, 1986, the revised returns were filed."


21. The extent of the progress made in the survey operations we have already referred to supra, after going through the record placed before us. Without considering the effect of the survey operations on the conduct of the assessee, the Commissioner reached the conclusion that the returns filed were not voluntary and this conclusion is clearly impermissible in law. The discretion conferred upon the Commissioner under section 273A also compels him to take into account relevant factors and eschew irrelevant factors from consideration. The aspect of fear that is alleged to have prompted the assessee in filing the revised returns which was made out as a ground for not exercising discretion under section 273A is in our view an irrelevant factor in the context of the failure of the Commissioner in not giving reasons indication the genuine link between the fear and the probability of exposure to penal action.
22. The extant legal position in the domain of public law as to the parameters of exercise of statutorily ordained discretionary powers is well-settled :
 "... a person entrusted with a discretion must direct himself properly in law. He must call his own attention to the matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to the matter that he has to consider. If he does not obey those rules, he may truly be said and often is said, to be acting 'unreasonably'. (Per Lord Greene M. R. in Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation [1947] 2 All ER 680, 682 (CA)).
 The above English principle of public law was accepted by our Supreme Court in Rohtas Industries Ltd. v. S. D. Agarwal .


For these reasons, we hold that all the three revised returns filed by the petitioner must be construed to be "voluntary returns" within the meaning of section 273A(1) of the Income-tax Act, and accordingly, we set aside the impugned order passed by the Commissioner of Income-tax dated October 5, 1989, allow the writ petition and remit the matter to that authority to consider the case of the petitioner afresh in the light of this judgment and pass appropriate orders in accordance with law. There shall be no order as to costs.


Commissioner Of Income-Tax vs Nagarjuna Steels Ltd. on 18 November, 1987

JUDGMENT B.P. Jeevan Reddy, J.
 1. R.C. No. 315 of 1982. - Two questions are referred under section 256(1) of the Income-tax Act, 1961, in this case. They are :
 "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 15,092 should not be considered for being taxes as revenue but had to be set off against interest payment of Rs. 7,79,297 and the balance alone had to be capitalised ?
 (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 4,900 could not be considered as a separate revenue receipt but had to be set off against larger amounts of expenditure of a capital nature and the reduced amount alone should be considered for the purpose of determining the actual cost of assets ?"
 2. The assessment year concerned is 1977-78. The assessee-company was incorporated on July 19, 1974. The main objects of the company were to own and acquire ferrous and non-ferrous metal melting furnaces, rolling mills and to carry on business as traders and manufacturers of ferrous and non-ferrous metal ingots, etc., and to do business of traders or manufacturers of steel products and hardware of all kinds, and also to act as stockists, commission agents, etc., for engineering and industrial requirements. In the return filed by the assessee for the assessment year 1977-78, it showed its total income as "nil" and gave the following computation of its income :
   "I. Income from business :                             Rs.     Rs.
The company is still under construction stage and has
yet to commence production. The expenses incurred


The company is still under construction stage and has
yet to commence production. The expenses incurred
during construction period, pending allocation to
capital account, are detailed in the notes attached
to the balance-sheet as at 30-6-1976.
The interest income received by the company is being
treated as a part of the business income, pursuant to
one of the objects for which the company is
established. Since it is being treated as business
income, a portion of the expenditure incurred has to
be deducted from the income. Therefore, "Nil"
income is being returned under this head.
(a) Interest received as detailed in
Schedule "E" of the
balance-sheet...                               15,092
(b) Other miscellaneous receipts...                    4,900
                                                      -------     19,992
Expenses apportionable...                                      30,13,628
                                                               ---------
Balance to be capitalised...                                   29,93,636
                                                               ---------
                                                                  Nil
                                                               ---------
                                       Total Income               Nil
                                                              ---------"


3. A few facts need to be stated to understand the above computation. In the words of the Tribunal, the following is the factual position :
 "In the present case, on facts, the assesseee had borrowed funds. Some of the borrowed funds which were not immediately required were kept by the assessee in deposits and some interest was earned. There was a direct nexus between the borrowed the borrowed funds and the deposited funds, since the deposited funds came out of the borrowed funds..."
 4. It was further found :
 "On the facts, admittedly, in the present case, the interest receipt of Rs. 15,092 is on deposits made from borrowed funds, on which interest paid by the assessee, which funds were kept in such deposits till they were used in the construction work. We find from schedule 'E' to the balance-sheet as at June 30, 1976, that there were interest payment in all to the extent of Rs. 7,94,389 which remainded unadjusted..."