20. Whether a particular transaction is a mortgage of moveable property or a pledge can only be determined by reference to the intention of the parties, and other surrounding circumstances. (Vide Arjun Prasad v. Central Bank of India, (S) ). It is argued by Mr. Somasundaram that the execution along with Ex. B-1 of blank transfers indicates that it is a mortgage. We are unable to agree that that circumstance alone, without more will mean that the transaction is one of mortgage. A pledge of shares can also be accompanied by blank transfers as in the case of Official Assignee, Bombay v. Madholal Sindhu, AIR 1917 Bom 217. In Elaya Nayar v. Krishna Pattar, AIR 1943 Mad 74, it was held that a share in a company could be the subject matter of a pledge which can be enforced, but unless the pledgee at the time of deposit secures a deed of transfer which he can use in case of necessity or obtains one from his debtor at a later stage, he must have recourse to the court when he wishes to enforce his security.

In other words, obtaining of blank transfers is a convenient mode of exercising the right of sale when the pledgee in law is entitled to do. In any view, it seems to us that this question as to the nature of the transaction cannot be considered at this stage, because the parties throughout treated the transaction as one of pledge. In Ex. B-8 the plaintiff's counsel referred to the transaction as a pledge. In some of the letters written by the Bank the expression 'pledge' is used. The plaint proceeds upon the footing that the shares were pledged. The expression 'pledge' has a definite legal significance and there is no warrant for the assumption that the 1st defendant-Bank used the expression 'pledge' by inadvertence.


Sri Raja Kakarlapudi Venkata ... vs Andhra Bank Ltd., Vijayawada And ... on 17 October, 1959

In the written statement filed by the 1st defendant the plea that the transaction amounts to a mortgage, and not a pledge is not clearly set out. The 1st issue framed at the trial is, 'What are the terms of the pledge'? The main ease as put forward by the parties in the trial court was as to whether there was notice as required under Section 176 of the Indian Contract Act, or whether on the facts of this case there was a waiver by the pledger of the right to receive notice. There was no oral evidence adduced by either side as to the suit transaction. In those circumstances, we are of opinion that the transaction must be treated as one of pledge alone.

 21. The term 'pledge' is defined in Section 172 of the Indian Contract Act as 'the bailment of goods as security for payment of a debt or performance of a promise'. The bailor is called the pawnor, and the bailee is called the pawnee.

 22. Section 176 of the Act deals with the right of the pawnee or the pledgee in the case of default by the pledger. The Section is in these terms :
"If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security, or he may sell the thing pledged, on giving the pawnor rea^ sonable notice of the sale.


If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor."
 23. On a plain reading of the section it seems to us that before exercising the power of sale the pawnee should give to the pledger reasonable notion of the sale. The contention of the Advocate for the respondent, however, is that in Ex. B-1 the pawnor had waived the right to receive such a notice and this found favour with the trial court. The learned counsel for the appellants has assailed the correctness of that finding 011 various grounds,

 24. It is first contended that in the ease the waiver is not founded on an assent or affirmance of the sale by the pledger subsequent to the contract of pledge, but is referable only to the recitals of Ex. B-1, and that those recitals are not clear and unambiguous that notice has been waived. In support of that contention reliance was placed upon the decision of Wallis J., in Venkatesa Perumal Chetty v. S. Parthasarthy Iyengar, 18 Ind Cas 986 (Mad), where it was held that a party to a contract who relies upon a clause as affording him protection from liability cannot succeed unless the clause he relies on is clearly and unambiguously repressed. We do not think the expression in Ex. B-1 to the effect that the sale could be held by the pledgee without reference to the pledger is ambiguous or uncertain. It seems to vis that the expression 'without reference to us' is wide enough to include notice.


25. But the more important argument of Mr. liamachandra Raju is that even assuming thai the expression constitutes waiver of notice, such a waiver is not permissible as it would be inconsistent with the mandatory terms of Section 176. It is argued that wherever the legislature thought that a particular term could be the subject of a contract it had said so by incorporating words such as : 'subject to the contract' or 'in the absence of a contract to the contrary'. In Section 176 there are no such qualifications. Therefore, any contract to the terms of Section 176 would be a contract contrary inconsistent with the provisions of tbe Act within the meaning of Section 1 of the Contract Act.


26. There is considerable judicial authority in support of the above contention. In Co-operative Hindustan Bank Ltd. v. Surendra Nath Dey, AIR 1932 Cal 524 at p. 532, a Bench of the Calcutta High Court has held that Section 176 of the Contract Act unlike some other sections, such as, 163, 171, 172 does not contain a saving clause in respect of special contracts contrary to its express terms, and that inasmuch as Section 177 gives to the pawnor a right to redeem even after the stipulated time for payment but before the sale, in order that that provision should not be made nugatory, the proper interpretation to put on Section 176 is to hold notwithstanding any contract to the contrary notice has to be given. In AIR 1947 Bom 217 at p. 228, a Bench of the Bombay High Court consisting of Stone C. J. and Chagla J., took substantially the same view. The learned Chief Justice observed as follows :
 "In my judgment, a notice must be given in all cases of pledge, even when the instrument of pledge itself contains an unconditional power of sale. This opinion is held by the three distinguished editors (Sir Frederick Pollock, Sir Dinshah Mulla and Sir Maurice Gwyer) of Mulla's Indian Contract Act, Edn. 7 (see p. 519). It follows that even if It is possible to regard the contract of 23rd, 24th October, 1941, as a sale by the Bank as pledgee of Mr. Nissim that sale is invalid as being in breach of Section 176. unless it could be shown that before this insolvency Mr. Nissim effectively waived the giving of notice so as to bind the Official Assignee."


27. This case was carried in appeal to the Federal Court. Their Lordships held by a majority that in view of the assent for sale of shares by the pledger and the acquiescence thereof by the Official Assignee the sale was good and the further questions argued heforc them as to whether the pledgor could enter into a contract contrary to the provisions of Section 176 or whether a want of notice is a mere irregularity not affecting the title of the bona fide purchaser for value did not arise for consideration.


28. In Bharat Bank Ltd. v. Sheoji Prasad, AIR 1953 Pat 28S, a Bench of the Patna High Court has held that Section 176 is mandatory and the required notice has to be given for the right to exercise redemption, and under Section 176 it: would be rendered illusory if such notice is not given.

 29. In Hulas Kunwar v. Allahabad Bank Ltd., , a Bench of the Calcutta High Court has held following the decision in AIR 1932 Cal 524 at p. 532, that the obligation of the pawnee to give a reasonable notice of sale under Section 176 is mandatory and supersedes any contract to the contrary. In that case as in the case of AIR 1932 Cal 524 at pp. 525-532, the contract of pledge authorised the pawnor. It was held in both the decisions that such a clause could not relieve the pawnee from the mandatory obligation to give notice.

 30. When in an enactment, in some sections the expression 'subject to the contract' or 'in the absence of the contract to the contrary' are used end in. others not, it is a well settled principle of construction that the provisions of the latter class of sections are not subject to contracts to the contrary.


31. In Mohammed Slier Khan v. Swami Dayal, 1LR 44 All 185 : (AIR 1922 PC 17), while dealing with Section 60 of the Transfer of Property Act, their Lordships of the Judicial Committee observed as follows :
 "The section is unqualified in its terms, and contains no saving provisions, as other sections do, in favour of contracts to the contrary. Their Lordships, therefore, see no sufficient reason for withholding from the words of the section their full force and effect. In this view the mortgagor's right to redeem must be affirmed, and as both suits are not before the Board there will he no difficulty in passing one decree in both so framed as to give due effect to this right." To the same effect is the observation of Srinivasan Ayyangar J., in Seeti Kutti v. Kunhi Pathumma, 1LR 40 Mad 1040 at p. 1062 : (AIR 1919 Mad 672 at p. 984) :
 "The Indian Legislature in Section 60 of the Transfer of Property Act, as has been pointed out, has omitted the words 'in the absence of a contract to the contrary' with a view to prevent the mortgagor from contracting himself out of his right of redemption at the time of the mortgage.''

 32. Following the decision arising under Section 176 of the Indian Contract Act and the principle of construction enunciated in the two aforesaid decisions, it seems to us that the contention of Mr. Ramachandra Raju that at the time of enter-ing into a contract of pledge the pawnor cannot agree to waive notice as it would be inconsistent with the provisions of Section 176, should prevail.


33. Mr. Somasundaram very strenuously contended before us that the right to receive notice 35 conceived in the interests of the pawnor and when a statute gives a party certain advantage or right it is always open to him to waive it- In support of the contention he cited a large number of authorities.

 34. In Wilson v. McIntosh, 1894 AC 129, the facts were that the respondent. Mclntosh lodged an application in the office of the Registrar General to bring under the Real Property Act (26 Victoria No. 9) certain lands in New South Wales. Under Section 23 of that Act every caveat shall bo deemed to have lapsed unless the caveator took the proceedings in any court of competent jurisdiction to establish his title to the estate and gave notice of that to the Registrar General and also obtained an injunction from the Supreme Court, In the case referred to above the respondent filed a case and obtained an order against the appellant to state her case both of which proceeded upon the fooling that the caveat was still in existence.

It was held that the respondent having waived her right to claim that the caveat should be regarded as having 3apsed and obtained .1 case stated by the applicant he cannot in equity plead the bar under Section 23. The decision rested on the assumption that an applicant may waive the objection of pleading lapse under Section 23 of the Real Property Act.


35. In Toronto Corporation v. Russell. 1908 AC 493, the facts were that in the city ot Toronto a land was advertised for sale under Ontorio Assessment Act of 1897 for arrears of taxes and after an adjournment was bought by the appellant. But before the sale the appellants published their intention to purchase in case the amount fixed was less than the arrears of tax, but omitted to give the respondent a notice in writing under Section 184 to that effect. It was held by the Privy Council that the notice under that Section could be waived and that as a matter of fact, it was waived.

 36. In Selwyn v. Garfit, (1888) 38 Ch D 273, the question of waiver did nut really fall to be considered as the only man, the mortgagor, who could have waived notice had already parted with his equity of redemption as has been made clear in the judgment of Bowcn L. J.

 37. In Griffiths v. Earl of Dudley, (1882) 9 QBD 357, the question was us to whether a workman could agree not to claim compensation for personal injuries under the Employer's Liability Act of 1880. It was held that the widow of the workman was bound by the conditions of employment assented to by her husband and the agreement not to claim damages for personal injuries was on the facts of that case not opposed to public policy.


38. A reference was also made to the decision of the Privy Council in Vellayan Chettiar v. Government of the Province of Madras, ILR 1948 Mad 214 : (AIR 1947 PC 197), where Lord Simonds speaking for the Privy Council held that there is no inconsistency between the proposition that the provisions of Section 80 are mandatory and must be enforced by the court, and that they may be waived by the authority for whose benefit they are provided. This decision is not directly in point, for, the question of contracting out of the mandatory terms of the section did not arise in that ease.

 39. In Raja Chetty v. Jagannathadas, , a Bench of the Madras High Court held that notwithstanding the provisions of the Madras Building Lease and Rent Control Act of 1946, a landlord could contract to waive his right to evict the tenant. It was pointed out by the learned Chief Justice that no public policy, was involved in that case and a landlord could well abridge his right.


40. The rule as to waiver is stated in Maxwell on Interpretation of Statutes p. 388 (10th Edn.) in these words:
 "Every one has a right to waive and to agree to waive the advantage of law or rule made solely for the benefit and protection of the individual in his private capacity, which may be dispensed with without infringing any public right or public policy."
 41. Mr. Ramachandra Raju has contended that the terms of Section 176 are conceived in general public interest and referable to public policy. It is argued by him that in the stress of need a pledger might assent to terms so manifestly deleterious to his interest and it is to prevent such people being exploited and that some notice being given before the pledgee exercises the right of sale that advisedly in Section 176 no provision is made to contract contrary to its terms. In this contention strong reliance was placed on the observation of Farwell J. in Soho Square Syndicate Ltd. v. E. Pollard and Co. Ltd., 1940-1 Ch 638 at p. C43, to the following effect :
 "If if be right to say that a mortgagee, by merely getting the consent of the mortgagor, can avoid the ..... necessity of applying to the Court. a large part of the protection which this Act was intended to provide would virtually disappear. People in the position of such persons as I have mentioned might easily be persuaded to give a consent without really knowing what exactly was involved in such consent, and an opportunity of expressing their reasons for their inability to pay, whatever they may he, and of stating their difficulties, which is now afforded to them by the necessity of an application to the court would be entirely removed. Moreover, difficult questions might also arise whether the consent had in fact been obtained, or whether it was a consent which was binding, and similar questions.''


42. The point that arose for decision in that case was whether a mortgagor could under the provisions of the Courts (Emergency Powers) Act, 1939 assent to the appointment of a Receiver without the leave of the Court. The learned Judge held that he could not so assent as the provision for the leave of the court being obtained for the appointment of a Receiver was conceived in the interests of the people who had gone to war and was referable to public policy.

 43. In Bowmaker, Ltd. v. Tabor, 1941-2 KB 1. Goddard L. J., has taken the same view with reference to some of the other provisions of the Courts (Emergency Powers) Act and had approved the principle of the decision of Farwell J., in the case earlier referred to.

 44. It is not necessary for us to consider in this case the question further, in view of the direct decisions of the Indian High Courts, with which, we arc in agreement interpreting Section 176 of the Contract Act, and holding that its terms are mandatory and that, even if there is a term in the contract of pledgo to waive notice, still the pledgee is not relieved of his obligation to give notice before the sale.

 45. We, therefore, do not accede to the contention very strenuously pressed on us by Mr. Somasundaram that in this case the objection as to want of notice is without substance by reason ot the waiver of such a notice by the pledger in Ex. B-1.


46. But we are of opinion that the suit must fail for a different reason. In the plaint the plaintiff claims to be the widow and the heir of the late R.K.N.G. Raju and entitled to his estate including the shares in the suit. It is not in dispute that R.K.N.G, Raju died at Madras on 20-4-1948 leaving a will. The counsel of the plaintiff wrote to the 1st defendant-Bank a letter on 25th November, 1948 marked as Ex. B-2 in these terms :
 "To The Agent, Andhra Bank Ltd., Bezwada.
 Sir, Reference : Sri R. K. N. G. Raju Garu.

The above gentleman died at Madras on 20th April 1948, leaving a will appointing his wife as executrix. In the said will he makes a reference to the current account dealings he had with you. From a perusal of his Bank Pass Book we have the following particulars, folio No. 683/3, account 822.

I am now instructed to take steps to secure adequate legal representation to the estate of the above-named deceased. The balance of his account with you has to be disclosed to Court. I shall he highly obliged if you can furnish to me at the earliest opportunity the balance now standing to the credit of the abovenarned deceased together with accrued interest, if any.


I further understand that he has pledged with you 9100-B, ordinary fully paid up shares which he held in the Andhra Cement Company Limited, Rezwada on 22nd September, 1947 to secure overdraft account. Kindly furnish me the particulars as to the rate of interest and the amount now outstanding to you in respect of the over-draft transactions."
 47. From this letter it is clear that the plaintiff was appointed the executrix and that she was taking steps to get the estate duly represented, which in the circumstances, could only mean taking out probate. On those facts the 1st question that emerges is whether the suit could be filed without obtaining the probate.

 48. It is common ground between the parties that if the will had been executed at Madras, it is necessary to obtain the probate before filing the suit. Section 213 of the Indian Succession Act inter alia provides as follows :
Section 213 (1) :
 "No right as executor or legatee can be established in any court of Justice, unless a court of competent jurisdiction in British India has granted probate of the will under which the right is claimed, or has granted letters of administration with the will or with a copy of an authenticated copy of the will annexed."
 49. On behalf of the appellants it is contended that Section 213 of the Succession Act has no application to this case for two reasons : (1) that there is no proof that the will of the late R. K. N. G. Raju was executed at Madras; and (ii) that even on the footing that it was so executed, the present suit Is not filed for establishing any right as an executrix or legatee and has been instituted by the plaintiff in ber capacity as the heir of late R. K. N. G. Raju. We will now take up the first question.


50. In Ex. B-2 there is no mention as to the place where the will was executed, though the suggestion that steps were being taken to get the estate duly represented may be suggestive of the will having been executed at Madras. On behalf of the defendant interrogatories were served on the plaintiff on 5-1-1950, under O. 12 R. 2, C. P. C. in these terms :
"The Andhra Bank Ltd., and others.

Defendants.

Notice to admit documents under O. XII, R. 3 C. P. C.
 To Sri Metlapati Koteswara Rao Pantulu Gam, B.A.B.L., Advocate for plaintiff, Vijayawada.

Take notice that you are hereby required to reply to the following matters within two days of the receipt of this notice :
(1) Do you admit the execution of the will-nama by the plaintiff's husband in Madras?

(2) Do you admit the registered notice, dated 25th November, 1948, caused by the plaintiff to be issued by Sri P. Satyanarayana Raju Garu, Advocate, Madras, to the first defendant-Bank after giving instructions?

The said notice has been filed in the court."
 These interrogatories were not answered,

 51. On 14-12-1950, a notice was served on the counsel appearing for the plaintiff in these terms :
"O. S. No. 86 of 1949. Between :
Sri Rajah Kakarlapudi Venkata Sudarsana Sundara Narasayamma Garu..... Plaintiff.

And The Andhra Bank Ltd., and Others.

Defendants.


And The Andhra Bank Ltd., and Others.

Defendants.

NOTICE TO PRODUCE DOCUMENTS To Sri Metlapalli Koteswara Rao Pantulu Garu, B,A., B.L., Vijayawada.

Take notice that you are required to produce on 16th December 1950 the hearing date, the will-nama alleged to have been executed by late Sri R.K.N.G. Raju Garu and referred to in the ietter Written On 25th November, 1948 by the plaintiff's advocate at Madras, to the 1st defendant-Bank. Batta of Re. 1/- is sent herewith.

Sd./-
 K. Nagabhushana Rao Advocate for 1st Defendant.
14-12-1950.
Received copy and batta of Re. 1/-, Sd./-
 M. Koteswararao, Advocate,"
 52. The will was not produced. Even during the course of the arguments before us the counsel for the appellants could not give information as to where exactly the will was executed. In the circumstances, of this case, therefore, we are of opinion that this vital information was withheld because, if given it would be detrimental to the interests of the appellant. We would be justified in drawing inferences' adverse to the plaintiff. We are, therefore, of the view that the will should have been executed at Madras in which case Section 213 of the Succession Act would he a bar for the institution of this suit.


53. The second argument is that the suit is filed by the plaintiff not for establishing any right as executor or legatee under the will, but as the heir of her husband. In support of his contention, the learned counsel of the appellants laid strong reliance on a decision of the Full Bench of the Madras High Court in Ganshamdoss Narayandass v. Gulab Bi Bai, ILR 50 Mad 927 : (AIR 1927 Mad 1054) (FB), and Western India Insurance Co. Ltd. v. Asima Sirkar, AIR 1942 Cal 412. The point referred to the Full Bench of the Madras High Court was this :
 "Can a defendant resisting a claim made by the plaintiff as heir-at-law rely in defence on a will executed in his favour at Madras in respect of property situate in Madras when the will is not probated and no letters of administration with the will annexed have been granted."
 It was held that a defendant resisting a claim made by the plaintiff as heir-at-law cannot rely in defence on a will which required to be probated, but which has not been, and Section 187 of the Indian Succession Act XXXIX of 1925 is a bar to every one claiming under such a will, whether a plaintiff or defendant. But what is relied upon by the learned counsel are certain observations of Phillips Offg. C. J. to the following effect :


"The plaintiff is suing as heir-at-law but he was resisted by the defendants who claim under a will of which no probate has been taken. It is argued that it is a sufficient answer to the plaintiff's case to allege and prove the existence ot a will; for in that case the plaintiff, who would be the heir in case of intestacy, would no longer have any right. This rather ignores one point which, I think is important namely, that the plaintiff being the heir under intestacy, which must be presumed until a will is proved, is entitled to succeed to the property, unless it can be shown that his title has been displaced. If the defendant merely proves that a will is in existence and does not prove the terms of that will, that is not necessarily inconsistent with the plaintiff's title. In the first place, the will may not be a valid will, and, in the second place, the plaintiff may be a legatee under the will. The mere existence therefore, ot a will does not necessarily displace the plaintiff's title. It is necessary for the defendant to go further and to prove that some one other than the plaintiff has title under the will. This he cannot do by virtue of the provisions of Section 187."
 Anantakrtshna Ayyar J., observed as follows :


Anantakrtshna Ayyar J., observed as follows :
 "Thus where a plaintiff makes out a prima facie title in himself to the property in dispute, the defendant has to show a better title either in him-self or in some third person. If what is stated above be the correct principle of pleading applicable to such cases, it follows that when the plaintiff in the present case shows a prima facie title in himself to the property in dispute -- as the admitted heir-at-law of the last owner -- the defendant has 'to show a better title' either in himself or in some third person xx xx The general law would seem to he that the defendant's plea of jus tertii cannot be entertained when he does not state in whom the right resides. The defendant must trace the title to a third party Other than the plaintiff. A mere suggestion that there may he a third party with better title is nothing."
 54. To the same effect is the decision in AIR J942 Cal 412. We are unable to appreciate the bearing of these decisions on the facts of the present case. This is not a case where the defendant is setting up the rights under the will, or setting up jus tertii for the purposes of non-suiting the plaintiff who has shown a prima facie title as the heir-at-law of the deceased. The real question in this case is whether the plaintiff who on statements made on her behalf is the executrix appointed under the will of her husband can maintain the present action as an heir as if on intestacy.


55. That the plaintiff was appointed as an executrix under the will of her husuand is beyond all doubt. That being so, under Section 211 of the Succession Act, the entire property of the testator vests in the executor or executrix, as the case may be, from the time when the will takes effect. Section 211 (1) of the Act is in these terms :
 "The executor or administrator, as the case may be, of a deceased person is his legal representative for all purposes, and all the property of the deceased person vests in him as such."
 Even before the obtaining of the probate on the death of the testator, the property vests in the executrix 'as such'. It is not Section 213 which deals with the vesting of the property of the deceased persons, but Section 211. The vesting of the property of the deceased persons in the executor as such does not arise from the probate. The executor derives his title from the will. Immediately upon the testator's death his property vests in the executor, for, the law knows no interval between the testator's death and the. vesting of the property (vide Whitehead v. Taylor, 1839-10 Ad and El 210 and Raja Rama v. Fakuruddin Sahib, 38 Mad LJ 210: (AIR 1930 Mad 218)). Therefore, even without obtaining the probate of the will, the executor becomes the representative of the estate of the deceased. All that the grant of the probate does is not to give him title; but only to make his title certain (Vide Hewson v. Shelley, 1914-2 Ch. 13 at p. 38).


56. Even in cases where the will has been executed outside the limits of the presidency towns the position is the same. In Ramiah v. Venkata Subbamma, AIR 1926 Mad 434, a Full Bench of the Madras High Court held that in the case of a Hindu will executed in the mofussil to which the Hindu Wills Act does not apply, the estate vests in the executor, who accepts office, from the date of the testator's death, This decision is later affirmed by the Privy Council in Venkata Subamma v. Ramayya, AIR 1932 PC 92. It seems to us, therefore, that on the date of the testator's death the property of the late R.K.N.G, Raju vested in the plaintiff as an executrix.

 57. In Parlhasarathy Aiyar v. Subbaraya Gramany, AIR 1924 Mad 07 at p. 70, it was observed by Schwabe C. J., that
  "It is not right, as has been suggested in some cases, to treat a will of which probate has not been ranted as non-existent and the property    passing y intestacy."

This will of course depend upon the fact whether the plaintiff has accepted the office as an executrix. The learned counsel for the appellant has placed strong reliance on certain observations in the judgment of the Madras Higb Court in Parthasarathy Appa Rao v. Venkatadri Appa Rao, 43 Mad LJ 486 at p. 515 : (AIR 1922 Mad 457 at pp. 469-470). But that case obviously has no application, because on the facts of that case it was found that the executor died without accepting the office or showing any indication that he took upon himself the duties of executor.


Whether the executor has accepted the office or not will ^depend upon the facts of each case. In this case the plaintiff has not given evidence and no oral evidence was at all tendered by her. We can only, therefore, deduce the fact of her acceptance from the record available. In Ex. B-2, the counsel of the plaintiff stated that his client was appointed as an executrix under the will of her husband and that he was instructed to take adequate legal steps to have the estate duly represented. We are of opinion that this letter written obviously on behalf of the plaintiff is enough to constitute acknowledgment or the acceptance of the plaintiff of her office as an executrix.


58. The following passage in Williams on the Law of Executors and Administrators (13th Edn. 44 para 60) is directly in point:
 "Where a man who was named as one ot several executors, in answer to an inquiry who were the executors, wrote a letter saying that he and others were executors, this was held to afford sufficient evidence that he had acted as executor. The insertion of an advertisement calling on persons to send in their accounts, and to pay money due to the testator's estate, to A and B. 'his executors in trust', was held to make them compellable to take probate, and to subject them personally to the costs occasioned by their resistance (the estate being small, and left for two years and a half without a representative)."
 59. The above passage is founded on two cases : Vickers v. Bell, (1863) 4 De G. J and Sm. 274 and Long and Feaver v. Symes and Hannam, (1832) 3 Hag Ecc 771 : 162 ER 1339. The facts of the 1st case are as follows : The defendant's solicitor wrote to the plaintiff's Solicitor in answer to a query on behalf of a creditor as to who had proved the will. The defendants' Solicitor replied that the executors of the will are his widow and daughter and Robert Smith, thus acknowledging himself to be an executor. Turner L. J. held that that letter was enough to indicate that there was an acceptance of the office of the executor.


60. In the second case ; (1832) 3 Hag Ecc 771 : 162 ER 1339, certain persons, Symes and Hennam published an advertisement in the paper that all persons who have any claim on the estate of late John Feaver were requested to send their respective accounts due without delay to Symes or Hannam, his executors in trust. It was held that the conduct of those two persons amounted to an absolute acceptance of the executorship.

 61. In Jnanandra Nath v. Jitendra Nath, AIR 1928 Cal 275, a Bench of the Calcutta High Court has held that :
 "The office of executor being a private office of trust named by the testator and not by the law, one named executor may refuse the office or renounce. It is, however, too late to refuse or renounce when one has once elected to act as executor, and he may determine such election by acts which amount to an administration,"
One of the acts which amounts to administration so that the executor cannot afterwards refuse is something done by him with relation to the estate of the testator which shows an intention in him to enter upon the office of the executor.

 62. In view of these authorities, we are of opinion that the plaintiff had accepted the office of the executrix, and it is not open now to the appellants' counsel to contend that she did not accept the office, that the will is of no avail whatever and that she is entitled to file and sustain the action as an heir of her husband as if on intestacy.

 63. We, therefore, hold that the present suit filed by the plaintiff as the heir of her husband is incompetent and should fail.


64. It is contended by Mr. Somasundaram that the suit in any event for a declaration and injunction in terms prayed for is incompetent. It is argued that a pledgor who impugns the sale by the pledgee of the pledged goods must either seek to redeem or sue for damages on the foot of conversion. This contention finds support in the decision of the Privy Council in Neckram Dobay v. Bank of Bengal, ILR 19 Cal 322. In that case the facts were that the plaintiff Dobay deposited with the Bank of Bengal certain Government promissory notes for the purpose of securing loans.

A part of those securities were sold lawfully by the Bank, upon the borrower failing to comply with the terms of the agreement, As to the rest, the pledgor redeemed a part, but was led to believe that the Government papers that were actually delivered back to him were on the securities which remained unsold in the Bank's possession. But it was found as a fact that the Bank had taken over considerable portion of those securities and sold them to itself, crediting the borrower, however, with the price of the sale.


On those facts, the contention advanced before the Judicial Committee was that the sale by the pledgee-bank to itself was illegal and, therefore, the plaintiff was entitled to a declaration that what purported to have been the sale to the Bank itself, was no sale at all and that the plaintiff was entitled to redeem according to the terms of his pledge. The Privy Council, however, held that :
 "It would be inequitable to allow the Bank, after this transaction, to treat the securities, which it had sold to itself, and then had in its hands, as still subject to the pledge. In their Lordships' opinion, the Bank should be held to he no longer a pledgee of these notes, and to have converted them to its own use, and to be liable in damages for the value of them, including the interest thereon."
 65. In S. L. Ramaswamy v. M. S. A. P. L. Palaniappa, AIR 1930 Mad 364, a Bench of the Madras High Court has held that in case of an improper sale of the pledged goods by the pawnee the remedy of the pledgor is to get damages for the improper sale.

 66. In Cooverji v. Mawji, AIR 1937 Bom 26, Wadia J., held that the sale of pledged goods without proper notice does not render the sale void but by analogy to Section 69 (3) of Transfer of Property Act, the remedy of the pawnor for an improper sale of the mortgaged property is damages for conversion to the pawnor, and the correct measure of damages is the loss which the pawnor has actually sustained, taking into account the pawnee's interest in the goods at the time of the conversion.


67. In a Bench of the Patna High Court held that if the sale of the pawned article is wrongful, the pawnor has got the remedy to sue the pawnee for having converted his goods to his own use.

 68. In AIR 1947 Bom 217 Chagla J., after a review of English authorities held as follows :
(i) "that althoughthe pledgee may sell the goods unauthorisedly or unlawfully, the contract of pledge is not put an end to and the pledgor does not become entitled to the possession of the goods pledged without tendering the amount due on the pledge; or, in other words, without seeking to redeem the pledge, and;
(ii) that without a proper tender of the amount due on the pledge, the only right of the pledger in respect of an unlawful or unauthorised sale is in tort for damages actually sustained by him." We are in accord with the view of Chagla J., that in case of an unauthorised sale by a Pledgee the relief that the pledgor can seek is to file a suit for redemption by depositing the money, treating the sale as if it had never taken place, or where the suit for redemption is not filed, to ask for damages on the foot of conversion. The present suit is neither the one nor the other. It is a suit merely for a declaration with an ancillary relief for an injunction restraining the 3rd defendant from registering the shares in the name of the 2nd defendant. We are of the opinion that the suit as framed is not sustainable.


69. The learned Subordinate Judge has taken the view that a suit for declaration and injunction in terms prayed for was not incompetent. But it: seems to us that in view of the fact of the admitted existence of the will the plaintiff who has filed the action as the heir of her deceased husband has not the legal character or right to the property as such, so as to justify her to seek the present reliefs within the scope of Section 42 of the Indian Specific Relief Act, (Vide the decision of the Privy Council in Sheoparsan Singha v. Ramnandan Prasad Singh, ILR 43 Cal 694; AIR 1916 PC 78). On this ground also, it seems to us that the suit should fail.

 70. Mr. Kuppuswamy, the learned counsel for the 2nd defendant has urged that the 2nd defendant is a bona fide purchaser for value and that no relief could be claimed, in any event, against the 2nd defendant. He contends that the shares accompanied by blank transfers were sold for proper value and when once a Bank who was in the nature of a mercantile agent sells the shares without anything to put the purchaser on notice as to any infirmity of title, the registered holder of the shares is estopped from questioning the title of the purchaser.


He placed strong reliance on the decisions in Colonial Bank v. Cady and Williams, (1890) 15 AC 267, Fazal v. Mangaldas, ILR 46 Bom 489: (AIR 1922 Bom 303) and Abdul Vahed Abdul Karim v. Hasan Ali Alibhai, AIR 1926 Bom 338. The view of Kanga J., in ILR 46 Bom 489: (AIR 1922 Bom 303) was, however, dissented from by a Bench of the Bombay High Court in ILR 50 Bom 229: (AIR 192G Bom 338), where it was held that a registered owner of shares does not by handing over the share certificates and blank transfers signed by him to another person, make a representation to the world that such person is entitled to deal with the shares and, therefore, there is no question of any estoppel against the registered owner of the shares. But in the view we have taken that the suit filed by the plaintiff must fail, it is not necessary to pursue the question further.

 71. For these reasons, we hold that the appeal should fail and it is accordingly dismissed with costs, one set.


State Bank Of India And Ors. vs State Of Andhra Pradesh on 9 March, 1988

JUDGMENT Y.V. Anjaneyulu, J.
 1. All these writ petitions raise a common question of law for consideration of this Court. It will be convenient to dispose them of together.
 2. The Constitution (Forty-sixth Amendment) Act, 1982 inserted through section 4, clause (29-A) in Article 366 relating to definitions of certain expressions occurring in the Constitution of India. The said clause (29-A) may be reproduced below for the purpose of convenient reference :
 "(29-a) 'tax on the sale or purchase of goods' includes -
 (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;
 (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
 (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments;
 (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
 (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;


(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made;".
 The above clause came into force on 2nd February, 1983. The Seventh Schedule to the Constitution consists of Lists I, II and III setting out the subject-matter of laws which the Parliament and the Legislature of the States have the power to make. List II is the State List and it contains the matters upon which the State has the exclusive power to make laws. Entry 54 of List II conferred power on the States to levy taxes on the sale or purchase of goods. Pursuant to the power conferred by entry 54, the State Government enacted the Andhra Pradesh General Sales Tax Act (hereinafter referred to as "the Act") to levy tax on the sale or purchase of goods in the State of Andhra Pradesh. On the Forty-sixth Amendment to the Constitution inserting clause (29-A) in article 366, consequential amendments were made to the Act. By the Andhra Pradesh General Sales Tax (Amendment) Act No. 18 of 1985, explanation IV was added in section 2(n) of the Act which defines the expression "sale". Explanation IV, which was inserted by Act 18 of 1985, was brought into force retrospectively from 2nd February, 1983 and it is extracted below :


"Explanation IV. - A transfer of right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration shall be deemed to be a sale."
 By the same Act 18 of 1985, the definition of the expression "dealer" occurring in section 2(e) of the Act was also amended with effect from 13th September, 1985. By the said amendment, the expression "dealer" is defined to include "any person, who may transfer the right to the use of any goods for any purpose whatsoever (whether or not for a specified period) in the course of business to any other person". Section 5-E of the Act was also inserted by the same Act 18 of 1985 with effect from 1st July, 1985. It is relevant to refer to the same :
 "Section 5-E. Tax on the amount realised in respect of any right to use goods. - Every dealer who transfers the right to use any goods for any purpose, whatsoever, whether or not for a specified period, to any lessee or licensee for cash, deferred payment or other valuable consideration, in the course of his business shall, on the total amount realised or realisable by him by way of payment in cash or otherwise on such transfer or transfers of the right to use such goods from the lessee or licensee, pay a tax at the rate of five paise in every rupee of the aggregate of such amount realised or realisable by him during the year :
 Provided that no such tax shall be levied if the total turnover of the dealer including such aggregate is less than Rs. 1,00,000."
 We may, for the sake of convenient reference, sum-up the legislative changes :
------------------------------------------------------------------------
S. No.                 Particulars                        Date of coming
                                                          into force
------------------------------------------------------------------------


S. No.                 Particulars                        Date of coming
                                                          into force
------------------------------------------------------------------------
  1.      Clause (29-A) of article 366.                        2-2-83
  2.      Explanation IV to section 2(n) through
          Act 18 of 1985.                                      2-2-83
  3.      Clause (iii-b) inserted by Act 18 of 1985 in
          section 2(e) defining the expression "dealer".      13-9-85
  4.      Section 5-E levying tax on the amount realised
          in respect of right to use goods inserted by
          Act 18 of 1985.                                      1-7-85
------------------------------------------------------------------------


3. In view of the power conferred on the State Governments to levy tax on the transfer of the right to use any goods for any purpose and following the amendments made to the Andhra Pradesh General Sales Tax Act referred to above, the sales tax authorities felt that banks which provide safety-lockers for the use of customers are liable to pay tax on the charges realised. In that view, notices were issued to various banks by the Commissioner of Commercial Taxes to show cause why sales tax should not be levied at 5 per cent on the charges realised by hiring lockers which, in law, amounted to transfer of the right to use goods by the customers. In some cases notices related to the years commencing from 1983-84 and in some other cases the notices pertained only to the year 1984-85 and 1985-86, etc. The notices issued by the Commissioner pointed out that the banks failed to submit appropriate returns and consequently an estimate of hire charges was made in the notices for the purpose of levy of tax. After receipt of the aforesaid notices the banks filed writ petitions in this Court questioning the validity of the proposal of the sales tax department to levy tax on the charges realised by hiring lockers to customers.


4. Before we proceed to deal with the matters we may refer only to one more fact. In exercise of the powers conferred by section 9(1) of the Act, in G.O. Ms. No. 1091, Revenue, dated 10th June, 1957, the Governor of Andhra Pradesh directed exemption from all taxes payable under the Act to the banks in the State of Andhra Pradesh, except when they act as buying or selling agents of a dealer as specified in the explanation to clause (e) of section 2 or in section 11 of the Act. This notification continued to be in force until it was rescinded by G.O. Ms. No. 794 dated 19th August, 1987. By the aforesaid notification dated 19th August, 1987, the Governor of Andhra Pradesh rescinded the notification issued in G.O. Ms. No. 1091, Revenue, dated 10th June, 1957 and published in the Andhra Pradesh Gazette on 15th June, 1957. The date of publication of G.O. Ms. No. 794 dated 19th August, 1987 in the Gazette is not furnished to this Court.
 5. Sri Ananta Babu led the arguments on behalf of the State Bank of India in W.P. No. 10983 of 1987. Learned counsel for the other petitioners M/s. K. Srinivasa Murthy, B. K. Seshu, L. P. R. Vittal, G. V. Seetharama Rao, V. R. Reddy, A. Ramalingeswararao and D. Hanumantharao adopted the arguments of Sri Ananta Babu, although some of them made a few submissions supplementing the arguments of Sri Ananta Babu.


6. We may first clear the ground proceeding on the assumption that there is conferment of power to levy tax on charges realised from customers by the banks for providing safety-lockers. It is urged that even if there is conferment of power, the power cannot be exercised so long as the Notification G.O. Ms. No. 1091, Revenue, dated 10th June, 1957 issued under section 9(1) of the Act was in force. We have already referred to the aforesaid notification in para 4 supra under which exemption was granted from all taxes payable to the banks in the State of Andhra Pradesh. This notification continued to be in force till it was rescinded by G.O. Ms. No. 794 dated 19th August, 1987. We find considerable force in the contention of the learned counsel for the petitioners that in any case, no tax can be levied till the date of publication of G.O. Ms. No. 794 dated 19th August, 1987 rescinding the earlier notification dated 10th June, 1957. The notices issued by the department to the bankers proceeded to state that tax is leviable from the year 1983-84, obviously for the reason that the Forty-sixth Amendment to the Constitution inserting clause (29-A) in article 366 of the Constitution of India, came into force on 2nd February, 1983. We must, however, point out that the insertion of clause (29-A) in article 366 of the Constitution did not automatically confer power on the State Government to levy tax. Consequential steps have to be taken by effecting necessary amendments to the Sales Tax Act at the State level. Those amendments were made by Act 18 of 1985 whereunder explanation IV was added to section 2(n) of the Act containing the definition of the expression "sale". Clause (iii-b) was also


of the Act containing the definition of the expression "sale". Clause (iii-b) was also inserted by the same Act amending the definition of the expression "dealer" in section 2(e). That provision came into force only on 13th September, 1985. The charging section empowering the levy of tax at 5 paise, which was also inserted by Act 18 of 1985, vide section 5-E of the Act, came into force on 1st July, 1985. If regard be had to these consequential amendments it is clear that until the definition of the expression "dealer" is amended by the Act 18 of 1985 which came into force on 13th September, 1985, it is not open to the authorities to levy tax, because the liability to pay the tax under the Act arises only if a person is a dealer and not otherwise. Thus till 13th September, 1985 there could be no levy of tax. We may also point out that the charging section 5-E itself came into force on 1st July, 1985 and there could be no levy of tax prior to section 5-E coming into force. Even after the necessary amendment came into force and there is full conferment of power to levy tax, the notification dated 10th June, 1957 issued under section 9(1) of the Act directing exemption from all taxes payable under the Act to the banks in the State of Andhra Pradesh, continued to be in force. The notification would, therefore, have the effect of exempting the tax which might otherwise be leviable with effect from 13th September, 1985. Obviously it escaped the notice of the Government to withdraw the notification dated 10th June, 1957 issued under section 9(1) of the Act and that was done through G.O. Ms. No. 794 dated 19th August,


and that was done through G.O. Ms. No. 794 dated 19th August, 1987. Thus, the ground is cleared for the State Government to exercise power to levy tax only from the date of publication of G.O. Ms. No. 794 dated 19th August, 1987, although some notices required the payment for the year 1983-84 and yet some other notices required payment for the years 1984-85 and 1985-86. On this short ground alone the notices issued by the authorities deserve to the quashed and a declaration given that the petitioners herein are not liable to pay tax till the date of publi-cation of G.O. Ms. No. 794 dated 19th August, 1987. We may state that the learned Government Pleader realising the above position did not seriously contend before this Court that the provisions in the Act relied upon conferred power upon the authorities to levy tax prior to the date of publication of G.O. Ms. No. 794 dated 19th August, 1987. We accordingly declare the law and quash the impugned notices in all the cases.


7. Learned counsel for all the petitioners made a request that the larger issue whether the petitioners-banks are liable to pay tax at all may be considered as extensive arguments were advanced and the sales tax authorities are bound to initiate action once again for levy of tax subsequent to the period of publication of G.O. Ms. No. 794. It is pointed out that the question would have to be reagitated once again by filing writ petitions and if the larger issue is settled one way or the other multiplicity of proceedings will be avoided. Having heard the arguments in some detail we feel that it is desirable to decide the larger issue concerning the liability of the banks to pay sales tax on the charges realised by the banks for hiring safe deposit lockers.


8. The main thrust of the argument of Sri Ananta Babu who led the arguments is that the impugned provision does not authorise the levy of tax on banks for hiring safe deposit lockers to constituents. Attention is invited to the relevant provision. Clause (29-A) of article 366 of the Constitution specifies that tax on the sale or purchase of goods include a tax on the transfer of the right to use any goods for any purpose, whether or not for a specified period, for cash, deferred payment or other valuable consideration. The amendments effected to the definition of the expression "sale" in section 2(n) of the Act and also of the expression "dealer" in section 2(e) of the Act were in line with clause (29-A) of article 366 of the Constitution. The charging section 5-E provided that every dealer who transfers right to use any goods for any purpose whatsoever, whether or not for a specified period, to any lessee or licensee for cash, deferred payment or other valuable consideration in the course of his business shall, on the total amount realised or realisable by him by way of payment in cash or otherwise on such transfer or transfers of the right to use such goods from the lessee or licensee, pay a tax at the rate of five paise in every rupee. No liability is attached if the total turnover of the dealer is less than rupees one lakh. The question for consideration is whether in the transaction of the banks hiring safe deposit lockers to constituents, there is any transfer of the right to use any goods.


9. A copy of the agreement for hiring of the locker executed between the State Bank of India and the constituents is obtained by us. We are informed that more or less identical agreements are entered into by all the banks with their constituents for hiring of lockers. Learned Government Pleader also stated that we may proceed on the basis of the covenants in the agreement filed by the State Bank of India and it is not necessary to examine the agreement in each case. The constituent to whom the locker is provided is called the hirer and the agreement is described as "the agreement for hiring of locker". The period for which the locker is hired is specified in the agreement. Where the lockers are taken in the joint names of constitutents the agreement provides for the manner of access and the rights of each one of the joint hirers. Clause 3 of the agreement is in the following terms :
 "The hirer shall have no right of property in the locker but only an exclusive right of user thereof and access thereto during the period of this agreement and in accordance therewith. The hirer shall not assign or sublet the locker or any party of it, nor permit to be used to any purpose other than for the deposit of documents, jewellery or other valuables nor shall the hirer use the locker for the deposit of any property of an explosive or destructive nature."


There are provisions relating to the payment of the hire and the bank's lien on all the moneys to sell the property by the safe deposit department of the bank if the rental is not paid. The agreement can be terminated by giving seven days' time by either side. If no such termination is made, the bank will consider the renewal in favour of the hirer for a further period. Clause 9 of the agreement provides that all repairs required to be done to the locker or keys shall be done exclusively by workmen appointed by the bank. Clause 11 provides that for reasons of grave or urgent necessity the bank reserves the right of closing the safe deposit department for such period as it may consider necessary. The bank also reserves the right of making charges in the working hours. Clause 12 cautions the hirers to keep the keys of the lockers in a place of safety and not to divulge the number of their lockers and their passwords and not to deliver their keys for the purpose of operating on the lockers or otherwise to any person other than their duly authorised agent. Clause 13 provides that the relation between the bank and the hirer is that of licensor and licensee and not that of a banker and customer.
 10. Omitting the routine covenants in the agreement the important condition specified in clause 3 of the agreement would indicate that the hirer has no right of property in the locker. He, however, has an exclusive right of user thereof and access thereto during the period of agreement. The hirer has no right to assign or sublet the locker; nor permit it to be used to any purpose other than the deposit of documents, jewellery or other valuables. The hirer is forbidden from using the locker for the deposit of any property of an explosive or destructive character.


11. We may now consider the arguments advanced by the learned counsel for the petitioners. It is contended that the safe deposit locker in a bank cannot be considered as "goods" within the meaning of section 2(h) of the Act. It is pointed out that the expression "goods" means all kinds of moveable property subject to the exceptions specified therein and also includes all growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Learned counsel invited attention to explanation IV to section 2(n) defining "sale" which refers to a transfer of right to use any goods. Our attention is also invited to clause (iii-b) in section 2(e) defining "dealer" as any person who may transfer the right to the use of any goods and then reference is invited to section 5-E of the Act which provides that every dealer who transfers the right to use any goods for any purpose shall pay a tax specified therein. It is thus pointed out that the exigibility to tax would depend upon the question whether there is any transfer of the right to use goods by the bankers. It is contended that if safe deposit lockers are not "goods", then, no liability to tax arises. As the expression "goods" refers only to moveable property, then, safe deposit lockers are excluded from that expression, because the lockers are imbedded in the earth in the strong rooms of the banks. It is submitted that safe deposit lockers are permanently fixed in the strong rooms and they do not answer the description of moveable property. According to the General Clauses Act, immoveable property shall include land, benefits arising out of the land, and things attached to the earth. The Transfer of Property Act defines the phrase "attached to earth", but gives no definition of immoveable property beyond excluding standing timber, growing crops. The phrase "attached to the


definition of immoveable property beyond excluding standing timber, growing crops. The phrase "attached to the earth" is defined in the Transfer of Property Act as imbedded in the earth, as in the case of walls or buildings or attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached. The definition of immoveable property in the General Clauses Act is held to apply even to the Transfer of Property Act. It is all the more applicable to the Sales Tax Act which levies tax on transactions relating to goods constituting moveable property. There is considerable force in the contention of the learned counsel for the petitioners that lockers imbedded in the earth cannot be regarded as moveable property and cannot, therefore, answer the description of "goods" for the purpose of the Sales Tax Act. Learned Government Pleader was on his feet quickly to contradict the petitioners that in some banks the lockers are not imbedded in the earth. That is a matter for verification. It is for the banks to establish the relevant fact. All that we can declare is that if the safe deposit lockers are imbedded in the earth in the strong rooms of the banks, they do not constitute "goods" for the purpose of levy of tax on the charges realised for transferring the right to use the lockers. If in any given cause the lockers are kept mobile in the bank then they answer the description of the goods and further considerations regarding the levy of tax may arise.


12. It is next contended that the hire charged by the banks for hiring of lockers is not exclusively for the use of the lockers. It is a composite charge to cover a variety of services associated with the lockers. It is submitted that the safe deposit lockers are located in strong rooms constructed at considerable cost by the banks. Walls of high thicknesses rendering them fire-proof are constructed. Steel doors of larger thicknesses in gauge are provided and special locking devices are arranged in the strong rooms. It is stated that some of the leading banks make their strong rooms an impregnable fortress by providing emergency alarm, etc., in the event of prowlers gaining access into the strong room. It is further stated that heavy security by employing security staff round the clock was provided. All these precautions were taken to ensure that the properties deposited in the safe deposit lockers located in the strong rooms are safe and inaccessible. Learned counsel contended that in fixing the hire charges the banks would take into consideration all the above services which are associated with the operation of the lockers. Learned counsel, therefore, urged that unless classification is made of the hire charged it is not possible to identify the sum charged for the transfer of right to use the lockers alone. As it is impossible to make any such classification no tax can be levied, contended the learned counsel for the petitioners.


13. We see considerable force in the submissions of the learned counsel for the petitioners. Let us ask the question as to why people go to banks for depositing their valuables in lockers. Is it because they do not have the facility of a locker at their residence ? It is common knowledge that every steel almirah is fitted with a safe deposit locker of high thickness and gauge. The class of customers who go to banks for depositing their valuables in lockers do certainly have steel almirahs in their houses or even otherwise can afford to purchase one such almirah with safe deposit locker. But then why do these persons prefer to go to a bank and deposit their valuables in the lockers located there without keeping the articles in their houses under constant watch by them ? The answer is obvious. It is because the safe deposit lockers hired by banks are located in impregnable strong rooms and prowlers cannot gain access into these strong rooms of the banks. The wide feeling is that valuables deposited in bank lockers are safer than at home because of the high security arrangements at the bank and the provision of strong rooms. It cannot, therefore, be gainsaid that persons pay the hire charges for the lockers not only for the right to use the lockers but also for a host of other services referred to above closely associated with the maintenance of lockers by the banks. In that sense the hire charges collected by the banks from the constituents represent a consolidated charge levied by the bank for a variety of services and facilities provided, of which the use of the locker forms a small part. The hire charge is inseparable into various services and because of the impossible nature of relating to any particular amount as hire charge solely for the use of the locker, the proposal to levy tax on such hire should fail. Any endeavour to levy tax on the aggregate hire charges levied by the bank would amount to levying tax not only on the right to use locker but


levied by the bank would amount to levying tax not only on the right to use locker but also on the charges collected by the bank for the provision of strong rooms, providing round the clock watch and ward and employing necessary staff to have a close supervision in the operation of strong rooms. The inseparable character of the hire charged by the banks frustrates any attempt to separate the small sum which is the charge for the right to use the locker, which only can be subject to tax under the Act. We have, therefore, no hesitation in holding that, in the facts and circumstances above stated, the banks cannot be called upon to pay sales tax on the hire received for the use by the constituents of the lockers which forms a fractional and inseparable part of the composite charge for a variety of services.


14. Sri Ananta Babu raised a further plea that the levy of tax is contemplated only in respect of goods which are either delivered or capable of being delivered to the persons who seek exclusive use of the goods. Referring to the agreement between the bankers and the persons taking the lockers on hire, learned counsel submitted that it must be regarded as a contract in the nature of bailment falling under Chapter IX of the Indian Contract Act. Section 148 of the Contract Act defines a "bailment" is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivered them. Learned counsel points out that the contract in these cases cannot be considered under any other head. It is submitted that delivery to the bailee may be made by doing anything which has the effect of putting the goods in the possession of the intended bailee or of any person authorised to hold them on his behalf. Learned counsel submits that in the first place no delivery of lockers is involved when a bank hires a safe deposit locker to a constituent. The bank keeps the custody of the locker and the constituent is merely a licensee having access to go into the strong room and operate the locker. Learned counsel also pointed out that the hirer does not even have the facility to open the locker on his own, because the locker cannot be opened unless the master key available with the bank is also simultaneously operated. Learned counsel, therefore, submitted that the bank does nothing having the effect of putting the lockers in the possession of the bailee. On the other hand, the conditions in the contract unmistakably indicate that the exclusive possession and custody of the locker are kept with the bank itself always and not even liberty is given to the hirer to open the locker whenever he likes. The lockers can be operated only during the prescribed hours and a hirer cannot operate the


The lockers can be operated only during the prescribed hours and a hirer cannot operate the locker with his own key, unless the master key remaining with the banks is also simultaneously used. On these facts, the learned counsel contended that there is neither delivery of the lockers nor has anything been done by the bank having the effect of putting the lockers on the possession of the bailee. The facts indicate the contrary. Learned counsel invited our attention to Chitty on Contracts, 24th Edition, Volume II, to the observations at page 2236 concerning "Hire at common law". It is observed that in the bailment termed "hire" the bailee receives both possession of the chattel and the right to use it, in return for a price or remuneration to be paid to the bailor. The bailee is under an obligation to return the chattel to the owner at the expiration of the fixed period of the hiring and to pay the cost of returning it. While the bailment continues to subsist, the bailee is entitled to possessory remedies and can prevent anyone, including the owner, for interfering with the chattel against his will. Adverting to these observations, Sri Ananta Babu claims that the arrangement for providing lockers cannot but be regarded as a bailment under law and once that is accepted, none of the conditions associated with the contract of bailment is satisfied in the present case. In our opinion, the learned counsel is well fortified in his submissions. We are not told by the learned Government Pleader that the contract of hire between the bankers and the constituents can be regarded legally as anything other than the contract of bailment. Indeed the nature of the transaction undoubtedly puts the contract as one of bailment. That being so, delivery is essential which is lacking in the present case. Clause (29-A) of article 366 of the Constitution of India and the consequential amendments made to the Sales Tax Act refer in our opinion only


of the Constitution of India and the consequential amendments made to the Sales Tax Act refer in our opinion only to cases where there is a transfer of the right to use goods delivered to the person concerned. It does not take in its sweep transactions which merely licence a person to use goods without securing possession. Take for instance a case where a person takes on hire a cab from a rental agency. The agency delivers the car to the person for his use during a specified period and the person concerned returns the vehicle after user and pays to the agency the charge for such user. That clearly is a transaction caught by clause (29-A) in article 366 of the Constitution. Or, take for instance the case of a person who took on hire articles from a furniture makes for his use for a specified period. He carries the furniture home, used it for a particular period and returns it to the furniture maker after user and pays appropriate charges. That again is an instance falling under clause (29-A) of article 366 of the Constitution and the consequential amendments in the Act. It is not necessary to multiply instances of this type as there are plenty. In making the aforesaid amendments, in our opinion, the law envisaged the levy of tax in respect of sums paid for securing the right to use the goods, of which possession or delivery has been taken by him. It does not apply to cases where the person concerned is merely a licensee without possession of the goods.


15. Our attention has been invited to a decision of the Calcutta High Court in Bank of India v. Commercial Tax Officer, Calcutta [1987] 67 STC 199 wherein the same question was considered by a learned single Judge of the Calcutta High Court. The learned Judge held that tax is not leviable in respect of lockers hired by banks to customers. Although we tread the ground through a route slightly different from what the learned Judge did we reached the same destination; we are in respectful agreement with the view expressed by the learned single Judge.
 16. For all the aforesaid reasons, we hold that no power is conferred on the sales tax authorities to levy sales tax in respect of hire charges collected by banks for providing safe deposit lockers under section 5-E of the Act. If, however, a contrary view is possible, we still hold that the petitioners cannot be called upon to pay tax till the date of publication of G.O. Ms. No. 794 dated 19th August, 1987, as the notification issued under section 9 of the Act withdrawing the exemption from the levy of tax had taken effect only from that date.
 17. In the result, all the writ petitions are allowed, but in the circumstances, without costs. Advocate's fee Rs. 200 in each.
 18. Writ petitions allowed.


Suryalatha Spinning Mills Ltd. ... vs Union Of India And Anr. on 20 February, 1996

JUDGMENT Syed Shah Mohammed Quadri J.


1. In these four writ petitions, the constitutional validity of section 115J of the Income-tax Act, 1961, is questioned. As the question raised in these writ petitions is common, they were heard together and are being disposed of by a common judgment. For appreciating the contentions raised in these writ petitions, we would refer to the facts in Writ Petition No. 8060 of 1992.


2. The first petitioner in this writ petition is a public limited company which is registered under the Companies Act, 1956. The second petitioner is one of the equity shareholders of the first petitioner-company. It is stated that under the provisions of the Companies Act, the petitioner is required to prepare the balance-sheet and the profit and loss account in accordance with Schedule VI to the said Act. For the financial year 1989-90, i.e., April 1, 1989, to March 31, 1990, the petitioner disclosed Rs. 65,52,925 as the net profit. The petitioner filed income-tax returns for the said year claiming that under section 32(2) of the Act, the company has unabsorbed depreciation allowance of Rs. 11,99,745 which the petitioner was entitled to carry forward; the petitioner had also investment allowance computed in accordance with the provisions of section 32A of the Act at Rs. 49,59,734 which remained unabsorbed. After necessary adjustment of the other allowances and expenses, the income for that year was determined at Rs. 61,59,479. But after setting off the brought forward depreciation and investment allowance for the assessment year, the income of the petitioner for the assessment year 1990-91 became nil. The petitioner says that section 115J was inserted by the Finance Act, 1987; and a new concept of book profit was introduced; and the provisions of section 80VVA were deleted. By virtue of the operation of the newly inserted provision 115J, the books profits liable to tax were determined at Rs. 29,25,878 and tax of Rs. 14,62,939 computed at 50 per cent. and surcharge of Rs. 1,17,035 at eight per cent. of the income-tax, totalling to Rs. 15,79,974 were paid along with returns of


income-tax, totalling to Rs. 15,79,974 were paid along with returns of income for the year 1990-91. It is added that for the assessment year 1991-92, the petitioner had the profit of Rs. 1,10,64,691. After making necessary adjustments as per the Act and the rules framed thereunder, the taxable income was arrived at Rs. 18,63,394 on which tax together with surcharge was paid at Rs. 8,57,160. The petitioner-company deducted the income determined for the assessment year 1991-92 under the provisions of section 115J and claimed to set off the notional income on which it has suffered tax for the year 1990-91. That was not allowed by the Income-tax Officer. The petitioner, therefore, challenges the constitutional validity of section 115J saying, it is unconstitutional and violative of articles 14 and 19(1)(g) of the Constitution of India.


3. In the counter-affidavit filed by the Revenue, it is stated that the minimum tax on companies was dealt with by section 80VVA which was inserted in 1983 but from the year 1988-89 that provision was deleted and section 115J was inserted. Sample studies carried out by the Central Board of Direct Taxes revealed that while the provisions of section 80VVA have had the effect of subjecting the companies to minimum tax which they would not have otherwise paid, there were still companies which had no income-tax liability despite substantial profits. This was due to the fact that the companies were availing of depreciation in full under the Income-tax Act, and thus the phenomena of prosperous zero-tax companies continued. There were about 650 such companies during the relevant assessment year 1984-85. About 28 per cent. of the companies (139 companies) accounting for a net profit of Rs. 274 crores showed no tax liability. So after conducting a careful study, by the Finance Act, 1987, section 80VVA was deleted and section 115J was introduced by way of an independent Chapter XII-B in the Income-tax Act and it came into force from the assessment year 1988-89. It is only when the total income of a company under the provisions of the Income-tax Act, in respect of any accounting year, of any company, is less than 30 per cent. of its book profits for purposes of charging income-tax, that 30 per cent. of the book profit is treated as income. Subject to some adjustments, the book profits became the basis of taxation or assessability of income-tax. The figures given by the petitioner company in its return for the assessment year 1991-92 are not disputed. But it is stated that there is no rationality in claiming deduction of the income assessed under section 115J for the assessment year 1990-91 and there is no substance in the


section 115J for the assessment year 1990-91 and there is no substance in the contention that there would be double taxation. It is not correct that section 115J creates any hostile discrimination as alleged. Parliament in its wisdom chose the corporate sector for taxing under section 115J of the Act and the same is not open to challenge on the ground of discrimination. The Government policy of taxation strikes a balance between promotion of investment in development and levy and recovery of taxes for the purposes of developmental activities and keeping in view these factors amongst others, the Government formulated the taxation policy. For these reasons, it prayed that the writ petitions be dismissed.


4. Sri Ravi, learned counsel for the petitioners, who led the batch, concentrated on the question of carry forward of unabsorbed losses and unadjusted allowances under sub-section (2) of section 115J when notional income becomes the subject-matter of assessment under sub-section (1) of section 115J of the Act. In other words, his submission is that where the notional income of a company is taxed, having regard to the provisions of section 115J(1), the unabsorbed loss and unadjusted allowances. etc., of an amount equal to the extend income should be allowed to be carried forward, otherwise it would result in double taxation. He has elaborated his argument with reference to the example given in the Board's Circular No. 495, dated September 22, 1987 (see [1987] 168 ITR (St.) 87); if unabsorbed losses or unadjusted allowances, equal in quantum to the income which is subject to tax under section 115J(1). are not allowed to be carried forward to the next year, then submits the learned counsel, the provisions of section 115J(1) would be liable to be struck down on the ground of violation of article 14 as well as on the ground of double taxation so to save them from the vice of unconstitutionality it is necessary to interpret sub-section (2) of section 115J in such a manner as to make the carry forward of the unabsorbed losses and unadjusted allowances, equal in amount to the income calculated under section 115J(1), permissible.


5. Sri Muralikrishna, learned counsel appearing for the petitioner in Writ Petition No. 2221 of 1993, while adopting the arguments of Sri Ravi, adds that once the taxable income of the company is determined under sub-section (1) of section 115J that should form the basis for the purpose of determining the unabsorbed depreciation, business losses and other allowances to be carried forward and set-off against the income for the subsequent year, in other words, he submits that on determining the taxable income under section 115J(1) the corresponding amount of the scientific research expenditure that could be absorbed against that income, should be allowed to be carried forward to the next assessment year under sub-section (2) of section 115J; if any other interpretation is given to section 115J(2), then section 115J(1) would be rendered unconstitutional.


6. Sri S.R. Ashok, learned standing counsel appearing for the Revenue, has contended that under the garb of interpreting sub-section (2) of section 115J, the assessee cannot nullify the purpose of the legislation and the scheme introduced under section 115J(1) of the Act. His contention is if sub-section (2) of section 115J is interpreted in the manner suggested by learned counsel for the petitioners, it would lead to anomalous consequences as the amounts that could be carried forward under sub-section (2) of section 115J would fall either under unabsorbed investment allowance or unabsorbed depreciation or unabsorbed loss or benefit under section 80J and each of them had its own restriction both with regard to time-limit as also with regard to computation. Had Parliament intended to provide such a relief under sub-section (2) of section 115J, it should have said so in that provision and it is not open for the petitioners to read in sub-section (2) something which has not been provided by Parliament. He submits that the example given in Board's Circular No. 495, dated September 22, 1987 (see [1987] 168 ITR (St.) 87), is the correct interpretation of sub-section (2) of section 115J. He has also contended that section 115J(1) is not open to challenge on any of the grounds urged by the petitioners.
7. We shall first deal with the contention of learned counsel for the petitioners in regard to carry forward of unabsorbed losses or unadjusted allowances, etc., under sub-section (2) of section 115J.
8. It will be useful to read here section 115J which runs as under :


8. It will be useful to read here section 115J which runs as under :
"115J. Special provisions relating to certain companies. - (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation of distribution of electricity), the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day April, 1988, but before the 1st day of April, 1991 (hereafter in this section referred to as the relevant previous year), is less than thirty per cent. of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent. of such book profit.
(1A) Every assessee, being a company, shall, for the purpose of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956).
Explanation. - For the purposes of this section, 'book profit' means the net profit as shown in the profit and loss account for the relevant previous year prepared under sub-section (1A), as increased by -
(a) the amount of income-tax paid or payable, and the provision therefor; or


(b) the amounts carried to any reserves (other than the reserves specified in section 80HHD or sub-section (1) of section 33AC), by whatever name called; or

(c) the amount or amounts set aside to provisions made for meeting liabilities other than ascertained liabilities; or

(d) the amount by way of provision for losses of subsidiary companies; or

(e) the amount or amounts of dividends paid proposed; or

(f) the amount or amounts of expenditure relatable to any income to which any of the provisions of Chapter III applies; or

(g) the amount withdrawn from the reserve account under section 80HHD, where it has been utilised for any purpose other than those referred to in sub-section (4) of that section; or


(h) the amount credited to the reserve account under section 80HHD, to the extent that amount has not been utilised within the period specified in sub-section (4) of that section; or (ha) the amount deemed to be the profits under sub-section (3) of section 33AC;
if any amount referred to in clauses (a) to (f) is debited or, as the case may be, the amount referred to in clauses (g) and (h) is not credited to the profit and loss account, and as reduced by, -
(i) the amount withdrawn from reserves (other than the reserves specified in section 80HHD) or provisions, if any such amount is credited to the profit and loss account :
Provided that, where this section is application to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1988, shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount withdrawn) under this Explanation; or

(ii) the amount of income to which any of the provisions of Chapter III applies, if any such amount is credited to the profit and loss account; or


(iii) the amounts (as arrived at after increasing the net profit by the amounts referred to in clauses (a) to (f) and reducing the net profit by the amounts referred to in clauses (i) and (ii) attributable to the business, the profits from which are eligible for deduction under section 80HHC or section 80HHD; so, however, that such amounts are computed in the manner specified in sub-section (3) or sub-section (3A) of section 80HHC or sub-section (3) of section 80HHD, as the case may be; or


(iv) the amount of the loss or the amount of depreciation which would be required to be set-off against the profit of the relevant previous year as if the provisions of clause (b) of the first provision (1) of section 205 of the Companies Act, 1956 (1 of 1956), are applicable.
(2) Nothing contained in sub-section (1) shall affect determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year to years under the provisions of sub-section (2) of section 32 or sub-section (3) of section 32A or clause (ii) of sub-section (1) of section 72 or section 73 or section 74 or sub-section (3) of section 74A or sub-section (3) of section 80J."


9. By the Finance Act, 1987, Chapter XIIB containing a lone section, viz., section 115J, extracted above, was inserted with effect from April 1, 1988. It replaced section 80VVA and remained in force for three years, viz., 1988-89, 1989-90 and 1990-91. Section 80VVA had placed certain restrictions on allowances of various incentives allowable under the Act. But the unabsorbed part of the allowances was allowed to be carried forward to the subsequent year; however, that does not cover depreciation allowances or settings off business losses. The object of insertion of section 115J is to ensure levy of minimum tax on what are known as "prosperous zero-tax companies". Such companies were showing huge profits in the profit and loss account and were also declaring dividends to the shareholders but on account of various incentives and increase in depreciation rates, among others, were showing very less or "Nil" taxable total income. Under the scheme of the above section which is a self-contained provision, certain companies whose total income as computed under the provisions of the Income-tax Act, in respect of the previous year relevant to the assessment year after April 1, 1988, is less than 30 per cent. of their book profits the total income of such companies chargeable to income-tax for the relevant previous year, is treated as an amount equal to 30 per cent. of such book profits and is taxed accordingly. It also provides for certain adjustments by way of adding amounts and granting deductions for computing the chargeable income under section 115J(1).


10. Sub-section (2), with which we are concerned, says that the provisions of sub-section (1) shall not affect the determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under : (a) sub-section (2) of section 32; or (b) sub-section (3) of section 32A; or (c) clause (ii) of sub-section (1) of section 72; or (d) section 73; or (e) section 74; or (f) sub-section (3) of section 74A; or (g) sub-section (3) of section 80J.
11. Sub-section (2) is only a saving provision. It provides that determination of the amounts in relation to the relevant previous year to be carried forward to the subsequent year or years under the provisions, enumerated above, will have to be made unaffected by the provisions in sub-section (1) of section 115J.
12. It is argued that having regard to sub-section (1), determination of the amounts to be carried forward of losses, etc., referred to above, three propositions are possible, viz. :
(i) Once the income is determined under sub-section (1) in an assessment year, from that year unabsorbed losses and unadjusted allowances, etc., mentioned above, cannot be carried forward any more because by operation of sub-section (1) of section 115J, a new scheme has come into effect which puts an end to the carrying forward of losses, etc.;


(ii) On the determination of the taxable income, under the relevant provisions of the Act, whatever amounts remain to be carried forward as per regular computation, either by way of unabsorbed losses or unadjusted allowances, etc. the same be carried forward to the next year ignoring the fact that a notional income is made taxable under sub-section (1);
(iii) The taxable income arrived at under sub-section (1) of section 115J should be deemed as available for purposes of setting of unabsorbed losses or unadjusted allowances, etc., in that assessment year but postponed to the next year without allowing the actual adjustment.


13. In our considered view sub-section (2) gives statutory recognition to the proposition (ii) and gives no scope to entertain propositions (i) and (iii). We would examine these propositions and the merits of the Board's Circular No. 495, dated September 22, 1987 (see [1987] 168 ITR (St.) 87), interpreting sub-section (2) of section 115J. The circular recites that it is an accepted canon of taxation to levy tax on the basis of ability to pay; however, as a result of various tax concessions and incentives, some companies which are marking huge profits and also declaring substantial dividends, have been managing their affairs in such a way as to avoid payment of income-tax and accordingly as a measure of equity section 115J has been introduced by the Finance Act, 1987. Under the new provision, in the case of a company whose total income, as computed under the provisions of the Income-tax Act is less than 30 per cent. of the book profit, computed under the section, the total income chargeable to tax will be 30 per cent. of the book profit as computed. The book profit will be the net profit as shown in the profit and loss account prepared in accordance with the provisions of the Sixth Schedule to the Companies Act, 1956, after certain adjustments. This provision involves two processes. First, the assessing authority has to determine the income of the company under the provisions of the Income-tax Act and, secondly, the book profit has to be worked out in accordance with the Explanation below section 115J(1A), then it will have to be seen whether the total income determined under the first process is less than 30 per cent. of the book profit; if so, sub-section (1) would be invoked and the total income of such company chargeable to income-tax for the relevant previous year shall be equal to 30 per cent. of


chargeable to income-tax for the relevant previous year shall be equal to 30 per cent. of such book profit.


14. Sub-section (2) of section 115J provides that the application of this process shall not affect the carry forward of unabsorbed depreciation, unabsorbed investment allowance, business losses, deficiency under sub-section (3) of section 80J to the extent not set-off, as computed under the Income-tax Act. It is illustrated in the said Board's circular as under (see [1987] 168 ITR (St.) 111) :
 ----------------------------------------------------------------------Book profits for the purposes of Profit under the Income-tax
Companies Act, 1956    Act
----------------------------------------------------------------------
  (1)      (2)
----------------------------------------------------------------------
      Year 1984
    (Rs.)       (Rs.)
Loss excluding     Loss excluding
  depreciation  3,00,000  depreciation   80,000
 Depreciation  1,00,000   Depreciation   4,00,000
      Year 1985
Profit before      Profit before
 depreciation   5,00,000  depreciation  5,00,000
Less : Depreciation     Less : Depreciation 4,00,000
  as per books  2,00,000
    --------      --------
    3,00,000      1,00,000
Less : Deduction under    Less : Business loss
  section 205(2)for      for 1984  80,000
  the year 1984  1,00,000
    --------      --------
    2,00,000       20,000
C.F. Business loss     Less : Unabsorbed
 1984   3,00,000    depreciation 20,000
    --------      --------
           Nil
        C.F. unabsorbed
        depreciation 1985 3,80,000


depreciation 1985 3,80,000
      Year 1986
Net loss as per books   Business loss (-) 10,00,000
before depreciation (-) 10,00,000
Depreciation   2,00,000 Add : Depreciation
        as per I.T.
        Rules (-) 4,00,000
Business loss to be
carried forward (-) 10,00,000
Unabsorbed
depreciation
to be carried
forward   (-) 2,00,000
      Year 1987
Net Profit    10,00,000 Profit before
        depreciation   10,00,000
Book depreciation   2,00,000 Less : Depreciation
       as per I.T.Rules 8,00,000
           2,00,000
       Less : Carried
       forward business loss
       for 1986 to the
       extent adjusted 2,00,000
           ---------
       Assessed income  Nil
          ---------
           (Rs.)
    Application of section 115J
Profit before depreciation     10,00,000


Less : Book depreciation      2,00,000
           ---------
           8,00,000
 Less : Deduction under section 205(2)    2,00,000
           ---------
           6,00,000
Out of the amount whichever is less :
  1984 : Business loss     3,00,000
  1986 : Business loss     10,00,000
           ---------
  Total loss        13,00,000
1986 : Depreciation       2,00,000
Assessable income 30 per cent. of Rs. 6 lakhs, i.e.,
Rs. 1.8. lakhs
Amount to be carried forward as per sub-section (2)
of section 115J
  1984 : Unabsorbed depreciation    3,80,000

  1986 : Business loss     8,00,000

  Unabsorbed depreciation     4,00,000


15. The contents of the above circular read with the example given thereunder, extracted above, would make it evident that there is no scope for the Revenue to contend that in view of the provision of sub-section (1), the unabsorbed depreciation allowance, unadjusted loss or deficiency, etc., as the case may be, can no longer be carried forward to the subsequent year to years. The second proposition represents the stand of the Revenue, while the assessee presses into service the third proposition. In the light of the example given in the circular of the Board, we shall consider these aspects. At the end of the year 1985, it is noted, the company was having carried forward unabsorbed depreciation of Rs. 3,80,000. In the year 1986, the company was having net loss of Rs. 10,00,000, depreciation of Rs. 2,00,000 and unabsorbed depreciation of Rs. 2,00,000 to be carried forward; further business loss to be carried forward in a sum of Rs. 10,00,000, thus it was having business loss of Rs. 10,00,000 and total depreciation of Rs. 4,00,000. But in the year 1987, the company had net profit of Rs. 10,00,000 and book depreciation of Rs. 2,00,000; the depreciation as per the Income-tax Rules was Rs. 8,00,000. After deducting depreciation under the Income-tax Rules, the income was reduced to Rs. 2,00,000. Against this income of Rs. 2,00,000, out of the unadjusted loss of 1986 amounting to Rs. 10,00,000, a sum of Rs. 2,00,000 would get adjusted leaving the assessable income as nil. Now under the Companies Act, from out


would get adjusted leaving the assessable income as nil. Now under the Companies Act, from out of the profits of Rs. 10,00,000, the book depreciation of Rs. 2,00,000 was deducted reducing the income to Rs. 8,00,000; under section 205(2) of the Companies Act, a sum of Rs. 2,00,000 was deducted leaving the income of Rs. 6,00,000, after adjusting under the Explanation, 30 per cent. of Rs. 6,00,000, i.e., 1.8 lakhs would be taxable under sub-section (1) of section 115J.


16. Proposition (ii) which in accordance with sub-section (2) of section 115J would entitle the company to carry forward unabsorbed depreciation of Rs. 3,80,000 unadjusted depreciation of Rs. 4,00,000 and business loss of Rs. 8,00,000. So far as the first two items are concerned, there is no controversy. Regarding the unabsorbed business loss of Rs. 8,00,000, what to contained is that out of carried forward business losses of Rs. 10,00,000, only Rs. 2,00,000 of business loss was adjusted as the amount of income was reduced to nil; however, as the Revenue is assessing the company to income-tax on Rs. 1.8 lakhs, the income arrived at under section 115J(1), whereas, in fact, income as per income-tax calculations is nil; the unadjusted depreciation and/or business loss which is available for adjustment but could not be adjusted against the said taxable income, that is, so much of the loss as can be adjusted against Rs. 1.80 lakhs should be allowed to be carried forward to the next year. We find it difficult to accede to the contention of learned counsel for the petitioners for reasons more than one. Firstly, for the purpose of arriving at the total taxable income under the provisions of the Income-tax Act, out of the carried forward loss, a sum of Rs. 2 lakhs was already adjusted and that resulted in the nil income and business loss, unabsorbed of Rs. 8,00,000 which is allowed to be carried forward, as such the claim to carry forward Rs. 1,80,000, equal to taxable income under sub-section (1) is misconceived. Secondly, because sub-section (2) of section 115J of the Act is saving provision and does not confer any


(2) of section 115J of the Act is saving provision and does not confer any further right, the amount of income arrived at for the purpose of exigibility of income-tax under sub-section (1) of section 115J, cannot be taken note of, while considering the question of carrying forward of unadjusted loss. Thirdly, the very object of the provision of section 115J is to tax such companies which are making huge profits and also declaring substantial dividends, but are managing their affairs in such a way as to avoid payment of income-tax, as a result of various tax concessions and incentives and for that purpose the taxable income is determine under sub-section (1) of section 115J, if any loss equal to the income thus determined is allowed to be adjusted, then that would frustrate and nullify the very object of enacting the provision. In our view, from a plain reading of sub-section (2) of section 115J, it is very clear that the quantum of unabsorbed losses, unadjusted depreciation, etc., for the purpose of carrying forward as to be under the provisions of the Act, irrespective of the quantum of income determined under the provisions of sub-section (1) of section 115J. We, therefore, find no illegality in the example of calculations given in the Board Circular No. 495, dated September 22, 1987 (see [1987] 168 ITR (St.) 87).