Page 1 Reportable IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 10316 OF 2013 (Arising out of S.L.P. (C) No. 15927 of 2008) Tribhuvanshankar … Appellant Versus Amrutlal …Respondent J U D G M E N T Dipak Misra, J. Leave granted. 2. This appeal, by special leave, is from the judgment and order of the High Court of Madhya Pradesh, Bench at Indore, in Second Appeal No. 33 of 1995 passed on 8.2.2008. 3. The appellant-plaintiff instituted Civil Suit No. 259A/86 in the Court of Civil Judge Class-II, Mhow, District Indore, for eviction of the respondent-defendant from the suitpremises and for mesne profits. The case of the Page 2 2 appellant-plaintiff was that he had purchased the suit property vide registered sale deed dated 1.4.1976 on payment of sale consideration of Rs.4500/- to the vendor, one Kishanlal. The respondent-defendant was in possession of the said suit property as a tenant under the earlier owner Kishorilal on payment of rent of Rs.15/- per month. It was averred in the plaint that it was an oral tenancy and after acquiring the title the appellant informed the respondent about the sale by the earlier owner. Despite assurance given by the respondent to pay the rent to him, it was not honoured which compelled the appellant to send a notice on 14.12.1977 and, eventually, he terminated the tenancy with effect from 31.1.1978. The respondent, as pleaded, had replied to the notice stating, inter alia, that the appellant was neither the landlord nor the owner of the property. On the contrary, it was stated in the reply that the respondent was the owner of the premises. 4. The grounds that were urged while seeking eviction were: (i) the defendant was in arrears of rent since 1.4.1976 Page 3 3 and same was demanded vide notice dated 14.12.1977, which was received on 3.1.1978 and despite receiving the notice, the defendant defaulted by not paying the rent within two months; (ii) that the said accommodation was bona fide required by the plaintiff for construction of his house and the accommodation is an open land; (iii) the said accommodation was bona fide required by the plaintiff for general merchant shop i.e. non-residential purpose and for the said purpose the plaintiff did not have any alternative accommodation in his possession in Mhow City. 5. In the written statement, the defendant disputed the right, title and interest of the plaintiff, and denied the relationship of landlord and tenant. That apart, a further stand was taken that the appellant had no right under the M.P. Accommodation Control Act, 1961 (for brevity “the Act”) to file the suit for eviction. It was set forth by the respondent-defendant that he was never a tenant under Kishorilal and, in fact, the accommodation was in a dilapidated condition and a ‘banjar’ land and the Page 4 4 respondent was in possession for 18 to 19 years and it was to the knowledge of Kishorilal and his elder brother. For the purpose of business he had constructed a Gumti, got the gate fixed and when the business relating to sale of furniture commenced there was no objection from Kishorilal or his brother or any family member. The possession, as put forth by the respondent, was uninterrupted, peaceful and to the knowledge of Kishorilal who was the actual owner. It was also set forth that when Kishorilal desired to sell the premises, he was put to notice about the ownership of the defendant but he sold the property without obtaining sale consideration with the sole intention to obtain possession by colluding with the appellant-plaintiff. Alternatively, it was pleaded that the premises is situate in the Cantonment area and the Cantonment Board has the control over the land and neither Kishorilal nor the appellant had any title to the same. 6. The learned trial Judge framed as many as 26 issues. The relevant issues are, whether the suit accommodation was Page 5 5 taken on rent by the defendant for running his wood business in the year 1973 from the earlier landlord Kishorilal; whether defendant is in continuous, unobstructed and peaceful possession since 18 years which was within the knowledge of Kishorilal, his elder brother and their family members; whether defendant had become owner of the suit accommodation by way of adverse possession; and whether the sale deed had been executed without any consideration for causing damage to the title of defendant. 7. The learned trial Judge, on the basis of evidence brought on record, came to hold that the sale deed executed by Kishorilal in favour of the appellant was without any sale consideration; that the relationship of landlord and tenant between the parties had not been established; and that the respondent had become the owner of the suit accommodation on the basis of adverse possession. Being of this view, the trial court dismissed the suit. Page 6 6 8. Being dissatisfied with the aforesaid judgment and decree the plaintiff preferred Civil Regular Appeal No. 5 of 1994 and the lower appellate court, reappreciating the evidence on record and considering the submissions raised at the bar, came to hold that the appellant- plaintiff had not been able to prove the relationship of landlord and tenant; that the conclusion arrived at by the learned trial Judge that the sale-deed dated 1.4.1976 due to absence of sale consideration was invalid, was neither justified nor correct; and that there being no clinching evidence to establish that the defendant had perfected his title by adverse possession the finding recorded by the learned trial Judge on that score was indefensible. After so holding, the learned appellate Judge proceeded to hold that as the plaintiff had established his title and the defendant had miserably failed to substantiate his assertion as regards the claim of perfection of title by way of adverse possession, the plaintiff on the basis of his ownership was entitled to a decree for possession. To arrive at the said conclusion he placed reliance on Punia Page 7 7 Pillai vs. Panai Minor through Pandiya Thevan1 , Bhagwati Prasad v. Chandramaul2 and Amulya Ratan Mukherjee and ors. V. Kali Pada Tah and ors.3 9. Facing failure before the appellate court the defendant preferred Second Appeal No. 33 of 1995 before the High Court. The appeal was admitted on the following substantial questions of law: - “(1) Whether a decree could be passed in favour of plaintiff though such plaintiff fails to establish the relationship of landlord and tenant? (2) Whether the 1st Appellate Court committed the error of law in pronouncing the error of law in pronouncing the judgment and decree on question of title? And (3) Whether the 1st Appellate Court has erred in law in holding that the possession of the defendant is not proved and that the defendant has not acquired the title by adverse possession?” 10. The learned single Judge by judgment dated 8.2.2008 adverted to Sections 12(1)(a) and 12(1)(e) of the Act and came to hold that once the plaintiff had failed to establish the relationship of landlord and tenant which is the sine 1 AIR 1947 Madras 282 2 AIR 1966 SC 735 3 AIR 1975 Cal 200 Page 8 8 qua non in a suit for eviction, the plaintiff could not have fallen back on his title to seek eviction of the tenant. Be it noted, the learned single Judge placed reliance upon Rajendra Tiwary v. Basudeo Prasad and another4 wherein the decision in Bhagwati Prasad (supra) had been distinguished. The learned single Judge dislodged the judgment and decree passed by the lower appellate court and affirmed that of the learned trial Judge. 11. We have heard Mr. A.K. Chitale, learned senior counsel appearing for the appellant and Mr. Puneet Jain, learned counsel appearing for the respondent. 12. Questioning the legal acceptableness of the decision of the High Court the learned senior counsel has raised the following contentions: - (a) The learned single Judge has erroneously opined that a suit cannot be decreed by civil court for possession on the basis of general title even if the landlord-tenant relationship is not proved. A manifest error has been 4 AIR 2002 SC 136 Page 9 9 committed by the learned Judge not following the law laid down in Bhagwati Prasad (supra) which is applicable on all fours to the case at hand, solely on the ground that the said decision has been distinguished in Rajendra Tiwary’s case. (b) Though three substantial questions of law were framed, yet the learned single Judge without considering all the questionss affirmed the judgment of the trial court wherein it had come to hold that the defendant had established his title by adverse possession despite the same had already been annulled on reappreciation of evidence by the lower appellate court. (c) Assuming a conclusion is arrived at that there should have been a prayer for recovery of possession by paying the requisite court fee, the appellant, who has been fighting the litigation since decades should be allowed to amend the plaint and on payment of requisite court fee apposite relief should be granted. Page 10 10 13. Countering the aforesaid submissions Mr. Puneet Jain, learned counsel appearing for the respondent, has proponed thus: - (i) The analysis made by the High Court that when the relationship between the landlord and tenant is not proven in a suit for eviction, possession cannot be delivered solely on the bedrock of right, title and interest cannot be found fault with. There is a difference between a suit for eviction based on landlord-tenant relationship and suit for possession based on title, and once the relationship of landlord and tenant is not proven there cannot be a decree for eviction. (ii) The High Court has correctly distinguished the decision rendered in Bhagwati Prasad (supra) in Rajendra Tiwary (supra) as the law laid down in Bhagwati Prasad is not applicable to the present case and hence, the submission raised on behalf of the appellant that once the right, title and interest is established, on Page 11 11 the basis of general title, possession can be recovered is unacceptable. (iii) The alternative submission that liberty should be granted to amend the plaint for inclusion of the relief for recovery of possession would convert the suit from one for eviction simpliciter to another for right, title and interest and recovery of possession which is impermissible. That apart, when the suit was dismissed and the controversy travelled to appellate court the plaintiff was aware of the whole situation but chose not to seek the alternative relief that was available which is presently barred by limitation. It is well settled in law that the Court should decline to allow the prayer to amend the plaint if a fresh suit based on the amended claim would be barred by limitation on the date of application. 14. At the very outset, we may straight away proceed to state that the finding returned by the courts below that has been concurred by the High Court to the effect that Page 12 12 there is no relationship of landlord and tenant between the parties is absolutely impeccable and, in fact, the legality and propriety of the said finding has not been assailed by the learned senior counsel for the appellant. As far as right, title and interest is concerned, the learned trial Judge had not believed the sale deed executed by the vendor of the appellant-plaintiff in his favour for lack of consideration and also returned an affirmative finding that the defendant was in possession for long and hence, had acquired title by prescription. The learned appellate Judge on reappreciation of the evidence brought on record had unsettled the findings with regard to the title of the plaintiff as well as the acquisition of title by the defendant by way of adverse possession. He had granted relief to the plaintiff on the ground that in a suit for eviction when the title was proven and assertion of adverse possession was negatived by the court, there could be a direction for delivery of possession. As has been stated earlier the High Court has reversed the same by distinguishing the Page 13 13 law laid down in Bhagwati Prasad (supra) and restored the verdict of the learned trial Judge. 15. Keeping these broad facts in view, it is necessary to scrutinize whether the decision in Bhagwati Prasad which has been assiduously commended to us by Mr. Chitale is applicable to the case. In Bhagwati Prasad (supra) the defendant was the appellant before this Court. The case of the plaintiff was that the defendant was in possession of the house as the tenant of the plaintiff. The defendant admitted that the land over which the house stood belonged to the plaintiff. He, however, pleaded that the house had been constructed by the defendant at his own cost and that too at the request of the plaintiff because the plaintiff had no funds to construct the building on his own. Having constructed the house at his own cost, the defendant entered into possession of the house on condition that the defendant would continue to occupy the same until the amount spent by him on the construction was repaid to him by the plaintiff. In this backdrop, the defendant resisted the claim made by the Page 14 14 plaintiff for ejectment as well as for rent. The learned trial Judge held that the suit was competent and came to the conclusion that the plaintiff was entitled to a decree for ejectment as well as for rent. The High Court agreed with the trial court in disbelieving the defendant’s version about the construction of the house and about the terms and conditions on which he had been let into possession. The High Court opined that the defendant must be deemed to have been in possession of the house as a licensee and accordingly opined that a decree for ejectment should be passed. Dealing with various contentions raised before this Court it was ruled that the defendant could not have taken any other plea barring that of a licensee in view of the pleadings already put forth and the evidence already adduced. In that context, this Court opined that the High Court had correctly relied upon the earlier Full Bench decision in Abdul Ghani v. Musammat Babni5 and Balmukund v. Dalu6 . An opinion was expressed by this Court that once the finding 5 25 All 256 6 25 All 498 Page 15 15 was returned that the defendant was in possession as a licensee, there was no difficulty in affirming the decree for ejectment, even though the plaintiff had originally claimed ejectment on the ground of tenancy and not specifically on the ground of licence. In that context it was observed thus: - “15. ... In the present case, having regard to all the facts, we are unable to hold that the High Court erred in confirming the decree for ejectment passes by the trial Court on the ground that the defendant was in possession of the suit premises as a licensee. In this case, the High Court was obviously impressed by the thought that once the defendant was shown to be in possession of the suit premises as a licensee, it would be built to require the plaintiff to file another suit against the defendant for ejectment on that basis. We are not prepared to hold that in adopting this approach in the circumstances of this case, the High Court can be said to have gone wrong in law.” 16. Before we proceed to state the ratio in Rajendra Tiwary’s case, we think it seemly to advert to the principle stated in Biswanath Agarwalla v. Sabitri Bera and others7 as the same has been strongly relied upon by the learned senior counsel for the appellant. In the said case, the question that was posed is whether a civil court can 7 (2009) 15 SCC 693 Page 16 16 pass a decree on the ground that the defendant is a trespasser in a simple suit for eviction. In the said case the learned single Judge of the Calcutta High Court, considering the issues framed and the evidence laid, had held that although the plaintiffs had failed to prove the relationship of landlord and tenant by and between them and the defendant or that the defendant had been let into the tenanted premises on leave and licence basis, the respondent-plaintiffs were entitled to a decree for possession on the basis of their general title. This Court took note of the relief prayed, namely, a decree for eviction of the defendant from the schedule premises and for grant of mesne profit in case the eviction is allowed at certain rates. The Court proceeded on the base that the plaintiff had proved his right, title and interest. The Court observed that the landlord in a given case, although may not be able to prove the relationship of landlord and tenant, yet in the event he proves the general title, may obtain a decree on the basis thereunder. But regard being had to the nature of the case the Court observed that the defendant was Page 17 17 entitled to raise a contention that he had acquired indefeasible title by adverse possession. The Court referred to the decision in Bhagwati Prasad (supra) and, eventually, came to hold as follows: - “27. The question as to whether the defendant acquired title by adverse possession was a plausible plea. He, in fact, raised the same before the appellate court. Submission before the first appellate court by the defendant that he had acquired title by adverse possession was merely argumentative in nature as neither there was a pleading nor there was an issue. The learned trial court had no occasion to go into the said question. We, therefore, are of the opinion that in a case of this nature an issue was required to be framed.” Thereafter, the two-Judge Bench issued the following directions: - “29. However, we are of the opinion that keeping in view the peculiar facts and circumstances of this case and as the plaintiffs have filed the suit as far back as in the year 1990, the interest of justice should be subserved if we in exercise of our jurisdiction under Article 142 of the Constitution of India issue the following directions with a view to do complete justice to the parties. (i) The plaintiffs may file an application for grant of leave to amend their plaint so as to enable them to pray for a decree Page 18 18 for eviction of the defendant on the ground that he is a trespasser. (ii) For the aforementioned purpose, he shall pay the requisite court fee in terms of the provisions of the Court Fees Act, 1870. (iii) Such an application for grant of leave to amend the plaint as also the requisite amount of court fees should be tendered within four weeks from date. (iv) The appellant-defendant would, in such an event, be entitled to file his additional written statement. (v) The learned trial Judge shall frame an appropriate issue and the parties would be entitled to adduce any other or further evidence on such issue. (vi) All the evidences brought on record by the parties shall, however, be considered by the court for the purposes of disposal of the suit. (vii) The learned trial Judge is directed to dispose of the suit as expeditiously as possible and preferably within three months from the date of filing of the application by the plaintiffs in terms of the aforementioned Direction (i).” 17. At this stage it is necessary to dwell upon the facet of applicability of the said authorities to the lis of the present nature. As per the exposition of facts, the analysis made Page 19 19 and the principles laid down in both the cases, we notice that the civil action was initiated under the provisions of Transfer of Property Act, 1882. In Bhagwati Prasad’s case the Court opined that a decree for ejectment could be passed on general title as the defendant was a licensee. In Biswanath Agarwalla’s case the Court took note of the concept of general title and the plausible plea of adverse possession and granted liberty to the plaintiff to amend the plaint seeking a decree for recovery of possession and pay the required court fee under the Court-fees Act, 1870. That apart, certain other directions were issued. We may repeat at the cost of repetition that the suits were instituted under the Transfer of Property Act. The effect of the same and its impact on difference of jurisdiction on a civil court in exercising power under the Transfer of Property Act and under special enactments relating to eviction and other proceedings instituted between the landlord and tenant, we shall advert to the said aspects slightly at a later stage. Page 20 20 18. Presently, we shall analyse the principles stated in Rajendra Tiwary (supra). In the said case the respondent-plaintiff had filed a suit for eviction under the Bihar Buildings (Lease, Rent and Eviction) Control Act, 1982 on many a ground. The learned trial Judge, appreciating the evidence on record, dismissed the suit for eviction holding that there was no relationship of landlord and tenant between the plaintiff and the defendant. However, he had returned a finding that the plaintiff had title to the suit premises. The appellate court affirmed the judgment of the learned trial Judge and dismissed the appeal. In second appeal the High Court reversed the decisions of the courts below and allowed the appeal taking the view that a decree for eviction could be passed against the defendant on the basis of the title of the plaintiff and, accordingly, remanded the case to the first appellate court on the ground that it had not recorded any finding on the question of the title of the parties. It was contended before this Court that as the trial court was exercising limited jurisdiction under the Page 21 21 Rent Act, the question of title to the suit premises could not be decided inasmuch as that had to be done by a civil court in its ordinary jurisdiction and, therefore, the High Court erred in law in remanding the case to the first appellate court for deciding the question of title of the plaintiff and passing an equitable decree for eviction of the defendant. The Court posed a question whether on the facts and in the circumstances of the case the High Court was right in law holding that an equitable decree for eviction of the defendant could be passed under Order VII Rule 7 of the Civil Procedure Code and remanding the case to the first appellate court for recording its finding on the question of title of the parties to the suit premises and for passing an equitable decree for eviction against the defendant if the plaintiffs were found to have title thereto. Answering the question the learned Judges proceeded to state thus: - “It is evident that while dealing with the suit of the plaintiffs for eviction of the defendant from the suit premises under clauses (c) and (d) of sub-section (1) of Section 11 of the Act, courts including the High Court were exercising jurisdiction under the Page 22 22 Act which is a special enactment. The sine qua non for granting the relief in the suit, under the Act, is that between the plaintiffs and the defendant the relationship of “landlord and tenant” should exist. The scope of the enquiry before the courts was limited to the question: as to whether the grounds for eviction of the defendant have been made out under the Act. The question of title of the parties to the suit premises is not relevant having regard to the width of the definition of the terms “landlord” and “tenant” in clauses (f) and (h), respectively, of Section 2 of the Act.” 19. In course of deliberation, the two-Judge Bench distinguished the authorities in Firm Sriniwas Ram Kumar v. Mahabir Prasad8 and Bhagwati Prasad (supra) by observing thus: - “15. These are cases where the courts which tried the suits were ordinary civil courts having jurisdiction to grant alternative relief and pass decree under Order VII Rule 7. A Court of Rent Controller having limited jurisdiction to try suits on grounds specified in the special Act obviously does not have jurisdiction of the ordinary civil court and therefore cannot pass a decree for eviction of the defendant on a ground other than the one specified in the Act. If, however, the alternative relief is permissible within the ambit of the Act, the position would be different.” [Emphasis supplied] 8 AIR 1951 SC 177 Page 23 23 20. Thereafter, the learned Judges proceeded to express thus: “16. In this case the reason for denial of the relief to the plaintiffs by the trial court and the appellate court is that the very foundation of the suit, namely, the plaintiffs are the landlords and the defendant is the tenant, has been concurrently found to be not established. In any event inquiry into title of the plaintiffs is beyond the scope of the court exercising jurisdiction under the Act. That being the position the impugned order of the High Court remanding the case to the first appellate court for recording finding on the question of title of the parties, is unwarranted and unsustainable. Further, as pointed out above, in such a case the provisions of Order VII Rule 7 are not attracted.” [Underlining is ours] 21. At this juncture, we may fruitfully refer to the principles stated in Dr. Ranbir Singh v. Asharfi Lal9 . In the said case the Court was dealing with the case instituted by the landlord under Rajasthan Premises (Control of Rent and Eviction) Act, 1950 for eviction of the tenant who had disputed the title and the High Court had decided the judgment and decree of the courts below and dismissed the suit of the plaintiff seeking eviction. While adverting 9 (1995) 6 SCC 580 Page 24 24 to the issue of title the Court ruled that in a case where a plaintiff institutes a suit for eviction of his tenant based on the relationship of the landlord and tenant, the scope of the suit is very much limited in which a question of title cannot be gone into because the suit of the plaintiff would be dismissed even if he succeeds in proving his title but fails to establish the privity of contract of tenancy. In a suit for eviction based on such relationship the Court has only to decide whether the defendant is the tenant of the plaintiff or not, though the question of title if disputed, may incidentally be gone into, in connection with the primary question for determining the main question about the relationship between the litigating parties. In the said case the learned Judges referred to the authority in LIC v. India Automobiles & Co. 10 wherein the Court had observed that in a suit for eviction between the landlord and tenant, the Court will take only a prima facie decision on the collateral issue as to whether the applicant was landlord. If the Court finds existence of relationship of 10 (1990) 4 SCC 286 Page 25 25 landlord and tenant between the parties it will have to pass a decree in accordance with law. It was further observed therein that all that the Court has to do is to satisfy itself that the person seeking eviction is a landlord, who has prima facie right to receive the rent of the property in question. In order to decide whether denial of landlord’s title by the tenant is bona fide the Court may have to go into tenant’s contention on the issue but the Court is not to decide the question of title finally as the Court has to see whether the tenant’s denial of title of the landlord is bona fide in the circumstances of the case. 22. On a seemly analysis of the principle stated in the aforesaid authorities, it is quite vivid that there is a difference in exercise of jurisdiction when the civil court deals with a lis relating to eviction brought before it under the provisions of Transfer of Property Act and under any special enactment pertaining to eviction on specified grounds. Needless to say, this court has cautiously added that if alternative relief is permissible within the ambit of the Act, the position would be different. That apart, the Page 26 26 Court can decide the issue of title if a tenant disputes the same and the only purpose is to see whether the denial of title of the landlord by the tenant is bona fide in the circumstances of the case. We respectfully concur with the aforesaid view and we have no hesitation in holding that the dictum laid down in Bhagwati Prasad (supra) and Bishwanath Agarwalla (supra) are distinguishable, for in the said cases the suits were filed under the Transfer of Property Act where the equitable relief under Order VII Rule 7 could be granted. 23. At this juncture, we are obliged to state that it would depend upon the Scheme of the Act whether an alternative relief is permissible under the Act. In Rajendra Tiwari’s case the learned Judges, taking into consideration the width of the definition of the “landlord” and “tenant” under the Bihar Buildings (Lease, Rent and Eviction) Control Act, 1982, had expressed the opinion. The dictionary clause under the Act, with which we are concerned herein, uses similar expression. Thus, a limited enquiry pertaining to the status of the parties, i.e., Page 27 27 relationship of landlord and tenant could have been undertaken. Once a finding was recorded that there was no relationship of landlord and tenant under the Scheme of the Act, there was no necessity to enter into an enquiry with regard to the title of the plaintiff based on the sale deed or the title of the defendant as put forth by way of assertion of long possession. Similarly, the learned appellate Judge while upholding the finding of the learned trial Judge that there was no relationship of landlord and tenant between the parties, there was no warrant to reappreciate the evidence to overturn any other conclusion. The High Court is justified to the extent that no equitable relief could be granted in a suit instituted under the Act. But, it has committed an illegality by affirming the judgment and decree passed by the learned trial Judge because by such affirmation the defendant becomes the owner of the premises by acquisition of title by prescription. When such an enquiry could not have been entered upon and no finding could have been recorded and, in fact, the High Court has correctly not Page 28 28 dwelled upon it, the impugned judgment to that extent is vulnerable and accordingly we set aside the said affirmation. 24. Presently we shall proceed to address ourselves, which is necessary, as to what directions we should issue and with what observations/clarifications. In Rajendra Tiwary (supra), the two-Judge Bench had observed that the decision rendered by this Court did not preclude the plaintiff for filing the suit for enquiry of title and for recovery of possession of the suit premises against the defendant. In the said case a suit for specific performance of contract filed against the defendant was pending. The Court had directed that the suit to be filed by the plaintiff for which a three months’ time was granted should be heard together with the suit already instituted by the defendant. In the present case, the suit was instituted on the basis of purchase. A plea was advanced that the defendant had already perfected his title by prescription as he was in possession for 18 to 19 years. The trial court had accepted the plea and the Page 29 29 appellate court had reversed it. The High Court had allowed the second appeal holding that when the relationship of landlord and tenant was not established, a decree for eviction could not be passed. We have already opined that the High Court could not have affirmed the judgment and decree passed by the trial court as it had already decided the issue of adverse possession in favour of the defendant, though it had neither jurisdiction to enquire into the title nor that of perfection of title by way of adverse possession as raised by the defendant. Under these circumstances we are disposed to think that the plaintiff is entitled under law to file a fresh suit for title and recovery of possession and such other reliefs as the law permits. 25. At this juncture, we think it apt to clarify the position, for if we leave at this when a fresh suit is filed the defendant would be in a position to advance a plea that the right of the plaintiff had been extinguished as he had not filed the suit for recovery of possession within the time allowed by law. It is evincible that the suit for Page 30 30 eviction was instituted on 21.3.1978 and if the time is computed from that day the suit for which we have granted liberty would definitely be barred by limitation. Thus, grant of liberty by us would be absolutely futile. Hence, we think it imperative to state the legal position as to why we have granted liberty to the plaintiff. We may hasten to add that we have affirmed the judgment of the High Court only to the extent that as the relationship of landlord and tenant was not established the defendant was not liable for eviction under the Act. The issue of right, title and interest is definitely open. The appellant is required to establish the same in a fresh suit as required under law and the defendant is entitled to resist the same by putting forth all his stand and stance including the plea of adverse possession. The fulcrum of the matter is whether the institution of the instant suit for eviction under the Act would arrest of running of time regard being had to the concept of adverse possession as well as the concept of limitation. The conception of adverse possession fundamentally contemplates a hostile Page 31 31 possession by which there is a denial of title of the true owner. By virtue of remaining in possession the possessor takes an adverse stance to the title of the true owner. In fact, he disputes the same. A mere possession or user or permissive possession does not remotely come near the spectrum of adverse possession. Possession to be adverse has to be actual, open, notorious, exclusive and continuous for the requisite frame of time as provided in law so that the possessor perfects his title by adverse possession. It has been held in Secy. Of State for India In Council v. Debendra Lal Khan11 that the ordinary classical requirement of adverse possession is that it should be nec vi, nec clam, nec precario 26. In S.M. Karim v. Mst. Bibi Sakina12 , it has been ruled that adverse possession must be adequate in continuity, in publicity and extent and a plea is required at the least to show when possession becomes adverse so that the starting point of limitation against the party affected can be found. 11 (1933-34) 61 IA 78 : AIR 1934 PC 23 12 AIR 1964 SC 1254 Page 32 32 27. In Karnataka Board of Wakf v. Govt. of India13 it has been opined that adverse possession is a hostile possession by clearly asserting hostile title in denial of the title of the true owner. It is a well-settled principle that a party claiming adverse possession must prove that his possession is ‘nec vi, nec clam, nec precario’, that is, peaceful, open and continuous. The possession must be adequate in continuity, in publicity and in extent to show that their possession is adverse to the true owner. It must start with a wrongful disposition of the rightful owner and be actual, visible, exclusive, hostile and continued over the statutory period. Thereafter, the learned Judges observed thus: - “11. ... Plea of adverse possession is not a pure question of law but a blended one of fact and law. Therefore, a person who claims adverse possession should show: (a) on what date he came into possession, (b) what was the nature of his possession, (c) whether the factum of possession was known to the other party, (d) how long his possession has continued, and (e) his possession was open and undisturbed. A person pleading adverse possession has no equities in his favour. Since he is trying to defeat the rights of the true owner, it is for him to clearly plead and establish 13 (2004) 10 SCC 779 Page 33 33 all facts necessary to establish his adverse possession.” 28. It is to be borne in mind that adverse possession, as a right, does not come in aid solely on the base that the owner loses his right to reclaim the property because of his willful neglect but also on account of the possessor’s constant positive intent to remain in possession. It has been held in P.T. Munichikkanna Reddy and others v. Revamma and others14 . 29. Regard being had to the aforesaid concept of adverse possession, it is necessary to understand the basic policy underlying the statutes of limitation. The Acts of Limitation fundamentally are principles relating to “repose” or of “peace”. In Halsbury’s Laws of England, Fourth Edition, Volume 28, Para 605 it has been stated thus: - “605. Policy of the Limitation Acts. – The courts have expressed at least three differing reasons supporting the existence of statutes of limitation, namely (1) that long dormant claims have more of cruelty than justice in them, (2) that a defendant might have lost the evidence to 14 (2007) 6 SCC 59 Page 34 34 disprove a stale claim, and (3) that persons with good causes of actions should pursue them with reasonable diligence.” 30. These principles have been accepted by this Court keeping in view the statutory provisions of the Indian Limitation Act. The fundamental policy behind limitation is that if a person does not pursue his remedy within the specified time frame, the right to sue gets extinguished. In the present case the pivotal point is whether a good cause because a litigant cannot deprive the benefit acquired by another in equity by his own inaction and negligence, as assumed by the plaintiff, has been lost forever as he has not been able to prove the relationship of landlord and tenant in a suit for eviction which includes delivery of possession. 31. Keeping in view the aforesaid principles it is required to be scrutinized whether the time spent in adjudication of the present suit and the appeal arrests the running of time for the purpose of adverse possession. In this regard, we may profitably refer to the decision in Mst. Page 35 35 Sultan Jehan Begum and Ors. v. Gul Mohd. and Ors.15 wherein following principles have been culled out: - “(1) When a person entitled to possession does not bring a suit against the person in adverse possession within the time prescribed by law his right to possession is extinguished. From this it only follows that if the former brings a suit against the latter within the prescribed period of limitation his right will not be extinguished. (2) If a decree for possession is passed in that suit in his favour he will be entitled to possession irrespective of the time spent in the suit and the execution and other proceedings. (3) The very institution of the suit arrests the period of adverse possession of the defendant and when a decree for possession is passed against the defendant the plaintiff's right to be put in possession relates back to the date of the suit. (4) Section 28 of the Limitation Act merely declares when the right of the person out of possession is extinguished. It is not correct to say that that section confers title on the person who has been in adverse possession for a certain period. There is no law which provides for 'conferral of title' as such on a person who has been in adverse possession for whatever length of time. (5) When it is said that the person in adverse possession 'has perfected his title', it only means this. Since the person who had the right of possession but allowed his right to be extinguished by his inaction, he cannot obtain the possession 15 AIR 1973 MP 72 Page 36 36 from the person in adverse possession, and, as its necessary corollary the person who is in adverse possession will be entitled to hold his possession against the other not in possession, on the well settled rule of law that possession of one person cannot be disturbed by any person except one who has a better title.” 32. In Sultan Khan s/o Jugge Khan v. State of Madhya Pradesh and another16 a proceeding was initiated for eviction of the plaintiff under Section 248 of the M.P. Land Revenue Code, 1959. Facing eviction plaintiff filed a suit for declaration of his right, title and interest on the bedrock of adverse possession. His claim was that he had been in uninterrupted possession for more than 30 years. Repelling the contention the learned Judge observed thus: “It must, therefore, be accepted that filing of the suit for recovery of possession, by itself, is sufficient to arrest the period of adverse possession and a decree for possession could be passed irrespective of the time taken in deciding the suit. If this principle is applied to the proceedings under Section 248 of the Code, it must be held that in case a person has not perfected his title by adverse possession before start of the proceedings, he cannot perfect his title during the pendency of the proceedings. Adverse possession of the person in possession must be deemed to have been arrested by initiation of these proceedings.” 16 1991 MPLJ 81 Page 37 37 33. We have referred to the aforesaid pronouncements since they have been approved by this Court in Babu Khan and others v. Nazim Khan (dead) by L.Rs. and others17 wherein after referring to the aforesaid two decisions and the decision in Ragho Prasad v. P.N. Agarwal18 the two-Judge Bench ruled thus: - “The legal position that emerges out of the decisions extracted above is that once a suit for recovery of possession against the defendant who is in adverse possession is filed, the period of limitation for perfecting title by adverse possession comes to a grinding halt. We are in respectable agreement with the said statement of law. In the present case, as soon as the predecessor-ininterest of the applicant filed an application under Section 91 of the Act for restoration of possession of the land against the defendant in adverse possession, the defendant's adverse possession ceased to continue thereafter in view of the legal position that such adverse possession does not continue to run after filing of the suit, we are, therefore, of the view that the suit brought by the plaintiff for recovery of possession of the land was not barred by limitation.” 34. Coming to the case at hand the appellant had filed the suit for eviction. The relief sought in the plaint was for delivery of possession. It was not a forum that lacked 17 AIR 2001 SC 1740 18 1969 All LJ 975 Page 38 38 inherent jurisdiction to pass a decree for delivery of possession. It showed the intention of the plaintiff to act and to take back the possession. Under these circumstances, after the institution of the suit, the time for acquiring title by adverse possession has been arrested or remained in a state of suspension till the entire proceedings arising out of suit are terminated. Be it ingeminated that if by the date of present suit the defendant had already perfected title by adverse possession that would stand on a different footing. 35. In view of the aforesaid analysis, we permit the appellant-plaintiff to institute a suit as stated in paragraph 24 within a period of two months from today. 36. Resultantly, the appeal is allowed leaving the parties to bear their respective costs. ……………………………….J. [Anil R. Dave] ……………………………….J. Page 39 39 New Delhi; [Dipak Misra] November 13, 2013.
advocatemmmohan
- advocatemmmohan
- since 1985 practicing as advocate in both civil & criminal laws. This blog is only for information but not for legal opinions
Saturday, August 13, 2016
There is a difference between a suit for eviction based on landlord-tenant relationship and suit for possession based on title, and once the relationship of landlord and tenant is not proven there cannot be a decree for eviction.
Page 1 Reportable IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 10316 OF 2013 (Arising out of S.L.P. (C) No. 15927 of 2008) Tribhuvanshankar … Appellant Versus Amrutlal …Respondent J U D G M E N T Dipak Misra, J. Leave granted. 2. This appeal, by special leave, is from the judgment and order of the High Court of Madhya Pradesh, Bench at Indore, in Second Appeal No. 33 of 1995 passed on 8.2.2008. 3. The appellant-plaintiff instituted Civil Suit No. 259A/86 in the Court of Civil Judge Class-II, Mhow, District Indore, for eviction of the respondent-defendant from the suitpremises and for mesne profits. The case of the Page 2 2 appellant-plaintiff was that he had purchased the suit property vide registered sale deed dated 1.4.1976 on payment of sale consideration of Rs.4500/- to the vendor, one Kishanlal. The respondent-defendant was in possession of the said suit property as a tenant under the earlier owner Kishorilal on payment of rent of Rs.15/- per month. It was averred in the plaint that it was an oral tenancy and after acquiring the title the appellant informed the respondent about the sale by the earlier owner. Despite assurance given by the respondent to pay the rent to him, it was not honoured which compelled the appellant to send a notice on 14.12.1977 and, eventually, he terminated the tenancy with effect from 31.1.1978. The respondent, as pleaded, had replied to the notice stating, inter alia, that the appellant was neither the landlord nor the owner of the property. On the contrary, it was stated in the reply that the respondent was the owner of the premises. 4. The grounds that were urged while seeking eviction were: (i) the defendant was in arrears of rent since 1.4.1976 Page 3 3 and same was demanded vide notice dated 14.12.1977, which was received on 3.1.1978 and despite receiving the notice, the defendant defaulted by not paying the rent within two months; (ii) that the said accommodation was bona fide required by the plaintiff for construction of his house and the accommodation is an open land; (iii) the said accommodation was bona fide required by the plaintiff for general merchant shop i.e. non-residential purpose and for the said purpose the plaintiff did not have any alternative accommodation in his possession in Mhow City. 5. In the written statement, the defendant disputed the right, title and interest of the plaintiff, and denied the relationship of landlord and tenant. That apart, a further stand was taken that the appellant had no right under the M.P. Accommodation Control Act, 1961 (for brevity “the Act”) to file the suit for eviction. It was set forth by the respondent-defendant that he was never a tenant under Kishorilal and, in fact, the accommodation was in a dilapidated condition and a ‘banjar’ land and the Page 4 4 respondent was in possession for 18 to 19 years and it was to the knowledge of Kishorilal and his elder brother. For the purpose of business he had constructed a Gumti, got the gate fixed and when the business relating to sale of furniture commenced there was no objection from Kishorilal or his brother or any family member. The possession, as put forth by the respondent, was uninterrupted, peaceful and to the knowledge of Kishorilal who was the actual owner. It was also set forth that when Kishorilal desired to sell the premises, he was put to notice about the ownership of the defendant but he sold the property without obtaining sale consideration with the sole intention to obtain possession by colluding with the appellant-plaintiff. Alternatively, it was pleaded that the premises is situate in the Cantonment area and the Cantonment Board has the control over the land and neither Kishorilal nor the appellant had any title to the same. 6. The learned trial Judge framed as many as 26 issues. The relevant issues are, whether the suit accommodation was Page 5 5 taken on rent by the defendant for running his wood business in the year 1973 from the earlier landlord Kishorilal; whether defendant is in continuous, unobstructed and peaceful possession since 18 years which was within the knowledge of Kishorilal, his elder brother and their family members; whether defendant had become owner of the suit accommodation by way of adverse possession; and whether the sale deed had been executed without any consideration for causing damage to the title of defendant. 7. The learned trial Judge, on the basis of evidence brought on record, came to hold that the sale deed executed by Kishorilal in favour of the appellant was without any sale consideration; that the relationship of landlord and tenant between the parties had not been established; and that the respondent had become the owner of the suit accommodation on the basis of adverse possession. Being of this view, the trial court dismissed the suit. Page 6 6 8. Being dissatisfied with the aforesaid judgment and decree the plaintiff preferred Civil Regular Appeal No. 5 of 1994 and the lower appellate court, reappreciating the evidence on record and considering the submissions raised at the bar, came to hold that the appellant- plaintiff had not been able to prove the relationship of landlord and tenant; that the conclusion arrived at by the learned trial Judge that the sale-deed dated 1.4.1976 due to absence of sale consideration was invalid, was neither justified nor correct; and that there being no clinching evidence to establish that the defendant had perfected his title by adverse possession the finding recorded by the learned trial Judge on that score was indefensible. After so holding, the learned appellate Judge proceeded to hold that as the plaintiff had established his title and the defendant had miserably failed to substantiate his assertion as regards the claim of perfection of title by way of adverse possession, the plaintiff on the basis of his ownership was entitled to a decree for possession. To arrive at the said conclusion he placed reliance on Punia Page 7 7 Pillai vs. Panai Minor through Pandiya Thevan1 , Bhagwati Prasad v. Chandramaul2 and Amulya Ratan Mukherjee and ors. V. Kali Pada Tah and ors.3 9. Facing failure before the appellate court the defendant preferred Second Appeal No. 33 of 1995 before the High Court. The appeal was admitted on the following substantial questions of law: - “(1) Whether a decree could be passed in favour of plaintiff though such plaintiff fails to establish the relationship of landlord and tenant? (2) Whether the 1st Appellate Court committed the error of law in pronouncing the error of law in pronouncing the judgment and decree on question of title? And (3) Whether the 1st Appellate Court has erred in law in holding that the possession of the defendant is not proved and that the defendant has not acquired the title by adverse possession?” 10. The learned single Judge by judgment dated 8.2.2008 adverted to Sections 12(1)(a) and 12(1)(e) of the Act and came to hold that once the plaintiff had failed to establish the relationship of landlord and tenant which is the sine 1 AIR 1947 Madras 282 2 AIR 1966 SC 735 3 AIR 1975 Cal 200 Page 8 8 qua non in a suit for eviction, the plaintiff could not have fallen back on his title to seek eviction of the tenant. Be it noted, the learned single Judge placed reliance upon Rajendra Tiwary v. Basudeo Prasad and another4 wherein the decision in Bhagwati Prasad (supra) had been distinguished. The learned single Judge dislodged the judgment and decree passed by the lower appellate court and affirmed that of the learned trial Judge. 11. We have heard Mr. A.K. Chitale, learned senior counsel appearing for the appellant and Mr. Puneet Jain, learned counsel appearing for the respondent. 12. Questioning the legal acceptableness of the decision of the High Court the learned senior counsel has raised the following contentions: - (a) The learned single Judge has erroneously opined that a suit cannot be decreed by civil court for possession on the basis of general title even if the landlord-tenant relationship is not proved. A manifest error has been 4 AIR 2002 SC 136 Page 9 9 committed by the learned Judge not following the law laid down in Bhagwati Prasad (supra) which is applicable on all fours to the case at hand, solely on the ground that the said decision has been distinguished in Rajendra Tiwary’s case. (b) Though three substantial questions of law were framed, yet the learned single Judge without considering all the questionss affirmed the judgment of the trial court wherein it had come to hold that the defendant had established his title by adverse possession despite the same had already been annulled on reappreciation of evidence by the lower appellate court. (c) Assuming a conclusion is arrived at that there should have been a prayer for recovery of possession by paying the requisite court fee, the appellant, who has been fighting the litigation since decades should be allowed to amend the plaint and on payment of requisite court fee apposite relief should be granted. Page 10 10 13. Countering the aforesaid submissions Mr. Puneet Jain, learned counsel appearing for the respondent, has proponed thus: - (i) The analysis made by the High Court that when the relationship between the landlord and tenant is not proven in a suit for eviction, possession cannot be delivered solely on the bedrock of right, title and interest cannot be found fault with. There is a difference between a suit for eviction based on landlord-tenant relationship and suit for possession based on title, and once the relationship of landlord and tenant is not proven there cannot be a decree for eviction. (ii) The High Court has correctly distinguished the decision rendered in Bhagwati Prasad (supra) in Rajendra Tiwary (supra) as the law laid down in Bhagwati Prasad is not applicable to the present case and hence, the submission raised on behalf of the appellant that once the right, title and interest is established, on Page 11 11 the basis of general title, possession can be recovered is unacceptable. (iii) The alternative submission that liberty should be granted to amend the plaint for inclusion of the relief for recovery of possession would convert the suit from one for eviction simpliciter to another for right, title and interest and recovery of possession which is impermissible. That apart, when the suit was dismissed and the controversy travelled to appellate court the plaintiff was aware of the whole situation but chose not to seek the alternative relief that was available which is presently barred by limitation. It is well settled in law that the Court should decline to allow the prayer to amend the plaint if a fresh suit based on the amended claim would be barred by limitation on the date of application. 14. At the very outset, we may straight away proceed to state that the finding returned by the courts below that has been concurred by the High Court to the effect that Page 12 12 there is no relationship of landlord and tenant between the parties is absolutely impeccable and, in fact, the legality and propriety of the said finding has not been assailed by the learned senior counsel for the appellant. As far as right, title and interest is concerned, the learned trial Judge had not believed the sale deed executed by the vendor of the appellant-plaintiff in his favour for lack of consideration and also returned an affirmative finding that the defendant was in possession for long and hence, had acquired title by prescription. The learned appellate Judge on reappreciation of the evidence brought on record had unsettled the findings with regard to the title of the plaintiff as well as the acquisition of title by the defendant by way of adverse possession. He had granted relief to the plaintiff on the ground that in a suit for eviction when the title was proven and assertion of adverse possession was negatived by the court, there could be a direction for delivery of possession. As has been stated earlier the High Court has reversed the same by distinguishing the Page 13 13 law laid down in Bhagwati Prasad (supra) and restored the verdict of the learned trial Judge. 15. Keeping these broad facts in view, it is necessary to scrutinize whether the decision in Bhagwati Prasad which has been assiduously commended to us by Mr. Chitale is applicable to the case. In Bhagwati Prasad (supra) the defendant was the appellant before this Court. The case of the plaintiff was that the defendant was in possession of the house as the tenant of the plaintiff. The defendant admitted that the land over which the house stood belonged to the plaintiff. He, however, pleaded that the house had been constructed by the defendant at his own cost and that too at the request of the plaintiff because the plaintiff had no funds to construct the building on his own. Having constructed the house at his own cost, the defendant entered into possession of the house on condition that the defendant would continue to occupy the same until the amount spent by him on the construction was repaid to him by the plaintiff. In this backdrop, the defendant resisted the claim made by the Page 14 14 plaintiff for ejectment as well as for rent. The learned trial Judge held that the suit was competent and came to the conclusion that the plaintiff was entitled to a decree for ejectment as well as for rent. The High Court agreed with the trial court in disbelieving the defendant’s version about the construction of the house and about the terms and conditions on which he had been let into possession. The High Court opined that the defendant must be deemed to have been in possession of the house as a licensee and accordingly opined that a decree for ejectment should be passed. Dealing with various contentions raised before this Court it was ruled that the defendant could not have taken any other plea barring that of a licensee in view of the pleadings already put forth and the evidence already adduced. In that context, this Court opined that the High Court had correctly relied upon the earlier Full Bench decision in Abdul Ghani v. Musammat Babni5 and Balmukund v. Dalu6 . An opinion was expressed by this Court that once the finding 5 25 All 256 6 25 All 498 Page 15 15 was returned that the defendant was in possession as a licensee, there was no difficulty in affirming the decree for ejectment, even though the plaintiff had originally claimed ejectment on the ground of tenancy and not specifically on the ground of licence. In that context it was observed thus: - “15. ... In the present case, having regard to all the facts, we are unable to hold that the High Court erred in confirming the decree for ejectment passes by the trial Court on the ground that the defendant was in possession of the suit premises as a licensee. In this case, the High Court was obviously impressed by the thought that once the defendant was shown to be in possession of the suit premises as a licensee, it would be built to require the plaintiff to file another suit against the defendant for ejectment on that basis. We are not prepared to hold that in adopting this approach in the circumstances of this case, the High Court can be said to have gone wrong in law.” 16. Before we proceed to state the ratio in Rajendra Tiwary’s case, we think it seemly to advert to the principle stated in Biswanath Agarwalla v. Sabitri Bera and others7 as the same has been strongly relied upon by the learned senior counsel for the appellant. In the said case, the question that was posed is whether a civil court can 7 (2009) 15 SCC 693 Page 16 16 pass a decree on the ground that the defendant is a trespasser in a simple suit for eviction. In the said case the learned single Judge of the Calcutta High Court, considering the issues framed and the evidence laid, had held that although the plaintiffs had failed to prove the relationship of landlord and tenant by and between them and the defendant or that the defendant had been let into the tenanted premises on leave and licence basis, the respondent-plaintiffs were entitled to a decree for possession on the basis of their general title. This Court took note of the relief prayed, namely, a decree for eviction of the defendant from the schedule premises and for grant of mesne profit in case the eviction is allowed at certain rates. The Court proceeded on the base that the plaintiff had proved his right, title and interest. The Court observed that the landlord in a given case, although may not be able to prove the relationship of landlord and tenant, yet in the event he proves the general title, may obtain a decree on the basis thereunder. But regard being had to the nature of the case the Court observed that the defendant was Page 17 17 entitled to raise a contention that he had acquired indefeasible title by adverse possession. The Court referred to the decision in Bhagwati Prasad (supra) and, eventually, came to hold as follows: - “27. The question as to whether the defendant acquired title by adverse possession was a plausible plea. He, in fact, raised the same before the appellate court. Submission before the first appellate court by the defendant that he had acquired title by adverse possession was merely argumentative in nature as neither there was a pleading nor there was an issue. The learned trial court had no occasion to go into the said question. We, therefore, are of the opinion that in a case of this nature an issue was required to be framed.” Thereafter, the two-Judge Bench issued the following directions: - “29. However, we are of the opinion that keeping in view the peculiar facts and circumstances of this case and as the plaintiffs have filed the suit as far back as in the year 1990, the interest of justice should be subserved if we in exercise of our jurisdiction under Article 142 of the Constitution of India issue the following directions with a view to do complete justice to the parties. (i) The plaintiffs may file an application for grant of leave to amend their plaint so as to enable them to pray for a decree Page 18 18 for eviction of the defendant on the ground that he is a trespasser. (ii) For the aforementioned purpose, he shall pay the requisite court fee in terms of the provisions of the Court Fees Act, 1870. (iii) Such an application for grant of leave to amend the plaint as also the requisite amount of court fees should be tendered within four weeks from date. (iv) The appellant-defendant would, in such an event, be entitled to file his additional written statement. (v) The learned trial Judge shall frame an appropriate issue and the parties would be entitled to adduce any other or further evidence on such issue. (vi) All the evidences brought on record by the parties shall, however, be considered by the court for the purposes of disposal of the suit. (vii) The learned trial Judge is directed to dispose of the suit as expeditiously as possible and preferably within three months from the date of filing of the application by the plaintiffs in terms of the aforementioned Direction (i).” 17. At this stage it is necessary to dwell upon the facet of applicability of the said authorities to the lis of the present nature. As per the exposition of facts, the analysis made Page 19 19 and the principles laid down in both the cases, we notice that the civil action was initiated under the provisions of Transfer of Property Act, 1882. In Bhagwati Prasad’s case the Court opined that a decree for ejectment could be passed on general title as the defendant was a licensee. In Biswanath Agarwalla’s case the Court took note of the concept of general title and the plausible plea of adverse possession and granted liberty to the plaintiff to amend the plaint seeking a decree for recovery of possession and pay the required court fee under the Court-fees Act, 1870. That apart, certain other directions were issued. We may repeat at the cost of repetition that the suits were instituted under the Transfer of Property Act. The effect of the same and its impact on difference of jurisdiction on a civil court in exercising power under the Transfer of Property Act and under special enactments relating to eviction and other proceedings instituted between the landlord and tenant, we shall advert to the said aspects slightly at a later stage. Page 20 20 18. Presently, we shall analyse the principles stated in Rajendra Tiwary (supra). In the said case the respondent-plaintiff had filed a suit for eviction under the Bihar Buildings (Lease, Rent and Eviction) Control Act, 1982 on many a ground. The learned trial Judge, appreciating the evidence on record, dismissed the suit for eviction holding that there was no relationship of landlord and tenant between the plaintiff and the defendant. However, he had returned a finding that the plaintiff had title to the suit premises. The appellate court affirmed the judgment of the learned trial Judge and dismissed the appeal. In second appeal the High Court reversed the decisions of the courts below and allowed the appeal taking the view that a decree for eviction could be passed against the defendant on the basis of the title of the plaintiff and, accordingly, remanded the case to the first appellate court on the ground that it had not recorded any finding on the question of the title of the parties. It was contended before this Court that as the trial court was exercising limited jurisdiction under the Page 21 21 Rent Act, the question of title to the suit premises could not be decided inasmuch as that had to be done by a civil court in its ordinary jurisdiction and, therefore, the High Court erred in law in remanding the case to the first appellate court for deciding the question of title of the plaintiff and passing an equitable decree for eviction of the defendant. The Court posed a question whether on the facts and in the circumstances of the case the High Court was right in law holding that an equitable decree for eviction of the defendant could be passed under Order VII Rule 7 of the Civil Procedure Code and remanding the case to the first appellate court for recording its finding on the question of title of the parties to the suit premises and for passing an equitable decree for eviction against the defendant if the plaintiffs were found to have title thereto. Answering the question the learned Judges proceeded to state thus: - “It is evident that while dealing with the suit of the plaintiffs for eviction of the defendant from the suit premises under clauses (c) and (d) of sub-section (1) of Section 11 of the Act, courts including the High Court were exercising jurisdiction under the Page 22 22 Act which is a special enactment. The sine qua non for granting the relief in the suit, under the Act, is that between the plaintiffs and the defendant the relationship of “landlord and tenant” should exist. The scope of the enquiry before the courts was limited to the question: as to whether the grounds for eviction of the defendant have been made out under the Act. The question of title of the parties to the suit premises is not relevant having regard to the width of the definition of the terms “landlord” and “tenant” in clauses (f) and (h), respectively, of Section 2 of the Act.” 19. In course of deliberation, the two-Judge Bench distinguished the authorities in Firm Sriniwas Ram Kumar v. Mahabir Prasad8 and Bhagwati Prasad (supra) by observing thus: - “15. These are cases where the courts which tried the suits were ordinary civil courts having jurisdiction to grant alternative relief and pass decree under Order VII Rule 7. A Court of Rent Controller having limited jurisdiction to try suits on grounds specified in the special Act obviously does not have jurisdiction of the ordinary civil court and therefore cannot pass a decree for eviction of the defendant on a ground other than the one specified in the Act. If, however, the alternative relief is permissible within the ambit of the Act, the position would be different.” [Emphasis supplied] 8 AIR 1951 SC 177 Page 23 23 20. Thereafter, the learned Judges proceeded to express thus: “16. In this case the reason for denial of the relief to the plaintiffs by the trial court and the appellate court is that the very foundation of the suit, namely, the plaintiffs are the landlords and the defendant is the tenant, has been concurrently found to be not established. In any event inquiry into title of the plaintiffs is beyond the scope of the court exercising jurisdiction under the Act. That being the position the impugned order of the High Court remanding the case to the first appellate court for recording finding on the question of title of the parties, is unwarranted and unsustainable. Further, as pointed out above, in such a case the provisions of Order VII Rule 7 are not attracted.” [Underlining is ours] 21. At this juncture, we may fruitfully refer to the principles stated in Dr. Ranbir Singh v. Asharfi Lal9 . In the said case the Court was dealing with the case instituted by the landlord under Rajasthan Premises (Control of Rent and Eviction) Act, 1950 for eviction of the tenant who had disputed the title and the High Court had decided the judgment and decree of the courts below and dismissed the suit of the plaintiff seeking eviction. While adverting 9 (1995) 6 SCC 580 Page 24 24 to the issue of title the Court ruled that in a case where a plaintiff institutes a suit for eviction of his tenant based on the relationship of the landlord and tenant, the scope of the suit is very much limited in which a question of title cannot be gone into because the suit of the plaintiff would be dismissed even if he succeeds in proving his title but fails to establish the privity of contract of tenancy. In a suit for eviction based on such relationship the Court has only to decide whether the defendant is the tenant of the plaintiff or not, though the question of title if disputed, may incidentally be gone into, in connection with the primary question for determining the main question about the relationship between the litigating parties. In the said case the learned Judges referred to the authority in LIC v. India Automobiles & Co. 10 wherein the Court had observed that in a suit for eviction between the landlord and tenant, the Court will take only a prima facie decision on the collateral issue as to whether the applicant was landlord. If the Court finds existence of relationship of 10 (1990) 4 SCC 286 Page 25 25 landlord and tenant between the parties it will have to pass a decree in accordance with law. It was further observed therein that all that the Court has to do is to satisfy itself that the person seeking eviction is a landlord, who has prima facie right to receive the rent of the property in question. In order to decide whether denial of landlord’s title by the tenant is bona fide the Court may have to go into tenant’s contention on the issue but the Court is not to decide the question of title finally as the Court has to see whether the tenant’s denial of title of the landlord is bona fide in the circumstances of the case. 22. On a seemly analysis of the principle stated in the aforesaid authorities, it is quite vivid that there is a difference in exercise of jurisdiction when the civil court deals with a lis relating to eviction brought before it under the provisions of Transfer of Property Act and under any special enactment pertaining to eviction on specified grounds. Needless to say, this court has cautiously added that if alternative relief is permissible within the ambit of the Act, the position would be different. That apart, the Page 26 26 Court can decide the issue of title if a tenant disputes the same and the only purpose is to see whether the denial of title of the landlord by the tenant is bona fide in the circumstances of the case. We respectfully concur with the aforesaid view and we have no hesitation in holding that the dictum laid down in Bhagwati Prasad (supra) and Bishwanath Agarwalla (supra) are distinguishable, for in the said cases the suits were filed under the Transfer of Property Act where the equitable relief under Order VII Rule 7 could be granted. 23. At this juncture, we are obliged to state that it would depend upon the Scheme of the Act whether an alternative relief is permissible under the Act. In Rajendra Tiwari’s case the learned Judges, taking into consideration the width of the definition of the “landlord” and “tenant” under the Bihar Buildings (Lease, Rent and Eviction) Control Act, 1982, had expressed the opinion. The dictionary clause under the Act, with which we are concerned herein, uses similar expression. Thus, a limited enquiry pertaining to the status of the parties, i.e., Page 27 27 relationship of landlord and tenant could have been undertaken. Once a finding was recorded that there was no relationship of landlord and tenant under the Scheme of the Act, there was no necessity to enter into an enquiry with regard to the title of the plaintiff based on the sale deed or the title of the defendant as put forth by way of assertion of long possession. Similarly, the learned appellate Judge while upholding the finding of the learned trial Judge that there was no relationship of landlord and tenant between the parties, there was no warrant to reappreciate the evidence to overturn any other conclusion. The High Court is justified to the extent that no equitable relief could be granted in a suit instituted under the Act. But, it has committed an illegality by affirming the judgment and decree passed by the learned trial Judge because by such affirmation the defendant becomes the owner of the premises by acquisition of title by prescription. When such an enquiry could not have been entered upon and no finding could have been recorded and, in fact, the High Court has correctly not Page 28 28 dwelled upon it, the impugned judgment to that extent is vulnerable and accordingly we set aside the said affirmation. 24. Presently we shall proceed to address ourselves, which is necessary, as to what directions we should issue and with what observations/clarifications. In Rajendra Tiwary (supra), the two-Judge Bench had observed that the decision rendered by this Court did not preclude the plaintiff for filing the suit for enquiry of title and for recovery of possession of the suit premises against the defendant. In the said case a suit for specific performance of contract filed against the defendant was pending. The Court had directed that the suit to be filed by the plaintiff for which a three months’ time was granted should be heard together with the suit already instituted by the defendant. In the present case, the suit was instituted on the basis of purchase. A plea was advanced that the defendant had already perfected his title by prescription as he was in possession for 18 to 19 years. The trial court had accepted the plea and the Page 29 29 appellate court had reversed it. The High Court had allowed the second appeal holding that when the relationship of landlord and tenant was not established, a decree for eviction could not be passed. We have already opined that the High Court could not have affirmed the judgment and decree passed by the trial court as it had already decided the issue of adverse possession in favour of the defendant, though it had neither jurisdiction to enquire into the title nor that of perfection of title by way of adverse possession as raised by the defendant. Under these circumstances we are disposed to think that the plaintiff is entitled under law to file a fresh suit for title and recovery of possession and such other reliefs as the law permits. 25. At this juncture, we think it apt to clarify the position, for if we leave at this when a fresh suit is filed the defendant would be in a position to advance a plea that the right of the plaintiff had been extinguished as he had not filed the suit for recovery of possession within the time allowed by law. It is evincible that the suit for Page 30 30 eviction was instituted on 21.3.1978 and if the time is computed from that day the suit for which we have granted liberty would definitely be barred by limitation. Thus, grant of liberty by us would be absolutely futile. Hence, we think it imperative to state the legal position as to why we have granted liberty to the plaintiff. We may hasten to add that we have affirmed the judgment of the High Court only to the extent that as the relationship of landlord and tenant was not established the defendant was not liable for eviction under the Act. The issue of right, title and interest is definitely open. The appellant is required to establish the same in a fresh suit as required under law and the defendant is entitled to resist the same by putting forth all his stand and stance including the plea of adverse possession. The fulcrum of the matter is whether the institution of the instant suit for eviction under the Act would arrest of running of time regard being had to the concept of adverse possession as well as the concept of limitation. The conception of adverse possession fundamentally contemplates a hostile Page 31 31 possession by which there is a denial of title of the true owner. By virtue of remaining in possession the possessor takes an adverse stance to the title of the true owner. In fact, he disputes the same. A mere possession or user or permissive possession does not remotely come near the spectrum of adverse possession. Possession to be adverse has to be actual, open, notorious, exclusive and continuous for the requisite frame of time as provided in law so that the possessor perfects his title by adverse possession. It has been held in Secy. Of State for India In Council v. Debendra Lal Khan11 that the ordinary classical requirement of adverse possession is that it should be nec vi, nec clam, nec precario 26. In S.M. Karim v. Mst. Bibi Sakina12 , it has been ruled that adverse possession must be adequate in continuity, in publicity and extent and a plea is required at the least to show when possession becomes adverse so that the starting point of limitation against the party affected can be found. 11 (1933-34) 61 IA 78 : AIR 1934 PC 23 12 AIR 1964 SC 1254 Page 32 32 27. In Karnataka Board of Wakf v. Govt. of India13 it has been opined that adverse possession is a hostile possession by clearly asserting hostile title in denial of the title of the true owner. It is a well-settled principle that a party claiming adverse possession must prove that his possession is ‘nec vi, nec clam, nec precario’, that is, peaceful, open and continuous. The possession must be adequate in continuity, in publicity and in extent to show that their possession is adverse to the true owner. It must start with a wrongful disposition of the rightful owner and be actual, visible, exclusive, hostile and continued over the statutory period. Thereafter, the learned Judges observed thus: - “11. ... Plea of adverse possession is not a pure question of law but a blended one of fact and law. Therefore, a person who claims adverse possession should show: (a) on what date he came into possession, (b) what was the nature of his possession, (c) whether the factum of possession was known to the other party, (d) how long his possession has continued, and (e) his possession was open and undisturbed. A person pleading adverse possession has no equities in his favour. Since he is trying to defeat the rights of the true owner, it is for him to clearly plead and establish 13 (2004) 10 SCC 779 Page 33 33 all facts necessary to establish his adverse possession.” 28. It is to be borne in mind that adverse possession, as a right, does not come in aid solely on the base that the owner loses his right to reclaim the property because of his willful neglect but also on account of the possessor’s constant positive intent to remain in possession. It has been held in P.T. Munichikkanna Reddy and others v. Revamma and others14 . 29. Regard being had to the aforesaid concept of adverse possession, it is necessary to understand the basic policy underlying the statutes of limitation. The Acts of Limitation fundamentally are principles relating to “repose” or of “peace”. In Halsbury’s Laws of England, Fourth Edition, Volume 28, Para 605 it has been stated thus: - “605. Policy of the Limitation Acts. – The courts have expressed at least three differing reasons supporting the existence of statutes of limitation, namely (1) that long dormant claims have more of cruelty than justice in them, (2) that a defendant might have lost the evidence to 14 (2007) 6 SCC 59 Page 34 34 disprove a stale claim, and (3) that persons with good causes of actions should pursue them with reasonable diligence.” 30. These principles have been accepted by this Court keeping in view the statutory provisions of the Indian Limitation Act. The fundamental policy behind limitation is that if a person does not pursue his remedy within the specified time frame, the right to sue gets extinguished. In the present case the pivotal point is whether a good cause because a litigant cannot deprive the benefit acquired by another in equity by his own inaction and negligence, as assumed by the plaintiff, has been lost forever as he has not been able to prove the relationship of landlord and tenant in a suit for eviction which includes delivery of possession. 31. Keeping in view the aforesaid principles it is required to be scrutinized whether the time spent in adjudication of the present suit and the appeal arrests the running of time for the purpose of adverse possession. In this regard, we may profitably refer to the decision in Mst. Page 35 35 Sultan Jehan Begum and Ors. v. Gul Mohd. and Ors.15 wherein following principles have been culled out: - “(1) When a person entitled to possession does not bring a suit against the person in adverse possession within the time prescribed by law his right to possession is extinguished. From this it only follows that if the former brings a suit against the latter within the prescribed period of limitation his right will not be extinguished. (2) If a decree for possession is passed in that suit in his favour he will be entitled to possession irrespective of the time spent in the suit and the execution and other proceedings. (3) The very institution of the suit arrests the period of adverse possession of the defendant and when a decree for possession is passed against the defendant the plaintiff's right to be put in possession relates back to the date of the suit. (4) Section 28 of the Limitation Act merely declares when the right of the person out of possession is extinguished. It is not correct to say that that section confers title on the person who has been in adverse possession for a certain period. There is no law which provides for 'conferral of title' as such on a person who has been in adverse possession for whatever length of time. (5) When it is said that the person in adverse possession 'has perfected his title', it only means this. Since the person who had the right of possession but allowed his right to be extinguished by his inaction, he cannot obtain the possession 15 AIR 1973 MP 72 Page 36 36 from the person in adverse possession, and, as its necessary corollary the person who is in adverse possession will be entitled to hold his possession against the other not in possession, on the well settled rule of law that possession of one person cannot be disturbed by any person except one who has a better title.” 32. In Sultan Khan s/o Jugge Khan v. State of Madhya Pradesh and another16 a proceeding was initiated for eviction of the plaintiff under Section 248 of the M.P. Land Revenue Code, 1959. Facing eviction plaintiff filed a suit for declaration of his right, title and interest on the bedrock of adverse possession. His claim was that he had been in uninterrupted possession for more than 30 years. Repelling the contention the learned Judge observed thus: “It must, therefore, be accepted that filing of the suit for recovery of possession, by itself, is sufficient to arrest the period of adverse possession and a decree for possession could be passed irrespective of the time taken in deciding the suit. If this principle is applied to the proceedings under Section 248 of the Code, it must be held that in case a person has not perfected his title by adverse possession before start of the proceedings, he cannot perfect his title during the pendency of the proceedings. Adverse possession of the person in possession must be deemed to have been arrested by initiation of these proceedings.” 16 1991 MPLJ 81 Page 37 37 33. We have referred to the aforesaid pronouncements since they have been approved by this Court in Babu Khan and others v. Nazim Khan (dead) by L.Rs. and others17 wherein after referring to the aforesaid two decisions and the decision in Ragho Prasad v. P.N. Agarwal18 the two-Judge Bench ruled thus: - “The legal position that emerges out of the decisions extracted above is that once a suit for recovery of possession against the defendant who is in adverse possession is filed, the period of limitation for perfecting title by adverse possession comes to a grinding halt. We are in respectable agreement with the said statement of law. In the present case, as soon as the predecessor-ininterest of the applicant filed an application under Section 91 of the Act for restoration of possession of the land against the defendant in adverse possession, the defendant's adverse possession ceased to continue thereafter in view of the legal position that such adverse possession does not continue to run after filing of the suit, we are, therefore, of the view that the suit brought by the plaintiff for recovery of possession of the land was not barred by limitation.” 34. Coming to the case at hand the appellant had filed the suit for eviction. The relief sought in the plaint was for delivery of possession. It was not a forum that lacked 17 AIR 2001 SC 1740 18 1969 All LJ 975 Page 38 38 inherent jurisdiction to pass a decree for delivery of possession. It showed the intention of the plaintiff to act and to take back the possession. Under these circumstances, after the institution of the suit, the time for acquiring title by adverse possession has been arrested or remained in a state of suspension till the entire proceedings arising out of suit are terminated. Be it ingeminated that if by the date of present suit the defendant had already perfected title by adverse possession that would stand on a different footing. 35. In view of the aforesaid analysis, we permit the appellant-plaintiff to institute a suit as stated in paragraph 24 within a period of two months from today. 36. Resultantly, the appeal is allowed leaving the parties to bear their respective costs. ……………………………….J. [Anil R. Dave] ……………………………….J. Page 39 39 New Delhi; [Dipak Misra] November 13, 2013.
Friday, August 12, 2016
whether iron and steel reinforcements of cement concrete that are used in buildings lose their character as iron and steel at the point of taxability, that is, at the point of accretion in a works contract.=claimed exemption for iron and steel goods - held not entitled = we are concerned with Rule 6(4)(m) of the Karnataka Sales Tax Rules, 1957. “Rule 6(4): 6. DETERMINATION OF TOTAL AND TAXABLE TURNOVER: (1)……. ……. (4) In determining the table turnover, the amount specified in clause (a) to (p) shall, subject to the conditions specified therein, be deducted from the total turnover of a dealer as determined under clauses (a) to (e) of sub-Rule (1). (a)….. (b)…. ….. (m) In the case of works contract specified in Serial Numbers 1,2,3,4,5,7,8,9,10,11,12,17,26,27,35,36,40 and 42 of the Sixth Schedule; (i) all amounts received or receivable in respect of goods other than the goods taxable under sub-section (1-A) or (1-B) or Section 5 which are purchased form registered dealers liable to pay tax under the Act and used in the execution of works contract in the same form in which such goods are purchased. (ii) …… …….EXPLANATION-III For the purpose of sub-rule (4), the expression ‘in the same form’ used in sub-clause (i) of clause (m) shall not include such goods which, after being purchased, are either consumed or used in the manufacture of other goods which in turn are used in the execution of works contract.”= the appellant is engaged in works contracts of fabrication and creation of doors, window frames, grills, etc. in which they claimed exemption for iron and steel goods that went into the creation of these items, after which the said doors, window frames, grills, etc. were fitted into buildings and other structures. On facts, therefore, we find that the High Court’s judgment is correct and does not need to be interfered with inasmuch as the iron and steel goods, after being purchased, are used in the manufacture of other goods, namely, doors, window frames, grills, etc. which in turn are used in the execution of works contracts and are therefore not exempt from tax.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4149 OF 2007
SMT. B. NARASAMMA …APPELLANT
VERSUS
DEPUTY COMMISSIONER COMMERCIAL
TAXES KARNATAKA & ANR. ...RESPONDENTS
WITH
CIVIL APPEAL NO.4318 OF 2007
CIVIL APPEAL NO.4319 OF 2007
CIVIL APPEAL NO. 7400 OF 2016
(ARISING OUT OF SLP(CIVIL) NO.15253 OF 2015)
CIVIL APPEAL NOS. 7401-7872 OF 2016
(ARISING OUT OF SLP(CIVIL) NOS.18646-19117 OF 2015)
CIVIL APPEAL NOS. 7873-7916 OF 2016
(ARISING OUT OF SLP(CIVIL) NOS.10081-10124 OF 2015)
J U D G M E N T
R.F. Nariman, J.
1. Leave granted in SLP(C) Nos.15253/2015, 18646-19117/2015, 10081-
10124/2015.
2. This group of appeals concerns the rate of taxability of declared
goods – i.e. goods declared to be of special importance under Section 14 of
the Central Sales Tax Act, 1956. The question that has to be answered in
these appeals is whether iron and steel reinforcements of cement concrete
that are used in buildings lose their character as iron and steel at the
point of taxability, that is, at the point of accretion in a works
contract. All these appeals come from the State of Karnataka and can be
divided into two groups – one group relatable to the provisions of the
Karnataka Sales Tax Act, 1957 and post 1.4.2005, appeals that are relatable
to the Karnataka Value Added Tax Act, 2003. The facts in these appeals are
more or less similar. Iron and Steel products are used in the execution of
works contracts for reinforcement of cement, the iron and steel products
becoming part of pillars, beams, roofs, etc. which are all parts of the
ultimate immovable structure that is the building or other structure to be
constructed.
3. Before coming to the submissions of learned counsel for the parties,
it is necessary to first set out the relevant provisions of the
Constitution, the Central Sales Tax Act and the two Karnataka Acts in
question.
4. Article 286(3) of the Constitution reads as follows:-
“Article 286. Restrictions as to imposition of tax on the sale or purchase
of goods
xx xx xx
(3) Any law of a State shall, in so far as it imposes, or authorises the
imposition of,
(a) a tax on the sale or purchase of goods declared by Parliament by law to
be of special importance in inter State trade or commerce; or
(b) a tax on the sale or purchase of goods, being a tax of the nature
referred to in sub clause (b), sub clause (c) or sub clause (d) of clause
29 A of Article 366, be subject to such restrictions and conditions in
regard to the system of levy, rates and other incidents of the tax as
Parliament may by law specify.”
5. Section 14 of the Central Sales Tax Act, insofar as it is relevant to
the present case reads as follows:
“Section-14
Certain goods to be of special importance in inter-State trade or commerce.-
It is hereby declared that the following goods are of special importance
in inter-State trade or commerce:-
(iv) iron and steel, that is to say,-
[pig iron, sponge iron and] cast iron including [ingot moulds, bottom
plates], iron scrap, cost iron scrap, runner scrap and iron skull scrap;
Steel semis (ingots, slabs, blooms and billets of all qualities, shapes and
sizes);
Skelp bars, tin bars, sheet bars, hoe-bar and sleeper bars;
Steel bars, rounds, rods, squares, flat, octagons and hexagons, plain and
ribbed or twisted, in coil form as well as straight lengths;
steel structurals (angles, joists, channels, tees, sheet piling sections, Z-
sections or any other rolled sections);
sheets, hoops, strips and skelp, both black and galvanized, hot and cold
rolled plain and corrugated, in all qualities, in straight lengths and in
coil form, as rolled and in riveted condition;
Plates both plain and chequered in all qualities;
Discs, rings, forgings and steel castings;
Tools, alloy and special steels of any of the above categories;
Steel melting scrap in all forms including steel skull, turnings and
borings;
Steel tubes, both welded and seamless, of all diameters and lengths
including tube fittings;
Tin-plates, both hot dipped and electrolytic and tin free plates;
Fist plate bars, bearing plate bars, crossing sleeper bars, fish plates,
bearing plates, crossing sleepers and pressed steel sleepers--heavy and
light crane rails;
Wheels, tyres, axles and wheels sets;
Wire rods and wires—rolled, drawn, galvanized, aluminized, tinned or coated
such as by copper;
Defectives, rejects, cuttings, or end pieces of any of the above
categories;]
Section 15
Restrictions and conditions in regard to tax on sale or purchase of
declared goods within a State.
Every sales tax law of a State shall, in so far as it imposes or authorizes
the imposition of a tax on the sale or purchase of declared goods, be
subject to the following restrictions and conditions, namely:
The tax payable under that law in respect of any sale or purchase of such
goods inside the State shall not exceed [five per cent.] of the sale or
purchase price thereof [***];”
6. By the 46th Amendment of the Constitution, Article 366 (29A) was
added, by which it became possible by a deeming fiction to tax sale of
goods involved in a works contract. Declared goods were taxable under
Section 5(4) of the Act, which is set out hereunder:
“Section 5(4)
Notwithstanding anything contained in sub-section (1) or Section 5-B or
Section 5-C a tax under this Act shall be levied in respect of the sale or
purchase of any of the declared goods mentioned in column (2) of the Fourth
Schedule at the rate and only at the point specified in the corresponding
entries of columns (4) and (3) of the said Schedule on the dealer liable to
tax under this Act on his taxable turnover of sales or purchase in each
year relating to such goods:”
The Karnataka Sales Tax Act was amended to tax goods involved in works
contracts. Taking advantage of the constitutional amendment, Section 5-B
was inserted in the Karnataka Sales Tax Act, 1957. This Section reads as
follows:-
“Section 5-B: Levy of tax on transfer of property in goods (whether as
goods or in some other forms) involved in the execution of works contracts.
Notwithstanding anything contained in sub-section (1) or sub-section (3) or
sub-section (3-C) of Section 5, but subject to sub-section (4), (5) or (6)
of the said Section, every dealer shall pay for each year, a tax under this
Act on his taxable turnover of transfer of property in goods (whether as
goods or in some other form) involved in the execution of works contract
mentioned in column (2) of the Sixth Schedule at the rates specified in the
corresponding entries in column (3) of the said Schedule.”
7. The Fourth Schedule of the said Act, which deals with declared goods
in respect of which a single point tax is leviable under Section 5(4) reads
as follows:
“Act 3 of 1983 (From 1-11-1982)
Sl No Description of the Point of levy Period Rate
Goods for which of tax
applicable
1 2 3 4 5
2. “Iron and steel, that is to say,-”
[(a)] (i) pig iron and cast iron including ingot moulds, bottom
plates -do- From 1-11-82 4%
(ii) steel semis (ingots,
slabs, blooms and billets
of all qualities, shapes
and sizes) -do- From 15-7-75
4%
(iii) skelp bars, tin bars, sheet bars, hoe-bars and sleeper bars;
(iv) steel bars (rounds, rods, squares, flats, octagon and hexagons, plain
and ribbed or twisted, in coil form as well as straight lengths);
(v) steel structurals (angles, joists, channels, tees, sheet piling
sections, Z sections or any other rolled sections);
(vi) sheets, hoops, strips and skelp, both black and galvanized, hot and
cold rolled, plain and corrugated, in all qualities, in straight lengths
and in coil form, as rolled and in riveted condition;
(vii) plates both plain and chequered in all qualities;
(viii) discs, rings, forgings and steel castings; sales by the first
or the earliest of the successive dealers in the state liable to tax under
this Act.
(ix) tool, alloy and special steels of any of the above categories;
Act 30 of 1975 (15-7-75 to 31-10-82)
(x) steel melting scrap in -do- 15.7.75 to 4%
All forms including steel 31.10.82
skull turnings and borings;
8. Similarly, the Sixth Schedule, which is to be read with Section 5-B,
insofar as it is relevant, reads as under:-
Sl. No. Description of works period for which
Rate of
Contact applicable
Tax
1 2 3
4
6. Civil works like construction 1-4-86 to 31-3-95
Five per cent
of building, bridges, roads, etc. 1-4-95 to 31-3-91
Eight per cent
9. Post 1.4.2005, the Karnataka Value Added Tax Act, 2003, taxed
declared goods and works contracts generally as follows:-
Section 4 - Liability to tax and rates thereof.
Every dealer who is or is required to be registered as specified in
Sections 22 and 24, shall be liable to pay tax, on his taxable turnover,
(a) in respect of goods mentioned in,-
(i) Second Schedule, at the rate of one per cent,
(ii) Third Schedule, at the rate of four per cent in respect of goods
specified in serial number 30 and five per cent in respect of other goods,
and
(iii) Fourth Schedule, at the rate of twenty per cent.
(b) in respect of.-
(i) cigarettes, cigars, gutkha and other manufactured tobacco at the rate
of fifteen per cent;
(ii) other goods at the rate of thirteen and one half per cent.
(c) in respect of transfer of property in goods (whether as goods or in
some other form) involved in the execution of works contract specified in
column (2) of the Sixth Schedule, subject to Sections 14 and 15 of the
Central Sales Tax Act, 1956 (Central Act 74 of 1956), at the rates
specified in the corresponding entries in column (3) of the said Schedule.
Third Schedule:
30. Declared goods as specified in Section 14 of the Central Sales Tax
Act, 1956 (Central Act 74 of 1956)
Sixth Schedule:
|23. |All other works contracts not |Fourteen and |
| |specified in any of the above |one half per |
| |categories including composite|cent |
| |contracts with one or more of | |
| |The above categories Fourteen | |
| |and one half per cent | |
10. We have in the main to deal with the impugned judgment dated 1.9.2006
in Civil Appeal No.4318 of 2007, and judgment dated 12.8.2004 in Civil
Appeal No. 4149 of 2007 in favour of Revenue, and a detailed impugned
judgment which is challenged by the State of Karnataka dated 10.12.2013 in
State of Karnataka and etc. etc. v. M/s. Reddy Structures Pvt. Ltd. and
etc. etc. in Civil Appeals arising out of SLP (Civil) Nos.18646-19117/2015.
11. Shri N. Venkatraman led the arguments on behalf of the assessees,
after whom Shri S.K. Bagaria, Shri K.V. Viswanathan, and some others
followed. According to learned counsel, the present matter is concluded by
two judgments of this Court, namely, Builders' Assn. of India v. Union of
India, (1989) 2 SCC 645, and Gannon Dunkerley and Co. v. State of
Rajasthan, (1993) 1 SCC 364. The detailed judgment dated 10.12.2003
correctly extracts all the relevant passages from the aforesaid judgments
to reach the conclusion that under the Karnataka Value Added Tax Act, 2003,
the iron and steel products that are reinforced for cement concrete used in
buildings and structures, remains exactly the same goods at the point of
taxability – that is, the point of accretion, and that mere cutting into
different shapes and bending does not make these items lose their identity
as declared goods. Therefore, according to learned counsel, only tax at
the rate of 4% can be levied, and not the higher rate levied in respect of
civil construction works generally. Other learned counsel more or less
argued along the same lines as Shri N. Venkatraman, only adding that it
cannot be said that the identity of the iron and steel goods had changed at
the point of taxability, and they cited several judgments to show that mere
cutting and shaping of these products would not amount to “manufacture” and
hence the very goods that were declared goods alone were taxable at the
rate of 4%, both under the Karnataka Sales Tax Act as well as the Karnataka
Value Added Tax Act, 2003.
12. Shri K.N. Bhat, learned senior advocate appearing on behalf of the
State, relied strongly on State of Tamil Nadu v. M/s. Pyare Lal Malhotra
and Others, (1976) 1 SCC 834, in order to buttress his submission that the
iron and steel products did not continue as iron and steel products but
somehow became different goods at the point of accretion and that,
therefore, they could be taxed at the higher rate applicable to civil
constructions generally. He did not dispute the law laid down in the two
Supreme Court judgments cited by Shri N. Venkatraman, and very fairly
submitted that if the iron and steel products continued as declared goods
then even though they were in a works contract they were subject to the
drill of Section 15 of the Central Sales Tax Act, and would therefore be
chargeable at 4% if it were found that the said products continue to remain
the same.
13. Having heard learned counsel for the parties, we are of the opinion
that Shri N. Venkatraman is right. The matter is no longer res integra.
Two important propositions emerge on a conjoint reading of Builders
Association and M/s. Gannon Dunkerley (supra). First, that works contracts
that are liable to be taxed after the 46th Constitution Amendment are
subject to the drill of Article 286(3) read with Section 15 of the Central
Sales Tax Act, namely, that they are chargeable at a single point and at a
rate not exceeding 4% at the relevant time. Further, the point at which
these iron and steel products are taxable is the point of accretion, that
is, the point of incorporation into the building or structure.
14. The relevant paragraphs from these two decisions, therefore, need to
be set out. In Builders Association (supra), this Court held:
“We are of the view that all transfers, deliveries and supplies of goods
referred to in clauses (a) to (f) of clause (29-A) of Article 366 of the
Constitution are subject to the restrictions and conditions mentioned in
clause (1), clause (2) and sub-clause (a) of clause (3) of Article 286 of
the Constitution and the transfers and deliveries that take place under sub-
clauses (b), (c) and (d) of clause (29-A) of Article 366 of the
Constitution are subject to an additional restriction mentioned in sub-
clause (b) of Article 286(3) of the Constitution. [para 32]
In Benjamin's Sale of Goods (3rd Edn.) in para 43 at p. 36 it is stated
thus:
“Chattel to be affixed to land or another chattel.—Where work is to be done
on the land of the employer or on a chattel belonging to him, which
involves the use or affixing of materials belonging to the person employed,
the contract will ordinarily be one for work and materials, the property in
the latter passing to the employer by accession and not under any contract
of sale. Sometimes, however, there may instead be a sale of an article with
an additional and subsidiary agreement to affix it. The property then
passes before the article is affixed, by virtue of the contract of sale
itself or an appropriation made under it.”
In view of the foregoing statements with regard to the passing of the
property in goods which are involved in works contract and the legal
fiction created by clause (29-A) of Article 366 of the Constitution it is
difficult to agree with the contention of the States that the properties
that are transferred to the owner in the execution of a works contract are
not the goods involved in the execution of the works contract, but a
conglomerate, that is the entire building that is actually constructed.
After the 46th Amendment it is not possible to accede to the plea of the
States that what is transferred in a works contract is the right in the
immovable property.
The 46th Amendment does no more than making it possible for the States to
levy sales tax on the price of goods and materials used in works contracts
as if there was a sale of such goods and materials.
We are surprised at the attitude of the States which have put forward the
plea that on the passing of the 46th Amendment the Constitution had
conferred on the States a larger freedom than what they had before in
regard to their power to levy sales tax under entry 54 of the State List.
The 46th Amendment does no more than making it possible for the States to
levy sales tax on the price of goods and materials used in works contracts
as if there was a sale of such goods and materials. We do not accept the
argument that sub-clause (b) of Article 366(29-A) should be read as being
equivalent to a separate entry in List II of the Seventh Schedule to the
Constitution enabling the States to levy tax on sales and purchases
independent of entry 54 thereof. As the Constitution exists today the power
of the States to levy taxes on sales and purchases of goods including the
“deemed” sales and purchases of goods under clause (29-A) of Article 366 is
to be found only in entry 54 and not outside it. We may recapitulate here
the observations of the Constitution Bench in the case of Bengal Immunity
Company Ltd. [AIR 1955 SC 661 : (1955) 2 SCR 603 : (1955) 6 STC 446] in
which this Court has held that the operative provisions of the several
parts of Article 286 which imposes restrictions on the levy of sales tax by
the States are intended to deal with different topics and one could not be
projected or read into another and each one of them has to be obeyed while
any sale or purchase is taxed under entry 54 of the State List.
We, therefore, declare that sales tax laws passed by the legislatures of
States levying taxes on the transfer of property in goods (whether as goods
or in some other form) involved in the execution of a works contract are
subject to the restrictions and conditions mentioned in each clause or sub-
clause of Article 286 of the Constitution. We, however, make it clear that
the cases argued before and considered by us relate to one specie of the
generic concept of “works contracts”. The case-book is full of the
illustrations of the infinite variety of the manifestation of “works
contracts”. Whatever might be the situational differences of individual
cases, the constitutional limitations on the taxing power of the State as
are applicable to “works contracts” represented by “building contracts” in
the context of the expanded concept of “tax on the sale or purchase of
goods” as constitutionally defined under Article 366(29-A), would equally
apply to other species of “works contracts” with the requisite situational
modifications.” (Paras 38-41)
In M/s. Gannon Dunkerley (supra), this Court held:
“Apart from the limitations referred to above which curtail the ambit of
the legislative competence of the State Legislatures, there is clause (3)
of Article 286 which enables Parliament to make a law placing restrictions
and conditions on the exercise of the legislative power of the State under
Entry 54 in State List in regard to the system of levy, rates and other
incidents of tax. Such a law may be in relation to (a) goods declared by
Parliament by law to be of special importance in inter-State trade or
commerce, or (b) to taxes of the nature referred to in sub-clauses (b), (c)
and (d) of clause (29-A) of Article 366. When such a law is enacted by
Parliament the legislative power of the States under Entry 54 in State List
has to be exercised subject to the restrictions and conditions specified in
that law. In exercise of the power conferred by Article 286(3)(a)
Parliament has enacted Sections 14 and 15 of the Central Sales Tax Act,
1956. No law has, however, been made by Parliament in exercise of its power
under Article 286(3)(b).
For the same reasons Sections 14 and 15 of the Central Sales Tax Act would
also be applicable to the deemed sales resulting from transfer of property
in goods involved in the execution of a works contract and the legislative
power under Entry 54 in State List will have to be exercised subject to the
restrictions and conditions prescribed in the said provisions in respect of
goods that have been declared to be of special importance in inter-State
trade or commerce.
So also it is not permissible for the State Legislature to impose a tax on
goods declared to be of special importance in inter-State trade or commerce
under Section 14 of the Central Sales Tax Act except in accordance with the
restrictions and conditions contained in Section 15 of the Central Sales
Tax Act.
Since the taxable event is the transfer of property in goods involved in
the execution of a works contract and the said transfer of property in such
goods takes place when the goods are incorporated in the works, the value
of the goods which can constitute the measure for the levy of the tax has
to be the value of the goods at the time of incorporation of the goods in
the works and not the cost of acquisition of the goods by the contractor.
We are also unable to accept the contention urged on behalf of the States
that in addition to the value of the goods involved in the execution of the
works contract the cost of incorporation of the goods in the works can be
included in the measure for levy of tax. Incorporation of the goods in the
works forms part of the contract relating to work and labour which is
distinct from the contract for transfer of property in goods and,
therefore, the cost of incorporation of the goods in the works cannot be
made a part of the measure for levy of tax contemplated by Article 366(29-
A)(b).” [paras 31, 37, 41 and 45]
15. At this juncture, it is important to note the fact situation in a
typical case before us. The Karnataka Appellate Tribunal in an order dated
18.10.2010 in Civil Appeals arising out of SLP(C) Nos. 18646-19117 of 2015
narrates the factual position thus:
“Different types of steel bars/ rods of different diameters are used as
reinforcement (like TMT bars, CTD bars etc). The reinforcement bars/ rods
need to be bent at the ends in a particular fashion to withstand the
bending moments and flexural shear. The main reinforcement bars/ rods have
to be placed parallely along the direction of the longer span. The
diameters of such main reinforcement rods/bars and the distance between any
two main reinforcement bars/rods is calculated depending on the required
loads to be carried by the reinforced cement concrete structure to be built
based on various engineering parameters. At right angles to the main
reinforcement bas/rods, distribution bars/rods of appropriate lesser
diameters are placed and the intersections between the distribution
bars/rods and main reinforcement bars/rods are tied together with binding
wire. The tying is not for the purposes of fabrication but is to see that
the iron bars or rods are not displaced during the course of concreting
from the assigned positions as per the drawings. Welding of longitudinal
main bars and transverse distribution bars is not done. In fact, welding
is contra-indicated because it imparts too much rigidity to the
reinforcement which hampers the capacity of the roof structure to oscillate
or bend to compensate varying loads on the structure besides welding
reduces the cross section of the bars/ rods weakening their tensile
strength. The reinforcements are placed and tied together in appropriate
locations in accordance with the detailed principles and drawings found in
standard bar bending schedules which lay down the exact parameters of
interspaces between bars/ rods, the required diameters of the steel
reinforcement bars/ rods and contain the required engineering drawings for
placement of bars in a particular manner. The placement of reinforcement
bars/ rods for different structures is done under the supervision of
qualified bar tenders and site engineers who are well versed with the
engineering aspects related to steel reinforcement for creating reinforced
cement concrete of desired load bearing capacities.
The appellant company has submitted general photographs showing the
progress of the work of placement and binding of reinforcement bars/ rods
at its work sites. The said photographs also establish the correctness of
the aforesaid findings relating to placement and binding together of steel
reinforcement bars/ rods before such bars/ rods are embedded in cement
concrete mixtures. In another case in STA No.1328/2008 decided by this
Tribunal on 10.2.2009 (in the case of Sri J. Bhaskar Rao) which is relied
on by the appellant, in the agreement between the Government of Karnataka,
Minor Irrigation Department and the said appellant (who was a civil
contractor engaged in the civil construction activity), specification for
placement and binding together of reinforcement bars/ rods were stipulated
by the Government of Karnataka as follows:
“Reinforcing steel shall conform accurately to the dimensions given in the
bar bending schedules shown on the relevant drawings. Bars shall be bent
cold to the specific shape and dimensions or as directed by the Engineer in-
charge using a proper bar bender, operated by hand or power to attain
proper radii of bends.”
“PLACING OF REINFORCEMENTS:
All reinforcement bars shall be accurately placed in exact position
shown on the drawings and shall be securely held in position during placing
of concrete by annealed binding wire not less than 1mm. in size and
conforming to IS;280, and by using stays, blocks or metal chairs, spacers,
metal hangers, supporting wires or other approved devices at sufficiently
close intervals. Bars will not be allowed to end between supports not
displaced during concreting or any other operation over the work …. As far
as possible, bars of full length shall be used. In case this is not
possible, overlapping bars shall not touch each other, but be kept apart by
25mm, or 1 (1/4) times the maximum size of the coarse aggregate whichever
is greater, by concrete between them. Where not feasible, overlapping bars
shall be bound with annealed steel wire, not less than, 1mm. thickness
twisted tight. The overlaps shall be staggered for different bars and
located at points along the span where neither shear nor bending moment is
maximum.”
The above specification which are standard for all civil construction
works also confirms the correctness of the findings recorded by us supra.
Welding of bars/ rods reduces their cross section and to that extent
decreases the tensile strength of the reinforcement bars/ rods defeating
the very purpose of steel reinforcement in cement concrete. When bars/
rods are just joined together loosely by the use of binding wires, the
elasticity of the steel bar/ rod is in no way hampered and each
reinforcement bar/ rod acts independently. By the combined action of the
main reinforcement bars/ rods and the distribution bars/ rods, the
reinforced cement structures like roofs act as a rigid diaphragm whose
elements displace equally in the direction of the applied in-plane loads.
From the above discussion it is clear that largely in building
construction works, no pre-fabrication of any steel structure is done
before embedding them in cement concrete mixture to form reinforced cement
concrete structures. The findings of the lower authorities to the contrary
effect in the cases on hand are entirely opposed to facts.
The only process to which the steel reinforcement rods/ bars are
subjected to before being embedded with cement concrete mixture is bending
at its ends after cutting of steel rods/ bars to the required size and
tying them at the intersections with binding wire. None of these processes
constitute a manufacturing process and no new commodity is produced before
incorporation into the works.”
16. Given this factual scenario, Shri K.N. Bhat referred to the judgment
in State of Tamil Nadu v. M/s. Pyare Lal Malhotra and Others, (1976) 1 SCC
834, and relied on paragraphs 9 and 10 of this judgment which read as
follows:
“If the object was to make iron and steel taxable as a substance, the entry
could have been: “Goods of Iron and Steel”. Perhaps even this would not
have been clear enough. The entry, to clearly have that meaning, would have
to be: “Iron and Steel irrespective of change of form or shape or character
of goods made out of them”. This is the very unusual meaning which the
respondents would like us to adopt. If that was the meaning, sales tax law
itself would undergo a change from being a law which normally taxes sales
of “goods” to a law which taxes sales of substances, out of which goods are
made. We, however, prefer the more natural and normal interpretation which
follows plainly from the fact of separate specification and numbering of
each item. This means that each item so specified forms a separate species
for each series of sales although they may all belong to the genus: “Iron
and Steel”. Hence, if iron and steel “plates” are melted and converted into
“wire” and then sold in the market, such wire would only be taxable once so
long as it retains its identity as a commercial goods belonging to the
category “wire” made of either iron or steel. The mere fact that the
substance or raw material out of which it is made has also been taxed in
some other form, when it was sold as a separate commercial commodity, would
make no difference for purposes of the law of sales tax. The object appears
to us to be to tax sales of goods of each variety and not the sale of the
substance out of which they are made.
As we all know, sales tax law is intended to tax sales of different
commercial commodities and not to tax the production or manufacture of
particular substances out of which these commodities may have been made. As
soon as separate commercial commodities emerge or come into existence, they
become separately taxable goods or entities for purposes of sales tax.
Where commercial goods, without change of their identity as such goods, are
merely subjected to some processing or finishing or are merely joined
together, they may remain commercially the goods which cannot be taxed
again, in a series of sales, so long as they retain their identity as goods
of a particular type.” [paras 9 and 10]
17. Given the fact situation in these appeals, it is obvious that
paragraph 10 of this judgment squarely covers the case against the State,
where, commercial goods without change of their identity as such, are
merely subject to some processing or finishing, or are merely joined
together, and therefore remain commercially the same goods which cannot be
taxed again, given the rigor of Section 15 of the Central Sales Tax Act.
We fail to see how the aforesaid judgment can further carry the case of the
revenue.
18. We may note that in Civil Appeal No.4318 of 2007, Larsen & Toubro
Ltd. v. State of Karnataka & Another, the Appellate Tribunal had passed an
order dated 11.1.2002 in which it decided the case against the assessee on
the ground that since the iron and steel products went into cement
concrete, they changed form, and since they changed form, they were no
longer declared goods and could be taxed without the constraints mentioned
in Section 15 of the Central Sales Tax Act. A Sales Tax Revision Petition
filed before the High Court yielded an order dated 14.6.2007 by which the
assessee was sent back to the Appellate Tribunal for rectification. This
rectification petition was dismissed by an order dated 30.11.2005. A Sales
Tax Revision Petition was thereafter filed against both orders, namely,
11.1.2002 and 30.11.2005. The High Court, in the impugned judgment dated
1.9.2006, unfortunately adverted only to the rectification order dated
30.11.2005 and not to the original order of 11.1.2002 and thus dismissed
the revision petition stating that no question of law arose. Ordinarily,
we would have set aside the judgment and remanded the matter back to the
High Court to determine the matter on merits, but at this point of time we
find this would not serve any purpose. Instead, it is enough to set aside
both the judgments impugned by the assessees, dated 1.9.2006 and 12.8.2004,
in light of the law laid down in Builders Association and M/s. Gannon
Dunkerley (supra), and declare that the declared goods in question can only
be taxed at the rate of 4%.
19. In the State Appeals, we find that the lead impugned judgment in
Civil Appeals arising out of SLP(C) Nos.18646-19117 of 2015 dated
10.12.2013 is an exhaustive judgment which has considered not only the
facts in great detail but also the law laid down by the Supreme Court. We
affirm the said judgment and dismiss the appeals of the State of Karnataka.
Civil Appeal No.4319 of 2007
M/s. Ananth Engineering Works v. State of Karnataka
20. This appeal is by the assessee from a judgment dated 26.10.2006
allowing a revision against the Appellate Tribunal’s order dated 19.1.2006.
In this appeal, we are concerned with Rule 6(4)(m) of the Karnataka Sales
Tax Rules, 1957.
“Rule 6(4):
6. DETERMINATION OF TOTAL AND TAXABLE TURNOVER:
(1)…….
…….
(4) In determining the table turnover, the amount specified in clause
(a) to (p) shall, subject to the conditions specified therein, be deducted
from the total turnover of a dealer as determined under clauses (a) to (e)
of sub-Rule (1).
(a)…..
(b)….
…..
(m) In the case of works contract specified in Serial Numbers
1,2,3,4,5,7,8,9,10,11,12,17,26,27,35,36,40 and 42 of the Sixth Schedule;
(i) all amounts received or receivable in respect of goods other than
the goods taxable under sub-section (1-A) or (1-B) or Section 5 which are
purchased form registered dealers liable to pay tax under the Act and used
in the execution of works contract in the same form in which such goods are
purchased.
(ii) ……
…….EXPLANATION-III For the purpose of sub-rule (4), the expression ‘in the
same form’ used in sub-clause (i) of clause (m) shall not include such
goods which, after being purchased, are either consumed or used in the
manufacture of other goods which in turn are used in the execution of works
contract.”
21. On facts in this case, it has been found that the appellant is
engaged in works contracts of fabrication and creation of doors, window
frames, grills, etc. in which they claimed exemption for iron and steel
goods that went into the creation of these items, after which the said
doors, window frames, grills, etc. were fitted into buildings and other
structures. On facts, therefore, we find that the High Court’s judgment is
correct and does not need to be interfered with inasmuch as the iron and
steel goods, after being purchased, are used in the manufacture of other
goods, namely, doors, window frames, grills, etc. which in turn are used in
the execution of works contracts and are therefore not exempt from tax.
22. The appeal of the assessee is therefore dismissed.
…..………………J.
(A.K. Sikri)
…..………………J.
(R.F. Nariman)
New Delhi;
August 11, 2016
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4149 OF 2007
SMT. B. NARASAMMA …APPELLANT
VERSUS
DEPUTY COMMISSIONER COMMERCIAL
TAXES KARNATAKA & ANR. ...RESPONDENTS
WITH
CIVIL APPEAL NO.4318 OF 2007
CIVIL APPEAL NO.4319 OF 2007
CIVIL APPEAL NO. 7400 OF 2016
(ARISING OUT OF SLP(CIVIL) NO.15253 OF 2015)
CIVIL APPEAL NOS. 7401-7872 OF 2016
(ARISING OUT OF SLP(CIVIL) NOS.18646-19117 OF 2015)
CIVIL APPEAL NOS. 7873-7916 OF 2016
(ARISING OUT OF SLP(CIVIL) NOS.10081-10124 OF 2015)
J U D G M E N T
R.F. Nariman, J.
1. Leave granted in SLP(C) Nos.15253/2015, 18646-19117/2015, 10081-
10124/2015.
2. This group of appeals concerns the rate of taxability of declared
goods – i.e. goods declared to be of special importance under Section 14 of
the Central Sales Tax Act, 1956. The question that has to be answered in
these appeals is whether iron and steel reinforcements of cement concrete
that are used in buildings lose their character as iron and steel at the
point of taxability, that is, at the point of accretion in a works
contract. All these appeals come from the State of Karnataka and can be
divided into two groups – one group relatable to the provisions of the
Karnataka Sales Tax Act, 1957 and post 1.4.2005, appeals that are relatable
to the Karnataka Value Added Tax Act, 2003. The facts in these appeals are
more or less similar. Iron and Steel products are used in the execution of
works contracts for reinforcement of cement, the iron and steel products
becoming part of pillars, beams, roofs, etc. which are all parts of the
ultimate immovable structure that is the building or other structure to be
constructed.
3. Before coming to the submissions of learned counsel for the parties,
it is necessary to first set out the relevant provisions of the
Constitution, the Central Sales Tax Act and the two Karnataka Acts in
question.
4. Article 286(3) of the Constitution reads as follows:-
“Article 286. Restrictions as to imposition of tax on the sale or purchase
of goods
xx xx xx
(3) Any law of a State shall, in so far as it imposes, or authorises the
imposition of,
(a) a tax on the sale or purchase of goods declared by Parliament by law to
be of special importance in inter State trade or commerce; or
(b) a tax on the sale or purchase of goods, being a tax of the nature
referred to in sub clause (b), sub clause (c) or sub clause (d) of clause
29 A of Article 366, be subject to such restrictions and conditions in
regard to the system of levy, rates and other incidents of the tax as
Parliament may by law specify.”
5. Section 14 of the Central Sales Tax Act, insofar as it is relevant to
the present case reads as follows:
“Section-14
Certain goods to be of special importance in inter-State trade or commerce.-
It is hereby declared that the following goods are of special importance
in inter-State trade or commerce:-
(iv) iron and steel, that is to say,-
[pig iron, sponge iron and] cast iron including [ingot moulds, bottom
plates], iron scrap, cost iron scrap, runner scrap and iron skull scrap;
Steel semis (ingots, slabs, blooms and billets of all qualities, shapes and
sizes);
Skelp bars, tin bars, sheet bars, hoe-bar and sleeper bars;
Steel bars, rounds, rods, squares, flat, octagons and hexagons, plain and
ribbed or twisted, in coil form as well as straight lengths;
steel structurals (angles, joists, channels, tees, sheet piling sections, Z-
sections or any other rolled sections);
sheets, hoops, strips and skelp, both black and galvanized, hot and cold
rolled plain and corrugated, in all qualities, in straight lengths and in
coil form, as rolled and in riveted condition;
Plates both plain and chequered in all qualities;
Discs, rings, forgings and steel castings;
Tools, alloy and special steels of any of the above categories;
Steel melting scrap in all forms including steel skull, turnings and
borings;
Steel tubes, both welded and seamless, of all diameters and lengths
including tube fittings;
Tin-plates, both hot dipped and electrolytic and tin free plates;
Fist plate bars, bearing plate bars, crossing sleeper bars, fish plates,
bearing plates, crossing sleepers and pressed steel sleepers--heavy and
light crane rails;
Wheels, tyres, axles and wheels sets;
Wire rods and wires—rolled, drawn, galvanized, aluminized, tinned or coated
such as by copper;
Defectives, rejects, cuttings, or end pieces of any of the above
categories;]
Section 15
Restrictions and conditions in regard to tax on sale or purchase of
declared goods within a State.
Every sales tax law of a State shall, in so far as it imposes or authorizes
the imposition of a tax on the sale or purchase of declared goods, be
subject to the following restrictions and conditions, namely:
The tax payable under that law in respect of any sale or purchase of such
goods inside the State shall not exceed [five per cent.] of the sale or
purchase price thereof [***];”
6. By the 46th Amendment of the Constitution, Article 366 (29A) was
added, by which it became possible by a deeming fiction to tax sale of
goods involved in a works contract. Declared goods were taxable under
Section 5(4) of the Act, which is set out hereunder:
“Section 5(4)
Notwithstanding anything contained in sub-section (1) or Section 5-B or
Section 5-C a tax under this Act shall be levied in respect of the sale or
purchase of any of the declared goods mentioned in column (2) of the Fourth
Schedule at the rate and only at the point specified in the corresponding
entries of columns (4) and (3) of the said Schedule on the dealer liable to
tax under this Act on his taxable turnover of sales or purchase in each
year relating to such goods:”
The Karnataka Sales Tax Act was amended to tax goods involved in works
contracts. Taking advantage of the constitutional amendment, Section 5-B
was inserted in the Karnataka Sales Tax Act, 1957. This Section reads as
follows:-
“Section 5-B: Levy of tax on transfer of property in goods (whether as
goods or in some other forms) involved in the execution of works contracts.
Notwithstanding anything contained in sub-section (1) or sub-section (3) or
sub-section (3-C) of Section 5, but subject to sub-section (4), (5) or (6)
of the said Section, every dealer shall pay for each year, a tax under this
Act on his taxable turnover of transfer of property in goods (whether as
goods or in some other form) involved in the execution of works contract
mentioned in column (2) of the Sixth Schedule at the rates specified in the
corresponding entries in column (3) of the said Schedule.”
7. The Fourth Schedule of the said Act, which deals with declared goods
in respect of which a single point tax is leviable under Section 5(4) reads
as follows:
“Act 3 of 1983 (From 1-11-1982)
Sl No Description of the Point of levy Period Rate
Goods for which of tax
applicable
1 2 3 4 5
2. “Iron and steel, that is to say,-”
[(a)] (i) pig iron and cast iron including ingot moulds, bottom
plates -do- From 1-11-82 4%
(ii) steel semis (ingots,
slabs, blooms and billets
of all qualities, shapes
and sizes) -do- From 15-7-75
4%
(iii) skelp bars, tin bars, sheet bars, hoe-bars and sleeper bars;
(iv) steel bars (rounds, rods, squares, flats, octagon and hexagons, plain
and ribbed or twisted, in coil form as well as straight lengths);
(v) steel structurals (angles, joists, channels, tees, sheet piling
sections, Z sections or any other rolled sections);
(vi) sheets, hoops, strips and skelp, both black and galvanized, hot and
cold rolled, plain and corrugated, in all qualities, in straight lengths
and in coil form, as rolled and in riveted condition;
(vii) plates both plain and chequered in all qualities;
(viii) discs, rings, forgings and steel castings; sales by the first
or the earliest of the successive dealers in the state liable to tax under
this Act.
(ix) tool, alloy and special steels of any of the above categories;
Act 30 of 1975 (15-7-75 to 31-10-82)
(x) steel melting scrap in -do- 15.7.75 to 4%
All forms including steel 31.10.82
skull turnings and borings;
8. Similarly, the Sixth Schedule, which is to be read with Section 5-B,
insofar as it is relevant, reads as under:-
Sl. No. Description of works period for which
Rate of
Contact applicable
Tax
1 2 3
4
6. Civil works like construction 1-4-86 to 31-3-95
Five per cent
of building, bridges, roads, etc. 1-4-95 to 31-3-91
Eight per cent
9. Post 1.4.2005, the Karnataka Value Added Tax Act, 2003, taxed
declared goods and works contracts generally as follows:-
Section 4 - Liability to tax and rates thereof.
Every dealer who is or is required to be registered as specified in
Sections 22 and 24, shall be liable to pay tax, on his taxable turnover,
(a) in respect of goods mentioned in,-
(i) Second Schedule, at the rate of one per cent,
(ii) Third Schedule, at the rate of four per cent in respect of goods
specified in serial number 30 and five per cent in respect of other goods,
and
(iii) Fourth Schedule, at the rate of twenty per cent.
(b) in respect of.-
(i) cigarettes, cigars, gutkha and other manufactured tobacco at the rate
of fifteen per cent;
(ii) other goods at the rate of thirteen and one half per cent.
(c) in respect of transfer of property in goods (whether as goods or in
some other form) involved in the execution of works contract specified in
column (2) of the Sixth Schedule, subject to Sections 14 and 15 of the
Central Sales Tax Act, 1956 (Central Act 74 of 1956), at the rates
specified in the corresponding entries in column (3) of the said Schedule.
Third Schedule:
30. Declared goods as specified in Section 14 of the Central Sales Tax
Act, 1956 (Central Act 74 of 1956)
Sixth Schedule:
|23. |All other works contracts not |Fourteen and |
| |specified in any of the above |one half per |
| |categories including composite|cent |
| |contracts with one or more of | |
| |The above categories Fourteen | |
| |and one half per cent | |
10. We have in the main to deal with the impugned judgment dated 1.9.2006
in Civil Appeal No.4318 of 2007, and judgment dated 12.8.2004 in Civil
Appeal No. 4149 of 2007 in favour of Revenue, and a detailed impugned
judgment which is challenged by the State of Karnataka dated 10.12.2013 in
State of Karnataka and etc. etc. v. M/s. Reddy Structures Pvt. Ltd. and
etc. etc. in Civil Appeals arising out of SLP (Civil) Nos.18646-19117/2015.
11. Shri N. Venkatraman led the arguments on behalf of the assessees,
after whom Shri S.K. Bagaria, Shri K.V. Viswanathan, and some others
followed. According to learned counsel, the present matter is concluded by
two judgments of this Court, namely, Builders' Assn. of India v. Union of
India, (1989) 2 SCC 645, and Gannon Dunkerley and Co. v. State of
Rajasthan, (1993) 1 SCC 364. The detailed judgment dated 10.12.2003
correctly extracts all the relevant passages from the aforesaid judgments
to reach the conclusion that under the Karnataka Value Added Tax Act, 2003,
the iron and steel products that are reinforced for cement concrete used in
buildings and structures, remains exactly the same goods at the point of
taxability – that is, the point of accretion, and that mere cutting into
different shapes and bending does not make these items lose their identity
as declared goods. Therefore, according to learned counsel, only tax at
the rate of 4% can be levied, and not the higher rate levied in respect of
civil construction works generally. Other learned counsel more or less
argued along the same lines as Shri N. Venkatraman, only adding that it
cannot be said that the identity of the iron and steel goods had changed at
the point of taxability, and they cited several judgments to show that mere
cutting and shaping of these products would not amount to “manufacture” and
hence the very goods that were declared goods alone were taxable at the
rate of 4%, both under the Karnataka Sales Tax Act as well as the Karnataka
Value Added Tax Act, 2003.
12. Shri K.N. Bhat, learned senior advocate appearing on behalf of the
State, relied strongly on State of Tamil Nadu v. M/s. Pyare Lal Malhotra
and Others, (1976) 1 SCC 834, in order to buttress his submission that the
iron and steel products did not continue as iron and steel products but
somehow became different goods at the point of accretion and that,
therefore, they could be taxed at the higher rate applicable to civil
constructions generally. He did not dispute the law laid down in the two
Supreme Court judgments cited by Shri N. Venkatraman, and very fairly
submitted that if the iron and steel products continued as declared goods
then even though they were in a works contract they were subject to the
drill of Section 15 of the Central Sales Tax Act, and would therefore be
chargeable at 4% if it were found that the said products continue to remain
the same.
13. Having heard learned counsel for the parties, we are of the opinion
that Shri N. Venkatraman is right. The matter is no longer res integra.
Two important propositions emerge on a conjoint reading of Builders
Association and M/s. Gannon Dunkerley (supra). First, that works contracts
that are liable to be taxed after the 46th Constitution Amendment are
subject to the drill of Article 286(3) read with Section 15 of the Central
Sales Tax Act, namely, that they are chargeable at a single point and at a
rate not exceeding 4% at the relevant time. Further, the point at which
these iron and steel products are taxable is the point of accretion, that
is, the point of incorporation into the building or structure.
14. The relevant paragraphs from these two decisions, therefore, need to
be set out. In Builders Association (supra), this Court held:
“We are of the view that all transfers, deliveries and supplies of goods
referred to in clauses (a) to (f) of clause (29-A) of Article 366 of the
Constitution are subject to the restrictions and conditions mentioned in
clause (1), clause (2) and sub-clause (a) of clause (3) of Article 286 of
the Constitution and the transfers and deliveries that take place under sub-
clauses (b), (c) and (d) of clause (29-A) of Article 366 of the
Constitution are subject to an additional restriction mentioned in sub-
clause (b) of Article 286(3) of the Constitution. [para 32]
In Benjamin's Sale of Goods (3rd Edn.) in para 43 at p. 36 it is stated
thus:
“Chattel to be affixed to land or another chattel.—Where work is to be done
on the land of the employer or on a chattel belonging to him, which
involves the use or affixing of materials belonging to the person employed,
the contract will ordinarily be one for work and materials, the property in
the latter passing to the employer by accession and not under any contract
of sale. Sometimes, however, there may instead be a sale of an article with
an additional and subsidiary agreement to affix it. The property then
passes before the article is affixed, by virtue of the contract of sale
itself or an appropriation made under it.”
In view of the foregoing statements with regard to the passing of the
property in goods which are involved in works contract and the legal
fiction created by clause (29-A) of Article 366 of the Constitution it is
difficult to agree with the contention of the States that the properties
that are transferred to the owner in the execution of a works contract are
not the goods involved in the execution of the works contract, but a
conglomerate, that is the entire building that is actually constructed.
After the 46th Amendment it is not possible to accede to the plea of the
States that what is transferred in a works contract is the right in the
immovable property.
The 46th Amendment does no more than making it possible for the States to
levy sales tax on the price of goods and materials used in works contracts
as if there was a sale of such goods and materials.
We are surprised at the attitude of the States which have put forward the
plea that on the passing of the 46th Amendment the Constitution had
conferred on the States a larger freedom than what they had before in
regard to their power to levy sales tax under entry 54 of the State List.
The 46th Amendment does no more than making it possible for the States to
levy sales tax on the price of goods and materials used in works contracts
as if there was a sale of such goods and materials. We do not accept the
argument that sub-clause (b) of Article 366(29-A) should be read as being
equivalent to a separate entry in List II of the Seventh Schedule to the
Constitution enabling the States to levy tax on sales and purchases
independent of entry 54 thereof. As the Constitution exists today the power
of the States to levy taxes on sales and purchases of goods including the
“deemed” sales and purchases of goods under clause (29-A) of Article 366 is
to be found only in entry 54 and not outside it. We may recapitulate here
the observations of the Constitution Bench in the case of Bengal Immunity
Company Ltd. [AIR 1955 SC 661 : (1955) 2 SCR 603 : (1955) 6 STC 446] in
which this Court has held that the operative provisions of the several
parts of Article 286 which imposes restrictions on the levy of sales tax by
the States are intended to deal with different topics and one could not be
projected or read into another and each one of them has to be obeyed while
any sale or purchase is taxed under entry 54 of the State List.
We, therefore, declare that sales tax laws passed by the legislatures of
States levying taxes on the transfer of property in goods (whether as goods
or in some other form) involved in the execution of a works contract are
subject to the restrictions and conditions mentioned in each clause or sub-
clause of Article 286 of the Constitution. We, however, make it clear that
the cases argued before and considered by us relate to one specie of the
generic concept of “works contracts”. The case-book is full of the
illustrations of the infinite variety of the manifestation of “works
contracts”. Whatever might be the situational differences of individual
cases, the constitutional limitations on the taxing power of the State as
are applicable to “works contracts” represented by “building contracts” in
the context of the expanded concept of “tax on the sale or purchase of
goods” as constitutionally defined under Article 366(29-A), would equally
apply to other species of “works contracts” with the requisite situational
modifications.” (Paras 38-41)
In M/s. Gannon Dunkerley (supra), this Court held:
“Apart from the limitations referred to above which curtail the ambit of
the legislative competence of the State Legislatures, there is clause (3)
of Article 286 which enables Parliament to make a law placing restrictions
and conditions on the exercise of the legislative power of the State under
Entry 54 in State List in regard to the system of levy, rates and other
incidents of tax. Such a law may be in relation to (a) goods declared by
Parliament by law to be of special importance in inter-State trade or
commerce, or (b) to taxes of the nature referred to in sub-clauses (b), (c)
and (d) of clause (29-A) of Article 366. When such a law is enacted by
Parliament the legislative power of the States under Entry 54 in State List
has to be exercised subject to the restrictions and conditions specified in
that law. In exercise of the power conferred by Article 286(3)(a)
Parliament has enacted Sections 14 and 15 of the Central Sales Tax Act,
1956. No law has, however, been made by Parliament in exercise of its power
under Article 286(3)(b).
For the same reasons Sections 14 and 15 of the Central Sales Tax Act would
also be applicable to the deemed sales resulting from transfer of property
in goods involved in the execution of a works contract and the legislative
power under Entry 54 in State List will have to be exercised subject to the
restrictions and conditions prescribed in the said provisions in respect of
goods that have been declared to be of special importance in inter-State
trade or commerce.
So also it is not permissible for the State Legislature to impose a tax on
goods declared to be of special importance in inter-State trade or commerce
under Section 14 of the Central Sales Tax Act except in accordance with the
restrictions and conditions contained in Section 15 of the Central Sales
Tax Act.
Since the taxable event is the transfer of property in goods involved in
the execution of a works contract and the said transfer of property in such
goods takes place when the goods are incorporated in the works, the value
of the goods which can constitute the measure for the levy of the tax has
to be the value of the goods at the time of incorporation of the goods in
the works and not the cost of acquisition of the goods by the contractor.
We are also unable to accept the contention urged on behalf of the States
that in addition to the value of the goods involved in the execution of the
works contract the cost of incorporation of the goods in the works can be
included in the measure for levy of tax. Incorporation of the goods in the
works forms part of the contract relating to work and labour which is
distinct from the contract for transfer of property in goods and,
therefore, the cost of incorporation of the goods in the works cannot be
made a part of the measure for levy of tax contemplated by Article 366(29-
A)(b).” [paras 31, 37, 41 and 45]
15. At this juncture, it is important to note the fact situation in a
typical case before us. The Karnataka Appellate Tribunal in an order dated
18.10.2010 in Civil Appeals arising out of SLP(C) Nos. 18646-19117 of 2015
narrates the factual position thus:
“Different types of steel bars/ rods of different diameters are used as
reinforcement (like TMT bars, CTD bars etc). The reinforcement bars/ rods
need to be bent at the ends in a particular fashion to withstand the
bending moments and flexural shear. The main reinforcement bars/ rods have
to be placed parallely along the direction of the longer span. The
diameters of such main reinforcement rods/bars and the distance between any
two main reinforcement bars/rods is calculated depending on the required
loads to be carried by the reinforced cement concrete structure to be built
based on various engineering parameters. At right angles to the main
reinforcement bas/rods, distribution bars/rods of appropriate lesser
diameters are placed and the intersections between the distribution
bars/rods and main reinforcement bars/rods are tied together with binding
wire. The tying is not for the purposes of fabrication but is to see that
the iron bars or rods are not displaced during the course of concreting
from the assigned positions as per the drawings. Welding of longitudinal
main bars and transverse distribution bars is not done. In fact, welding
is contra-indicated because it imparts too much rigidity to the
reinforcement which hampers the capacity of the roof structure to oscillate
or bend to compensate varying loads on the structure besides welding
reduces the cross section of the bars/ rods weakening their tensile
strength. The reinforcements are placed and tied together in appropriate
locations in accordance with the detailed principles and drawings found in
standard bar bending schedules which lay down the exact parameters of
interspaces between bars/ rods, the required diameters of the steel
reinforcement bars/ rods and contain the required engineering drawings for
placement of bars in a particular manner. The placement of reinforcement
bars/ rods for different structures is done under the supervision of
qualified bar tenders and site engineers who are well versed with the
engineering aspects related to steel reinforcement for creating reinforced
cement concrete of desired load bearing capacities.
The appellant company has submitted general photographs showing the
progress of the work of placement and binding of reinforcement bars/ rods
at its work sites. The said photographs also establish the correctness of
the aforesaid findings relating to placement and binding together of steel
reinforcement bars/ rods before such bars/ rods are embedded in cement
concrete mixtures. In another case in STA No.1328/2008 decided by this
Tribunal on 10.2.2009 (in the case of Sri J. Bhaskar Rao) which is relied
on by the appellant, in the agreement between the Government of Karnataka,
Minor Irrigation Department and the said appellant (who was a civil
contractor engaged in the civil construction activity), specification for
placement and binding together of reinforcement bars/ rods were stipulated
by the Government of Karnataka as follows:
“Reinforcing steel shall conform accurately to the dimensions given in the
bar bending schedules shown on the relevant drawings. Bars shall be bent
cold to the specific shape and dimensions or as directed by the Engineer in-
charge using a proper bar bender, operated by hand or power to attain
proper radii of bends.”
“PLACING OF REINFORCEMENTS:
All reinforcement bars shall be accurately placed in exact position
shown on the drawings and shall be securely held in position during placing
of concrete by annealed binding wire not less than 1mm. in size and
conforming to IS;280, and by using stays, blocks or metal chairs, spacers,
metal hangers, supporting wires or other approved devices at sufficiently
close intervals. Bars will not be allowed to end between supports not
displaced during concreting or any other operation over the work …. As far
as possible, bars of full length shall be used. In case this is not
possible, overlapping bars shall not touch each other, but be kept apart by
25mm, or 1 (1/4) times the maximum size of the coarse aggregate whichever
is greater, by concrete between them. Where not feasible, overlapping bars
shall be bound with annealed steel wire, not less than, 1mm. thickness
twisted tight. The overlaps shall be staggered for different bars and
located at points along the span where neither shear nor bending moment is
maximum.”
The above specification which are standard for all civil construction
works also confirms the correctness of the findings recorded by us supra.
Welding of bars/ rods reduces their cross section and to that extent
decreases the tensile strength of the reinforcement bars/ rods defeating
the very purpose of steel reinforcement in cement concrete. When bars/
rods are just joined together loosely by the use of binding wires, the
elasticity of the steel bar/ rod is in no way hampered and each
reinforcement bar/ rod acts independently. By the combined action of the
main reinforcement bars/ rods and the distribution bars/ rods, the
reinforced cement structures like roofs act as a rigid diaphragm whose
elements displace equally in the direction of the applied in-plane loads.
From the above discussion it is clear that largely in building
construction works, no pre-fabrication of any steel structure is done
before embedding them in cement concrete mixture to form reinforced cement
concrete structures. The findings of the lower authorities to the contrary
effect in the cases on hand are entirely opposed to facts.
The only process to which the steel reinforcement rods/ bars are
subjected to before being embedded with cement concrete mixture is bending
at its ends after cutting of steel rods/ bars to the required size and
tying them at the intersections with binding wire. None of these processes
constitute a manufacturing process and no new commodity is produced before
incorporation into the works.”
16. Given this factual scenario, Shri K.N. Bhat referred to the judgment
in State of Tamil Nadu v. M/s. Pyare Lal Malhotra and Others, (1976) 1 SCC
834, and relied on paragraphs 9 and 10 of this judgment which read as
follows:
“If the object was to make iron and steel taxable as a substance, the entry
could have been: “Goods of Iron and Steel”. Perhaps even this would not
have been clear enough. The entry, to clearly have that meaning, would have
to be: “Iron and Steel irrespective of change of form or shape or character
of goods made out of them”. This is the very unusual meaning which the
respondents would like us to adopt. If that was the meaning, sales tax law
itself would undergo a change from being a law which normally taxes sales
of “goods” to a law which taxes sales of substances, out of which goods are
made. We, however, prefer the more natural and normal interpretation which
follows plainly from the fact of separate specification and numbering of
each item. This means that each item so specified forms a separate species
for each series of sales although they may all belong to the genus: “Iron
and Steel”. Hence, if iron and steel “plates” are melted and converted into
“wire” and then sold in the market, such wire would only be taxable once so
long as it retains its identity as a commercial goods belonging to the
category “wire” made of either iron or steel. The mere fact that the
substance or raw material out of which it is made has also been taxed in
some other form, when it was sold as a separate commercial commodity, would
make no difference for purposes of the law of sales tax. The object appears
to us to be to tax sales of goods of each variety and not the sale of the
substance out of which they are made.
As we all know, sales tax law is intended to tax sales of different
commercial commodities and not to tax the production or manufacture of
particular substances out of which these commodities may have been made. As
soon as separate commercial commodities emerge or come into existence, they
become separately taxable goods or entities for purposes of sales tax.
Where commercial goods, without change of their identity as such goods, are
merely subjected to some processing or finishing or are merely joined
together, they may remain commercially the goods which cannot be taxed
again, in a series of sales, so long as they retain their identity as goods
of a particular type.” [paras 9 and 10]
17. Given the fact situation in these appeals, it is obvious that
paragraph 10 of this judgment squarely covers the case against the State,
where, commercial goods without change of their identity as such, are
merely subject to some processing or finishing, or are merely joined
together, and therefore remain commercially the same goods which cannot be
taxed again, given the rigor of Section 15 of the Central Sales Tax Act.
We fail to see how the aforesaid judgment can further carry the case of the
revenue.
18. We may note that in Civil Appeal No.4318 of 2007, Larsen & Toubro
Ltd. v. State of Karnataka & Another, the Appellate Tribunal had passed an
order dated 11.1.2002 in which it decided the case against the assessee on
the ground that since the iron and steel products went into cement
concrete, they changed form, and since they changed form, they were no
longer declared goods and could be taxed without the constraints mentioned
in Section 15 of the Central Sales Tax Act. A Sales Tax Revision Petition
filed before the High Court yielded an order dated 14.6.2007 by which the
assessee was sent back to the Appellate Tribunal for rectification. This
rectification petition was dismissed by an order dated 30.11.2005. A Sales
Tax Revision Petition was thereafter filed against both orders, namely,
11.1.2002 and 30.11.2005. The High Court, in the impugned judgment dated
1.9.2006, unfortunately adverted only to the rectification order dated
30.11.2005 and not to the original order of 11.1.2002 and thus dismissed
the revision petition stating that no question of law arose. Ordinarily,
we would have set aside the judgment and remanded the matter back to the
High Court to determine the matter on merits, but at this point of time we
find this would not serve any purpose. Instead, it is enough to set aside
both the judgments impugned by the assessees, dated 1.9.2006 and 12.8.2004,
in light of the law laid down in Builders Association and M/s. Gannon
Dunkerley (supra), and declare that the declared goods in question can only
be taxed at the rate of 4%.
19. In the State Appeals, we find that the lead impugned judgment in
Civil Appeals arising out of SLP(C) Nos.18646-19117 of 2015 dated
10.12.2013 is an exhaustive judgment which has considered not only the
facts in great detail but also the law laid down by the Supreme Court. We
affirm the said judgment and dismiss the appeals of the State of Karnataka.
Civil Appeal No.4319 of 2007
M/s. Ananth Engineering Works v. State of Karnataka
20. This appeal is by the assessee from a judgment dated 26.10.2006
allowing a revision against the Appellate Tribunal’s order dated 19.1.2006.
In this appeal, we are concerned with Rule 6(4)(m) of the Karnataka Sales
Tax Rules, 1957.
“Rule 6(4):
6. DETERMINATION OF TOTAL AND TAXABLE TURNOVER:
(1)…….
…….
(4) In determining the table turnover, the amount specified in clause
(a) to (p) shall, subject to the conditions specified therein, be deducted
from the total turnover of a dealer as determined under clauses (a) to (e)
of sub-Rule (1).
(a)…..
(b)….
…..
(m) In the case of works contract specified in Serial Numbers
1,2,3,4,5,7,8,9,10,11,12,17,26,27,35,36,40 and 42 of the Sixth Schedule;
(i) all amounts received or receivable in respect of goods other than
the goods taxable under sub-section (1-A) or (1-B) or Section 5 which are
purchased form registered dealers liable to pay tax under the Act and used
in the execution of works contract in the same form in which such goods are
purchased.
(ii) ……
…….EXPLANATION-III For the purpose of sub-rule (4), the expression ‘in the
same form’ used in sub-clause (i) of clause (m) shall not include such
goods which, after being purchased, are either consumed or used in the
manufacture of other goods which in turn are used in the execution of works
contract.”
21. On facts in this case, it has been found that the appellant is
engaged in works contracts of fabrication and creation of doors, window
frames, grills, etc. in which they claimed exemption for iron and steel
goods that went into the creation of these items, after which the said
doors, window frames, grills, etc. were fitted into buildings and other
structures. On facts, therefore, we find that the High Court’s judgment is
correct and does not need to be interfered with inasmuch as the iron and
steel goods, after being purchased, are used in the manufacture of other
goods, namely, doors, window frames, grills, etc. which in turn are used in
the execution of works contracts and are therefore not exempt from tax.
22. The appeal of the assessee is therefore dismissed.
…..………………J.
(A.K. Sikri)
…..………………J.
(R.F. Nariman)
New Delhi;
August 11, 2016
whether the income so received should be taxed under the head “Income from House Property” or “Profit and gains of business or profession”.= in the case of Chennai Properties and Investments Ltd. v. Commissioner of Income Tax [2015] 373 ITR 673 (SC) that if an assessee is having his house property and by way of business he is giving the property on rent and if he is receiving rent from the said property as his business income, the said income, even if in the nature of rent, should be treated as “Business Income” because the assessee is having a business of renting his property and the rent which he receives is in the nature of his business income.-The judgment relied upon by the learned counsel appearing for the assessee squarely covers the facts of the case involved in the appeals. The business of the company is to lease its property and to earn rent and therefore, the income so earned should be treated as its business income.In view of the law laid down by this Court in the case of Chennai Properties (supra) and looking at the facts of these appeals, in our opinion, the High court was not correct while deciding that the income of the assessee should be treated as Income from House Property.
NON-REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
Civil Appeal No.6437 of 2016
M/s. Rayala Corporation Pvt. Ltd. ... Appellant(s)
VS.
Assistant Commissioner of Income Tax ... Respondent(s)
WITH
Civil Appeal No.6438 of 2016
WITH
Civil Appeal Nos.6439-6440 of 2016
WITH
Civil Appeal No.6441 of 2016
JUDGMENT
Anil R.Dave, J.
1. Being aggrieved by the judgment delivered by the High Court of Madras
on 4th October, 2013 in Tax Case (Appeal) Nos.91, 99 and 212 of 2012; and
230 and 231 of 2007, these appeals have been filed.
2. The issue involved in all these appeals is common but it pertains to
different Assessment Years and therefore, all these appeals had been heard
together. The facts in all these appeals, in a nutshell are as under:
The appellant-assessee, a private limited company, is having house
property, which has been rented and the assessee is receiving income from
the said property by way of rent. The main issue in all these appeals is
whether the income so received should be taxed under the head “Income from
House Property” or “Profit and gains of business or profession”. The reason
for which the aforestated issue has arisen is that though the assessee is
having the house property and is receiving income by way of rent, the case
of the assessee is that the assessee company is in business of renting its
properties and is receiving rent as its business income, the said income
should be taxed under the Head “Profits and gains of business or
profession” whereas the case of the Revenue is that as the income is
arising from House Property, the said income must be taxed under the head
“Income from House Property”.
3. The learned counsel appearing for the assessee submitted that the
issue involved in these appeals is no more res integra as this Court has
decided in the case of Chennai Properties and Investments Ltd. v.
Commissioner of Income Tax [2015] 373 ITR 673 (SC) that if an assessee is
having his house property and by way of business he is giving the property
on rent and if he is receiving rent from the said property as his business
income, the said income, even if in the nature of rent, should be treated
as “Business Income” because the assessee is having a business of renting
his property and the rent which he receives is in the nature of his
business income.
4. According to the learned counsel appearing for the assessee, the
afore-stated judgment in the case of Chennai Properties (supra) has
referred to all the judgments on the subject and more particularly, the
judgment in the case of Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR
362 (SC) which has summed up as under:-
“As has been already pointed out in connection with the other two cases
where there is a letting out of premises and collection of rents the
assessment on property basis may be correct but not so, where the letting
or sub-letting is part of a trading operation. The dividing line is
difficult to find; but in the case of a company with its professed objects
and the manner of its activities and the nature of its dealings with its
property, it is possible to say on which side the operations fall and to
what head the income is to be assigned.”
5. The learned counsel also submitted that the assessee is a private
limited company and even as per its Memorandum of Association its business
is to deal into real estate and also to earn income by way of rent by
leasing or renting the properties belonging to the assessee company.
6. The learned counsel also drew our attention to the fact that the High
Court and the authorities below had come to a specific finding to the
effect that the assessee company had stopped its other business activities
and was having only an activity with regard to the leasing its properties
and earning rent therefrom. Thus, except leasing the properties belonging
to the assessee company, the company is not having any other business and
the said fact is not in dispute at all.
7. For the afore-stated reasons, the learned counsel submitted that the
impugned judgment delivered by the High Court is not proper for the reason
that the High Court has directed that the income earned by the appellant
assessee should be treated as “Income from House Property”.
8. On the other hand, the learned counsel appearing for the respondent-
Revenue made an effort to justify the reasons given by the High Court in
the impugned judgment. The learned counsel also relied upon the judgment
delivered by this Court in the case of M/s. S.G. Mercantile Corpn. (P) Ltd.
v. CIT, Calcutta (1972) 1 SCC 465. According to him, the important
question which would arise in all such cases is whether the acquisition of
property for leasing and letting out all the shops and stalls would be
essentially a part of business and trading operations of the assessee.
According to the learned counsel appearing for the Revenue, leasing and
letting out of shops and properties is not the main business of the
assessee as per Memorandum of Association and therefore, the income earned
by the assessee should be treated as income earned from House Property.
He, therefore, submitted that the impugned judgment is just legal and
proper and therefore, these appeals should be dismissed.
9. Upon hearing the learned counsel and going through the judgments
cited by the learned counsel, we are of the view that the law laid down by
this Court in the case of Chennai Properties (supra) shows the correct
position of law and looking at the facts of the case in question, the case
on hand is squarely covered by the said judgment.
10. Submissions made by the learned counsel appearing for the Revenue is
to the effect that the rent should be the main source of income or the
purpose for which the company is incorporated should be to earn income from
rent, so as to make the rental income to be the income taxable under the
head “Profits and Gains of Business or Profession”. It is an admitted fact
in the instant case that the assessee company has only one business and
that is of leasing its property and earning rent therefrom. Thus, even on
the factual aspect, we do not find any substance in what has been submitted
by the learned counsel appearing for the Revenue.
11. The judgment relied upon by the learned counsel appearing for the
assessee squarely covers the facts of the case involved in the appeals.
The business of the company is to lease its property and to earn rent and
therefore, the income so earned should be treated as its business income.
12. In view of the law laid down by this Court in the case of Chennai
Properties (supra) and looking at the facts of these appeals, in our
opinion, the High court was not correct while deciding that the income of
the assessee should be treated as Income from House Property.
13. We, therefore, set aside the impugned judgments and allow these
appeals with no order as to costs. We direct that the income of the
assessee shall be subject to tax under the head “Profits and gains of
business or profession”.
................J.
[ANIL R. DAVE]
.................J.
[L. NAGESWARA RAO]
New Delhi;
August 11, 2016.
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
Civil Appeal No.6437 of 2016
M/s. Rayala Corporation Pvt. Ltd. ... Appellant(s)
VS.
Assistant Commissioner of Income Tax ... Respondent(s)
WITH
Civil Appeal No.6438 of 2016
WITH
Civil Appeal Nos.6439-6440 of 2016
WITH
Civil Appeal No.6441 of 2016
JUDGMENT
Anil R.Dave, J.
1. Being aggrieved by the judgment delivered by the High Court of Madras
on 4th October, 2013 in Tax Case (Appeal) Nos.91, 99 and 212 of 2012; and
230 and 231 of 2007, these appeals have been filed.
2. The issue involved in all these appeals is common but it pertains to
different Assessment Years and therefore, all these appeals had been heard
together. The facts in all these appeals, in a nutshell are as under:
The appellant-assessee, a private limited company, is having house
property, which has been rented and the assessee is receiving income from
the said property by way of rent. The main issue in all these appeals is
whether the income so received should be taxed under the head “Income from
House Property” or “Profit and gains of business or profession”. The reason
for which the aforestated issue has arisen is that though the assessee is
having the house property and is receiving income by way of rent, the case
of the assessee is that the assessee company is in business of renting its
properties and is receiving rent as its business income, the said income
should be taxed under the Head “Profits and gains of business or
profession” whereas the case of the Revenue is that as the income is
arising from House Property, the said income must be taxed under the head
“Income from House Property”.
3. The learned counsel appearing for the assessee submitted that the
issue involved in these appeals is no more res integra as this Court has
decided in the case of Chennai Properties and Investments Ltd. v.
Commissioner of Income Tax [2015] 373 ITR 673 (SC) that if an assessee is
having his house property and by way of business he is giving the property
on rent and if he is receiving rent from the said property as his business
income, the said income, even if in the nature of rent, should be treated
as “Business Income” because the assessee is having a business of renting
his property and the rent which he receives is in the nature of his
business income.
4. According to the learned counsel appearing for the assessee, the
afore-stated judgment in the case of Chennai Properties (supra) has
referred to all the judgments on the subject and more particularly, the
judgment in the case of Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR
362 (SC) which has summed up as under:-
“As has been already pointed out in connection with the other two cases
where there is a letting out of premises and collection of rents the
assessment on property basis may be correct but not so, where the letting
or sub-letting is part of a trading operation. The dividing line is
difficult to find; but in the case of a company with its professed objects
and the manner of its activities and the nature of its dealings with its
property, it is possible to say on which side the operations fall and to
what head the income is to be assigned.”
5. The learned counsel also submitted that the assessee is a private
limited company and even as per its Memorandum of Association its business
is to deal into real estate and also to earn income by way of rent by
leasing or renting the properties belonging to the assessee company.
6. The learned counsel also drew our attention to the fact that the High
Court and the authorities below had come to a specific finding to the
effect that the assessee company had stopped its other business activities
and was having only an activity with regard to the leasing its properties
and earning rent therefrom. Thus, except leasing the properties belonging
to the assessee company, the company is not having any other business and
the said fact is not in dispute at all.
7. For the afore-stated reasons, the learned counsel submitted that the
impugned judgment delivered by the High Court is not proper for the reason
that the High Court has directed that the income earned by the appellant
assessee should be treated as “Income from House Property”.
8. On the other hand, the learned counsel appearing for the respondent-
Revenue made an effort to justify the reasons given by the High Court in
the impugned judgment. The learned counsel also relied upon the judgment
delivered by this Court in the case of M/s. S.G. Mercantile Corpn. (P) Ltd.
v. CIT, Calcutta (1972) 1 SCC 465. According to him, the important
question which would arise in all such cases is whether the acquisition of
property for leasing and letting out all the shops and stalls would be
essentially a part of business and trading operations of the assessee.
According to the learned counsel appearing for the Revenue, leasing and
letting out of shops and properties is not the main business of the
assessee as per Memorandum of Association and therefore, the income earned
by the assessee should be treated as income earned from House Property.
He, therefore, submitted that the impugned judgment is just legal and
proper and therefore, these appeals should be dismissed.
9. Upon hearing the learned counsel and going through the judgments
cited by the learned counsel, we are of the view that the law laid down by
this Court in the case of Chennai Properties (supra) shows the correct
position of law and looking at the facts of the case in question, the case
on hand is squarely covered by the said judgment.
10. Submissions made by the learned counsel appearing for the Revenue is
to the effect that the rent should be the main source of income or the
purpose for which the company is incorporated should be to earn income from
rent, so as to make the rental income to be the income taxable under the
head “Profits and Gains of Business or Profession”. It is an admitted fact
in the instant case that the assessee company has only one business and
that is of leasing its property and earning rent therefrom. Thus, even on
the factual aspect, we do not find any substance in what has been submitted
by the learned counsel appearing for the Revenue.
11. The judgment relied upon by the learned counsel appearing for the
assessee squarely covers the facts of the case involved in the appeals.
The business of the company is to lease its property and to earn rent and
therefore, the income so earned should be treated as its business income.
12. In view of the law laid down by this Court in the case of Chennai
Properties (supra) and looking at the facts of these appeals, in our
opinion, the High court was not correct while deciding that the income of
the assessee should be treated as Income from House Property.
13. We, therefore, set aside the impugned judgments and allow these
appeals with no order as to costs. We direct that the income of the
assessee shall be subject to tax under the head “Profits and gains of
business or profession”.
................J.
[ANIL R. DAVE]
.................J.
[L. NAGESWARA RAO]
New Delhi;
August 11, 2016.
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