Judgment Case ID: 1104

Judgment:
Appeal No. 252 of 1956. Appeal from the judgment and decree dated September 29	 1953	 of the Rajasthan High Court (Jaipur Bench) in Civil Writ Application No. 28 of 1951. Gopal Singh and T. M. Sen	 for the appellants. section N. Andley	 J. B. Dadachanji and P. L. Vohra	for the respondent. January 19. The Judgment of the Court was delivered by SINHA	 C. J. This appeal on a certificate granted by the Jaipur Bench of the High Court of Judicature for Rajasthan that " the case involves a substantial question of law as to the interpretation of articles 277	 278	 294 and 295 of the Constitution of India and the case is a fit one for appeal to the Supreme Court under article 132(1) and also under article 133(1)(c) of the Constitution of India" is directed against the judgment dated September 29	 1953	 of the High Court of Judicature for Rajasthan at Jaipur to the effect that the appellant	 the Union of India	 was not entitled to levy and recover arrears of excise duty on cotton cloth for the period April 1	 1949	 to March 31	 1950	 from the respondent	 the Maharaja Krishnagarh Mills Ltd. The facts of this case	 which have not been in dispute at any stage of the proceedings	 may shortly be stated as follows. The respondent is a cloth mill located in Krishnagarh in District Jaipur in the State of Rajasthan. It had a stock of manufactured cloth on April 1	 1949	 and also manufactured cloth during the period	 April 1	 1949	 and March 31	1950. In respect of such cloth an excise duty became payable under the Rajasthan Excise Duties Ordinance	 1949 (XXV of 1949)	 at rates set forth in the schedule to the Ordinance. The sum of Rs. 1	56	291 odd became payable on that account out of which only a sum of Rs. 19	739 odd was paid to the Government of Rajasthan	 thus leaving the sum of Rs. 1	36	551 odd outstanding against the respondent. After the Indian Constitution came into effect the Central Excise and 526 Salt Act	 1944	 and the rules framed thereunder were extended to the State of Rajasthan by section 11 of the Finance Act of 1950. Hence	 the duty became payable in respect of the cloth manufactured on and from April 1	 1950	 under the provisions of that Act. The appellant claimed that as a result of the agreement between the Government of India and the State of Rajasthan	 to be noticed hereinafter in detail	 and of the Constitution	 the Union of India became entitled to realise the arrears of the excise duty in respect of the cloth manufactured by the respondent before April 1	 1950. In enforcement of that claim the Superintendent of Central Excise	 Jaipur	 served a notice dated February 16	 1951	 on the respondent demanding payment of the outstanding amount of Rs. 1	36	551 odd. The respondent thereupon filed a writ petition in the High Court of Rajasthan	 Jaipur	 under article 226 of the Constitution against (1) the Union of India	 (2) the Central Board of Revenue	 Delhi	 (3) the Collector of Central Excise for Rajasthan	 Delhi	 and (4) the Superintendent of Central Excise	 Jaipur	 who are the appellants before us	 praying for a writ of prohibition against them prohibiting them from imposing	 levying or collecting any tax or duty by way of excise as also for any appropriate direction	 order or writ. The writ petition was founded on the contentions that the notice of demand served upon the respondent as aforesaid was illegal and unauthorised on the ground (1) that the Central Government had no jurisdiction to levy any tax before January 26	 1950	 (2) that the Central Excise and 'Salt Act was not in force in Rajasthan before April 1	 1950	 and (3) that without the application of the rules framed by the Central Government under section 37 of the Central Excise and Salt Act	 1944	 to Rajasthan no duty could be imposed	 levied or collected and those rules were made applicable to Rajasthan only on December 16	 1950. On behalf of the appellants	 who were the respondents in the High Court	 it was contended that it was got correct to say that the rules framed under s	 37 527 of the Central Excise and Salt Act	 1944	 were made applicable to the State of Rajasthan by virtue of the notification dated December 16	 1950	 and it was asserted that those rules became applicable to the State of Rajasthan with effect from April 1	 1950	 as a result of section 11 of the Finance Act	 1950. It was also contended that by virtue of section 3 of Rajasthan Excise Duties Ordinance (XXV of 1949) promulgated by His Highness the Rajpramukh of Rajasthan on September 5	 1949	 excise duty was levied on cloth and other articles produced and manufactured in Rajasthan on and after April 1	 1949	 at the rates set forth in the first schedule of the said Ordinance. It was also contended that in pursuance of articles 278 and 295 of the Constitution the President of India had entered into an agreement with the Rajpramukh of Rajasthan on February 25	 1950	 whereby the parties agreed to accept the recommendations of the Indian States Finance Enquiry Committee	 1948 49	 contained in part I of its report	 read with chapters 1	 11 and III of part II of its report	 in so far as they applied to the State of Rajasthan together with the recommendations contained in Chapter VIII of part 11 of the said report. By virtue of the said agreement the Union of India became entitled to claim and recover all excise duties	 whether assessed or un assessed	 which the State of Rajasthan was entitled to recover from the respondent as from April 1	 1949	 before the Central Excise and Salt Act	 1944	 was extended to the State of Rajasthan	 as aforesaid. The matter was first heard by a Bench consisting of Ranawat and Sharma	 JJ.	 which	 in view of the importance of the points involved in the case	 referred the following two points for decision by a larger Bench by its judgment dated November 5	 1951: " 1. Whether by virtue of Articles 278	 279 and 295 of the Constitution of India and the agreement entered into between the President of India and the Rajpramukh of Rajasthan on the 25th of February	 1950	 the Union of India is entitled to levy and recover arrears of excise duty on cloth held in stock or manufactured before the 1st of April	 1950	 68 528 in case excise duty thereon was payable to the State of Rajasthan under the provisions of the Rajasthan Excise Duties Ordinance No. 25 of 1949 ? 2. Whether the publication of the Government notification by which the Jaipur Excise Rules were adopted under the provisions of the Rajasthan Excise Ordinance was sufficient publication within the meaning of section 28 of the Rajasthan Excise Duties Ordinance No. 25 of 1949	 and whether the publication of the aforesaid notification should be deemed to have been properly authenticated by authentication of the publication of the Ordinance. If not	 whether want of authentication would have the effect of invalidating the said Excise Rules ? " The case was then heard by a Full Bench consisting of Wanchoo	 C.J.	 Ranawat and Dave	 JJ. The judgment of the Court was delivered by the learned Chief Justice on November 24	 1952	 in substance upholding the contentions raised on behalf of the petitioner before the High Court	 now respondent. The High Court came to the conclusion that article 277 of the Constitution was a complete answer to the claim of the Government of India to collect the dues in question for any period anterior to April 1	 1950. This conclusion was based on the reasoning that the agreement aforesaid between the Government of India and the Government of Rajasthan was in effect overridden by article 277 and that the agreement contemplated by article 278 was in respect of a duty which was leviable by the Government of India. By virtue of article 277 of the Constitution cotton excise duty was actually leviable by the State of Rajasthan up to March 31	 1950	 because Parliament made the contrary provision only from April 1	 1950. Therefore	 it was further observed by the High Court that the effect of article 277 on Art 278 of the Constitution was that cotton excise duty could not be said to be leviable by the Government of India so far as the State of Rajasthan was concerned up to March 31	 1950. In view of that conclusion it was further held that the right to collect the arrears of excise duty in question could not be held to have been transferred to the Union of India 529 by virtue of the agreement aforesaid of February 25	 1950. The first question referred to the Full Bench was thus answered in favour of the petitioner in the High Court. The second question relating to the publication and authentication of the Excise Rules was also answered in favour of the petitioner	 now respondent. The High Court held that the Hindi Gazette relied upon on behalf of the Government did not contain any authentication of the Rules and did not show by whose authority they had been published. This conclusion was based on the ground that the contention raised on behalf of the Government that the publication in the Gazette and the authentication therein did not only apply to the Ordinance but covered the Rules also	 was not correct. The answers given by the Full Bench to the questions referred to it by the Division Bench were returned to the Bench concerned and the Bench	 in pursuance of the opinion of the Full Bench	 ordered by its judgment dated September 29	 1953	 that "a direction be issued against the opposite party not to recover from the petitioner the amount of Rs. 1	36	551 12 as per their notice of demand of the 16th of February	 1950. The petitioner shall get costs of this petition from the respondents. " The Union of India applied for and obtained the necessary certificate	 as quoted above	 from the High Court of Rajasthan. That is how the matter is before this Court. It is manifest that if the opinion of the Full Bench on the second question referred to as to the publication and authentication of the Rules is correct	 then no other question will arise for determination by this Court. It ' the Rules under the Rajasthan Excise Duties Ordinance	 XXV of 1949	 had not been properly promulgated and authenticated	 then the Ordinance by itself could not be sufficient for the levy and collection of the tax sought to be imposed. It is	 therefore	 necessary for us first to determine that controversy. At the outset	 it may be mentioned that the writ petition filed by the respondent in the High Court under article 226 of the Constitution did not allege any facts bearing on this part of the controversy. 530 Thus	 there was no foundation laid in the pleadings for a contention that the Rules aforesaid had not been promulgated on a proper authentication. As already indicated	 the petition was founded only on the lack of power in the Union Government to levy and collect the excise duty with reference to the provisions of the Central Excise and Salt Act of 1944 and the Rules framed thereunder. There is no reference to the provisions of Ordinance XXV of 1949 promulgated by the Rajasthan Government. It was only in the reply to the writ petition made by the respondent in the High Court that reliance was placed upon the said Ordinance and the Rules framed thereunder. We do not find any pleadings	 or any petition by way of amendment of the pleadings	 in the record of this case raising the contention that the Rules framed under the Ordinance aforesaid had not been promulgated on a proper authentication. The High Court	 therefore	 on the face of the pleadings	 was not justified in permitting the petitioner before it to raise this contention	 but our decision need not be rested on the lack of pleadings only. We have examined the Rajasthan Gazette	 the Hindi version of which is entitled Rajasthan Raj Patra published by authority of the Rajasthan Government dated Margashirsa Krishna 7	 Saturday	 Samvat 2006	 containing the notification dated Jaipur	 September 15	 1949	 the preamble of which states that Shriman Rajpramukh had made and promulgated the following Ordinance which was being published for the information of the public and it purports to have been authenticated by the Law Secretary	 Sanyukta Rajasthan Sarkar. Under that authentication follows the Ordinance	 XXV of 1949	 dated September 5	 1949. The Ordinance goes to the end of page 169 and from the next page 170 ending with page 172 appear the Rules. They begin with the declaration which may be translated as follows: " In exercise of the powers conferred under sections 5 and 26 of the Rajasthan Excise Duties Ordinance of 1949 the Rajasthan Government orders that till new Rules are framed under the said Ordinance	 the Rules framed under the Jaipur Excise Duties Act 531 of 1945 known as the Jaipur Excise Duty Rules of 1945 will be in force throughout the whole of Rajasthan with necessary modifications and for this purpose will be treated as made under the Rajasthan Ordinance. " It would thus appear that the authentication by the Law Secretary appearing on the first page of the Gazette as aforesaid was intended to govern not only the Ordinance in question but also the Rules which had been promulgated thereunder. Apparently	 section 28 of the Ordinance which ran " All rules made and notifications issued under this Ordinance shall be made and issued by publication in the Rajasthan Gazette. All such rules and notifications shall thereupon have effect as if enacted in this Ordinance " was understood to authorise such a mode of promulgation and authentication. The authority that promulgated the rule having intended the signature of the Law Secretary appearing at the beginning of the publication as an authentication of the rules	 we are of opinion that the formal requirements of section 8 (2) of the Ordinance V of 1949 were satisfied. Whether the authentication appears in the beginning of the notification or at the end of it is not material so long as it is clear on a reference to the publication in the Gazette that the matter is substantially covered by the authentication	 whether appearing at the beginning or the end of the notification. The High Court	 therefore	 was in error in coming to the conclusion that the authentication covered the Ordinance proper without the Rules framed thereunder. The correct conclusion from the record as it stands is that the authentication covers the entire notification including both the Ordinance proper and the Rules framed thereunder which became parts of the Statute. In view of this conclusion it becomes necessary now to examine the ratio of the decision of the High Court on the first question referred to it	 namely	 the authority of the Union of India to realise the arrears of the duty in question. It is clear in view of our conclusion 532 that the Ordinance and the Rules framed thereunder have been properly promulgated in the Official Gazette	 that the Government of Rajasthan was entitled to levy and collect the duty of excise in respect of. cotton cloth from the respondent. As a matter of fact	 the respondent appears to have paid about Rs. 19	739 odd out of the duty payable by it to that Government. The remaining amount for which the notice of demand had been issued by the official of the Government of India was certainly payable to the Government of Rajasthan. We have	 therefore	 to consider whether the Government of India by any process of law stepped into the shoes of the Rajasthan Government in respect of the arrears aforesaid. In this connection reliance was placed on the agreement between the President of India and the Rajpramukh of Rajasthan dated February 25	 1950. The relevant provisions of the agreement are these: " Whereas provision is made by Articles 278	 291	 295 and 306 of the Constitution of India for certain matters to be governed by agreements between the Government of India and the Government of a State specified in Part B of the First Schedule to the Constitution. . Now	 therefore	 the President of India and the Rajpramukh of Rajasthan have entered into the following agreement	 namely: The recommendations of the Indian States Finance Enquiry Committee	 1948 49 (hereafter referred to as the Committee) contained in Part I of its Report read with Chapters 1	 11 and III of Part 11 of its Report in so far as they apply to the State of Rajasthan (hereafter referred to as the State) together with the recommendations contained in Chapter VIII of Part 11 of the Report	 are accepted by the Parties hereto	 subject to the following modifications	 namely. . The modifications are not material to this case. The agreement thus incorporates as terms of the agreement the report of the Committee	 the relevant portion of which is in these terms: 533 " With effect from the prescribed date	 the Centre will take over all 'federal ' sources of Revenue and all 'federal ' items of expenditure in State together with the administration of the Departments concerned. The Centre must also take over all current out standings (including pending assessments	 refunds	 and arrears)	 liabilities	 claims	 etc.	 and all productive and unproductive capital assets connected with these Departments. " It is common ground that "federal sources of revenue" include the duty of excise in question. It is also clear that all outstanding dues from assessees including pending assessments and arrears have been by the terms of the agreement made over to the Centre. This agreement	 as the preamble itself indicates	 has been made in accordance with the provisions of articles 278 and 295 of the Constitution. The relevant portions of article 278 are as under: " 278. (1) Notwithstanding anything in this Constitution	 the Government of India may	 subject to the provisions of clause (2)	 enter into an agreement with the Government of a State specified in Part B of the First Schedule with respect to (a) the levy and collection of any tax or duty leviable by the Government of India in such State and for the distribution of the proceeds thereof otherwise than in accordance with the provisions of this Chapter;. and	 when an agreement is so entered into	 the provisions of this Chapter shall in relation to such State have effect subject to the terms of such agreement. " It is noteworthy that the provisions of article 278 override pro tanto other provisions of the Constitution including article 277 and the terms of the agreement override the provisions of the Chapter	 namely	 Chapter I of Part XII. In this Chapter are contained articles 264 to 291. Thus	 on a construction of the pro. visions of articles 277 and 278	 it is clear that in the absence of any agreement between the Government of India and the Government of a State specified in Part B	 duties of customs which immediately before 534 the commencement of the Constitution were being lawfully levied by the Government of such a State continue to be levied by that State until provision to the contrary is made by Parliament by law	 notwithstanding that such a duty is mentioned in the Union List. Article 277	 therefore	 is in the nature of a saving provision permitting the States to levy a tax or a duty which	 after the Constitution	 could be levied only by the Centre. But article 277 must yield to any agreement made between the Government of India and the Government of a State in Part B in respect of such taxes or duties	 etc. The pro. vision to the contrary contemplated by article 277 was made by the Finance Act	 XXV of 1950	 section 11	 which extended the Central Excise and Salt Act	 1944	 along with other Acts to the whole of India except the State of Jammu and Kashmir. But that section has effect only from April 1	 1950	 and therefore does not apply to the arrears of duty of excise now in controversy. The agreement envisaged by article 278 was entered into as aforesaid on February 25	 1950. That agreement conceded to the Centre the right to levy and collect the arrears of the duty in question. The reasons given by the High Court for the conclusion that in spite of article 278 read with the agreement aforesaid	 the Union Government was not entitled to realise the arrears are (1) that the agreement does not contain any specific provision about levy and collection of cotton excise duty in Rajasthan	 (2) that the mere approval in the agreement of the principles set out in the report is not enough in view of article 277 which made a distinctly different provision from that contemplated in the report and (3) that the agreement could be only with respect to a duty which was leviable by the Government of India. In our opinion	 none of these reasons aforesaid can stand in the way of the Union of India. Though the agreement does not in terms refer to levy and collection of cotton excise duty in Rajasthan	 it is clear that the agreement has to be read with the relevant portions of the report quoted above. So read	 there cannot be the least doubt that cotton excise duty in Rajasthan	 as a " federal 535 source of revenue	 is also covered by the agreement. Nor is it correct to say that the agreement read with the report is not enough to override the provisions of article 277. The agreement read with article 278, as already indicated, in terms, overrides the provisions of article 277. The only other reason which weighed with the High Court in getting over the terms of article 278 cannot also hold good. That a duty of the kind now in controversy on the date of the agreement after coming into force of the Constitution is leviable only by the Government of India even in respect of the State of Rajasthan is clear beyond all doubt. The Union List only, namely, entry 84 in the Seventh Schedule, authorises the levy and collection of the duty in question. Neither the State List, List II, nor the Concurrent List, List III, contains any such authorisation. It is true that article 277 has saved, for the time being, until Parliament made a provision to the contrary, the power of the State of Rajasthan to levy such a duty, but that is only a saving provision, in terms subject to the provisions of article 278. Thus, the combined operation of articles 277 and 278 read with the agreement vests the power of levy and collection of the duty in the Union of India. It is only in the absence of an agreement like the one we have in this case that the Rajasthan Government could continue to levy and collect the duty in question. The agreement between the two Governments completely displaced the operation of article 277 in regard inter alia to the levy of this duty so far as the State of Rajasthan is concerned. It is clear, therefore, that the High Court was in error in holding that Art,. 277 was any answer to the claim of the Government of India and should override the provisions of article 278 read with the agreement. On a proper construction of these provisions, in our opinion, the result is just to the contrary. In this view of the matter, it is not necessary to consider the other arguments advanced on behalf of the appellants, whether article 295 should prevail over article 277. For the reasons aforesaid, this appeal is allowed and the decision of the High Court set aside. The result 69 536 is that the writ petition filed by the respondent in the High Court stands dismissed with costs here and in the High Court. Appeal allowed. 
1110	Appeal No. 84 of 1958. Appeal by special leave from the judgment and order dated December 22/23, 1955, of the Calcutta High Court in I.T.R. No. 24 of 1953. N. C. Chatterjee, D. P. Pal and D. N. Mukherjee for the appellant. Hardayal Hardy and D. Gupta, for the respondent. January 17. The Judgment of the Court was delivered by SHAH, J. Messrs. National Cement Mines Industries Ltd. hereinafter referred to as the appellants are a public limited company incorporated to  carry on the 65 504 business of cement and lime manufacture and also of limestone supply and for the purposes of such businesses to acquire rights and concessions pertaining to limestone	 coal and surface lands from the Dewar khand Karanpura Mines and Industries Ltd." and also to " work mines or quarries and to find	 win	 get	 work	 etc. or otherwise deal with clay and bauxite." Dewarkhand Karanpura Mines and Industries Ltd. hereinafter called the " Karanpura Company " had obtained three leases on November 29	 1930	 first for mining limestone from Maharaja Pratap Narain Udai Nath Shah Deo from limestone beds in certain villages in Dewarkhand	 second from Maharaj Kumar Nand Kishore Nath Shah Deo of the surface rights neces. sary to exercise the powers and privileges in respect of the first lease and the third from Maharaj Kumar Raj Kishore Nath Shah Deo of surface rights in respect of Hoyer village. The period in each of the three leases was thirty years. On March 17	 1932	 the Karanpura Company conveyed the rights and options under the three leases to the appellants. On September 30	 1934	 the appellants acquired the limestone and surface rights in respect of limestone beds in village Umedanda for 95 years from Maharaja Pratap Narain Uday Nath Shah Deo and Maharaj Kumar Raj Kishore Nath Shah Deo. On the same date	 the appellants entered into two agreements	 one with Maharaja Pratap Narain Uday Nath Shah Deo which is called the 	bauxite option agreement " thereby acquiring the first option to take a lease or leases of any area or areas of bauxite deposits in certain villages	 and another from the said Maharaja for the first option to take a lease or leases of limestone beds in the Tori District. By a fourth agreement also dated September 30	1934	 between the Karanpura Company	 Maharaja Pratap Narain Udai Nath Shah Deo acting with the consent of Maharaj Kumars Raj Kishore Nath Shah Deo and Nand Kishore Nath Shah Deo	 the royalties reserved under the original deeds dated November 29	 1930	 were reduced and the periods of the leases were extended to 99 years from the date of the original leases	 505 By deed dated May 7	1935	 the appellants conveyed to Dewarkhand Cement Company Ltd. (which later came to be known as Associated Cement Ltd. and will be referred to hereinafter by that name) the benefits of the four leases and the two agreements for the unexpired periods. By this deed	 for a present consideration of Rs. 25	000 " for trouble and expenses in obtaining the leases and agreements " and for further payment under several covenants which will be presently set out	 the appellants conveyed the rights vested in them subject to certain reservations. In the year of account June 1	 1944	 to May 31	 1945	 the appellants received from the Associated Cement Ltd. under the first covenant of the deed	 Rs. 77	820 being the amount computed at the rate of 0 13 As. per ton of cement manufactured from limestone won from the lands and sold by the company. The Income tax Officer	 Companies District 1	 Calcutta	 included this amount in the total assessable income of the appellants in the assessment year 1946 47. This order was confirmed in appeal by the Appellate Assistant Commissioner and by the Income tax Appellate Tribunal. At the instance of the appellants	 the Tribunal referred the following question with another not material for this appeal to the High Court of Judicature at Calcutta: " Whether on a proper construction of the Deed of Assignment dated 7th of May	 1935	 and on the facts and in the circumstances of this case	 the Tribunal was right in holding that	 the sum of Rs. 77	820 represented a receipt of a revenue nature in the hands of the Applicant and assessable as such The following facts were held proved by the Tribunal. The principal objects of incorporation of the appellants were to carry on the business of manufacturing cement and lime and sale of limestone and the appellants were formed with the object of acquiring the rights and concessions of the Karanpura Company. By their Memorandum of Association	 the appellants were authorised to sell or dispose of the undertakings or any part thereof as they thought fit	 506 and to sell	 lease	 mortgage	 dispose of	 turn to account or otherwise deal with all or any part of their property and rights and in pursuance of these objects the rights and concessions of the Karanpura Company were acquired and extension of leases and concessions were obtained and were transferred to the Associated Cement Ltd. The appellants were therefore carrying on in the year of account 1944 45 the business for which they were incorporated. After reciting the prefatory clauses	 it was stated in the deed: "WHEREAS it was agreed inter alia that the Purchaser should pay to the Vendor the sum of Rupees twenty five thousand for trouble and expenses in obtaining the leases and agreements dated the thirtieth day of September one thousand nine hundred and thirty four hereinbefore recited and hereinafter expressed to be hereby transferred and Whereas the Purchaser hath paid to the Vendor the said sum of rupees twenty five thousand as the Vendor doth hereby acknowledge NOW THIS INDENTURE WITNESSETH that in con. sideration of the covenants on the part of the Purchaser hereinafter contained the Vendor hereby grants assigns and transfers unto the Purchaser and the Karanpura Company at the request and by the direction of the Vendor hereby grants assigns transfers and confirms unto the Purchaser:". The deed then proceeds to set out the description of the various leases and concessions and agreements and the covenants which the Associated Cement Ltd. undertook in favour of the appellants. These covenants are: (1) That it will pay to the Vendor a sum equal to thirteen annas in respect of every ton of cement sold by it which shall have been manufactured from the limestone won by it from the lands hereby transferred and comprised in the hereinbefore recited leases and agreements. (2) That it will not sell any Fluxstone won by it from the said lands to the Tata Iron and Steel Company Ltd.	 at a price less than Rupees one and annas 507 fourteen per ton F. O. R. the siding nearest to the quarry or place from which it shall be won without the consent of the Vendor. (3) That it shall pay to the Vendor one half the profit( if any) which it shall make by selling Fluxstone to the Tata Iron & Steel Company Ltd.	or to any other person such profits to be ascertained after deduction from the price received all costs	 charges and expenses including the royalty payable to the Maharaja in respect thereof but before educting overhead charges. Such accounts to be closed and adjusted on the thirtieth day of June and the thirty first day of December in each and every year. (4) That it will not grant to the Tata Iron & Steel Company Ltd.	 the right to quarry and remove Fluxstone from the lands hereby transferred at a royalty of less than ten annas per ton	 and will pay to the Vendor one half of any royalty so charged and received. (5) That in the event of the payments made under clauses one	 three and four above in any one year not amounting to the minimum hereinafter set out the Purchaser shall pay in lieu and in full discharge there for the following minimum: (a) During the first year to be computed from the first day of January one thousand nine hundred and thirty five	 rupees ten thousand. (b) During the second year rupees thirty thousand. (c) During every subsequent year rupees fifty thousand. Out of the above minimum payment of rupees fifty thousand per year for the purposes of account	 the sum of rupees twenty thousand shall be deemed to have been paid in respect of payment under clause three above. (6) That the Purchaser or the persons deriving title under the Purchaser will at all times from the date hereof duly pay all rents	 royalties and payments becoming due under the (four) hereinbefore recited Indenture of Lease (	subject as regards the Limestone lease to the modifications effected by the agreement for 508 reduction of royalty dated the thirtieth day of September one thousand nine hundred and thirty four hereinabove recited) in respect of the premises agreements options rights or benefits hereby assigned and transferred and observe and perform the covenants agreements stipulations and conditions therein contained and henceforth on the part of the Lessee or grantee to be observed and performed in respect of the aforesaid premises or under the said Bauxite agreement or under the said Tori Option agreement or under the said agreement for reduction of royalty And also will at all times from the date hereof save harmless and keep indemnified the Vendor its successors and assigns from and against all proceedings costs claims and expenses on account of any omission to pay the said rent	 royalty or payments or any breach of any of the said covenants agreements stipulations and conditions. (7) That the Purchaser will not work raise remove or use stone or clay in the properties comprised in the leases and agreements hereby transferred to it for making lime. (8) That the Purchaser shall not by any of its actions or omissions cause leases and agreements	 mentioned above and in respect of properties hereby transferred	 to be determined	 or the rights thereunder	 including the right of renewal	 to be prejudiced. (9) That in areas comprised in the leases and agree. ments hereinabove expressed to be hereby assigned and not containing limestone the Vendor 's rights under leases and agreements from the Maharaja of Chotanagpur or Maharaj Kumar Nand Kishore Nath Shah ' Deo other than the leases and agreements above referred to shall not be jeopardised or affected by this Indenture. (10) That the clay and shales lying within areas	 which do not contain Limestone	 can be removed and utilised by the Vendor for all purposes except that of cement manufacture. The deed then proceeded after setting out certain other covenants: 509 " AND IT IS HEREBY EXPRESSLY AGREED AND DECLARED that if the Limestone within the areas comprised in the Leases hereby transferred available for manufacturing cement is exhausted the Purchaser will be entitled to determine this Indenture on giving to the Vendor six months ' notice in writing in which case the Purchaser	 if so required	 will retransfer the leases and agreements aforesaid. " By clauses (1)	 (3) and (4)	 the Associated Cement Ltd. undertook to make certain payments to the appellants. By cl. (1) they agreed to pay 0 13 As. for every ton of cement manufactured from the limestone won from the lands and sold; by el. (3)	 the Associated Cement Ltd. agreed to pay half the profits which they made by selling Fluxstone to the Tata Iron & Steel Co.	 or to any other person; and by el. (4)	 they agreed to pay half the royalty received from the Tata Iron & Steel Company for the right to quarry and remove fluxstone from the lands. By clause (5)	 provision was made for minimum payment in the event of the aggregate under cis. (1)	 (3) and (4) not reaching the sums specified therein. Clauses (2)	 (4)	 (7)	 (8) and (9) were in the nature of restrictive covenants. By cl. (2)	 the Associated Cement Ltd. were prohibited from selling any fluxstone won from the lands to the Tata Iron & Steel Company for less than Re. 1 14 As. per ton F. O. R. By cl. (4)	 an obligation not to convey the right to quarry and remove fluxstone for royalty less than 0 10 As. per ton was imposed. By el. (7) the Associated Cement Ltd. undertook not to remove or use or allow any one to raise work	 remove or use stone or clay in the lands. By cl. (8)	 the Associated Cement Ltd. undertook not to do any acts or omissions causing the leases and agreements to be determined or the rights thereunder to be prejudiced. By cl. (9)	 rights of other persons under leases and agreements in lands not containing limestone were not to be affected. By el. (10)	 the right of the appellants to utilise clay and shale lying within the areas not containing limestone except for the purpose of manufacturing cement was retained	 There were certain exceptions 510 to this and the ninth clause whereby the Associated Cement Ltd. were entitled to excavate	 use or remove all kinds of clays in and from the areas within the boundary lines marked in the plan and they were also authorised to make permanent structures and use certain strips of lands. By el. (6) the Associated Cement Ltd. agreed to pay rent stipulated under the original leases and agreements and also undertook to keep indemnified the appellants from and against all proceedings	 costs	 claims and expenses on account of any omission to pay the rent royalty or payments or any breach of any of the covenants agreements and the leases. There was also the covenant authorising the Associated Cement Ltd. to terminate the deed in the event of limestone in the land comprised in the leases being exhausted. The appellants undoubtedly did not part with all their rights in favour of the Associated Cement Ltd. by this deed dated May 7	 1935. The consideration under the deed consisted of a fixed component and annual payments fluctuating with the business activity of the Associated Cement Ltd. A fixed amount of Rs. 25	000 was paid " for trouble and expenses in obtaining the leases and agreements " and additional payments were to be made under cls. (1)	 (3) and (4) subject to the minimum prescribed by el. It is difficult to categorise a transaction of this character. It is not a conveyance of all the rights of the appellants nor can it be regarded as a sale even of the rights which were conveyed. Numerous restrictions were imposed by the deed upon the rights of the transferee which were inconsistent in their very nature with the character of a sale	 and the covenant authorising termination of the deed in the event of the limestone being exhausted removes all doubt in that behalf. Nor is it a lease : it is not a transfer of a right to enjoy property for a certain time in consideration of periodical payments. It also does not evidence a transaction in the nature of a joint venture between the appellants and the Associated Cement Ltd. Cement was to be manufactured by the Associated Cement Ltd	 out of limestone to be won from the lands 511 and in consideration of the rights conveyed	 payments at specified rates were agreed to be made out of the price to be obtained by sale of cement	 fluxstone and limestone. The appellants had no control over the production of limestone and manufacture of cement	 or on the sale of fluxstone and limestone. But in assessing the true character of the receipt for the purpose of the Income tax Act	 inability to ascribe to the transaction a definite category is of little consequence. It is not the nature of the receipt under the general law but in commerce that is material. It is often difficult to distinguish whether an agreement is for payment of a debt by instalments or for making annual payments in the nature of income. The court has	 on an appraisal of all the facts	 to assess whether a transaction is commercial in character yielding income or is one in consideration of parting with property for repayment of capital in instalments. No single test of universal application can be discovered for solution of the problem. The name which the parties may give to the transaction which is the source of the receipt and the characterization of the receipt by them are of little moment	 and the true nature and character of the transaction have to be ascertained from the covenants of the contract in the light of the surrounding circumstances. The decision of the question is however not left to the application of any arbitrary standards. There are certain broad principles which guide the determination of the character of the receipt. The distinction between a capital receipt and revenue receipt though fine is real. The dividing line may be thin	 and often at first sight imperceptible. Where capital is repaid in instalments	 it is not liable to income tax; for instance when a person sells his property and agrees to receive the price stipulated in instalments	 by whatever name such instalments are called	 they are not liable to income tax see Foley vs Fletcher (1)	 Secretary of State in Council of India vs Andrew Scoble (2)	 Oswald vs Kirkcaldy Magistrates and Commissioners of Inland Revenue vs Ramsay (4). (1) ; (2) ; (3) (4) 66 512 But where property is conveyed in consideration of what in truth is annuity payable for a definite or a definable period	 the annuity is not payment on capital account and is taxable see State of Bihar vs Sir Kameshwar Singh (1)	 Captain Maharajkumar Gopal Saran vs Commissioner of Income tax	 Bihar and Orissa (2)	 Chadwick vs Pearl Life Assurance Co. (3). Again	 if property is conveyed in consideration of periodical payments	 the payment being a share of profits of a business or profession (William John) Jones vs Commissioners of Inland Revenue(4)	 or a mineral royalty depending upon the quantity of minerals raised Raja Bahadur Kamakshya Narain Singh of Ramgarh vs Commissioner of Income tax	 Bihar and Orissa (5)	 or computed on sales of manufactured articles Commissioners of Inland Revenue vs 36149 Holdings	 Ltd. (6)	 or a percentage of gross profits made in the exploitation of a secret process Delage vs Nugget Polish Co.	 Ltd. (7)	 is income and taxable. Counsel for the appellants submitted that the receipt under clause (1) of the terms of the deed dated May 7	 1935	 was in the nature of capital payment and relied upon certain decisions in support of that submission. In Minister of National Revenue vs Catherine Spooner(8)	 decided by the Judicial Committee of the Privy Council in an appeal from the Supreme Court of Canada	 the respondent Catherine Spooner had sold her rights	 title and interest in land owned by her in freehold to a company in consideration of a certain sum in cash	 besides shares of the company	 and an agreement to deliver 10% of oil produced from the land on which the company covenanted to carry out drilling and	 if oil was found	 pumping operations. These were described as royalties. Oil was struck in the lands and the respondent was paid 10 of the gross proceeds of the oil produced in lieu of oil. The (1) (5) (1943) L.R. 70 I.A. 180. (2) (6) (3) (7) (1906) 2r Times Law Reports 454. (4) 10 (8) 	 513 Supreme Court of Canada held that the sum so received was not an annual profit or gain within the meaning of section 3 of the Income War Tax Act	 but a receipt of a capital nature and therefore not chargeable to tax. According to the Judicial Committee	 there was between the respondent and the company no relation of lessor or lessee: the transaction was one of sale and purchase	 and the transaction had taken the form which it did because of the uncertainty whether oil would be found by the purchaser. As the value of the land depended on this contingency	 the price	 not unnaturally was made to depend in part on the event of oil being struck. The judgment lays down no new principle; it proceeded merely upon interpretation of the document in the light of the circumstances. In Trustees of Earl Haig vs Commissioners of Inland Revenue (1)	 the question which fell to be determined was whether a share of the royalties received in consideration of allowing the use of the diaries of the late Earl Haig for writing his biography were	 in the hands of the trustees under the will of Earl Haig	 capital receipts. That was undoubtedly a case in which payments received by the trustees were dependent upon the professional activities of the author and the proceeds derived from the sales of the biography he wrote. By the agreement	 the author was authorised to extract and publish from the diaries what he thought fit. The diaries were undoubtedly an asset	 and after they were used by the author for publication of the biography	 their value as an asset was	 if not wholly	 largely exhausted and their future value was negligible. The agreement was therefore regarded as conveying an asset in its entirety to the author in consideration of a share in the royalties and the receipt of this share was regarded as receipt of capital. That decision proceeded upon the special character of the agreement and the nature of the asset transferred and did not seek to lay down any general principle. In Nethersole vs Withers (2)	 N who had acquired under an agreement the exclusive right to dramatise (1) (2) 514 a novel of Rudyard Kipling received under an agreement with the widow of the author	 a third share of a lump sum for which the sound and film rights were granted exclusively to a film company for a period of ten years. The film right of a comprehensive character having been granted by the legal representative of the author against payment of the sum stipulated	 the question arose whether the payment received by N was taxable under the Income Tax Act under Case II of Schedule D or under case VI of Schedule D. It was held that N having ceased to be the owner of the portion of the copyright she had assigned	 the proceeds were not annual profits or gains within the meaning of Schedule D	 Case VI. That was a case in which N had wholly sold and disposed of a part of the property and the amount received by her was the price paid in lump and was not in the nature of income. That case also proceeded upon the special character of the transaction. The case of The Commissioners of Inland Revenue vs The Marine Steam Turbine Co.	 Ltd. (1) on which reliance was sought to be placed by counsel for the appellants needs no detailed consideration. In that case	 a company which was on the facts found not carrying on a trade or business was held not assessable to Excess Profits Duty	 because the condition of liability was the carrying on of trade or business. The appellants had however not sold the entirety of the rights acquired by them from the Karanpura Company. The conveyance was subject to several restrictions and the appellants retained in part rights in the land conveyed. The transaction was substantially a commercial transaction for sharing the profits of the commercial activities of the Associated Cement Ltd. The High Court was therefore right in holding that the transaction dated May 7	 1935	 was a commercial transaction and the payment under cl. (1) thereof at the rate of 0 13 as. 'per ton of cement sold was of the nature of income and not capital. In that view of the case	 the appeal fails and is dismissed with costs. Appeal dismissed. (1) ; [1920] I K.B. 193.

Summary:
The question for determination in the appeal was whether the Union of India was entitled to levy and recover arrears of excise duty on cotton cloth for the period April 1	 1949	 to March 31	 1950	 payable by the respondent	 a cloth mill in the State of Rajasthan	 under the Rajasthan Excise Duties Ordinance	 1949. After the coming into force of the Indian Constitution and the extension of the Central Excise and Salt Act	 1944	 and the rules framed thereunder to the State of Rajasthan by section II of the Finance Act of 1950	 the duty in respect of cloth manufactured on and from April 1	 1950	 became payable under that Act. The appellant Union	 however	 claimed that as a result of the agreement entered into on February 25	 1950	 by the President of India with the Rajpramukh of Rajasthan under article 278 and article 295 of the Constitution	 the Union of India became entitled as from April 1	 1950	 to claim and recover all arrears of excise duties which the State of Rajasthan was entitled to recover from the respondent before the Central Excise and Salt Act	 1944	 was extended to Rajasthan. Notice having been accordingly served on the respondent demanding payment of the outstanding amount of Rs. 1	36	551 12 as payable by it	 it moved the High Court under article 226 of the Constitution. On a reference by the Division Bench which heard the matter in the first instance	 the Full Bench finding in favour of the respondent held that article 277 was a complete refutation of the said claim by the Union and article 278 and the said agreement were overridden by it. Held	 that the provisions of articles 277 and 278 of the Con stitution	 properly construed	 leave no manner of doubt that article 277 was in the nature of a saving provision	 subject in terms to the provisions of article 278	 permitting the States to levy a tax or duty which	 after the Constitution could be levied only by the centre. But article 277 had to yield place to any agreement in respect of such taxes and duties made between the Union Government and the Government of a Part B State under article 278. Since there could not be the least doubt in the instant case that the agreement between the President and the Rajpramukh of Rajasthan conceded to the Union the right to levy and collect the arrears of the cotton excise duty in Rajasthan	 the High Court was wrong in taking a contrary view of the matter.