Input:
Appeal No. 68 of 1964.
Appeal from the judgment and decree dated July 27, 1959 of the Allahabad High Court in Income tax Reference No. 307 of 1957.
S.V. Gupte, Solicitor General, R. Ganapathy Iyer and R.N. Sachthey, for the appellant.
A.V. Viswanatha Sastri and S.P. Varma, for the respondent.
The Judgment of the Court was delivered by Sikri, J.
This appeal pursuant to a certificate granted by the Allahabad High Court under section 66A(2) of the Income tax Act (hereinafter referred to as the Act) is directed against the judgment of the High Court in a reference under the Act, answering the question referred to it in the negative.
The question referred by the Appellate Tribunal is: "Whether on a true interpretation of clause (viii) of subsection 3 of section 4 of the indian Income tax Act the sum of Rs. 36,396/ received by the assessee as an allowance during the previous year of the assessment year 1949 50 is revenue income liable to tax under the Indian Income tax Act, 1922?" The relevant facts stated in the Statement of the case are as follows: The assessee is a Hindu undivided family headed by one Sri Trivikram Narain Singh who is a descendant of one Sri Babu Ausan Singh who was the original founder and owner of what is known as Ausanganj State in the district of Benaras.
The district of Benaras was formerly a part of Oudh territory.
By a Treaty between the East India Company Nawab Asfuddaula in or about the year 1775, the province of Benaras was ceded to the British Government.
The British Government granted a sanad of Raj to Raja Chet Singh who in turn gave the Jagir of Parganas Seyedpore and Bhittery in perpetuity to Babu Ausan Singh.
It appears that in 1796 there were some disputes between Babu Ausan Singh and the Zamindars in the district and the matter was referred by the Collector of Benaras to the Board of Revenue in Calcutta.
The disputes between the Jagirdars and Zamindars ultimately ended in 1837 by a compromise between the British Government and the then Jagirdar Hat Narain Singh whereby the British Government 702 granted a pension of Rs. 36,322/8/ to Babu Hat Narain Singh anal his heirs in perpetuity.
The quantum of this pension was calculated on the basis of 1/4th of the revenue of the Jagir.
By this arrangement the revenue or land collections of Jagir became payable by the Zamindars direct to the Government and by the grant of the pension, Babu Hat Narain Singh and his successors no longer remained the proprietors of the Parganas or the Jagir and became entitled to merely a pension.
The letter by which the amount of pension was determined at Rs. 36,322/8/ is dated 7th of July, 1837 and was from H. Elliot Esqr., the Secretary Sadar Board of Revenue N.W.P. Allahabad, to J. Thompson Esqr., Offg.
Secretary to Lt. Government, N.W.P.".
The pension was paid regularly from year to year by the Government to Babu Har Narain Singh and his heirs.
During the previous year of the assessment year 1949 50, the assessee received a sum of Rs. 36,396/ on account of the aforesaid pension.
The Income tax Officer, in spite of the objection of the assessee, held that it was a regular annual income of the assessee and did not fall within the category of agricultural income tax.
He observed that "in fact this income arose from a statutory obligation of the Government to pay it, and although the Government recouped this from the person with whom the land was settled, land in the genealogical tree of Malikana appears in the second degree, its immediate and effective source is the Government 's statutory obligation to pay it, and this obligation is not land within the meaning of Income tax Act, vide C.I.T.v.
Raja Bahadur Karnakhaya Harain Singh(1)".
The assessee appealed to the Appellate Assistant Commissioner who held that "the alleged cash grant of varying and unspecified amount received by the appellant, in relation to land revenue of Seyedpur now Tehsil of District Ghazipur, clearly fell within the definition of agricultural income under Section 2(1) of the Incometax Act." The Income tax Officer appealed to the Income tax Appellate Tribunal.
The Tribunal held that the sum of Rs. 36,396/ was chargeable to tax under the Act as the income was not agricultural income for "although the pension was determined with respect to the quantum of the rent collection the rent collections or the land could not be said to be the immediate source of the pension.
The source of the pension was a liability undertaken by the Government for extinguishing the proprietary rights of the Jagirdar and when the immediate source of the income was not land or rent collections from land, it is difficult to hold that the receipt of the assessee was agricultural income within the meaning of Section 4(3)(viii) of the Income tax Act.
" The High Court held that from the language of the letter of July 7, 1837, it was manifest that the right which was conferred 703 was a right to a share of one fourth in the net land revenue collections after deducting costs of Tahsil establishment.
It relied on the fact that the amount which had been received by the successors of Babu Harnarain Singh varied from year to year.
It observed that "the language of the letter and this conduct of the parties can only lead to the inference that, by this settlement contained in the letter of 7th July, 1837, Babu Har Narain Singh and his successors were granted in perpetuity a right to one fourth of the land revenue collections themselves and not merely a right to receive u sum of money calculated on that basis." The High Court accordingly answered the question in the negative.
The learned Additional Solicitor General, on behalf of the appellant, contends that according to the true interpretation of the letter dated July 7, 1837, no right in the land revenue was granted to the assessee.
He relies on the decision of this Court in State of Uttar Pradesh vs Kunwar Sri Trivikram Narain Singh(1).
That case arose out of the writ petition filed by the present respondent in the High Court of Judicature at Allahabad for a writ in the nature of mandamus calling upon the State of Uttar Pradesh to forbear from interfering with his right to regular payment of the "pension, allowance or Malikana" payable in lieu of the hereditary estate of Harnarain Singh in respect of parganas "Syudpore Bhettree" and for an order for payment of the "pension, allowance or malikana" as it fell due.
This Court interpreted the same letter, dated July 7, 1837, and came to the conclusion that the respondent did not acquire any interest in land or any land revenue.
Shah, J., speaking for the Court, observed: "Because the annual allowance is equal to a fourth share of the net revenue of the mahals, the right of the respondent does not acquire the character of an interest in land or in land revenue.
Under the arrangement, the entire land revenue was to be collected by the Government and in the collection Harnarain Singh and his descendants had no interest or obligation.
As a consideration for relinquishing the right to the land and the revenue thereof, the respondent and his ancestors were given an allowance of Rs. 30,612 13 0.
The allowance was in a sense related to the land revenue assessed on the land, i.e. it was fixed as a percentage of the land revenue; but the percentage was merely a measure, and indicated the source of the right in lieu of which the allowance was given.
" The learned counsel for the respondent, Mr. A. Viswanatha Sastri urges that on its true interpretation the letter dated July 7, 1837, showed an arrangement for sharing collections.
We are unable to agree with his contention.
We respectfully adopt the reasoning and conclusion of this Court in the case of State of ; 704 Uttar Pradesh vs Kunwar Sri Trivikram Narain Singh(1) and hold that the respondent, under the arrangement, had no interest in land or in the land revenue payable in respect thereof.
If this is the true interpretation of the arrangement arrived at, the question arises whether the pension or allowance is agricultural income. 'Agricultural income ' is defined in section 2 of the Act as follows: "(1) "agricultural income" means (a) any rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in British India or subject to a local rate assessed and collected by officers of the Crown as such: . " In Maharajkumar Gopal Saran Narain Singh vs Commissioner of Income tax, Bihar and Orissa(2), the facts were that the assessee had conveyed the greater portion of his estate.
The consideration for the transfer was, inter alia, an annual payment of Rs. 2,40,000/to the assessee for life.
The Privy Council held that this "annual payment was not agricultural income as it was not rent or revenue derived from land but money payable under a contract imposing a personal liability on the covenantor the discharge of which was secured by a charge on land." The Privy Council, in Commissioner of Income tax Bihar and vs Raja Bahadur Kamakhaya Narayan Singh and construed the word 'derived ' as :follows: "The word "derived" is not a term of article Its use in the definition indeed demands an enquiry into the genealogy of the product.
But the enquiry should stop as soon as the effective source is discovered.
In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of nonpayment.
And rent is not land within the meaning of the definition." This Court observed in Mrs. Bacha F. Guzdar, Bombay Commissioner of Income tax, Bombay(4) as follow: "Agricultural income as defined in the Act is intended to refer to the revenue received by direct association with the land which is used for agricultural purposes and not by indirectly extending it to cases where that revenue or part thereof changes hands either by way of distribution of dividends or otherwise." (1) ; (2) (3) 16 I.T.R.325 (4) 705 The same test was adopted by this Court in Maharajadhiraja Sir Kameshwar Singh vs Commissioner of Income tax, Bihar and Orissa(1) and the Court again looked to the source of the right in order to determine whether income was agricultural income or not.
Shah, J., observed: "The appellant has no beneficial interest in the lands which are the subject matter of the trust: nor is he given under the trust a right to receive and appropriate to himself the income of the properties or a part thereof in lieu of any beneficial interest in that income.
The source of the right in which a fraction of the net income of the trust is to be appropriated by the appellant as his remuneration is not in the right to receive rent or revenue of agricultural lands, but rests in the covenant in the deed to receive remuneration for management of the trust.
The income of the trust appropriated by the appellant as remuneration is not received by him as rent or revenue of land; the character of the income appropriated as remuneration due is again not the same as the character in which it was received by the appellant as trustee.
Both the source and character of the income are, therefore, altered when a part of the income of the trust is appropriated by the appellant as his remuneration, and that is so, notwithstanding that computation of remuneration is made as a percentage of the income, a substantial part whereof is derived from lands used for agricultural purposes.
The remuneration not being received as rent or revenue of agricultural lands under a title, legal or beneficial in the property from which the income is received, it is not income exempt under section 4(3)(viii).
" It follows from the decisions of the Privy Council and the judgments of this Court cited above that if it is held in this case that the source of the allowance or pension is the arrangement arrived at in 1837.
then the income cannot be held to be derived from land within the meaning of the definition in section 2(1)(a) of the Act.
It seems to us that in this case the source of income is clearly the arrangement arrived at in 1837 and, therefore, it is not agricultural income as defined in the Act.
Mr. Sastri sought to distinguish those cases on the ground that the allowance here varied from year to year.
Assuming that the allowance varied from year to year, the source of the income still remains the arrangement and not land.
The next point that arises in this case is whether the allowance is taxable income at all.
Mr. Sastri contends that it is capital receipt.
He says that if the assessee 's predecessor had received ) 706 compensation for relinquishing his title to the lands in dispute, that would have been a capital receipt and not taxable.
He further says that the allowance was in fact a payment of the compensation for relinquishing the title to those lands.
He says that we must consider the quality of the income and not its periodicity.
He refers to the following passage from the speech of Viscount Simon in Commissioner of Inland Revenue vs Wesleyan and General Assurance Society(1): "It may be well to repeat two propositions which are well established in the application of the law relating to Income tax.
First, the name given to a transaction by the parties concerned does not necessarily decide the nature of the transaction.
To call a payment a loan if it is really an annuity does not assist the taxpayer, any more than to call an item a capital payment would prevent it from being regarded as an income payment if that is its true nature.
The question always is what is the real character of the payment, not what the parties call it.
" He, therefore, asked us to disregard the word 'pension ' in the letter dated July 7, 1837, and determine the real character of the payment.
Another passage from the speech of Viscount Simon is also relevant.
Lord Simon observed: "Secondly, a transaction which, on its true construction, is of a kind that would escape tax, is not taxable on the ground that the same result could be brought about by a transaction in another form which would attract tax.
As the Master of the Rolls said in the present case: 'In dealing with Income tax questions it frequently happens that there are two methods at least of achieving a particular financial result.
If one of those methods is adopted tax will be payable.
If the other method is adopted, tax will not be payable .
The net result from the financial point of view is precisely the same in each case, but one method of achieving it attracts tax and the other method does not.
There have been cases in the past where what has been called the substance of the transaction has been thought to enable the Court to construe a document in such a way as to attract tax.
That particular doctrine of substance as distinct from form was, I hope, finally exploded by the decision of the House of Lords in the case of Duke of Westminster vs Commissioner of Inland Revenue(2)".
It seems to us that where an owner of an estate exchanges a capital asset for a perpetual annuity, it is ordinarily taxable income in his hands.
The position will be different if he exchanges (1) 30 T.C. II.
(2) 707 his estate for a capital sum payable in installments.
The installments when received would not be taxable income.
Mr. Sastri, relying on Perrin vs Dickson(1) contends that an annuity is not always taxable as income.
This is true, but in this case no material has been produced to show that the allowance was in fact a payment in instalments of the value of the disputed title of the assessee 's predecessor in 1837.
In the result, we hold that the allowance is revenue income and not exempt from taxation as agricultural income.
Therefore, we accept the appeal and answer the question referred in the affirmative.
The appellant will have his costs here and in the High court.
Appeal allowed.

Output:
The respondent was the head of a Hindu undivided family and was the descendant of a Jagirdar.
Certain disputes between the Jagirdar and the Zamindars in the district had been settled in 1837 by a compromise between the British Government and the then Jagirdar, whereby, the Government granted the Jagirdar and his heirs a pension in perpetuity to be calculated on the basis of one fourth of the revenue of the Jagir.
By this arrangement the collections from the Jagir became payable by the Zamindars direct to the Government and the Jagirdar and his successors no longer remained the proprietors of the Jagir and became entitled only to a pension.
The Income tax Officer assessed the receipt of the pension by the respondent as part of his regular income and rejected the latter 's contention that the amount received was agricultural income within the meaning of section 4(3)(viii) of the Income tax Act, 1922.
In appeal, the Assistant Commissioner accepted the respondent 's contention, but the Tribunal reversed this finding.
The High Court, on a reference, decided the issue in favour of the respondent, on the grounds, inter alia, that the right conferred under the compromise of 1837 was a right to a share of one fourth in the net land revenue collections and furthermore, the amount received by the successors of the Jagirdar varied from year to year.
In the appeal before the Supreme Court, it was also contended on behalf of the respondent that the amount received was in the nature of a capital receipt, being a payment to the Jagirdar and his successors of compensation for relinquishing the title to the Jagir lands.
HELD: (i) Under the compromise and arrangement of 1837, the respondent had no interest in the land or in the land revenue payable in respect thereof.
[704 A] State of U.P.v.
Kunwar Sri Trivikram Narain Singh; , , followed.
As the source of the income in this case was the arrangement of 1837, the income could not be held to be derived from land within the meaning of the definition of agricultural income in section 2(1)(a) of the Act.
Even if the income varied from year to year, the source of the income was still the arrangement and not land.
[705 G] Maharajkumar Gopal Saran Narain Singh, vs
C.I.T. Bihar and Orissa, , C.I.T. Bihar and Orissa vs Raja Bahadur Kamkhya Narayan Singh and Ors, , Mrs. Bacha F. Guzdar vs
C.I.T. Bombay , MaharaJadhiraja Sir Kameshwar Singh, vs C.I.T. Bihar and Orissa, , followed.
(ii) The amount received by the respondent was not a capital receipt but revenue income and therefore taxable.
701 Where an owner of an estate exchanges a capital asset for a perpetual annuity, it is ordinarily taxable in his hands.
The position would be different if he exchanged his estate for a capital sum payable in installments.
Such installments when received would not be taxable as income.
But in the present case there was no material to show that the amount received was an instalment of this nature.
[706 H~707C] Commissioner of Inland Revenue vs Wesleyan and General Assurance Society, , and Perrin vs Dickson , referred to.


Input:
Civil Appeal No. 1274 of 1966.
Appeal by special leave from the judgment and decree dated November 23, 1965 of the Allahabad High Court in First Appeal No. 208 of 1958.
K.S. Shavaksha, R.A. Shah, 1.
B. Dadachanji arid Bhuvanesh Kumari, for the appellant.
223 S.K. Mehta, K.L. Mehta and Sona Bhatiani for respondent.
The Judgment of the Court was delivered by Ramaswami, J.
This appeal is brought by special leave from '; the judgment of the Allahabad High Court dated NOvember 23,, 1965 in First Appeal No. 208 of 1958.
The appellant is a limited liability company incorporated under the English Companies Act with its registered office at Lincoln, England.
It carries on business in the manufacture and sale of diesel internal combustion engines and their parts and accessories.
Ruston Hornsby (India) Ltd., a company registered in India under the is a subsidiary of the appellant.
The respondent is a firm carrying on business in the manufacture and sale of diesel internal combustion engines and their parts.
The appellant was a registered proprietor of the registered trade mark Ruston being registration No. 5120 in Class 7 in respect of internal combustion engines.
Ruston and ' Hornsby (India) Ltd., is the registered user of the said trade mark and manufactures in India and sells in India internal combustion.
engines under the trade mark "RUSTON".
Sometime in June, 1955 the appellant came to.
learn that the respondent was manufacturing and selling diesel internal combustion engines under the trade mark "RUSTAM".
On July 8, 1955 the appellant wrote. through its attorneys a letter to the respondent and called upon it to desist from using the trade mark "RUSTAM" on its. engines as it was an infringement of the registered trade mark "RUSTON".
The defendant replied that "RUSTAM" was not an infringement of "RUSTON" as the words "RUSTAM INDIA" was used.
On February 17, 1956 the appellant instituted a suit praying for a permanent injunction restraining the.
respondent and its agents ' from infringing the trade mark "RUSTON".
On January 3, 1958 the Additional District Judge, Meerut, dismissed the suit holding that there was no visual or phonetic similarity between "RUSTON" and "RUSTAM".
The appellant took the matter in appeal in the Allahabad High Court.
By its judgment dated November 23, 1965 the High Court held that the use of the word RUSTAM by the respondent constituted infringement of the appellant 's trade mark "RUSTON" and the respondent should be.
prohibited from using the trade mark "RUSTAM".
But the High Court proceeded to.
hold that the use of the words "RUSTAM ' INDIA" was not an infringement because the plaintiff 's engines were manufactured in England and the defendant 's engines were manufactured in India.
The suffix "India" would be a sufficient warning that the engine sold was not a "RUSTON" engine manufactured in England and the respondent may be permitted ' to use the combination "RUSTAM INDIA".
224 Section 21 of the states "Subject to the provisions of section 22, 25 and 26 the registration of a person in the register as proprietor .
of a trade mark in respect of any goods shall, give to .that person the exclusive right to.
the use of the Trade mark in relation to those goods and, without prejudice to the generality of the ,foregoing provision, that right shall be deemed to be infringed ' by any person who, not being the 'proprietor of the trade mark or a registered user thereof using by way of the permitted use, uses a mark identical with it or so nearly resembling it as to be likely to deceive or cause confusion, in the course of trade, in relation to any goods in respect of which it is registered, and in such manner as to render the use of the mark likely to be taken either (a) as being used as a trade mark; or (b) to import a reference to some person having the right either as a proprietor or as registered user to use the trade mark or to goods with which such a person as aforesaid is connected in the course of trade.
" The distinction between an infringement action and a passing off action is important.
Apart from the question as to.
the nature of trade mark the issue in an infringement ,action is quite different from the issue in a passing off action.
In a passing off action the issue is as follows: .
"Is the defendant selling goods so marked as to be designed or calculated to lead purchasers to believe that they are the plantiff 's goods ?" But in an infringement action the issue is as follows: "Is the defendant using a mark which is the same as or which is a colourable imitation of the plaintiff 's registered trade mark ?" It very often happens that although the defendant is not using the trade mark of the plaintiff, the get up of the defendant 's goods may be so much like the plaintiff 's that a clear case of passing off would be proved.
It is on the contrary conceivable that although the defendant may be using the plaintiff 's mark the get up of the defendant 's goods may be so different from the get up.
of the plaintiff 's goods and the prices also may be so different that there "would be no probability of deception of the public.
Nevertheless, in an action on the trade mark, that is to say, in an infringement 225 action, an injunction would issue as soon as it is proved that the: defendant is improperly using the plaintiff 's mark.
The action for infringement is a statutory right.
It is dependent upon the validity of the registration and subject to.
other restrictions laid down in sections 30, 34 and 35 of the Act.
On the other hand the gist of a passing off action iS that A is not entitled to represent his goods as the goods of B but it is not necessary for B to prove that A did this knowingly or with any intent to deceive.
It is enough that the get up of B 's goods has become distinctive of them and that there is.
a probability of confusion between them and the goods of A. No. case of actual deception nor any actual damage need be proved.
At ' common law the action was not maintainable unless there had been fraud on As part.
In equity, however, Lord Cottenham L.C. in Millington vs Fox(1) held that it was immaterial whether the defendant had.
been fraudulent or not in using the plaintiff 's trade mark and granted an injunction accordingly.
The common law courts, however, adhered to their view that fraud was necessary until the Judicature Acts, by fusing law and equity, gave the equitable rule the victory over the common law rule.
The two actions, however, are closely similar in some respects, As was observed by the Master of the Rolls in Saville Perfumery Ltd. vs June Perfect Ltd.(2).
"The Statute law relating to infringement of trade marks is.
based on the same fundamental idea as the law relating to passing off.
But it differs from that law in two particulars, namely (I ) it is concerned ' only with one method of passing off, namely, the use of a trade mark, and (2) the statutory protection is absolute in the sense that once a mark is shown to offend, the user of it cannot escape by showing that by something outside the actual mark itself he has distinguished his goods from those of the registered proprietor.
Accordingly, in considering the question of infringement the Courts have held, and it is now expressly provided by the Trade Marks Act, 1938, section 4, that infringement takes place not merely by exact imitation but by the use of a mark so nearly resembling the registered mark as to be likely to deceive.
" In an action for infringement where the defendant 's trade mark is identical with the plaintiff 's mark, the COurt will not enquire whether the infringement is such as is likely to deceive or cause" confusion.
But where the alleged infringement consists of using (1) ; (2) 58 R.P.C. l47 at 161.
226 not the exact mark on the Register, but something similar to.
it, the test of infringement is the same as in an action for passing off in other words, the test as to likelihood of confusion or deception arising from similarity of .marks is the same both in infringement and passing off actions.
In the present case the High Court has found that there is a deceptive resemblance between the word "RUSTON" and the 'word "RUSTAM" and therefore the use of the bare word ',RUSTAM" constituted infringement of the plaintiff 's trade mark "RUSTON".
The respondent has not brought an appeal against the judgment of the High Court on this point and it is, therefore, not open to.
him to challenge that finding.
If the respondent 's trade mark is deceptively similar to.
that of the appellant the fact that the word 'INDIA ' is added to the respondent 's trade mark is of no consequence and the appellant is enitled to succeed in its action.n for infringement of its trade mark.
We are accordingly of the opinion that this appeal should be allowed and the appellant should be granted a decree restraining the respondents by a permanent injunction from infringing the plaintiff 's trade mark "RUSTON" and from using it in connection with the engines machinery and accessories manufactured and sold by it under the trade mark of "RUSTAM INDIA".
The appellant is also entitled to an injunction restraining the respondent and its agents from selling or advertising for sale of engines, machinery or accessories under the name of "RUSTAM" or " 'RUSTAM INDIA".
The appellant 'is also.
granted a decree for nominal damages to the extent of Rs. 100/ .
The appellant is further entitled to an order calling 'upon the respondent to deliver the appellant price lists, bills, invoices and other advertising material bearing the mark " 'RUSTAM" or "RUSTAM INDIA".
"The appeal is allowed with costs to the above extent.
Y.P. Appeal allowed.

Output:
For the infringement of its registered trade mark "RUSTON" by the respondent 's trade mark "RUSTAM", the appellant filed a suit for permanent injunction.
The respondent pleaded that "RUSTAM" was not an infringement of "RUSTON" and stated that the words "RUSTAM INDIA" were used.
The trial court dismissed the suit holding that there was no visual or phonetic similarity between "RUSTON" and "RUSTAM".
The High Court in appeal, held that there was deceptive resemblance between the words "RUSTON" and "RUSTAM", but held that the use of "RUSTAM INDIA" did not constitute an infringement because the appellant 's engines were.
manufactured in England and the respondent 's in India, and the suffix 'INDIA ' was sufficient warning that the engine sold was not the engine manufactured in England.
Allowing the appeal this Court, HELD: In an action for infringement when the defendant 's trade mark is identical with the plaintiff 's mark, the court will not enquire whether the infringement is such as is likely to deceive or cause confusion.
But where the alleged infringement consists of using not the exact mark on the Register but something similar to it, the test of infringement is the same as in an action for passing off.
In other words, the test as to the likelihood of confusion or deception arising from similarity of marks is the same both in infringement and, passing off actions.
[225 H] In the present case the High Court found that there was deceptive resemblance between the word "RUSTON" and the word "RUSTAM" and therefore the use of the bare word "RUSTAM" constituted infringement of the appellant 's trade mark "RUSTON".
The respondent did not prefer an appeal against the judgment of the High Court on this point and it was, therefore, not open to him to challenge that finding.
If the respondent 's trade mark was deceptively similar to that of the appellant the fact that the word "INDIA" was added to the respondent 's trade mark was of no consequence and the appellant was entitled to succeed in its action for infringement of its trade mark.
[226 B] Millington vs Fox, 3 MV & Cr. 338 and Savillo Perfumery June Perfect Ltd., at 161, referred to.


Input:
minal Appeal No. 134 of 1968.
Appeal from the judgment and order dated April 16, 1968 of the Allahabad High Court in Criminal Misc.
Case No. 3403 of 1967.
Yogeshwar Prasad, for the appellant 0.
P. Rana, for respondent No. 2.
701 The Judgment of the Court was delivered by Dua, J.
The short point requiring determination in this appeal on certificate of fitness granted by the Allahabad High Court under article 134(1)(c) of the Constitution is whether tolltax on laden motor vehicles levied under section 128(1)(vii) of the, U.P., Municipalities Act 11 of 1916 (hereinafter described as the Act) on their entry within the limtis of Nainital Municipality can be realised from the passengers carried by them.
The relevant facts which lie within a narrow compass may now be briefly stated.
Brij Mohan Chandra, Vice President of the Notified Area Committee, Bhowali, District Nainital (respondent No. 1 in this Court) traveled in U.P. Government Roadways Bus from Bhowali to Nainital on 17th, 26th and 29th May, 1967.
At Kaila Khan Municipal toll barrier one and a half mile from Nainital on the Bhowali Nainital Road, toll tax was demanded from him but he declined to pay.
The Executive Officer, Municipal Boad, Nainital, thereupon filed a complaint against him under section 190(1)(c) of the Code of Criminal Procedure on the allegation that he had by entering the municipal limits of Nainital without paying the toll dues committed breach or r. (1) of the Rules made under section 153(a) of the Act for the 'assessment and collection of tolls within the municipality of Nainital.
Brij Mohan Chandra 's contention in reply was that the levy of toll tax by the Municipal Board on passengers was ultra vires the taxing power of the Board.
During the pendency of the proceedings in the court of Sub Divisional Magistrate, Nainital, Brij Mohan Chandra applied to the High Court of Judicature at Allahabad under section 561A, Cr.
P.C. for quashing those proceedings.
The High Court (section D. Singh J) on April 16, 1968 quashed the proceedings by the impugned order holding that cl, (vii) of section 128(1) of the Act did not authorise levy of toll tax on passengers and that the relevant notification also levied tax only on vehicles and not on passengers.
The rule imposing an obligation on the passengers to pay the toll was, therefore, struck down as ultra vires.
In this Court Shri Yogeshwar Prasad, learned counsel for the appellants (the Municipal Board, Nainital and the Executive Officer of the Board) at the outset attempted obliquely to seek support for the validity of the levy on passengers from cl.
(xiv) of section 128(1) as pleaded in the memorandum of appeal lodged in this Court under O.21, r. 12 of the Supreme Court Rules.
But this attempt was soon abandoned and Shri Yogeshwar Prasad felt constrained to concede that in view of the clear and precise position taken on behalf of the Board in the High Court that it had never been intended to impose toll tax on passengers, it was not 702 open to him in this Court to rely on cl.
(xiv).
Shri O. P. Rana, the learned counsel for the respondent State of U.P. supporting the appeal, also did not rely on cl.
(xiv).
We, therefore, do not purpose to express any opinion on the question whether or not a toll tax on passengers would be permissible under cl.
(xiv).
The only point seriously pressed on behalf of the appellants as also by Shri O. P. Rana on behalf of the State of U.P. was that the toll imposed on the vehicle entering the municipality could legally be realised from the passengers carried by it because of their nexus with the entry of the vehicle.
Before examining this contention we may in passing turn to cl.
(vii) of section 128 ( 1 of the Act which reads: "128(1) Subject to any general rules or special orders of the State Government, in this behalf, the taxes which a board may impose in the whole or part of a municipality are (vii) a toll on vehicles and other conveyances, animals, and laden coolies entering the municipality; This clause in clear and unambiguous terms speaks of a toll on vehicles and other conveyances, animals and laden coolies ,entering the municipality.
It does not take within its Cold the, passengers carried by vehicles to be taxed, with the result that imposition of tax on passengers by the Municipal Board would be incompetent under this clause.
And this in fact was not ,disputed at the Bar.
The argument of nexus was also raised in the High Court: but it was repelled by that Court which observed as follows "It was urged that when a tax on conveyance is levied, some provision has to be made for the assessment and collection of that tax and some provision made about the persons from whom that tax may be recovered and that if there is any reasonable or rational nexus between the levy of the tax and the persons from whom that tax may be recovered, the Municipal Board would be within its rights to realise the tax from the persons so named.
It is difficult, however, to apply the nexus theory in a manner so as to enable the Municipal Board to recover the toll tax from the passengers travelling in a bus otherwise there will be no distinction left between a vehicles tax and a passenger tax.
When a toll tax is 703 levied on a vehicle, it is levied at the point of its entry within the municipal limits.
It is obviously, therefore, the person, who is in charge of the vehicle or who makes an attempt to take the vehicle inside the municipal limits, who takes upon himself the responsibility for the payment of the toll tax.
There is no question of there being any nexus between the levy of the tax on the vehicle and the persons sitting inside the same.
In the case of ,vehicles plying on hire the driver or conductor of the vehicle can, of course, charge the amount of tax which has to be paid, from the passengers in addition to the fare which is normally charged from them.
" The same argument was repeated before us.
The submisssion seems to be based largely on the policy of the law to ensure the collection of taxes by preventing fraudulent evasion.
in order to, appreciate its cogency we may appropriately advert 'to the Rules made by the State Government, in 1922 under section 296 read with section 153(a) of the Act, with respect to the assessment and collection of tolls in the Nainital Municipality.
So far as relevant for the purposes of this appeal, according to r. (1), no person can bring within the limits of the Nainital Municipality any vehicle in respect of which the toll tax imposed under section 128 ( 1 ) (vii) of the Act is leviable until the toll due in respect thereof has been paid to such muharrir and at such barrier as the Board may from time to time appoint.
Under r. 2(a), in the case of laden motor vehicles the load recorded in the chalan or invoice accompanying the vehicle has to be accepted by the muharrir for purposes of assessing the toll.
If no chalan or invoice accompanies the vehicle the load is to be assumed for the purposes of assessment to exceed three mounds unless it is ascertained to be less by weighment undertaken 'at the request of the person in charge of the vehicle.
The toll on a laden motor vehicle has to be paid by the person in charge of the vehicle and toll on a passenger is to be paid by the passenger.
Rule 2 (b) provides that when any person in charge of a laden vehicle enters the municipal limits such person shall pay the toll to the muharrir at the barrier add the muharrir shall tender a face value ticket with coupon attached for the amount to the person paying the toll.
This face value ticket can be examined by the official appointed for the purpose and the person bringing the vehicle with the municipal limits is bound under r. 3 to permit such examination.
Under r. 2(c), every driver of a motor lorry or other vehicle plying for ,hire and every driver of a private motor can or vehicle carrying passengers or goods has to so his lorry or vehicle at the toll barrier for a reasonable time to enable the, toll staff to recover prover tolltax from passengers and on the goods loaded therein.
The pro 704 vision contained in r. 2(a) that the toll on a passenger shall be paid by the passenger on which reliance has principally been placed, is of no assistance to the appellants beacuse it postulates imposition of toll on_ passengers and, therefore, unless a ton has been imposed on passengers none can be demanded from them under this clause.
Similarly the notification (No. 1450/XI 476 E) dated 19th August, 1921, according to which toll tax under section 128 (1) (vii) of the Act sanctioned by the U.P. State Government under section 135(2) of the Act is levied on motor vehicles other than cars at the rate of Re. 1/ per passenger carried by them and at the rate of Rs. 2/ per vehicle is unhelpful to the appellants.
As already observed by us, no toll tax has been imposed on passengers and indeed it was conceded on behalf of the appellants, both here and in the High Court, that the Board had never intended to impose a tax on passengers.
It is also noteworthy that the toll imposed on the laden vehicles is expressly made payable by the person incharge of such vehicles and according to the scheme of the rules which provide the procedure for collecting such tolls, the person bringing the vehicle within the municipal limits (who is supposed to be the person in charge) is enjoined to permit examination of the face value ticket when demanded after the vehicle 's enquiry into, those limits.
No liability has been fixed on the passengers for payment of the tax imposed on the vehicles carrying them 'and entering the Nainital Municipality.
The liability for the payment of such tax having been fixed only on the person in charge of the vehicle and not on the passengers it is difficult to appreciate how the authorities entrusted with the duty of realising the same can demand it from the passengers.
Our attention was not invited to any provision of law under which the passengers can be held liable to pay the toll tax imposed on the vehicles.
Neither any precedent nor any principle was cited at the Bar in support of the submission that merely because the passengers were carried by the vehicles the toll tax imposed on the entry of the vehicles into the municipal limits could be demanded from them.
On the facts and circumstances of this case and on the arguments addressed we are, therefore, unable to hold that the passengers carried by the vehicles entering the municipality of Nainital can be legally called upon to pay the tax imposed on the vehicles.
As a last resort a faint attempt was made by the appellants ' counsel to rely on section 164 of the Act in bar of the jurisdiction of the High Court in entertaining the petition under section 561A, Cr.
P.C. and in holding the impugned assessment and liability of the passengers to be unauthorised and illegal.
This argument ignores the vital point that if the impugned levy is outside the Act then this section cannot operate and the jurisdiction of the High Court 705 to quash the proceedings relating to the levy which is ultra vires the taxing power of the Board under the Act cannot be taken away to the prejudice of the aggrieved, citizen.
This submission is accordingly repelled.
In the final result this appeal fails and is dismissed.
R.K.P.S. Appeal dismissed.

Output:
While the first respondent was travelling by a U.P. Government Road.
ways bus from Bhowali to Nainital in May 1967, toll tax was demanded from him at the appellant 's municipal toll barrier but he declined to pay.
The Executive Officer, Municipal Board, Nainital, thereupon filed a complaint against him under section 190(1) (c) la.
P.C., for breach of rule 1 of the Rules made under section 153(a) of the U.P. Municipalities Act, 1916.
The first respondent 's contention was that the levy of toll tax by the Municipal Board on passengers was ultra viruses the taxing pow& of the Board.
During the pendency of these proceedings, on an application made,,, by the first respondent under section 561A, Cr.
P.C., the High Court quashed those proceedings holding that clause (vii) of section 128(1) of the Municipalities Act did not authorise the levy of toll tax on passengers and that a connected notification also levied tax only on vehicles and not on passengers.
The Rule imposing an obligation on the passengers to pay the toll was therefore struck down as ultra vires.
In appeal to this Court it was contended inter alia that toll imposed on the vehicle entering the Municipality could legally be realised from the passengers carried by it because of their nexus with the entry of the vehicle.
HELD:Dismissing the appeal, The toll imposed on the laden vehicles is expressly made payable by the person in charge of such vehicles.
No liability has been fixed on the passengers for payment of the tax imposed on the vehicles carrying them and entering the Nainital Municipality.
There was no precedent or any principle in support of the submission that merely because the passengers were carried by the vehicles the toll tax imposed on the entry of the vehicles into the municipal limits could be demanded from them [704 D G] When the impugned levy was outside the Act, section 164 of the Act could not operate to bar the jurisdiction of the High Court to quash the proceedings relating to the levy which was ultra virus the taxing power of the Board.
[704 H]


Input:
Appeals Nos. 237 and 238 of 1960.
Appeals by special leave from the judgment and order dated July 8, 1958, of the Patna High Court, in Misc.
Cases Nos. 713 and 819 of 1958.
A. V. Viswanatha Sastri, section R. Banerjee and section C. Mazumdar, for the appellants.
section P. Varma, for the respondents.
April 19.
The judgment of section K. Das, J. L. Kapur, M. Hidayatullah and T. L. Venkatarama AIyar, JJ., was delivered by Venkatarama Aiyar, J. J. C. Shah, J., delivered a separate judgment.
VENKATARAMA AIYAR, J.
Both these appeals arise out of the same facts and involve the determination of the same question, and this judgment will govern both of them.
The appellant in Civil Appeal No. 237 of 1960 is a company registered at Recklinghausen near Dusseldorf in West Germany, and carries on business in the manufacture and erection of plants and machinery.
On December 19, 1953, it entered into a contract with a company called Sinclair Fertilisers and Chemicals (Private) Ltd., hereinafter referred to as the Owner, for assembling and, installing machinery, plants and 84 accessories for a coke oven battery and by products plant at Sindri in the State of Bihar for an all inclusive price of Rs. 2,31,50,000.
The agreement provides that the appellants were to supply all the materials and labour required for the execution of the works, and that the performance was to be split up into two categories, the German section and the Indian section, that the German section was to consist of deliveries of materials from Germany Free on Board 'European ports, cost of technical drawings and services of German specialists, and that the Indian section was to consist of supply of Indian materials and charges for Indian labour and services to be performed in India.
The German section was to be paid out of the lump sum stated above a sum of Rs. 1,31,50,000 in pounds sterling in London on account of the appellant, and the Indian section was to be paid the balance of Rs. 1,00,00,000 in Indian currency in this country, and payments were to be made in instalments related to the progress of the contract.
Subsequent to the agreement, the appellant entrusted the work of the Indian section to an Indian company called the Coke Oven Construction Company (Private) Ltd., and the Owner having accepted this arrangement the said company has become the assignee of the contract in so far as it relates to the execution of the Indian section thereof.
It is this company that is the appellant in Civil Appeal No. 238 of 1960.
The execution of the works was completed in 1955 as provided in the agreement, and the amounts due thereunder were also paid to the two appellants.
The present dispute between the parties is as to whether the appellants in the two appeals are liable to pay sales tax on the value of the materials used by them in the execution of the works under the contract.
It will be convenient now to refer to the relevant provisions of the Bihar Sales Tax Act (Bihar Act No. XXX of 1947), hereinafter referred to as the Act.
Section2(g)of the Act defines 'sale ' as including a transfer of property in goods involved in the execution.
of contract.
'Contract ' is defined in section 2(b) as meaning any agreement for carrying out for cash or 85 valuable consideration, the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property; and 'goods ' are defined in section 2(d) as including "all materials, articles and commodities, whether or not to be used in the construction, fitting out, improvement or repair of immovable property." 'Sale price ' is defined in section 2(h)(ii) as meaning the amount payable to a dealer as valuable consideration for the carrying out of any contract, less such portion as may be prescribed, of such amount representing the usual proportion of the cost of labour to the cost of materials used in carrying out such contract. 'Dealer ' is defined in section 2(c) as meaning any person who sells or supplies any goods including goods sold or supplied in the execution of a contract.
Section 2(1) defines 'turnover ' as meaning the aggregate of the amounts of sale prices received and receivable by a dealer in respect of sale or supply of goods or carrying out of any contract, effected or made during a given period.
Section 4 is the charging section, and it provides that every dealer whose gross turnover during the accounting period exceeded Rs. 10,000 shall be liable to pay tax on sales which take place in Bihar, and section 5 provides that the "tax payable by a dealer under this Act shall be levied on his taxable turnover at such rate or rates and subject, to such restrictions and conditions as may be laid down from year to year by an annual Bihar Finance, Act.
" The Bihar Finance Act defines 'taxable turnover ' as meaning that part of the dealer 's gross turnover on sales which have taken place in Bihar during any period subject to certain deductions.
Section 9(1) of the Act provides that "No dealer shall, while being liable under section 4 to pay tax under this Act, carry on business as a dealer unless he has been registered under this Act and possesses a registration certificate".
Section 13(5) of the Act under which the present proceedings have been initiated is as follows: " If upon information which has come into his possession, the Commissioner is satisfied that any dealer has been liable to pay tax under this Act in respect of any period and has nevertheless wilfully 86 failed to apply for registration, the Commissioner shall, after giving the dealer a reasonable opportunity of being heard, assess, to the best of his judgment, the amount of tax, if any due, from the dealer in respect of such period and subsequent periods and the Commissioner may direct that the dealer shall pay, by way of penalty, in addition to the amount so assessed, a sum not exceeding one and half times that amount.
" The gist of the above provisions is that in a contract for execution of works, the materials used therein are treated as sold by the contractor and their value is taken as the sale price liable to be taxed, and there are provisions for determining that value.
Acting on these provisions, the Superintendent of Sales Tax, Dhanbad, the third respondent herein, issued on March 20, 1956, a notice to the appellant in Civil Appeal No. 237 of 1960, under section 13 of the Act, stating that on information which had come to his possession he was satisfied that the appellant was liable to pay tax for the periods 1952 53, 1953 54 and 1954 55, that it had wilfully failed to register itself under section 9 of the Act, and it was directed to show cause why penalty should not be imposed.
In response to this notice, the appellant appeared before the third res pondent and represented that it had only supplied materials in execution of works contract, that there was no sale of any goods or materials by it, and that the proceedings for taxing this supply of materials as if they had been sold were illegal.
Disagreeing with this contention, the third respondent directed the appellant to produce all its books, accounts and documents for purposes of assessment, and this is quite understandable, as it was his duty to levy tax in accordance with the provisions of the Act.
Thereupon, the appellant filed petitions before the High Court of Patna under articles 226 and 227 of the Constitution for the issue of appropriate writs for quashing the proceedings before the third respondent and for prohibiting further proceedings under the Act as being wholly incompetent.
, The grounds put forward in support of the petition were firstly that the State 87 legislature having authority to enact a law imposing a tax on the sale of goods was not competent to tax what under the law was not a sale, and that as the supply of materials in the course of the execution of works, was not in law a sale of those goods, a tax on such supply was unauthorized; and secondly that, even if there was a sale of materials, that was in the course of import from Germany, and a tax thereon was repugnant to article 286(1)(b) of the Constitution.
After taking over the Indian section of the contract, the appellant in Civil Appeal No. 238 of 1960 had registered itself on May 11, 1953, as a dealer under section 9 of the Act and was submitting periodical returns as required by the certificate and the Act.
But its contention at all times has been that it is not liable to pay sales tax on the transactions in question, as there were only supplies of materials in execution of works contract and that they did not amount to sale of goods.
This contention was overruled by the Superintendent of Sales Tax, Dhanbad, the third respondent herein, and the appellant was assessed to sales tax successively for the years 1952 53 and 195354.
While proceedings by way of appeal or revision by the appellant against these orders of assessment were pending, the third respondent issued further notices for assessment of tax for the years 1954 55 and 1955 56, and directed the appellant to produce all its books and accounts for the above period.
Thereupon the appellant filed in the High Court of Patna, petitions under articles 226 and 227 of the Constitution, similar to those filed by the appellant in Civil Appeal No. 237 of 1960, for issue of appropriate writs to quash the orders of the Sales Tax authorities on the ground that the provisions of the Act, in so far as they sought to tax supply of materials in works contracts, were ultra vires.
By the time the above petitions came up for hearing, the decision of this Court in The State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd. (1), had been reported, wherein it was held that the expression "sale of goods" in Entry 48 in List II of Sch.
VII to (1) ; 88 the Government of India Act, 1935, corresponding to Entry 54 in List 11 of Sch.
VII to the Constitution of India had the same meaning that it has in the , that where there is a building contract, under which specified work is to be executed for a lump sum, there is no contract of sale, as such, of materials used in the works, and that accordingly, a tax on the supply of those materials treating it as a sale was ultra vires the powers of the State Legislature under Entry 48 in List 11 of Sch.
VII to the Government of India Act, 1935.
The learned Judges were of opinion that this decision was distinguishable because there was a term in the agreement before them that the property in the materials was to pass to the owner as soon as they were brought on the site.
Dealing next with the contention of the present appellants that, as there was no agreement for the payment of price for the materials, as such, they could not be held to have been sold, the learned Judges noticed without comment the contention of the Government Pleader for the respondents, based on section 9 of the , that even though no price had been fixed for the materials, that could be determined from the account books and invoices and the course of dealings between the parties.
The learned Judges then proceeded to observe: "I wish, however, to state that I do not express any concluded opinion on the question whether there is sale of materials liable to be taxed in the present case.
The facts have not been fully investigated by the sales tax authorities and the petitioners have not furnished all the account books and documents and other relevant information for the purpose of deciding this question.
It would be open to the sales tax authorities to investigate the facts and Upon proper construction of the contract come to.
the finding whether and if so to what extent, the petitioners are liable to pay sales tax.
I have no doubt that in deciding this question the sales tax authorities will keep in view the principles laid down by the Supreme Court in State of Madras versus Gannon Dunkerley and Company (Madras) Limited (9 Sales Tax Cases 353)".
89 With these observations the learned Judges dismissed the petitions.
It is against this judgment that the present appeals by special leave are directed.
The first question that arises for our decision is ,whether on the construction of the agreement dated December 19,1953, it could be held that there was a sale by the appellants of the materials used in the construction works, apart from the execution of those works.
In The State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd. (1), after stating that building contracts could assume several forms, this Court observed as follows: "It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration and other for the payment of remuneration for services and for work done.
In such a case there are really two agreements, though there is a single instrument embodying them and the power of the State to separate the agreement of sale from the agreement to do work and render service and to impose a tax thereon, cannot be questioned and will stand untouched by the present judgment.
" The point for determination, therefore, is whether on its true construction, the contract in question is a Combination of two distinct agreements, one to sell materials and the other to supply labour and services, or whether it, is only one agreement entire and indivisible for execution of the works.
We will now refer to the relevant portion of the agreement dated December 19, 1953.
The preamble to the agreement states that the Owner had agreed with the contractor that the latter was to set up a complete coke oven battery ready for production as well as by products plants according to specifications given therein, that the installation was to be made at a site selected by the Owner and that the contractor was to "erect and construct buildings, plants and machineries and deliver and supply accessories and articles from Germany and also locally from India and render services fully (1) ; 12 90 described in the First Schedule. . for an all inclu sive price of Rs. 2,31,50,000." Then cl.
I provides that the contractor shall execute and complete the works mentioned in the Schedule, and el. 2 that the Owner shall pay to the contractor for executing the contract the sum of Rs. 2,31,50,000.
Clause 4 requires the contractor to "provide all labour, materials, machinery, plant, tools, tackles and other implements for performing the works in a workman like manner.
" Under cl. 11, the contractor guarantees "to accomplish full production within 22 months from the 15th September, 1952" and further undertakes to fulfill the guarantees prescribed in Schedule II to the agreement "to the satisfaction of the Owner within a period of three months from the date of accomplishment of full production.
" Clause 28 provides that in case the contractor fails or is unable to complete the works within the period, the Owner might take possession of the works and of the materials, "which will become the property of the owner," and complete the works and deduct from the agreed price the expenses incurred in such completion.
It is clear from the above clauses that the subject matter of the agreement was the installation of the coke oven battery and it accessories, that the sum of Rs. 2,31,50,000 was the price agreed to be paid for the execution of those works, and that there was no agreement for the sale of materials, as such, by the appellants to the Owner.
In other words, the agreement in question is a contract entire and indivisible for the construction of specified works for a lump sum and not a contract of sale of materials as such.
Now the contention that found favour with the learned Judges in the High Court was that there was in the contract a clause that the property in the, materials was to pass to the owner when they are brought on the site, and that, in effect, amounted to a sale of those materials by the appellant to the Owner.
The clause in question is as follows: "15 (ii).
All materials and plant brought by the Contractor upon the site under the German and Indian Sections in connection with the construction 91 of the Coke Oven and by products Plant shall immediately they are brought upon the site become the Owner 's property and the same shall not on any account whatsoever be removed or taken away by the Contractor or by any other person without the Owner 's prior authority in writing.
Such of them as during the progress of the works will be rejected by the Owner in accordance with the terms agreed upon between the Contractor and the Owner in this respect shall on such rejection, cease to be the Owner 's property. .
The Owner shall not be liable for any loss or damage which may happen to or in respect of such materials and plant by the same being lost, stolen or injured or destroyed by fire, tempest or otherwise for which the contractor will be liable. .
The Owner agrees that after the Coke Oven and by products Plants have been constructed according to the agreed terms, the Contractor will be entitled to remove from the site their tools, tackles, machines, packing materials, protection roof and other materials as are surplus to the requirements of the normal operation of the Coke Oven and by products Plant provided that no claim for increased cost is made in respect of anything so removed.
" In Peare Lal Hagri Singh vs The State of Punjab (1), a building contract contained the following clause: "All stores and materials brought to the Site shall become and remain the, property of Government and shall not be removed off the Site without the prior written approval of the G. E.
But whenever the works are finally completed, the contractor shall at his own expense forthwith remove from the Site all surplus stores and materials originally sup plied by him and upon such removal, the same shall revest in and become the property of the Contractor." Discussing the question whether by reason of this clause there was a Contract of sale of the materials by the Contractor, distinct from the works contract, this Court held that its object was only to ensure that (1) ; 92 materials of the right sort were used in the construction and not to constitute a contract of purchase of the materials separatism.
In the present case, el. 15 is even clearer that no sale of materials, as such, was intended, because it expressly provides that if they were destroyed by fire, tempest or otherwise, the loss would fall not on the owner, which must be the result if the property is taken to have been absolutely transferred to it, but on the contractor.
The argument based on section 9 of the is, in our opinion, equally unsound.
What that section enacts is that where there is a contract of sale of movable but the price is not mentioned, it has to be fixed either in the manner provided in the agreement or by having regard to the course of dealings between the parties, and where that is not possible, the buyer has to pay the seller a reasonable price.
But the section presupposes that there is a Contract of sale of goods, and, as held in The State of Madras V. Gannon Dunkerley & Co. (Madras) Ltd. (1), such a contract requires that there must have been an agreement between the parties for the sale of the very goods in which eventually property passes.
If, as held by us, cl. 15 does not embody an agreement for the sale of materials as such, there is no contract of sale with respect to them and section 9 of the can have no application.
The contention, therefore, that el.
15 of the agreement could be read as amounting to a contract of sale of materials, and that the price therefor could be fixed as provided in section 9 of the by recourse to the account books of the appellants or the invoices or the course of dealings between them and the owner, must be rejected as untenable.
It follows that the agreement dated December 19, 1953, being a contract for the construction of works, one and indivisible, the respondents have no right to impose a tax on the mate rials supplied in execution of that contract on the footing that such supply is a sale.
It is next contended for the respondents that, whatever the merits of the contentions based on the construction of the contract, the proper forum to agitate (1) ; 93 them would be the authorities constituted under the Act to hear and decide disputes relating to assessment of tax, that it was open to the appellants to satisfy those authorities that there have been no sales such as are liable to be taxed, that indeed they were bound to pursue the remedies under the Act before they could invoke the jurisdiction of the court under article 226 and that the learned Judges of the High Court were, therefore, right in declining to entertain the present petitions.
It is true that if a statute sets up a Tribunal and confides to it jurisdiction over certain matters and if a proceeding is properly taken before it in respect of such matters, the High Court will not, in the exercise of its extraordinary jurisdiction under article 226, issue a prerogative writ so as to remove the proceedings out of the hands of the Tribunal or interfere with their course before it.
But it is equally well settled that, when proceedings are taken before a Tribunal under a provision of law, which is ultra vires, it is open to a party aggrieved thereby to move the court under article 226 for issuing appropriate writs for quashing them on the ground that they are incompetent, without his being obliged to wait until those proceedings run their full course.
That has been held by this court in The State of Bombay vs The United Motors (India) Ltd. (1), Himmatlal Harilal Mehta vs The State of Madhya Pradesh (2).
and The Bengal Immunity Company Limited vs The State of Bihar (3).
The position that emerges is that, if the proceedings before the Sales Tax Officer are founded on the provisions of the Act, which authorizes the levy of the tax on the supply of materials in construction contracts, then they must in view of the decision in The State of Madras vs Gannon Dunkerly & Co. (Madras) Lid.
(4), be held to be incompetent and quashed.
But if the proceedings relate to any extent to sales otherwise than under the contract, then the enquiry with respect to them must proceed (1) ; , 1077.
(2) ; , 1127.
(3) , 617 619, 764 766.
(4) ; 94 before the authorities under the Act and the application under article 226 must fail.
We must now examine the true scope of the proceedings before the Sales Tax Officer in the light of the above principles.
We start with this that the Act contains provisions imposing a tax on the supply of materials under a construction contract.
The appellants were indisputably engaged in construction works under the agreement dated December 19, 1953, and it is not suggested that they were carrying on any independent business as dealers in the State of Bihar.
Presumably, therefore, when the sales tax authorities took proceedings against them, it was in respect of materials supplied by them under their contract dated December 19, 1953.
When the appellants, in response to the notice issued by the third respondent, contested their liability to be taxed, it was on the ground that the supplies of materials under the contract were not sales.
When the appellants next moved the court tinder article 226 for quashing the proceedings, they urged that the provisions of the Act, in so far as they purported to impose a tax on the materials supplied in the performance of the contract, as if they were sold, were ultra vires.
If the respondents sought to tax the appellants on the footing that sales of materials were effected outside the contract, it was their duty to have put that case forward in answer to the petition.
They did nothing of the kind.
They did not file even a counter statement.
At the time of the argument, when faced with the decision of this Court in the case of The State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd. (1), their entire case was that the agreement between the parties should be construed as involving a sale of materials, and that their value could be ascertained from the invoices, account books and the course of dealings between the parties.
No contention was urged that there were sales of materials which fell outside the agreement between the appellants and the Owner.
The learned Judges of the High Court in dismissing the petitions made it clear that the investigation before the sales (1) ; 95 tax authorities must be as regards their liability to pay sales tax "upon proper construction of the contract.
" In this Court also, the respondents seek in their statement to maintain the liability of the appellants only on the basis of the contract, reliance being placed on cl. 15 already referred to and on section 9 of the .
There is no claim that the appellants are liable on the basis of sales falling outside the agreement.
It was stated before us for the appellants, and not contradicted by the respondents, that the Sindri Fertilisers and Chemicals (Private) Ltd., is a company controlled by the Government.
If that is so, the respondents were at all times in possession of facts which would have shown whether the appellants entered into any transaction decors the agreement, and it is significant that at no stage have they alleged any such facts.
We are satisfied that the proceedings have at all stages gone on the footing that the liability of the appellants arose under the contract and not otherwise.
In that view, we must hold, following the decision in The State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd. (1) that the proceedings taken by the respondents for imposing sales tax on the supplies of materials by the appellants, pursuant to the contract dated December 19, 1953, are illegal and must be quashed.
In the result, the appeals are allowed and appropriate writs as prayed for by the appellants will be issued.
The appellants are entitled to their costs throughout.
SHAH, J.
In my view these appeals must fail.
The appellants claim that they are not liable to be taxed in respect of the transaction dated December 19, 1953, because it is not a sale within the meaning of the Bihar Sales Tax Act, 19 of 1947, but is a contract to assemble and install machinery, plants and accessories of a coke oven battery and other plants which under the principle of the decision of this Court in The State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd. (1) is not subject to sales tax.
The Act defines "sale" as meaning omitting parts not material any transfer of property in goods for (1) ; 96 cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of contract.
"Contract" is defined as meaning any agreement for carrying out for cash or deferred payment or other valuable consideration, the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property.
The expression "goods" means all kinds of movable property other than actionable claims, stocks, shares or securities and includes all materials, articles and commodities whether or not to be used in the construction, fitting out, improvement or repair of immovable property.
"Sale price" means the amount payable to a dealer as valuable consideration for (1) the sale or supply of any goods, less any sum allowed as cash discount according to ordinary trade practice, but including any sum charged for anything done by the dealer in respect of the goods at the time of, or before, delivery thereof, other than the cost of freight or delivery or the cost of in stallation when such cost is separately charged; or (ii) the carrying out of any contract, less such portions as may be prescribed , of such amount, representing the usual proportion of the cost of labour to the cost of materials used in carrying out such contract.
These definitions in so far as they seek to treat goods supplied or used in the execution of a works or construction contract, as sold and liable to sales tax under the Act, must, on the decision of this Court in Gannon Dunkerley 's case (1) be regarded as beyond the legislative competence of the State Legislature.
In Gannon Dunkerley 's case (1), this Court held that in a building contract, the contractor constructs the building according to the specifications contained in the agreement and in consideration therefor receives payment as provided therein, and in such an agreement, there is neither a contract to sell the materials used in the construction, nor does property pass therein as moveables, and accordingly in a building contract which is one, entire and indivisible, there is no sale of goods and it is not within the competence of the Provincial Legislature under Entry 48 in List 11 in (1) ; 97 Sch.
VII of the Government of India Act, 1935, to impose a tax on the supply of the materials used in such a contract treating it as a sale.
Relying upon the decision of this court in Gannon Dunkerley 's case (1), the appellants contend that the amount received by them under the contract dated December 19, 1953, is not liable to be assessed to sales tax.
But the question whether the contract is a pure works contract or a composite contract has never been investi gated.
Undoubtedly, the formal document evidencing the contract suggests, prima facie, that it is a works contract, but in assessing liability to tax, the taxing authority is not restricted merely to the letter of the document: he has to enquire into the true nature of the transaction on all the relevant materials and to ascertain whether it partakes of the nature of the transaction which the statute renders taxable.
He is, in ascertaining the true nature of the contract, also entitled to consider how the contract"was performed.
The Act entrusts power to ascertain the facts on which the liability to tax depends to the taxing authorities and in that behalf, the Act is exhaustive in scope and content.
The appellants in approaching the High Court by petitions under articles 226 and 227 of the Constitution sought to eliminate the entire procedure and machinery set up by the Act for ascertaining facts on which the liability to tax depends.
I strongly deprecate the practice of the taxpayer being permitted to invoke the jurisdiction of the High Court to issue high prerogative writs on certain assumed facts facts the truth of which has never been subjected to scrutiny in the only manner in which the law provides they should be scrutinised.
The power to assess the facts on which the decision as to the true nature of the taxable transaction depends by the statute lies solely with the taxing authorities: it does not lie with any other body or tri bunal.
Invoking the jurisdiction of the High Court to adjudicate upon the facts, directly or indirectly, on which the liability to tax depends, in my view, (1) ; 13 98 amounts to inviting the High Court to exercise jurisdiction which it does not possess.
This is however not to say that the jurisdiction of the High Court to issue a writ of prohibition restraining the levy of tax under a statute can never be entertained.
If, for instance, the statute is beyond the legislative competence of the legislature or defies a constitutional restriction or infringes a fundamental right or the taxing authority arrogates to himself powers which he does not possess or attempts to levy tax more than once in respect of the same transaction when it is not permitted by the statute, or the taxing authority threatens to recover tax on an interpretation of a statutory provision imposing tax which is on the face of the statute erroneous, jurisdiction to issue writ of prohibition from the High Court may properly be invoked.
But the High Court cannot be asked to ascertain disputed facts bearing upon the taxability of a transaction, because that jurisdiction is vested elsewhere.
The contract in question is principally a works contract.
The preamble states that the appellants had agreed with the Sindri Fertilizers and Chemicals Ltd. to set up a complete coke oven battery ready for production as well as by products plant on the site specified and to construct buildings, plants and machineries and deliver and supply accessories and articles and to render services fully described in the first schedule, subject to the guarantees to be fulfilled on the part of the appellants and terms and conditions mutually agreed and settled and mentioned in the second schedule for an all inclusive price in accordance with the preliminary site plan.
It is manifest from the preamble that there is a contract for the construction of a coke oven battery and by products together with the plant, and also to deliver and supply accessories and articles.
Undoubtedly, the price agreed to be paid is an "inclusive price" in respect of the entire contract, but that does not affect the nature of the contract to deliver and supply accessories and articles.
The appellants have undertaken, subject to the terms and conditions mentioned in the contract, to execute and complete the works mentioned in the first schedule.
99 The contract in so far as it relates to the installation of plant and construction of building was a works contract and notwithstanding the definition of "sale" and "contract" in the Act, was not taxable but the contract contemplates delivery and supply by the appellant of accessories and articles.
Even if this delivery and supply of accessories and articles is incidental to the works contract, it cannot be assumed without investigation that it was not a part of a transaction of sale liable to tax.
The appellants asked the High Court to assume that the contract in question was a pure works contract, but the High Court declined to make that assumption.
Ramaswami, C. J., in dealing with that plea observed: "I wish, however to state that I do not express any concluded opinion on the question whether there is sale of materials liable to be taxed in the present case.
The facts have not been fully investigated by the sales tax authorities and the petitioners have not furnished all the account books and documents and other relevant information for the purpose of deciding this question.
It would be open to the sales tax authorities to investigate the facts and upon proper construction of the contract come to the finding whether and if so to what extent, the petitioners are liable to pay sales tax," In my view, the learned Chief Justice was right in so approaching the question.
The sales tax authorities have made no assessment; they merely issued a notice purporting to do so under section 13(5) of the Act and required the appellants to produce their books of account and records for ascertaining whether the transaction or any part thereof was in the nature of sale of goods.
The sales tax authorities had jurisdiction to do so and by merely looking at the terms of the written contract and without any investigation as to the true nature of the transaction the High Court could not decide whether the contract performed was a pure works or construction contract or was a composite contract.
It was urged that in the petition filed by the appellants before the High Court, an affidavit 100 in rejoinder challenging the correctness of the averment made in the petition that it was a pure works contract was not filed by the taxing authorities and therefore the High Court was bound to decide the dispute on the footing set up by the appellants.
But the taxing authorities could not be expected without investigation to assert a state of facts which was not and could not be within their knowledge, and their statutory authority could not, because of their failure to so assert, be nullified.
As I have already observed, the investigation of facts on the question of the liability to pay tax has to be made by the taxing authorities in whom that jurisdiction is vested.
Before the facts on which the liability to tax depends are ascertained, the High Court could not be asked to assume that the transaction was in the nature of a pure works contract and to decide the question as to the liability of the appellants on that footing.
There is no ground for assuming that the taxing authorities will not give effect to the decision of this court in Gannon Dunkerley 's case (1) after the true nature of the transaction is ascertained.
In my view, the High Court was right in declining to issue the writ prayed for.
By COURT: In accordance with the opinion of the majority, the appeals are allowed and it is directed that appropriate writs as prayed be issued.
The appellants are also entitled to their costs throughout.
Appeals allowed.

Output:
On December 19, 1953, the appellant, a company registered in West Germany, entered into a contract with a company in India to set up a complete coke oven battery ready for production as well as by products plants at Sindri in the State of Bihar, agreeing to erect and construct buildings, plants and machinery and deliver and supply accessories and articles from Germany and also locally from India, and render services fully described in the First Schedule, for an all inclusive price of Rs. 2,31,50,000.
The contract provided that in case the contractor failed to complete the works within the period specified therein the Indian company might take possession of the works and the materials which would become its property and complete the works and deduct from the agreed price the expenses incurred in such completion.
Under cl.
15(ii) of the contract all materials brought by the contractor upon the site shall immediately become the company 's property, but such of them as during the progress of the works.
were rejected by the company ceased to be Company 's property, and after the coke oven and byproducts plants had been constructed the contractor was entitled to remove the surplus materials.
The clause further provided that the company shall not be liable for any loss if the materials were destroyed by fire or otherwise.
Under the Bihar Sales Tax Act, 1947, in a contract for, execution of works, the materials used 11 82 therein are treated as sold by the contractors and their value is taken as the sale price liable to be taxed.
The execution of the works was completed in 1955 as provided in the agreement and on March 20, 1956, the sales tax authorities issued a notice to the appellant to the effect that it was liable to pay tax for the three years 1952 to 1955, under the provisions of the Act.
The appellant represented that it had only supplied materials in execution of works contract, that there was no sale of any goods or materials by it and that the proceedings for taxing this supply of materials as if they had been sold were illegal.
The sales tax authorities having proceeded to take further steps to levy the tax in spite of its representations, the appellant filed a petition before the High Court of Patna under articles 226 and 227 of the Constitution of India for quashing the proceedings.
The High Court took the view that under cl.
15(ii) of the contract in question the property in the materials was to pass to the Indian company as soon as they were brought on the site, and that, in effect, amounted to a sale of those materials by the appellant to the company.
The Court, however, dismissed the petition on the ground that the facts had not yet been fully investigated and that it would be open to the sales tax authorities to investigate the facts and upon the proper construction of the contract come to the finding whether and if so to what extent, the appellant was liable to pay sales tax.
Held (Shah, J., dissenting): (1) that on its proper construction the agreement dated December 19, 1953, was a contract entire and indivisible for the construction of specified works for a lump sum and not a contract of sale of materials as such and that the sales tax authorities had no right to impose a tax on the materials supplied in execution of that contract on the footing that such supply was a sale.
The State of Madras vs Gannon Dunkerley & Co. (Madras) Ltd., ; and Peare Lal Hari Singh vs The State of Punjab, ; , followed.
(2) that where proceedings are taken before a tribunal under a provision of law, which is ultra vires, it is open to a party aggrieved thereby to move the court under article 226 for issuing appropriate writs for quashing them on the ground that they are incompetent, without his being obliged to wait until those proceedings run their full course.
The State of Bombay vs The United Motors (India) Ltd., ; , Himmatlal Harilal Mehta vs State of Madhya Pradesh, ; and The Bengal Immunity Company Ltd. vs State of Bihar, , relied on.
In the present case, the sales tax authorities sought to maintain the liability of the appellant to pay tax in respect of materials supplied by it only under the contract dated December 19, 953, and on the basis of the legality of the provisions 83 of the Bihar Sales Tax Act, 1947.
Consequently, the proceedings taken by them must be held to be illegal and must be quashed.
Per Shah, J. Under the agreement dated December 19, 1953, there was a contract for the construction of a coke oven battery and by products plant, and also to deliver and supply accessories and articles.
Even if this delivery and supply was incidental to the works contract, it could not be assumed without investigation that it was not a part of a transaction of sale liable to tax.
The investigation of facts on the question of liability to pay tax has to be made by the taxing authorities in whom that jurisdiction is vested.
Before these facts are ascertained, by merely looking at the terms of the written contract and without any investigation as to the true nature of the transaction, the High Court could not decide whether the contract performed was a pure works or construction contract or was a composite contract.
The High Court was, therefore, right in declining to issue the writ prayed for.