<NAME>, J.

1. The following questions have been referred to this court at the instance of the <ORG> under section 256 of the Income-tax Act, 1961:

"For the assessment year 1968-69:

(1) Whether, on the facts and in the circumstances of the case, the <ORG> was justified in allowing the deduction for expenditure of Rs. 8,400 being the rent of the guest house, under section 30 of the Income-tax Act, 1961, for the assessment year 1968-69 ?

(2) Whether, on the facts and in the circumstances of the case, the <ORG> was right in holding that the assessee was entitled to deduct the expenditure of Rs. 6,060 for the maintenance of the guest house under section 37(3) of the Income-tax Act, 1961, for the assessment year 1968-69 ?

For the assessment year 1969-70:

(1) Whether, on the facts and in the circumstances of the case, the <ORG> was justified in allowing the deduction for expenditure of Rs. 4,200 being the rent of the guest house, under section 30 of the Income-tax Act, 1961, for the assessment year 1969-70 ?

(2) Whether, on the facts and in the circumstances of the case, the <ORG> was right in holding that the assessee was entitled to deduct the expenditure of Rs. 2,770 for the maintenance of the guest house under section v of the Income-tax Act , 1961, for the assessment year 1969-70 ?

(3) Whether, on the facts and in the circumstances of the case, the <ORG> erred in law in holding that the sum of Rs. 22,275 was not assessable under section 41(1) for the previous year relevant to the assessment year 1969-70 ?"

2. The first two questions raised for the assessment year 1969-70 are identical to those raised for the assessment year 1968-69 except for the amounts mentioned therein. Counsel are agreed that the two common questions are covered by this court's judgment in the assessee's own case for the assessment year 1967-68 in Income-tax Reference No. 99 of 1976, dated November 18, 1988 (see [1989] 177 ITR 124) and that following the said judgment both the common questions have to be answered in the affirmative and in favour of the assessee.

3. Accordingly, the common questions are so answered.

4. Facts pertaining to the third question relating to the assessment year 1968-70 are: The assessee-company credited a sum of Rs. 79,492 to its profit and loss appropriation account. Out of this amount, the assessee conceded that it was liability to pay tax on Rs. 49,959. As regards the balance amount of Rs. 22,275 the assessee-company admitted that this amount represented commission payable to BE <NAME> in an earlier year, the amount was allowed as deduction. The commission was not claimed by <NAME> for the past many years. During the previous year, the assessee-company debited <NAME>'s account and credited its profit and loss appropriation account. Yet, the assessee-company claimed that the amount was not taxable despite the fact that it was written off in the aforesaid manner. The assessee's contention that the act of writing off on its part did not amount to remission or cessation of its liability which was the requirement of section 41(1) of the Income-tax Act, 1961, was rejected by the Income-tax Officer who brought the aforesaid amount of Rs. 22,275 to tax under section 41(1) . The Appellate Assistant Commissioner confirmed the inclusion of the amount under section 41(1) . On further appeal, however following its earlier order in the assessee's won case for assessment year 1967-68, the <ORG> accepted the assessee's case that the amount of Rs. 22,275 was not taxable as its income under section 41(1) of the Income-tax Act, 1961. According to the <ORG>, its conclusion was fortified by this court's decisions in <CITATION>  49 ITR 578, <CITATION>  54 ITR 167 and <CITATION>  62 ITR 34.

5. <NAME>, learned counsel for the <ORG>, submitted that the <ORG> had not appreciated the decision of this court properly. When certain expenses were allowed as deduction in the past, such amount of expenses is deemed to be the assessee's income under section 41(1) of the Income-tax Act as soon as and to the extent there is remission or cessation of liability in respect thereof. The only question requiring consideration was whether the assessee's liability still continued. In this context, he stated that the assessee's conduct in written off the liability by debiting the account of <NAME> and crediting correspondingly the profit and loss appropriation account clearly indicated that it had no intention of making payment to <NAME> even if it was demanded.

6. According to <NAME>, the legislative intention as regards this provisions was clear. It was to tax such amounts which were allowed as deductions and which were ultimately not paid and were not to be paid by the assessee. Assuming there was some lacuna in the provisions of section 41(1) , he submitted, this court should fill up the lacuna by supplying necessary words in the provisons. In support of his contention, <NAME> relied on number of decisions of this court and other <ORG> to which we propose to refer in the course of our judgment.

7. <NAME>, learned counsel for the assessee, on the other hand, reiterated the reasons given in support of the conclusion. In particular, he urged that the question was squarely covered by the decision of this court referred to by the <ORG> in its order in the assessee's favour. He brought to our notice other decisions of this court and other decisions of this court and other <ORG> which, accordingly to him, supported the <ORG>'s order. We shall make reference to those judgments also to the extent necessary in the course of the judgment.

8. Section 41(1) of the Income-tax Act, 1961, reads thus:

"41(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof the amount obtained by him or the value of benefit accruing to him, shall be deemed to the profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not."

9. Broadly speaking, the sub-section applies only if, (i) an allowance or deduction had been made in the assessment for any year in respect of the loss. Expenditure or trading liability incurred by the assessee and (ii) in subsequent years, the assessee had obtained any benefit in respect of the amount so allowed as deduction by way of remission or cessation. As regards the first condition, admittedly, the amount of Rs. 22,275 represented commission claimed as payable by the assessee to <NAME> in one of the past assessment years and the assessee's claim for deduction was allowed went a credit entry was made in favour of <NAME>. As regards the second condition, there is, of course, a dispute between the parties. According to the <ORG>, the liability being barred by limitation and the assessee having written it off by correspondingly crediting its profit and loss appropriation account, ceased or got remitted within the meaning of section 41(1) of the Act. The assessee contends that it is not so. When a liability is barred by limitation, what happens is that the remedy of the creditor is barred. The liability of the debtor (in this case the assessee) is never barred so long as he had the intention of honoring the liability.

10. For appreciation of the rival contentions in this regard, it is desirable to first refer to the judgments of this court railed upon before us. The first judgment cited is in the case of <CITATION>  49 ITR 578. In that case, the income-tax authorities had concluded the amount of Rs. 30,190 in the income of the assessee on the ground that the liability pay had ceased by reasons of the expiry of the period of three years. The assessee had not written off the liability in its accounts. It was on these facts that this court held that merely because the remedy of the creditors to recover the amount is barred, the assessee's liability did not cease and that, therefore, the amount was not taxable under the provision of section 10(2A) of the Income-tax Act, 1922, corresponding to section 41(1) of the Income-tax Act, 1961. The second decision is <CITATION>  62 ITR 34. In this case, certain amounts were add owed as deduction in the past in respect wages, salary an bonus payable to the employees. The liabilities in respect thereof were written off during the previous year, the remedy was apparently barred by limitation. The <ORG>'s contention that the liabilities had ceased and section 10(2A) of the 1922 Act (corresponding to section 41(1) of the new Act) was applicable was rejected by this court observing at page 41 as under:

"....... The question to be considered is whether the transfer of these entries about a remission cessation of its liability. The transfer of an entry is a unilateral act of the assessee, who is a debtor to its employees, we fail to see how a debtor, by his own unilateral act, can bring about the cessation or remission of his liability. Remission has to be granted by the creditor. It is not in dispute, and it indeed cannot be disputed, that it is not a case of remission of liability. Similarly, a unilateral act on the part of the debtor cannot bring about a cessation of his liability. The cessation of the liability may occur either by reason of the operation of law, i.e., on the liability becoming unenforceable at law by the creditor and the debtor declaring unequivocally his intention not to honor his liability when payment is demanded by the creditor, or a contract between the parties, or by discharge of the debt - the debtor making payment thereof his creditor. Transfer of an entry is neither an agreement between the parties not payment of the liability."

11. Thus, this court, in its above judgment, held that the cessation of the liability may occur either (i) by reason of operation of law, i.e., on the liability being unenforceably at law by the are creditor and the debtor declaring unequivocally his intention not to honour his liability when payment is demanded by the creditor, or (ii) by contract between the parties, or (iii) by discharge of the debt - the debtor making payment thereof his creditor. There are, thus, three alternative situations contemplated in this decision which would result in the cessation of the liability. However, in that case, the liability pertained to wages, salaries and bonus due by an employer to his employees in an industry so much so that the provisions of the Industrial Disputes Act were attracted and consequently the bar of limitation did not come in the way of the employees. In these circumstances, this court held that there was no cessation of the liabilities and, therefore the amounts could not be treated as income of the assessee under section 10(2A) of the Indian Income-tax Act, 1922.

12. <CITATION>  102 ITR 428, this court held that neither remission not cessation of liability could take place by unilateral act on the part of the debtor and, therefore, merely because the amount was transferred from "unclaimed balances account" to "reserve for taxation account" it will not become taxable under section 10(2A) of the Act of 1922. That the decision was given on the facts of that case is evident from the emphasis laid on the fact that some payments were made out of these accounts as and when demanded by the parties and for this reasons the transfer of amounts from "unclaimed balances account" to "reserve for taxation account" did not mean cessation of liability. The question involved in the case of <CITATION> .  149 ITR 604, was not regarding the remission or cessation of liability at all. It was whether the surplus deposits made by the customers were trading receipts in the hands of the assessee. It was held that the excess deposit were to held by the assessee for the benefit of the depositors. The deposits were in respect of specific transactions of sales and were adjusted towards the purchase price of the machinery sold. It had close connection with the transactions of sales. Since the assessee transferred the excess deposits remaining in its hands to the profit and loss account during the previous year, such excess amounts were assessable to tax as trading receipts in the hands of the assessee. The provisions of section 10(2A) of the old Act of 1922 and section 41(1) of the new Act of 1961 were not even referred to and/or examined in this decision.

13. To sum up, so far as these court is concerned, the settled legal position appears to be what was stated by this court in its judgment in <ORG>'s case [1966] 62 ITR 34. The liability of an assessee does not cease merely because the liability has become barred by limitation and the assessee has unequivocally expressed it intention not to honour the liability even when demanded. Essentially, therefore, it will always be a question of fact whether or not the assessee has expressed unequivocally his intention not to honour the liability after it has become barred by limitation. In a given set of facts, a finding either way may be possible. In the instant case, the departmental authorities have assumed that the assessee has not intention of honoring the liability on demand from the mere fact of the assessee's writing off the liability and crediting the amount to the profit and loss appropriation account. The <ORG> has held that the liability did not cease. We have to answer the question on the basis of the facts found. In the circumstances, so far as this case is concerned, it will not be possible for this court of interfere.

14. The decisions of other <ORG> cited before us do not carry the matter further, because they followed the earlier decisions of this court.

15. Accordingly, the third question relating to the assessment year 1969-70 also is, on the facts, found answered in the affirmative and in favour of the assessee.

16. No order as to costs.


JUDGMENT <NAME>, J.

1. The facts found and/or admitted in these proceedings are shortly as follows :

<ORG>, Calcutta, is the Indian subsidiary of <ORG> <ORG>, a non-resident company incorporated in the United Kingdom. At the material period the assesses was engaged in executing a contract awarded by <ORG>, a <ORG> of India undertaking. In executing the said contract the funds of the assessee to the extent of over Rs. 24 lakhs became blocked. In the circumstances, the assessee approached its parent company for a loan of 37,500 being about Rs. 5 lakhs in Indian currency at that time. The foreign principal company agreed to advance the amount to the assessee and in its letter dated the 14th January, 1965, wrote to the assessee as follows :

"With reference to your application for financial assistance, we conefirm that this company would agree to make you an interest-free loan of Rs. 5 lakhs ( 37,500) for a period of one" year, to enable you to finance the large Government contracts on which you are currently engaged.

No doubt you will obtain the necessary permission from the Indian Government to repay this loan in sterling, at the expiration of one year, or earlier if funds become available."

2. Thereupon, the assessee by its letter dated the 18th January, 1965, sought the approval of <ORG> for the said loan of Rs. 5 lakhs ( 37,500) from the parent company with permission to repatriate the amount when required after one year or earlier if funds would become available.

(a) By the said letter <ORG> was, inter alia, informed that the loan amount was needed to finance the said contract of <ORG>.

(b) An amount of Rs. 24.34 lakhs was lying blocked in the contract and the assessee's overdraft with its bankers had reached the maximum limit and there was no alternative for the assessee but to obtain the said loan from the United Kingdom.

(c) Funds were required immediately to meet a taxation liability of Rs. 10 lakhs in January and February, 1965, apart from the continuous requirements in the said contract.

(d) The approval of <ORG> for the loan was required immediately so that the assessee could meet the urgent taxation liabilities without default.

3. Necessary permission was granted by <ORG> for the aforesaid loan and the assessee received the loan on the 25th February, 1965, The loan was not repaid at the expiry of one year and remained outstanding in the books of the assessee up to the 6th Jane, 1966, on which date the Indian rupee was devalued. As a result of such devaluation the asses-see found that it had to arrange for a sum of Rs. 7,87,692 to repay the original loan of 37,500, and consequently an extra amount of Rs. 2,87,692 was necessary to repay the original loan of Rs. 5 lakhs.

4. After deducting a gain of about Rs. 4,078 on the assessee's sterling deposit in a London bank the assessee debited its profit and loss account with a sum of Rs. 2,83,614 for the assessment year 1967-68 and claimed deduction of this amount. The <ORG> rejected the claim of the assessee on the ground that the increase of liability arising from devaluation on account of the sterling loan was of a capital nature and could not be allowed as a revenue expense.

5. Being aggrieved, the assessee preferred an appeal and contended before the <ORG>, inter alia, that the loan in question was not raised for acquiring any capital asset and the extra amount of Rs. 2,83,614 payable against the loan on account of devaluation of Indian rupee was a revenue expenditure and should have been allowed as deduction in computing the assessee's business income. The <ORG> held that the loss on account of devaluation in connection with a loan could not under any circumstances be considered to be a revenue loss. Accretion in the amount of the borrowing was not admissible as a deduction. He also held that the assessee not being a dealer in foreign exchange, the loss was not incidental to its business or in the carrying on of that. Accordingly, the <ORG> confirmed the disallowance of the loss.

6. The assessee preferred further appeal to the <ORG>. It was contended on behalf of the assessee in the appeal that the said amount should have been allowed as a deductible expenditure under Section 37(1) of the I.T. Act, 1961, as a loss incidental to the business. It was contended further that, although the loan had not been repaid during the year in question as the assessee's accounts were kept according to the mercantile system, the liability having arisen in the year by reason of the devaluation, it was in the nature of an expenditure incurred by the assessee and, therefore, allowable under Section 37 . It was contended that the expenditure for the purpose of business included the payment of the assessee's statutory dues and taxes. It was submitted that the loan had been taken by the assessee for the. purposes of its business and the loss occasioned by devaluation was suffered in the business.

7. The revenue on the other hand contended that the alleged expenditure and/or loss was not allowable inasmuch as : (a) no expenditure had been incurred ; (b) even if such expenditure was incurred it had not been laid out or expended wholly or exclusively for the purpose of the assessee's business; and (c) the expenditure and/or loss was capital in nature inasmuch as it went to increase the amount of loan which the assessee was required to pay to its principal. It was contended that, in any event, the loss arising out of devaluation could not be allowed as a loss incidental to business. It was finally submitted that the loss, if any, was of a capital nature. There was no change in the amount of loan and the provision for a higher amount for repaying the loan could not be called a revenue expenditure as it was related to capital and was connected with the return thereof.

8. The <ORG>, inter alia, noted that no evidence had been adduced to show the probable date of repayment of the said loan. On the date of the devaluation the original period for repayment, i.e., one year, had already expired. Accordingly, the <ORG> held that the assessee was not required to repay the loan on the 6th June, 1966, or that any liability for the expenditure of the extra amount of Rs. 2,83,614 arose on that date. The <ORG> held further that the liability to pay the extra amount, if any, was a contingent liability.

9. On the authority of <ORG> in Indian Molasses Co. (P.) <CITATION>  37 ITR 66, the Tribunal held that the assessee did not actually incur any expenditure which would qualify for allowance under Section 37 .

10. The <ORG> also found that the assessee required additional funds and obtained the said loan not only for financing its business but also to meet an immediate taxation liability of Rs. 10 lakhs as admitted in the letter dated 18th January, 1965, addressed to <ORG>. There being no evidence as to which part of the taxation liabilities was met out of the loan, the <ORG> concluded from the said letter that the major requirement of the assessee was to meet the taxation liabilities. Following a decision of this court in <CITATION>  58 ITR 84 (Cal), the <ORG> held that the expenditure it incurred was in connection with the payment of tax and could not be allowed under Section 37 .

11. The Tribunal held that, as no repayment was made to the principal-

company in the assessment year, there was no question of claiming any loss in that year. The <ORG> also held, following a decision of this court in <CITATION> , that the loss in exchange having arisen due to devaluation, which was an act of the <ORG> and an act of the Sovereign, was not a loss springing directly from the carrying on nor incidental to the carrying on of the business of the assessee and, therefore, could not be allowed also on this ground,

12. On the application of the assessee under Section 256(1) of the I.T. Act, 1961, and also Section 18 of the Companies (Profits) Surtax Act, 1964, the <ORG> has drawn up a statement of case and has referred the following questions for the opinion of this court as questions of law arising from its order :

Under the Income-tax Act , 1961:

"1. Whether, on the facts and in the circumstances of the case, and on a proper construction of the assessee's letter of 18th January, 1965, the <ORG> was right in holding that the assessee's major requirement for its loan was to meet its taxation liabilities ?

2. Whether, on the facts and in the circumstances of the case, the <ORG> was right in holding that the amount of Rs. 2,83,614 was not deductible in computing the assessee's profits and gains of business ?"

Under the Companies (Profits) Surtax Act , 1964 :

"Whether, on the facts and in the circumstances of the case, the <ORG> was right in holding that the amount of Rs. 2,83,614 was not deductible in computing the chargeable profits for the purposes of the surtax assessment for the year 1967-68 ?"

13. Mr. <NAME>, learned counsel for the assessee, in his submissions on question No. 1 before us contended that on a proper construction of the assessee's letter dated the 18th January, 1965, it could not be said that the major requirement of the assessee in obtaining the said loan was to meet its taxation liabilities as on that date. He contended that it was clearly seen from the letter of the foreign principal that the loan was being advanced to the assessee to enable it to finance the current <ORG> contract and not to meet the assessee's taxation liabilities. In the assessee's letter to <ORG> it was also reiterated that the loan was necessary for the purpose of financing the contract. It also appeared from the said letter that the subject of the loan was broached prior to the 17th June, 1964, and prior to the taxation liability of 1965. On a proper construction of the said letter, which was a question of law, Mr. <NAME> submitted that it could not be said that the major requirement of the assessee for the loan was for meeting taxation liability.

14. Mr. <NAME>, learned counsel for the revenue, contended on the other hand, that the finding of the <ORG> that the major requirement of the assessee was to meet the taxation liabilities was a finding of fact which had not been challenged in these proceedings as perverse or based on no evidence. He submitted that construction of ordinary correspondence did not give rise to questions of law which could arise only where legal documents Were being construed. In the instant case the <ORG> has drawn a factual conclusion from the letter.

15. It appears to us that the question No. 1 is an academic question. In the earlier part of its order the <ORG> records as follows : ".........The above facts as emerged from the letter dated 18-l-65 go to show that the major requirement before the company was to meet the taxation liabilities". But in the latter part of the order it is recorded as follows ; "17. Besides, as we have already stated above, the loss has arisen, if not substantially at least to a great extent, in the discharge of the assessee's income-tax liabilities......" The latter part of the <ORG>'s order which does not mention the assessee's major requirement has not been challenged and, therefore, the challenge to the earlier construction of the letter by itself does not advance the assessee's case further.

16. For the reasons given above we decline to answer question No. 1. On question No, 2 Mr. <NAME> for the assessee contended first that the extra amount of Rs. 2,83,614, which the assessee had to provide as a result of devaluation, was in the nature of an ordinary business expenditure. It was as much an expenditure as bank or postal charges which might have had to be incurred by the assessee if the amount was remitted by post or through bank for repayment of the loan. In terms of sterling the amount of loan remained fixed but in obtaining the foreign currency the assessee had to incur an extra expenditure in rupees. This, according to Mr. <NAME>, was a normal and proper business expenditure allowable under Section 37 of the Act.

17. Mr. <NAME> submitted next that as the assessee at the relevant time maintained its accounts under the mercantile system, this expenditure was incurred during the relevant year. The moment devaluation took place, the liability for the extra amount was incurred by the assessee and had to be debited in the assessee's profit and loss account in that year. Alternatively, in providing for the extra amount on account of the devaluation, the assessee suffered a loss and such loss was connected with, incidental to and was incurred for the purpose of the assessee's business. It was a loss of a revenue nature and not of a capital nature.

18. Mr. <NAME>, lastly, submitted that even if it was admitted that the object of the assessee in obtaining the loan was to meet its income-tax liabilities, the extra expenditure incurred in connection with such loan would also come within the ambit of the expression "purpose of the assessee's business" in Section 37 of the Act. Mr. <NAME> submitted that by reason of the subsequent decisions of <ORG>, the decision of this court in <NAME> case  58 ITR 84 (Cal) was no longer good law.

19. Mr. <NAME>, for the revenue, has contended to the contrary. He submitted first that the assessee did not incur any expenditure. Expenditure meant an actual and current disbursement. In the facts of the instant case, the assessee not having determined any particular date for repayment of the loan, no question arose of its spending anything.

20. Mr. <NAME> next contended that the loss of the assessee, if any, by reason of the devaluation was not the loss suffered in the year. In any event, assuming that the assessee suffered a loss, the same was a capital loss and not a revenue loss and the assessee was not entitled to any deduction thereof.

21. Lastly, Mr. <NAME> submitted that <NAME> case [1965] 58 ITR 84 (Cal) was still good law and the assessee having obtained the loan with the object of meeting its income-tax liabilities did not incur any expenditure solely or exclusively for the purpose of its business nor suffered any loss therein and, therefore, was not entitled to any deduction of the extra amounts repaid on account thereof.

22. In support of the respective contentions of the parties a large number of decisions were cited at the <ORG>. We shall refer to the following which in our opinion are of relevance in the present reference.

(a) <CITATION>  23 ITR 230. This decision of <ORG> was cited on behalf of the assessee for the following observations of Bhagwati J. at page 239 on mercantile system of accounting :

"The mercantile system of accounting or what is otherwise known as the double entry system......brings into credit what is due, immediately it becomes legally due and before it is actually received and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed."

(b) <CITATION>  37 ITR 1. This decision of <ORG> was also cited by the assessee on mercantile system of accounting.

In this case the assessee had sold land in plots for building purposes undertaking to develop them by laying out roads, providing a drainage system and installing lights, etc. The purchaser paid only a portion of the price and undertook to pay the balance in instalments. The assessee in its turn undertook to carry out the development within six months. In the relevant accounting year the assessee in accordance with the mercantile system of accounts adopted by it, credited its accounts with the full sale price of the lands though it incurred only a part and at the same time debited an estimated sum by way of expenditure for the development undertaken though nothing had been actually spent. On these facts <ORG>, inter alia, held as follows at page 10 of the report 3 :

"....we find that the sum of Rs. 24,809 represented the estimated expenditure which had to be incurred by the appellant in discharging a liability which it had already undertaken under the terms of the deeds of sale of the lands in question and was an accrued liability which according to the mercantile system of accounting the appellant was entitled to debit in its books of account for the accounting year as against the receipts of Rs. 43,692-11-9 which represented the sale proceeds of the said lands."

(c) <ORG> v. C1T [1959] 37 ITR 66. This decision of <ORG> was also cited on behalf of the assessee for the following observations at page 76 :

"Thus, in finding out what profits there be, the normal accountancy practice may be to allow as expense any sum in respect of liabilities which have accrued over the accounting period and to deduct such sums from profits. But the income-tax laws do not take every such allowance as legitimate for purposes of tax. A distinction is made between an actual liability in praesenti and a liability de future which, for the time being, is only contingent. The former is deductible but not the latter......What a prudent trader sets apart to meet a liability, not actually present but only contingent, cannot bear the character of expense till the liability becomes real."

(d) <CITATION>  73 ITR 53. This decision of <ORG> was cited by the assessee. It was held in this case that an estimated liability, amounting to a contingent liability and not a debt under the W.T. Act, if it could be properly ascertainable and its present value could be fairly discounted, would be deductible from the gross receipts while preparing the profit and loss account.

(e) <ORG> v. IRC [1924] 12 TC 773. This English decision was cited on behalf of the revenue. The facts in this case were that the accounting period of the assessee ended on the 30th April, 1921. Prior to that date the assessee had entered into contracts to purchase quantities of goods to be delivered between November, 1920, and December, 1921. After the contract was entered into prices fell. The assessee had received only a portion of goods by the 30th April, 1921, but in the computation of excess profits duty the assessee claimed to deduct the difference between the contract price and the market price of the undelivered goods as estimated loss. On these facts it was held on a reference that loss plaimed was only an apprehended future loss and not one suffered during the accounting period and, therefore, the deduction claimed was inadmissible.

(f) Whimster & Co. v. <ORG> [1925] 12 TC 813. This decision was also cited on behalf of the revenue. Here the loss claimed by the assessee on unexpired time-charter of ships on the basis of an anticipated fall of freight was disallowed as a deduction.

(g) Alien v. Farquharson Brothers & Co. [1932] 17 TC 59 (KB). This decision was cited by the revenue for the following observations of Finlay J. at page 64 of the report to illustrate the distinction between an expenditure and a loss :

"Now a case might be put in which it was not very easy to say whether a thing was a disbursement or expense or was a loss. It is conceivable--such things sometimes happen--that there may be cases in which a thing might fall alternately......But, none the less, I do think that there is a distinction to be drawn between the two. (a) relates to disbursements ; that means something or other which the trader pays out ; I think some sort of volition is indicated. He chooses to pay out some disbursement; it is an expense; it is something which comes out of his pocket. A loss is something different. That is not a thing which he expends or disburses. That is a thing which, so to speak, comes upon him ab extra."

(h) <CITATION>  55 ITR 716 was cited by the revenue for an observation of <ORG> similar to the above as follows :

"The word 'expenditure' in rule 6 of the Schedule to the Indian Income-tax Act , 1922, meant 'disbursement' and did not include depreciation."

(i) Landes Brothers v. <NAME> [1934] 19 TC 62 (KB). This decision was cited on behalf of the revenue. In this case the assessee, the sole commission agent of a company for sale in Britain, which imported furs under the terms of the agency, had to advance to its principal a part of the value of each consignment to be adjusted after the sale thereof. The transactions were conducted on dollar basis and when the assessee recouped itself for the advances a profit accrued as a result of fluctuation in the rate of exchange. Such profits were held to be a part of the trading receipts of the assessee arising in the course of its business and hence taxable.

(j) <ORG> v. IRC [1938] 22 TC 106 (CA). This decision was cited on behalf of the assessee. The facts in this case were that an English company was granted a licence to distribute within a definite territory the films of an American company. The agreement provided that the English company would pay to its American company 70% of the gross receipts less certain stipulated deductions but was silent as to the exchange basis which was to govern the transactions. At an earlier stage, the English company had been instructed to keep the accounts on the basis of a fixed rate of exchange and the difference between that rate and the rate prevailing at the end of the week in which the transaction took place was directed to be passed on to a suspense account. The books of the English company were maintained throughout on this basis. Owing to a delay in the adjustment of accounts between the two companies and a fall in the value of sterling in relation to dollar large adverse differences were shown in the suspense account. The English company was initially assessed to income-tax without regard to the suspense account but subsequently preferred claims for relief on the ground that the adverse differences in exchange as shown in the suspense account were deductible in computing its profits. It was held by <ORG> that the contractual relationship of the parties established that the English company's debts to the American company were dollar debts and, therefore, the reliefs claimed should be allowed.

(k) Davies v. Shell Company of China Ltd. [1952] 22 ITR (Supp) 1; [1951] 32 TC 133 (CA). In this case, cited by the revenue the assessee was a British company which carried on business of sale and distribution of petroleum products in China through agents from whom the assessee obtained deposits at the termination of the agency. When hostilities between China and Japan broke out the assessee transferred the amounts of deposits to the United Kingdom and retained the same in sterling. Owing to subsequent depreciation of Chinese dollars in relation to sterling, the amounts eventually required to repay the deposits in Chinese currency were much less than the amounts held by the assessee and a substantial profit accrued to the latter. It was held that such profits were capital profits and hence not taxable. The relevant observations in the judgment of <ORG> at pages 147 and 156 are set out as follows :

"The sum paid is a deposit...It is not however a payment in advance...It has the character of a loan in that it is repayable at the determination of the agency by the company, and also in that it has to carry interest at a fixed rate per cent. per annum. "

P. 156 : "It is to be available during the period of the agency for making good the agent's defaults in the event of any default by him ; but otherwise it remains, as I see it, simply as a loan owing by the company to the agent and repayable on the termination of the agency ; and I do not see how the fact that the purpose for which it is given is to provide a security against any possible default by the agent can invest it with the character of a trading receipt."

(l) <CITATION> . The facts in this case cited by the revenue were that the assessee who carried on business in yarns received from its customers sums which they claimed to be "borrowed money" within the meaning of the Excess Profits Tax Act and as such not chargeable to excess profits tax. The revenue authorities, the <ORG> and <ORG> rejected the contentions of the assessee. On a final appeal, <ORG>, however, found that a part of the deposits from the customers of the assessee had no connection with the price of the yarn to be supplied, but were to be held as security for due performance of the contract and that the assessee had to pay the interest on the amounts. Ultimately, unless there was adjustment against liability, the amount had to be returned.

<ORG> held that the transaction was essentially a contract of loan. <ORG> considered <ORG> [1952] 22 ITR (Supp) 1; [1951] 32 TC 133 (CA), and noted that similar deposits were treated as capital receipts and profits thereon by reason of fluctuation of the exchange rate would be capital gain.

(m) <CITATION>  35 ITR 519 was also cited by the revenue, where <ORG> again considered Shell Company of China Ltd.  22 ITR (Supp) 1;  32 TC 133 (CA) and construed it in the same manner as in <ORG> .

(n) <CITATION> was cited on behalf of the assessee. It was contended that this decision had a departure from Shell Company of China Ltd.  22 ITR (Supp) 1 ;  32 TC 133(CA).

In this case, the assessee spent a substantial sum towards stamp duty, registration fees, lawyer's fees, etc., in obtaining a loan from <ORG> secured by a charge on its fixed assets. <ORG> upheld the assessee's claim that the said expenditure was deductible as a revenue expenditure (p. 63) :

"...we are of the opinion that : (a) the loan obtained is not an asset or advantage of an enduring nature ; (b) that the expenditure was made for securing the use of money for a certain period ; and (c) that it is irrelevant to consider the object with which the loan was obtained. Consequently, in the circumstances of the case, the expenditure was revenue expenditure within Section 10(2)(xv) . "

(o) <CITATION> .  71 ITR 761 (Bom). This decision of <ORG> was cited by the assessee. In the relevant assessment year the assessee, an insurance company, claimed deduction of a loss. It was alleged that such loss had been incurred by reason of devaluation of the Pakistan currency on the 31st July, 1955. On that date an amount in Pakistan rupees was due from the Pakistan Government to the assessee on account of advance payment of income-tax. An amount was also due and payable to the assessee under the double taxation avoidance agreement between India and Pakistan. As a result of devaluation the amounts so due and payable were reduced. The assessee alleged that it had suffered a loss and claimed a deduction thereof from its business income. <ORG> held as follows (p. 797):

"It is clear, therefore, that when the difference arose it was a difference which was entirely independent of the volition of the assessee. At no stage did the assessee intend to lay out this amount for any expenditure but, on the other hand, it was fortuitous circumstance that Pakistan devalued its currency that resulted in this difference. It was, therefore, upon the tests laid down in the authorities, clearly a business loss which the assessee incurred."

23. In the facts of this case as found we are unable to accept the contention of the revenue that notionally the expenditure, if any, incurred by or any loss accruing to the assessee by reason of the devaluation did not arise in the year of assessment. The assessee admittedly maintained its accounts on mercantile basis. On devaluation of the Indian currency the liability of the assessee immediately increased to the extent the rupee was devalued and the assessee became liable to pay and/or spend an extra amount in rupees in order to pay its dues. This liability accrued during the relevant period. In the event this debt would be remitted or would become irrecoverable from the assessee in future then under Section 41 of the I.T. Act, 1961, the same would again be treated as income accruing to the assessee. The liability of the assessee during the relevant period cannot be said to be a contingent liability or an anticipated future loss. On such facts the instant case is clearly distinguishable from the decisions cited by the revenue, i.e., <ORG>  12 TC 773 and <ORG>12 TC 813 and the principles laid down in the said decisions have no application in the instant case.

24. The enquiry as to whether by reason of the devaluation the assessee has incurred an expenditure or has suffered a business loss is, in our view, of little relevance. No doubt, an expenditure is something which directly goes out or is deemed to go out of the pocket or till and a loss may fall on a business without any immediate liability to pay or disburse anything. There also may be cases where a loss arising from causes ab extra may necessitate immediate expenditure. But in all such cases, the expenditure as also the losses, if they are business losses, have to be taken into account and deducted in determining the profit. Therefore, the distinction between loss suffered without any immediate disbursement and an expenditure incurred would be of not much significance.

25. The question which in our view is of real importance in the instant case is whether the loss or expenditure of the assessee as a result of the devaluation is of a capital nature or of a revenue nature. Mr. <NAME>, for the assessee, has contended in the course of his submissions that a loss has to be considered in a different way from a gain in computing business profits. There may be cases where a loss de hors the business is allowed as a business loss, whereas a gain arising in similar circumstances will never be a business gain. In our view this distinction again is of little significance as the gain or the loss, as the case may be, has to be connected with the business before the same can enter into the computation of profits.

26. On a scrutiny of the facts of the instant case it appears to us that as a result of the devaluation which befell the assessee, it became immediately liable to an extra liability in terms of its rupee assets for repayment of its debts. This extra expenditure, deemed or otherwise, or this loss, is inextricably connected with the assessee's indebtedness and did not arise de hors the indebtedness nor was it incurred for the purposes of the loan and it was, as, if, from the date of the devaluation the dues from the assessee to its creditors in rupees were increased. We are unable to accept the contentions of Mr. <NAME> that the extra amount which the assessee had to provide for as a result of the devaluation is to be considered as extra expenditure to be incurred for meeting the debt just as postal expenses or bank charges or this extra expenditure which would result in a business loss of a revenue nature.

27. In our view, the propositions laid down in the case of <ORG> [1952] 22 ITR (Supp.) 1 ; [1951] 32 TC 133 (CA) apply on all fours to the instant case. If there would have been a devaluation in favour of the rupee as a result of which the assessee had to pay less to its creditors, the surplus arising would have been of capital nature and could not have been assessed in the hands of the assessee as a business profit. Conversely as a result of the exchange rate going against the assessee the loss which the assessee incurred cannot be held to be a revenue loss. <ORG> considered <ORG> [1952] 22 ITR (Supp.) 1 ; [1951] 32 TC 133 (CA) in K.M.S. Lakshmanier & Sons and <ORG> . The ratio in the said English decision and the principle laid down therein were accepted and approved by <ORG>. The instant case can also be distinguished from the decision of <ORG> in <ORG> . It was decided in that case that any expenditure incurred for securing the use of money for a certain period, i.e., for the purpose of obtaining a loan which was not an asset or advantage of an enduring nature, was a revenue expenditure, and that the purpose for which the loan was obtained was irrelevant in deciding whether such expenditure would be a capital expenditure or a revenue expenditure. In the instant case it is not contended by the assessee that it had incurred the extra expenditure in order to secure the loan. The loan had already been obtained. It is at the point of repayment that the assessee has to provide an extra amount in rupees by reason of the devaluation.

28. For the reasons given above We answer question No. 2 in the affirmative and in favour of the revenue.

29. A large number of decisions were cited and extensive submissions were made on the aspect whether an expenditure incurred or a loss suffered in respect of money borrowed for the purpose of payment of income-tax would be deductible as a business expenditure or a business loss. Inasmuch as we hold that the loss suffered or expenditure incurred is not deductible as it is of capital nature, it is not necessary for us to consider this aspect of the matter any further.

30. The question referred to under the Companies (Profit) Surtax Act, 1964, is a question consequential to question No. 2. By reason of the answer given to question No. 2, we answer this question also in the affirmative and in favour of the revenue. There will be no order as to costs.

<NAME>, J.

31. I agree.


CASE NO.: Appeal (civil) 7088 of 1999 PETITIONER: MUNICIPAL COUNCIL, AHMEDNAGAR AND ANR. RESPONDENT: <NAME> AND ORS. DATE OF JUDGMENT: 08/12/1999 BENCH: S.B. MAJMUDAR & <NAME> JUDGMENT:

JUDGMENT 1999 Supp(5) SCR 197 The Judgment of the Court was delivered by <NAME>, <NAME> <NAME> granted.

<ORG>, Ahmednagar and another are in appeal against an order of <ORG> (Aurangabad Bench) in Writ Petition No. 1156 of 1993, wherein the Writ Petition filed by the respondent Nos. 1 to 3 herein, <NAME> and two others was allowed and <ORG> was directed to make over vacant possession of the land bearing CTS No. 5761-A situated at Ahmednagar to the petitioners within a period of three months from the date of the Judgment <ORG> further directed the writ petitioners to refund the amount of compensation received by them for the acquired land within a period of four weeks from the date of handing over the possession of the land to them by the respondent <ORG> along with certain consequential orders. The facts for the matter being singularly singular ought to be adverted to at this juncture.

The facts depict that the Writ Petition before <ORG> was filed on 21st October, 1992, for setting aside the Award dated 26th April, 1976 in regard to CTS No, 5761' of Ahmednagar Town. Subsequent thereto, however, the Writ Petition was amended for issuance of a Writ of Certiorari for quashing and setting aside the notification dated 15th May, 1971 issued under Section I26(4)of the Maharashtra Regional and Town Planning Act, 1966 (hereinafter referred to as the Act) read with Section 6 of the Land Acquisition Act, 1994. It is on this petition that <ORG> made the rule absolute and directed making over of the vacant possession of the land under acquisition within a period of three months from the date of the Judgement as noticed above. The appellants on grant of special leave to appeal are before this Court, While issuing notice on 17th December, 1998, this Court was pleased to grant an interim stay of operation of the impugned judgemient of <ORG> and also directed filing of counter and rejoinder affidavits. It is in terms of this direction of the Court that the matter was taken up for hearing on 7.12.1999 and also today.

Upon however, hearing the submissions on behalf of the parties herein, we do feel it expedient to record that the matter can be dealt with finally on a short ground to wit, the time element. While addressing on behalf of the petitioners herein Mr. <NAME> learned Solicitor General severely criticised the judgment of <ORG> and contended that <ORG> should have taken note of the element of delay in moving the Court. Mr. <NAME> pointed out that whereas the notice for acquisition was issued in 1971 and the Award was passed and possession was taken in the year 1976, the Writ Petition was filed in the year 1992 i.e. to say after expiry of 21 years from the date of notification and 16 years from the date of making over possession and the Award.

Incidentally this point of delay and laches was also raised before <ORG> and on this score <ORG> relying upon the decision in <NAME>'s case <CITATION> ,  1 MHLJ 503, observed that it is not an inflexible rule that whenever there is delay, the <ORG> must and necessarily refuse to entertain the petition filed after a period of three years or more which is the normal period of limitation for filing a suit. The Bombay High <ORG> in <NAME> `s case (supra) stated that the question is one of discretion to be followed in the fact arid circumstances of each case and further stated :-

"The real test for sound exercise of discretion by <ORG> in this regard is not the physical running of time such but the test is whether by reason of delay, there is such negligence on the part of the petitioner so as to infer that he has given up his claim or where the petitioner has moved <ORG>, the rights of the third parties have come into being which should not be allowed to disturb unless there is reasonable explanation for the delay".

In the Judgment Impugned in this appeal <ORG> stated :-

"It may be stated that in the instant case the respondent No. 2 not only failed to take steps even after passing of the Award in 1976 but attempted to change the public purpose even thereafter in 1980 and 1993. It can be seen from the discussion of the material placed before the <ORG> by the petitioners that the respondent No. 2 in fact issued a public notice inviting objections to the modification in the development plan in 1993. The petitioners have in fact when realised the possibility of respondent No. 2 taking steps for changing or modifying the development plan to the extent of their land protested and has in fact lodged their objections on similar grounds which re urged in the Writ Petition. Therefore, there is a continuity in process without any break on the part of the respondent No. 2 in changing the public purpose in not giving effect to the purpose for which notification under Section 4(1) of the Act was published by the State government in exercise of its powers and in consequence passing of the Award based on such notification. In the given set of circumstances, we feel that there petitioners have had cause of action even passing of the award in challenging the very initial action on the part of the respondents in acquiring the land. It may be stated that the respondent No. 2 has not raised the contention of delay and laches in the first affidavit in reply filed on 29.6.1966. It is only in the additional affidavit in reply on 28.4 98 and that too in reply to amendment made to the Writ Petition by the petitioners that for the first time a contention is raised as to the delay and laches in filing the petition. We are afraid if the respondent No. 2 is entitled to raise this contention during the course of arguments............................................"

The observations as above, with due respect <ORG> are based on certain misconception of facts. While it is true that the plea of limitation ought to be raised at the first available opportunity but that does not mean and imply that the patty raising it even during the course of hearing would be barred therefrom. Limitation is a mixed question of law and fact. Time barred claim would not even be entertained by a civil court without there being nay opportunity of filing a pleading by the respondents or the defendants in a civil suit. The fact remains that the respondents herein did in fact agitate the point of limitation during the course of hearing and also had taken the peal in their affidavit in reply and prior to the commencement of the hearing of the matter. <ORG> was thus clearly in error in holding without any further factual detail that the cause of action for the challenge to the Notification under the Maharashtra Act of 1966 continues even on the date of filing of the writ petition. Mr. <NAME>, the learned senior counsel appearing for the respondents contended that Since his is a continuing wrong, the question of the claim being time barred or the conduct being barred under the laws of limitation does not and cannot arise. Mr. <NAME> further contended that there are mala fide involved and mala fides ought not to be restricted to be challenged under the garb of limitation.

<ORG> has in fact proceeded on the basis of the equitable principle as it appeared from the observations of <ORG> as set out hereinbelow :-

"In the present case, the respondent No, 2 has in fact did nothing except by passing resolution for modification of the public purpose for which the land was acquired rather than actually making use of the land for which it was acquired or possession of which was taken after passing of the award. On equitable principle me petitioners are entitled to reliefs even if there is delay in filing the Writ Petition. As a matter of fact, the petitioners have explained the circumstances in which they have invoked the extra ordinary writ jurisdiction of this Court under Article 226 of the Constitution of India. Since the petitioners have been successful in establishing the please of legal malice as against the respondent no. 2, we think that the perpetual illegal action of which has causing substantial injustice to the petitioners is required to be remedied by invoking the extraordinary jurisdiction under Article 226 of the Constitution of India in favour of the petitioners. It cannot be overlooked that while exercising the extra-ordinary jurisdiction under Article 226 of the Constitution of India <ORG> may be justified in exercising its powers where justice must appear to have been done and must be done."

Incidentally, the contextual facts depict that the respondents did in fact apply for the execution of the Award in the year 1995. This aspect of the matter, unfortunately, does not find place even in the amended Writ Petition. Significantly, as found from records one I.A. was filed in the present SLP being LA. No. 1 of 1999 for dismissal of the Special Leave Petition on the ground of suppression of fact by <ORG>. But what about the failure to mention the factum of the award in the writ petition? The factum of initiation of the execution proceedings was suppressed even in the amended writ petition. We are at a loss to find as to who ought to be charged with guilt of suppression of facts.

The records depict that by reason of the failure to obtain necessary orders from the trail court, a civil revisional application was filed before <ORG> wherein <ORG> has directed deposit of Rs. 3,20,116 by <ORG> which sum in fact stands deposited till date. While it is trite that <ORG> in the said Civil Revision has directed that further orders as regards the withdrawal of the amount of money can be had only after the disposal of the Writ Petition, but the factum of presentation of the execution application goes however to suggest that the respondents have in fact accepted the Award and wanted its execution.

The factual analysis in short therefore, depicts that the notification for acquisition in terms of the Act was issued in 1971, the Award was published in regard thereto in 1976 and the Writ Petition was filed in 1992. During the pendency of the Writ Petition, the respondent-writ petitioners moved an execution application so far as the Award is concerned and thereafter moved a further civil revision application before <ORG> in 1995 - these factual details in our view go to negate the observations of <ORG> It is significant to note that since the year 1952 this particular property which is under acquisition was reserved for school and playground. In the year 1963 the reservation was further continued and as such, there had not been any development of the plot by any concern since 1952 onwards. Another redeeming feature ought also to be noticed at this juncture, namely, the original Writ Petitioner being the father of the present respondents sent a notice in 1964 to <ORG> to purchase the reserved property or to release the same in favour of the writ petitioner. But there was no assertion of right thereafter and till the issuance of the notification in 1971 and possession being delivered in terms of the award in 1976.

<ORG> has thus misplaced the factual details and misread the same. It is now a well-settled principle of law and we need not dilate on this score to the effect that while no period of limitation is fixed but in the normal course of events, the period, the party is required for filing a civil proceeding ought to be the guiding factor. While it is true that this extraordinary jurisdiction is available to mitigate the sufferings of the people in general but it is not out of place to mention that this extraordinary jurisdiction, has been conferred on to the law courts under Article 226 of the Constitution on a very sound equitable principle, Hence, the equitable doctrine, namely, `delay defects equity' has its fullest application in the matter of grant of relief under Article 226 of the Constitution. The discretionary relief can be had provided one has not by his act or conduct given a go-bye to his rights. Equity favours a vigilant rather than an indolent litigant and this being the basic tenet of law, the question of grant of an order as has been passed in the matter as regards restoration of possession upon cancellation of the notification does not and cannot arise. <ORG> as a matter of fact lost sight of the fact that since the year 1952, the land was specifically reserved for public purposes of school playground and roads in the development plan and may reason therefore, the notification to acquire the land has, therefore, been issued under the provisions of the Act as stated above.

Apart from the time element as noticed above another redeeming feature on the factual aspect of the matter has not been considered by <ORG> at all. There are three owners of the land, namely, <NAME>, <NAME> and <NAME>. The first of the two owners amongst the three named above of the land did in fact put forward a claim in regard to the land value and structure before the concerned authority and two owners claimed as below :-

(i) Market Value of Rs. 20 per Sq. ft (ii) Value of Tin shed : Rs. 15,000 (iii) Build up structure : Rs. 30,000

(iv) Damages and severance of the property :, Rs. 35,000

(v) Salatium : 15% of the amount of compensation

(vi) Compensation for loss of; Rs. 13,000 compensation of the strip of land along towards in North side of the land under acquisition

(vii) For losing frontage and benefits : Rs. 50,000 acquiring therein

(viii) Cost of the house acquired : Rs. 40,000 for the right The other owner <NAME>, however, did not put forth any claim for any specific amount but claimed only the market value of the land together with 15 per cent solatium and the cost of the building now standing on the land. Incidentally, the other owner is a resident of England and executed a power of attorney in favour of <NAME> to act on his behalf in the proceeding before the authorities and to receive the amount of compensation. The power of attorney stands recorded in England in February, 1973. While it is true that the evidence rendered by the respondents during the course of hearing was without prejudice qua the reservation of rights to challenge the same but the factual backdrop in its entirety however in our view does not indicate any challenge to the notice of acquisition.

In any event; after the award is passed no writ petition can be filed challenging the acquisition notice or against any proceeding thereunder. This has been the consistent view taken by this Court and in one of recent cases ( <CITATION> , reported in  2 SCC 627. This court observed as below :-

"The admitted position is that pursuant to the notification published under Section 4(1) of the Land Acquisition Act, 1894 (for short "the Act") in GOR No. 1392 Industries dated 17.10.1962, total extent of 6 areas 41 cents of land in Madhavaram Village, Saidapet Taluk, Chengalpattu District in Tamil Nadu was acquired under Chapter VII of the Act for the manufacture of Synthetic Rasiua by <ORG>, Madras. The acquisition proceedings had become final and possession of the land was taken on 10.4.1964. Pursuant to the agreement executed by the company, it was handed over to <ORG> which is a subsidiary of <ORG>, It would appear that at a request made by the said company, 66 cents of land out of one acre 37 cents in respect of which the appellants originally had ownership, was transferred in GOMs No. 816. Industries dated 24.3.1971 in favour of another subsidiary company, <ORG>, the 5th respondent Which is also another subsidiary of the company had requested for two acres 75 cents of land; the same came to be assigned on leasehold basis by the <ORG> after resumption in terms of the agreement in <ORG> dated 10.5.1985. In <ORG> dated 30.3.86, the same came to be approved of. Then the appellants challenged the original <ORG> dated 17.10.62 contending that since the Original purpose for which the land was acquired had ceased to be in operation, the appellants are entitled to restitution of the possession taken from them. The learned Single Judge and <ORG> have held that the acquired land having already vested in the <ORG>, after receipt of compensation by the predecessor-in-title of the appellants, they have no right to challenge the notification. Thus the writ petition and the writ appeal came to be dismissed."

Similar is the view in an earlier decision of this Court in the case of <CITATION> , reported in  11 SCC 501. Incidentally, the decision last noted was also on the land acquisition and requisition under the Maharashtra Regional and Town Planning Act, 1966 and in paragraph 29 of the report, this Court observed :-

It is well settled law mat when there is inordinate delay in filing me writ petition and when all steps token in the acquisition proceedings have become final, the <ORG> should be loath to quash the notifications. <ORG> has, no doubt, discretionary powers under Article 226 of the Constitution to quash the notification under Section 4 (1} and declaration under Section 6 . But it should be exercised taking all relevant factors into pragmatic consideration. When the award was passed and possession was taken, the <ORG> should not have exercised its power to quash the award which is a material factor to be taken into consideration before exercising the power under Article 226. The fact that no third party rights were created in the case is hardly ground for interference. <ORG> of the High <ORG> was not right in interfering with the discretion exercised by the learned Single Judge dismissing the writ petition on the grounds of laches."

Mr. <NAME>, learned senior counsel appearing for one of the respondents, placed strong reliance upon a recent decision of this Court in the case of <ORG> arid <CITATION> , reported in  4 SCC 450. This Court in paragrpah 8 of the report observed as below :-

"Sofar as the contention regarding laches of the respondent in filing the writ petition is concerned, delay, by itself, may not defeat the claim for relief unless the position of the appellant had been so altered which cannot be retracted on account of lapse of time or inaction of the other party. This aspect being dependent upon the examination of the facts of the case and such a contention not having been raised before `<ORG>, it would not be appropriate to allow the appellants to raise such a contention for the first time before us. (Emphasis supplied) Besides, we may notice that the period for which the option of renewal has been exercised has not come to an end. During the subsistence of such a period certainly the respondent could make a complaint that such exercise of option was not available to the appellants and, therefore, the jurisdiction of <ORG> could be invoked even at a later stage. Further, the appellants are not put to undue hardship in any manner by reason of this delay in approaching <ORG> for a relief."

The observations however pertain to the Transfer of Property Act and in particular reference to Section 105 and the facts therein are clearly distinguishable and the sentence emphasised as above depicts the disgust feature. <ORG> case (supra) is not a case for acquisition at all and reliance thereon thus is totally misplaced.

On the wake of the aforesaid, we do feel it expedient to record that <ORG> has dealt with the matter on a totally different perspective and as such clearly fell into an error in passing the order as impugned in this appeal. Not only the length of time but the concept of approbation and reprobation has totally been ignored at <ORG> stage. The appeal therefore, succeeds. The Writ Petition filed by the respondents in <ORG> is dismissed and as such the I.A. No. 1/99 filed in SLP No. 19507 of 1998 also stands dismissed. In view of he dismissal of the writ petition by the present judgment, direction contained in the civil revision permitting the respondents to withdraw the compensation amount will obviously now be complied with. Each party however should pay and hear its own costs.