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Monday, March 14, 2016

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 all facts necessary to establish his adverse possession.The principle of adverse possession and its consequences wherever attracted has been recognized in the statute dealing with limitation.The law of Prescription prescribes the period at the expiry of which not only the judicial remedy is barred but a substantive right is acquired or extinguished. A prescription, by which a right is acquired, is called an 'acquisitive prescription'. A prescription by which a right is extinguished is called 'extinctive prescription'. The distinction between the two is not of much practical importance or substance. The extinction of right of one party is often the mode of acquiring it by another. The right extinguished is virtually transferred to the person who claims it by prescription. Prescription implies with the thing prescribed for is the property of another and that it is enjoyed adversely to that other. In this respect it must be distinguished from acquisition by mere occupation as in the case of res nullius. The acquisition in such cases does not depend upon occupation for any particular length of time.”; herself admitted that the officials of the BDA had come to the suit property on April 24, 2001 and demolished the existing structure. This act of the BDA would amply demonstrate that there was no unhindered, peaceful and continuous possession of the suit land.; the respondent should not be dispossessed or fair compensation which is not raised or pleaded would not be the relevant, once it is found that the respondent has not been able to prove title by adverse possession, no such aspects, not coming within the scope of the suit proceedings, can be looked into

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 2238 OF 2016


|BANGALORE DEVELOPMENT AUTHORITY              |.....APPELLANT(S)          |
|VERSUS                                       |                           |
|N. JAYAMMA                                   |.....RESPONDENT(S)         |

                               J U D G M E N T


A.K. SIKRI, J.
                 The instant appeal, which has travelled to this Court,  had
its origin in a suit filed by the respondent in  the  Court  of  City  Civil
Judge, Bangalore.  The said suit was filed  by  the  respondent  herein  for
declaration of title to the suit property situated in Sy. No. 76/1.  It  was
claimed by the respondent that she had purchased the property  on  June  22,
1994 ad-measuring East to West –  60  ft.  and  North  to  South  –  50  ft.
(hereinafter referred to as the 'suit property')  from  its  previous  owner
and had constructed a building  thereupon.   The  aforesaid  suit  property,
which was part of Sy. No. 76/1 comprising 4  acres  31  guntas  (hereinafter
referred to  as  the  'scheduled  property'),  was  acquired  by  the  State
Government for Bangalore  Development  Authority  –  appellant  herein  (for
short, 'the BDA'), for which  Notification  under  Section  4  of  the  Land
Acquisition Act, 1894 (for short, 'the Act')  was  issued  on  December  15,
1984 followed by a declaration under Section 6 of the  Act  on  October  29,
1986.  Purportedly, possession thereof was handed over to the BDA on  August
30, 1988 vide Mahazar (Exhibit D-4).  However, it appears  that  the  actual
possession of the suit property remained with the original  owner  who  then
sold it to the respondent in the year 1994, as stated above.  It is on  this
basis that the respondent filed the suit on  the  ground  that  she  was  in
possession of the said property for  more  than  12  years  even  after  the
acquisition thereof by the State Government and, in  this  manner,  she  had
perfected her title by adverse possession.  Thus, the relief claimed in  the
suit was for declaration that the respondent had become the owner thereof.

The appellant contested the said suit by raising the  plea  that  since  the
scheduled property had been acquired by the Government for formation of  the
layout and with effect from the  date  of  final  notification  entire  land
vested with the Government, the respondent was precluded from  claiming  the
possession thereof on the ground that it was already with her.  It was  also
contended that the Government had handed over the possession of the land  in
question to the BDA on August 30, 1988  and  BDA  was  in  legal  possession
thereof.  It was also submitted that once Notification under  Section  4  of
the Act was issued on December 15, 1984 and even declaration  under  Section
6 was issued on October 29, 1986, it was not permissible  for  the  original
owner to sell the acquired land to the respondent herein on June  22,  1994.
It was also contended that as the land vested with the  Government,  in  any
case, the limitation under Article 112 of the Limitation Act,  1963  was  30
years and not 12 years  and,  therefore,  the  respondent  could  not  claim
adverse possession before the expiry of 30 years.

The trial court, on  the  basis  of  the  pleadings,  framed  the  following
issues:
“(1)  Whether the plaintiff proves that she and her  predecessors  in  title
have been in continuous  possession  and  enjoyment  of  the  suit  schedule
property since more than 12 years, adverse to the interest of the  defendant
as pleaded in the plaint?

(2)  Whether the plaintiff proves that she had perfected her  title  to  the
suit schedule property by way  of  adverse  possession  as  pleaded  in  the
plaint?

(3)  Whether the plaintiff proves that the defendant and his  officials  are
unlawfully interfering with her possession of the suit schedule property  as
alleged in the plaint?

(4)  Whether the plaintiff proves that she is entitled for  the  declaration
of title to the suit schedule property as sought for in the suit?

(5)  Whether the plaintiff proves that she is also entitled  for  the  grant
of permanent injunction against the defendant as ought for in the suit?”

Evidence was led and arguments heard, which resulted in passing of  judgment
and decree dated  April  07,  2006  by  the  Additional  City  Civil  Judge,
Bangalore.  All the issues were decided in favour of the respondent  herein,
on the basis of which suit was decreed in her favour declaring that  she  is
the owner in possession of the suit property having perfected her  title  by
way  of  adverse  possession.   As  a  consequence,  decree   of   permanent
injunction was also passed restraining the appellant –  BDA,  its  officials
and agents, etc. from alienating the suit property either by way  of  lease,
public auction or by allotting the same in favour  of  any  third  party  or
from interfering with the peaceful possession  and  enjoyment  of  the  said
property by the respondent.  This judgment and decree was  appealed  against
by the appellant before the High Court by filing Regular  First  Appeal  No.
1279 of 2006.  The High Court has,  vide  impugned  judgment,  affirmed  the
decree passed by the trial  court  thereby  dismissing  the  appeal  of  the
appellant.

Attacking the judgment and decree passed by the trial court and affirmed  by
the High Court, learned counsel for the appellant submitted that even if  it
is presumed that limitation period for claiming  adverse  possession  is  12
years, in the instant case, that ingredient has not been  satisfied  by  the
respondent even on the basis of admitted facts.   In  this  behalf,  it  was
argued that as per the respondent's own showing, she had purchased the  area
of 60 ft. x 50 ft. out of the acquired land on June 22,  1994.   She,  thus,
came into possession in the year 1994.  He further pointed out that  in  the
plaint itself, the respondent had  averred  that  there  was  some  existing
construction and she had applied for regularisation  of  the  said  existing
construction on July 25, 1994.  Further, in  para  10  of  the  plaint,  the
respondent admitted that the officials of the  appellant  had  come  to  the
suit, properly accompanied by Police  force,  and  demolished  the  existing
construction.  He drew our attention  to  the  following  averments  in  the
plaint to the aforesaid effect:
“In spite of the above stated facts, the BDA and its officials  without  any
kind of notice and with the help of  a  large  contingent  of  police  force
accompanied by the officials and workmen  including  the  Commissioner,  BDA
and all of a sudden they have illegally trespassed over  the  suit  schedule
property on 24.04.2001 and interfered  over  the  same  and  demolished  the
existing  construction  buildings  as  well  as  her  business  therein   on
24.04.2001  with  the  aid  of  bulldozers   and   such   other   machinery,
equipments....”

It was, thus, argued that after purchase of the land on June 22,  1994,  the
respondent  remained  in  possession  for  barely  7  years  when  she   was
dispossessed, even as per the respondent's own showing and  the  suit  filed
on August 06, 2001 claiming adverse possession on the ground  that  she  was
in possession for 12 years, was incompetent.  It was further submitted  that
as per the aforesaid pleadings in the plaint, it was clear that on the  date
of filing the suit, the respondent was not in possession nor was  there  any
structure on the suit land and the question of claiming adverse  possession,
thus, did not arise.

Learned counsel also argued that in order to lay claim of ownership  on  the
basis of  adverse  possession,  it  has  to  be  proved  that  such  adverse
possession is open and uninterrupted to  the  enjoyment  of  the  defendant-
Authority for more than 12 years, which essential requirement had  not  been
satisfied.  For this proposition, the learned counsel placed heavy  reliance
upon  a  recent  judgment  of  this  Court  in  M.  Venkatesh  &   Ors.   v.
Commissioner, Bangalore Development Authority.[1]


We may note at this stage that in arriving at a finding that the  respondent
was in possession of suit property for more than 12 years, the courts  below
have calculated the period from August 30, 1988, namely, the date  on  which
possession was taken under a Mahazar (Exhibit D-4) by the  State  Government
and handed over to the BDA.  Learned counsel for the BDA  pleaded  that  the
aforesaid  approach  of  the  courts  below  was  wholly  erroneous  as  the
respondent, as per her own showing, came to possess the suit  property  only
after the purchase thereof on June 22, 1994.  He  also  submitted  that,  in
any case, sale in favour of the respondent in the  year  1994  was  void  ab
initio as the title had already been vested in  the  BDA  and  the  original
owner who had purportedly sold the property to the respondent was no  longer
owner thereof and had no right to sell the  same.   Learned  counsel  argued
that even this aspect is squarely covered by the aforesaid judgment  in  the
case of M. Venkatesh (supra).  Learned counsel also pointed out  that  after
the structure was demolished in the year 2001 by the  BDA,  as  admitted  by
the respondent herself, the site in question was auctioned by the  appellant
on August 06, 2001 and sale deed was duly executed, which was proved  before
the trial court as Exhibit P-26.

Per  contra,  learned  counsel  for  the  respondent  submitted   that   the
respondent had led sufficient evidence to establish that  she  had  been  in
continuous possession, which remained uninterrupted, and  on  the  basis  of
this evidence a categorical finding was arrived at by  the  trial  court  to
the effect that the respondent has perfected her title  in  respect  of  the
suit property by way of adverse possession.  This submission was  elaborated
by arguing that even when the schedule  property  was  acquired  by  issuing
requisite notifications and passing of the award,  possession  of  the  suit
property was never taken by the BDA, which continued to be in possession  of
the vendor, from whom the respondent purchased the property vide  sale  deed
dated June 22, 1994, and thereafter she  had  been  in  possession  of  this
property.  It was submitted that these were findings of facts arrived at  on
the  basis  of  evidence  produced  on  record  which  do  not  warrant  any
interference.  It was  also  submitted  that  Mahazar  (Exhibit  D-4)  dated
October 13, 1988 was only a paper possession and no  actual  possession  had
been taken, which also stood proved not only by  the  evidence  led  by  the
respondent, but even  from  the  statements  of  DW-1  and  DW-2,  who  were
examined on behalf of the BDA.  Learned counsel  further  pointed  out  that
there was not even an iota of evidence adduced on behalf  of  the  BDA  that
the possession of the suit  property  was  taken  on  the  date  of  Mahazar
(Exhibit D-4) or subsequently thereafter.

Insofar as claim of continuous, uninterrupted and peaceful possession for  a
period of more than 12 years is concerned, it  was  the  submission  of  the
learned counsel for the respondent that possession of the  respondent  shall
not be counted from the date of the sale deed, i.e. June 22,  1994,  in  her
favour, but the earlier period during which the  vendor  was  in  possession
also needs to be counted and the courts below were right  in  computing  the
period of 12 years from the date of Mahazar (Exhibit D-4) dated October  13,
1988.  A fervent plea was made that if the impugned  judgment  is  reversed,
the respondent and the members of her family will be deprived of their  only
shelter,  which  would  amount  to  taking  away  their  right  to  property
guaranteed to them under Article 300A of the Constitution of India.   It  is
stated that there was a fully developed structure (house) (Exhibits P-22  to
P-25) on the suit property and the building was constructed after  obtaining
permission and licence from Agara Gram Panchayat and  regularly  taxes  were
paid with respect to the suit property and Khatha also stands in  favour  of
the respondent.  It was submitted that at no point  of  time  the  BDA  took
possession of the property in question from the vendor  or  the  respondent.
It was also argued that the BDA being a statutory authority created for  the
purpose of formation of layouts and allotment of sites  to  the  members  of
the pubic, even in equity it was not proper, just or  fair  to  deprive  the
respondent of her only source of shelter.  The very objective of the BDA  is
to provide shelter to the members of public.   The  counsel,  thus,  pleaded
that this Court should not exercise its extraordinary  power  under  Article
136 of the Constitution even if  the  judgment  impugned  suffers  from  any
error if the said judgment will not bring about any unjust result.

Another submission of the learned counsel for the respondent  was  that  the
very purpose for which the land was acquired was to  prepare  a  scheme  for
allotment of the houses to the members of the public.  As per Section 27  of
the Bangalore Development Authority Act, 1976,  such  a  scheme  had  to  be
prepared within five years from the passage of the award, but  the  BDA  had
failed to do so resulting in the  lapsing  of  the  scheme.   This  was  yet
another reason, according to the respondent, for not  interfering  with  the
decree passed in favour of the respondent.

Tracing the history of the  present  litigation,  learned  counsel  for  the
respondent referred to the judgment of the Karnataka High Court in  John  B.
James & Ors. v. Bangalore Development Authority &  Anr.[2]   Delivering  the
judgment in that case, in a batch of writ petitions which were filed by  the
respondent  and  several  others,  the   High   Court,   after   elaborately
considering the rival contentions of the  parties,  had  directed  the  writ
petitioners, including the respondent herein to approach the civil court  to
establish their claim that they  had  perfected  their  title  to  the  suit
property by adverse possession, as  is  clear  from  the  following  passage
therefrom:
“85.  Where the petitioners claim that they are in  settled  possession  for
more than 12 years after the land had vested in BDA, it is open to  them  to
approach the Civil Court for a declaration of title by establishing  adverse
possession for more than 12 years.”

Learned counsel for the respondent joined issue qua  the  arguments  of  the
appellant predicated on the judgment of this  Court  in  M.  Venkatesh  case
with the submission that the said judgment had absolutely no application  to
the facts of the present case as the said case relates to the  vacant  house
site and construction of building after dispossession,  which  was  not  the
position in the instant case.   On  the  other  hand,  he  referred  to  the
following judgments of this Court wherein symbolic/paper possession is  held
to be no possession in the eyes of law  and  it  is  the  actual  possession
under relevant rules which matters:
      (i)   Balwant Narayan Bhagde v. M.D. Bhagwat[3]

      (ii)  NTPC Ltd. v. Mahesh Dutta[4]

      (iii) Raghbir Singh Sehrawat v. State of Haryana[5]


Learned counsel for the respondent even referred to the  provisions  of  the
Right  to  Fair  Compensation   and   Transparency   in   Land   Acquisition
Rehabilitation and Resettlement Act, 2013,  and  in  particular  sub-section
(2) of  Section  24  which  lays  down  specific  period  within  which  the
possession is to be taken of the property  after  acquisition  and  when  no
such possession was taken, the acquisition lapses.

In the first blush, argument of the  learned  counsel  for  the  respondent,
viz., there is a finding of fact that respondent  and  her  predecessors-in-
title have been in continuous possession and enjoyment of the suit  property
for more than 12 years and, therefore,  the  respondent  has  perfected  her
title by adverse possession, appears to be attractive.  It may appear to  be
a finding of fact simplicitor.  However, an indepth analysis  of  the  issue
would manifest  that  the  matter  cannot  be  brushed  aside  with  such  a
simplisitic overtone.  In fact, the detailed discussion that  follows  would
amply demonstrates that the manner in which the issue  has  been  approached
by the courts below is itself  erroneous  and  legally  unsustainable.   For
this, we are not even required to discuss various nuances of  the  issue  as
the judgment of this Court in M. Venkatesh has done  this  exercise  whereby
same issue has been directly and squarely dealt with which arose  in  almost
similar circumstances.  Therefore, it would be apt to discuss the  facts  of
that case as well as law laid down therein which would  provide  answers  to
many arguments raised by the parties before us.

In M. Venkatesh (supra) as well,  land was acquired by the State  Government
of  Karnataka  and  given  at  the  disposal  of   the   BDA.    Preliminary
Notification was issued on  July  17,  1984  and  final  Notification  dated
November 28, 1986 was published on  December  25,  1986.   Determination  of
amount of compensation payable to the landowners  having  been  approved  by
the competent authority on August 21, 1986, the BDA claimed that  possession
of the land was taken over from  the  landowners  and  handed  over  to  the
engineering section of the BDA by drawing a possession Mahazar  on  November
06, 1987.  A Notification under Section 16(2) of the Act was also  published
in the Karnataka Gazette dated July 04, 1991 which, according  to  the  BDA,
signified that the land in question stood vested with the BDA free from  all
encumbrances whatsoever.  Here also, after taking of the aforesaid steps  by
the BDA, the original land owners of the acquired land sold  the  said  land
to different persons after carving out the  sites/plots.   When  the  actual
possession was sought to be taken, the said subsequent purchasers (like  the
respondent in the instant appeal) filed writ petitions in  the  High  Court.
Their writ petitions, along with the writ petition of the respondent  herein
and some others, were the subject matter of the  judgment  of  the  Division
Bench of the  High  Court  in  John  B.  James's  case  (supra).   Like  the
respondent herein, the individuals/subsequent purchasers in the case  of  M.
Venkatesh (supra) were  also  relegated  to  the  civil  court  giving  them
permission to file the suit if they were claiming adverse possession.   Five
such suits were the subject matter of the judgment in M. Venkatesh  (supra).
 The trial court had, in  fact,  clubbed  these  suits  which  were  decided
together and decreed.  The issues framed in  those  suits  were  almost  the
same to the ones framed in the civil suit filed by  the  respondent  herein,
as is clear from the issues which were settled by the trial court  in  those
cases:
“(1)  Whether the Plaintiffs prove that, they have  acquired  and  perfected
their alleged title to  the  suit  schedule  properties  by  virtue  of  the
alleged law on adverse possession, as claimed?

(2)  Whether the  Plaintiffs  prove  their  alleged  lawful  possession  and
enjoyment of the suit schedule properties, as on the date of the suit?

(3)  Whether the Plaintiffs further prove the alleged illegal  interferences
and obstructions by the defendant?

(4)  Whether the defendant proves that,  the  suit  schedule  properties  is
duly acquired by the defendant, in accordance with  law  and  as  such,  the
same have stood vested with the defendant, free from all the encumbrances?

(5)  Whether the Plaintiffs are entitled to the suit relief  of  declaration
and injunction, against the defendant?

(6)  What Order or Decree?”

In that case also the trial court  had  recorded  the  findings  that  those
plaintiffs were  in  lawful  possession  on  the  date  of  the  suit,  such
possession was for  more  than  12  years  and,  thus,  the  plaintiffs  had
perfected  their  title  to  the  schedule  properties  by  way  of  adverse
possession.  The BDA filed appeals against the decree passed  by  the  trial
court.  Four appeals were allowed wherein  the  High  Court  held  that  the
trial court was wrong in recording the finding that  those  four  plaintiffs
had established their possession.  It was noticed  that  the  plaintiffs  in
those appeals were claiming settled possession  of  vacant  piece  of  land,
which was clearly impermissible.  The High Court found  that  there  was  no
dispute that all the structures on the suit properties,  relevant  to  those
suits, had been demolished and that the land was a vacant piece of land  all
along and at all material times, including on the date of  filing  the  suit
as well as on the  date  of  judgment.   These  four  plaintiffs  had  filed
appeals  which  were  dismissed  by  this  Court  in  M.  Venkatesh  (supra)
approving the view taken by  the  High  Court  in  the  said  four  appeals.
Insofar as decision in those four cases is concerned, it  may  not  be  very
relevant as in the instant case it is not the vacant land with which we  are
concerned.  However, what is relevant for us is the discussion in the  fifth
appeal which was filed by the BDA in the High Court wherein the  High  Court
had affirmed the decree passed in favour of the plaintiff.  The  High  Court
noticed that in the said case the plaintiffs were running a saw  mill  which
was in operation long prior to the filing of the suit  and  which  continued
to be in existence even on the date of the suit as well as on  the  date  of
the judgment of the High Court.  Keeping in  view  the  aforesaid  position,
the High Court relied upon its Division Bench judgment in  John  B.  James's
case (supra) and held that the plaintiff therein was entitled to  protection
against attempted eviction by the BDA.  On this basis, decree passed by  the
trial court was  affirmed.   This  judgment  of  the  High  Court  was  also
appealed against, which also became the subject matter of discussion  in  M.
Venkatesh (supra).  Pertinently, this Court allowed the appeal  of  the  BDA
and set aside the aforesaid judgment of the  High  Court  and  reversed  the
decree passed by the trial court, thereby holding that  even  in  this  case
the plaintiff was not entitled to any protection.

Following reasons can be culled out in taking the  aforesaid  view  by  this
Court:
(a)  The plaintiff therein had purchased  the  property  from  the  original
owners in terms of sale deed dated August 22, 1980,  which  was  long  after
the issuance of the preliminary notification published in July  1984.   Such
a sale was clearly void and non est in the eyes of law,  opined  the  Court.
In arriving at this conclusion, it referred to  earlier  decisions  of  this
Court in U.P. Jal Nigam  v.  Kalra  Properties  Pvt.  Ltd.[6];  Ajay  Kishan
Singhal v. Union of India[7]; Mahavir & Anr. v. Rural Institute, Amravati  &
Anr.[8]; Gian Chand v. Gopala & Ors.[9]; Meera Sahni v. Lieutenant  Governor
of Delhi & Ors.[10]; and Tika Ram v. State of Uttar Pradesh[11].

(b)  As on the date of suit, the plaintiffs had not completed  12  years  in
possession of the suit property so as  to  entitle  them  to  claim  adverse
possession against the BDA, the true owner. This finding was  given  on  the
basis that the plaintiffs could count the period of  the  so-called  adverse
possession only from the date they purchased the  property  and  the  period
for which the original vendor held the property,  or  for  that  matter  the
date of Mahazar, could not be counted.

(c)  The Court also rejected the argument of the plaintiffs that  possession
of the land was never taken.  In this behalf, the Court took the  view  that
one of the settled mode of taking possession  is  by  drawing  a  panchnama,
which part had been done to perfection according to the evidence led by  the
BDA.  For this, the Court referred to the judgments in  Tamil  Nadu  Housing
Board v. A. Viswam (D) by Lrs.[12] and Larsen &  Toubro  Ltd.  v.  State  of
Gujarat & Ors.[13]

(d)  Most pertinently, the Court also held that  the  plaintiffs  could  not
claim adverse possession as, on the facts of that  case,  it  could  not  be
said that possession of the plaintiffs was peaceful,  open,  continuous  and
non-hostile.  On this aspect, the Court took note of essentials  of  adverse
possession, which are required to be proved, from the judgment in  the  case
of Karnataka Board of  Wakf  v.  Government  of  India[14]  and  some  other
judgments.  Discussion in this behalf is contained in paras 15 to 18,  which
read as under:
“15.  Coming     then    to    the    question    whether   the  plaintiffs-
respondents could claim adverse possession, we need to  hardly  mention  the
well known and oft quoted maxim nec  vi,  nec  clam,  nec  precario  meaning
thereby that adverse possession is proved only when possession is  peaceful,
open, continuous and hostile.  The essentials  of  adverse  possession  were
succinctly summed-up by this Court in Karnataka Board of Wakf  v.  Govt.  of
India (2004) 10 SCC 779 in the following words:

“11.In the eye of the law, an owner would be deemed to be in  possession  of
a property so long as there is no intrusion. Non-use of the property by  the
owner even for a long time won't affect his title. But the position will  be
altered when another person takes possession of the property and  asserts  a
right over it.  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. (See S.M. Karim v. Bibi Sakina  (AIR  1964  SC  1254),  Parsinni  v.
Sukhi (1993) 4 SCC 375 and D.N. Venkatarayappa v. State of Karnataka  (1997)
7 SCC 567). Physical fact of exclusive possession and the animus  possidendi
to hold as owner in exclusion to the actual owner  are  the  most  important
factors that are to be accounted in cases of this nature.  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 all facts necessary to establish  his
adverse possession. [Mahesh Chand Sharma (Dr.) v. Raj Kumari  Sharma  (1996)
8 SCC 128)."

16. Reference may also be made to the decision  of  this  Court  in   Saroop
Singh v. Banto (2005) 8 SCC 330, where this Court emphasised the  importance
of animus possidendi and observed:

“29. In terms of Article 65  the  starting  point  of  limitation  does  not
commence from the date when the right of ownership arises to  the  plaintiff
but commences from the date  the  defendant's  possession  becomes  adverse.
(See Vasantiben Prahladji Nayak v. Somnath  Muljibhai  Nayak  (2004)  3  SCC
376).

30. "Animus possidendi" is one of the  ingredients  of  adverse  possession.
Unless the person possessing the land has the requisite  animus  the  period
for prescription does not commence. As in the instant  case,  the  appellant
categorically states that his possession is not  adverse  as  that  of  true
owner, the logical corollary is that he did not have the  requisite  animus.
(See Mohd. Mohd. Ali v.  Jagadish Kalita (2004) 1 SCC 371, SCC para 21.)"

17. Also noteworthy is the decision of this Court  in  Mohan  Lal  v.  Mirza
Abdul Gaffar (1996) 1 SCC 639, where this Court held that claim of title  to
the property and adverse possession are in terms contradictory.  This  Court
observed:

“4. As regards the first plea, it is  inconsistent  with  the  second  plea.
Having come into possession under the agreement, he must disclaim his  right
thereunder and plead and prove assertion of his independent hostile  adverse
possession to the knowledge of the transferor or his successor in  title  or
interest and that the  latter  had  acquiesced  to  his  illegal  possession
during the entire period of 12 years, i.e., up to completing the  period  of
his title by  prescription  nec  vi,  nec  clam,  nec  precario.  Since  the
appellant's claim is founded on Section 53-A, it goes  without  saying  that
he admits by implication that he came into possession of the  land  lawfully
under the agreement and continued to remain in possession till date  of  the
suit. Thereby the plea  of  adverse  possession  is  not  available  to  the
appellant."

18. To the same effect is the decision of this Court in Annasaheb  Bapusaheb
Patil v.  Balwant  (1995)  2  SCC  543,  where  this  Court  elaborated  the
significance  of  a  claim  to  title  viz.-a-viz.  the  claim  to   adverse
possession over the same property. The Court said:

“15.  Where possession can be referred to a lawful title,  it  will  not  be
considered to be adverse. The reason being that a  person  whose  possession
can be referred to a lawful title will not be permitted  to  show  that  his
possession was hostile to another's  title.  One  who  holds  possession  on
behalf of another, does not by mere denial of that other's  title  make  his
possession adverse so as to give himself  the  benefit  of  the  statute  of
limitation. Therefore, a person who enters into possession having  a  lawful
title, cannot divest another of that title by  pretending  that  he  had  no
title at all."

After taking note of the principle of law relating to adverse possession  in
the aforesaid manner, this Court commented about the erroneous  approach  of
the High Court in the following manner:
“19.  The Courts below have not seen the plaintiff- respondent's claim  from
the  above  perspectives.  The  High  Court  has,  in  particular,  remained
oblivious of the principle enunciated in the  decisions  to  which  we  have
referred herein above. All that the High Court has found in  favour  of  the
plaintiffs is that their possession is established. That, however, does  not
conclude the controversy. The question is not just  whether  the  plaintiffs
were in possession, but whether they had by being in adverse possession  for
the statutory period of 12 years perfected their title.  That  question  has
neither been adverted to nor answered  in  the  judgment  impugned  in  this
appeal. Such being the case  the  High  Court,  in  our  opinion,  erred  in
dismissing the  appeal  filed  by  the  appellant-BDA.  The  fact  that  the
plaintiffs  had  not  and  could  not  possibly  establish   their   adverse
possession over the suit property should have resulted in dismissal  of  the
suit for an unauthorised occupant had no right to claim  relief  that  would
perpetuate his illegal and unauthorised occupation of  property  that  stood
vested in the BDA.”


In addition to the discussion contained in M. Venkatesh  case  noted  above,
we may also add what was held in P.T. Munichikkanna Reddy & Ors. v.  Revamma
& Ors.[15]:
“5.  Adverse possession in one sense is based on the theory  or  presumption
that the owner has abandoned the property to the adverse  possessor  on  the
acquiescence of the owner to the hostile acts and claims of  the  person  in
possession.   It  follows  that  sound  qualities  of  a   typical   adverse
possession lie in it being open, continuous and hostile.   (See  Downing  v.
Bird; Arkansas Commemorative Commission v. City of Little  Rock;  Monnot  v.
Murphy; and City of Rock Springs v. Sturm).”

In Rama Shankar & Anr. v. Om Prakash Likhdhari  &  Ors.[16],  the  Allahabad
High Court has observed as under:
“21.  The principle of adverse  possession  and  its  consequences  wherever
attracted has been recognized in the statute dealing with  limitation.   The
first codified statute dealing with limitation came to be enacted  in  1840.
The Act 14 of 1840 in fact was an enactment applicable  in  England  but  it
was extended to the territory of Indian continent which was under the  reign
of East India Company, by an authority of Privy Council in  the  East  India
Company v. Oditchurn Paul, 1849 (Cases in the Privy Council on  Appeal  from
the East Indies) 43.

                          xx          xx         xx

23.  The law of Prescription prescribes the period at the  expiry  of  which
not only the judicial remedy is barred but a substantive right  is  acquired
or extinguished.  A prescription, by which a right is  acquired,  is  called
an  'acquisitive  prescription'.   A  prescription  by  which  a  right   is
extinguished is called 'extinctive prescription'.  The  distinction  between
the two is not of much practical importance or  substance.   The  extinction
of right of one party is often the mode of acquiring  it  by  another.   The
right extinguished is virtually transferred to the person who claims  it  by
prescription.  Prescription implies with the thing  prescribed  for  is  the
property of another and that it is enjoyed  adversely  to  that  other.   In
this respect it must be distinguished from acquisition  by  mere  occupation
as in the case of res nullius.  The  acquisition  in  such  cases  does  not
depend upon occupation for any particular length of time.”


The aforesaid analysis of the judgment in M. Venkatesh (supra)  amply  shows
that it is squarely and directly applicable to the facts  and  circumstances
of the present case.  In the first instance, it shows that reliance  of  the
respondent herein on the judgment of John B. James (supra) is of  no  avail.
It would further demonstrate that the findings of the court below that  only
paper possession was taken and actual possession was not taken also  becomes
meaningless as the manner of taking possession in the instant case was  also
identical.  In addition, it is pertinent  that  the  respondent  herein,  in
para 10 of the plaint, had herself admitted that the officials  of  the  BDA
had come to the suit property on April 24, 2001 and demolished the  existing
structure.  This act of the BDA would amply demonstrate that  there  was  no
unhindered, peaceful and continuous possession of the suit land.

Learned counsel for the respondent had raised the plea  of  equity.  He  has
also submitted that when the BDA  itself  is  created  for  the  purpose  of
formation of layouts and allotment of sites to the members  of  the  public,
the respondent  should  not  be  dispossessed  when  she  is  in  continuous
possession of the suit property.  However, these would not be  the  relevant
considerations in the present case as we  cannot  forget  that  the  present
appeal arises out of civil proceedings filed in the form of a  suit  by  the
respondent and once it is found that the respondent has  not  been  able  to
prove title by adverse possession, no such aspects, not  coming  within  the
scope of the suit proceedings, can be looked into.  Insofar as the  argument
predicated on Section 27 of  the  Bangalore  Development  Authority  Act  or
Section 24(2) of the Right to Fair Compensation  and  Transparency  in  Land
Acquisition Rehabilitation and Resettlement Act, 2013 are  concerned,  again
these issues were neither raised nor arise in  the  instant  case.   If  the
respondent, if at all,  has  any  right  to  make  claim  on  the  aforesaid
grounds, in any appropriate proceedings, she can do so,  if  permissible  in
law.  We may clarify that this Court has not gone  into  these  issues  and,
therefore, has not made any comments on the merits of such pleas  raised  by
the respondent.

As a result, the appeal stands allowed resulting in dismissal  of  the  suit
filed by the respondent in the trial court.  In the facts and  circumstances
of this case, there shall be no order as to costs.

                             .............................................J.
                                                                (A.K. SIKRI)


                             .............................................J.
                                                              (R.K. AGRAWAL)
NEW DELHI;
MARCH 10, 2016.
-----------------------
[1]   (2015) 10 Scale 27
[2]   ILR 2000 KAR 4134
[3]   (1976) 1 SCC 700
[4]   (2009) 8 SCC 339
[5]   (2012) 1 SCC 792
[6]   (1996) 3 SCC 124
[7]   (1996) 10 SCC 721
[8]   (1995) 5 SCC 335
[9]   (1995) 5 SCC 528
[10]  (2008) 9 SCC 177
[11]  (2009) 10 SCC 689
[12]  (1996) 2 SCC 634
[13]  (1998) 4 SCC 387
[14]  (2004) 10 SCC 779
[15]  (2007) 6 SCC 59
[16]  (2013) 6 ADJ 119

“There being enormous deviations from the sanctioned plan in constructing the multi-storeyed building, after following the due process of law, construction beyond sanctioned plan was directed to be demolished by the Patna Regional Development Authority. Deviation is shocking and can be undertaken only by such person who considers himself to be law unto himself. One of the deviations is that against sanction of 24 flats in 6 floors at the rate of 4 flats per floor, 9 floors have been constructed having 6 flats every floor.” Accordingly this Court had directed for demolition of the said unauthorized construction dismissing the civil appeal and that order has attained finality. Thereafter, a writ petition, being Writ Petition (Civil) No.337 of 2013 was filed by the petitioners/ owners of the residential flats in Santosha Complex, claiming themselves to be the owners of the portion which was directed to be demolished. This Court refused to recall the orders so passed for demolition of the unauthorized construction and directed M/s. Saket Housing Ltd. (respondent No.4) to deposit a sum of Rs.25 crores or furnish the Bank Guarantee in the Registry of this Court. Steps were taken accordingly in the matter. Subsequent thereto, the said writ petition was disposed of by this Court by an order dated July 9, 2014 when this Court was pleased to dismiss the writ petition holding that the writ petition was absolutely misconceived and passed the following order: “Having heard learned counsel for the parties and in the facts and circumstances of the case, we are of the opinion that ends of justice shall be met by directing payment @ Rs. 6,000/- per sq. ft. to the persons who shall be affected on account of the demolition. Those persons shall be entitled to have the amount @ Rs. 6,000/- per sq. ft. of the carpet area, i.e., the area transferred to individuals and not the common area.

                                                                  REPORTABLE
                        IN THE SUPREME COURT OF INDIA
                        CIVIL  ORIGINAL  JURISDICTION

                    WRIT PETITION (CIVIL) NO. 337 OF 2013

BABITA BADASARIA & ORS.                        PETITIONER(S)
                                  :VERSUS:
PATNA MUNICIPAL CORPORATION & ORS.       RESPONDENT(S)


                                  O R D E R
This matter has been placed before us by the Office  along  with  an  Office
Report for directions.

Civil Appeal No.5470 of  2004,   filed  by  M/s.  Saket  Housing  Ltd.,  was
dismissed by this Court on 7-5-2013, after noting the fact  that  there  was
enormous deviation from  the  sanctioned  plan  in  construction  of  multi-
storeyed building. At that point of time this Court observed as follows:

“There  being  enormous  deviations   from   the    sanctioned    plan    in
constructing  the  multi-storeyed  building,   after   following   the   due
process of law, construction beyond  sanctioned  plan  was  directed  to  be
demolished by  the  Patna  Regional  Development  Authority.  Deviation   is
shocking and can be undertaken   only   by   such   person   who   considers
himself to be law unto himself.  One  of  the  deviations  is  that  against
sanction of 24 flats in 6 floors at the rate of 4 flats per floor, 9  floors
have been constructed having 6 flats every floor.”

Accordingly this Court had directed for demolition of the said  unauthorized
construction dismissing  the  civil  appeal  and  that  order  has  attained
finality. Thereafter, a writ petition, being Writ  Petition  (Civil)  No.337
of 2013 was filed by the petitioners/ owners of  the  residential  flats  in
Santosha Complex, claiming themselves to be the owners of the portion  which
was directed to be demolished. This Court refused to recall  the  orders  so
passed for demolition of the unauthorized  construction  and  directed  M/s.
Saket Housing Ltd. (respondent No.4) to deposit a sum  of  Rs.25  crores  or
furnish the Bank Guarantee in the Registry of this Court. Steps  were  taken
accordingly in the matter. Subsequent thereto, the said  writ  petition  was
disposed of by this Court by an order dated July 9,  2014  when  this  Court
was pleased to dismiss the writ petition holding that the writ petition  was
absolutely misconceived and passed the following order:

“Having heard  learned  counsel  for  the  parties  and  in  the  facts  and
circumstances of the case, we are of the opinion that ends of justice  shall
be met by directing payment @ Rs. 6,000/- per sq. ft.  to  the  persons  who
shall be affected on account of  the  demolition.  Those  persons      shall
be     entitled  to   have    the     amount @ Rs. 6,000/- per  sq.  ft.  of
the carpet area, i.e., the area  transferred  to  individuals  and  not  the
common area.

For ascertaining the carpet area of each of  the  persons,  we  appoint  Mr.
Justice S.N. Jha, former Chief Justice   of      the       Rajasthan    High
Court,  as    the Commissioner.

The  Patna   Municipal  Corporation shall within one  week  furnish  to  the
Commissioner the area/ flats to be demolished in terms of  the  Order  dated
7.05.2013 passed in Civil Appeal No. 5470 of 2004.  The  Commissioner  shall
ascertain through the agency of his choice the carpet area in possession  of
each of the persons going to be affected by the demolition.  He  will    not
  decide         inter    se      disputes           between           rival
claimants. In such cases he will determine the carpet area. On such  report,
the Registry of the Court will  earmark  sum  calculated  on  the  aforesaid
basis  and deposit  in an interest bearing    account.  The    amount  along
with interest shall be disbursed  to  the  person  establishing   the  right
before  a    Court   of    competent jurisdiction.  As  regards  others,  on
the report of the Commissioner, the  Registry  of         this  Court  shall
disburse the amount calculated on the aforesaid basis to all  those  persons
given by the Commissioner. The  Commissioner  may        indicate        the
amount  one would be entitled calculated on aforesaid basis.

The  functionaries  of  the  Patna  Municipal  Corporation  and  the   State
Government shall provide to the Commissioner all facilities as  required  by
him.  Within four weeks of the payment, all those persons shall  vacate  the
premises in their occupation  and  hand  it  over  to  the  Patna  Municipal
Corporation. In cases having inter se dispute between rival claimants,  they
shall  also  vacate  the same  within      four      weeks    of  submission
of the report and shall not wait for the disbursement  of  amount.  In  case
any one of them does not  do  so, he  will  be evicted   by  using force.

Immediately  thereafter all concerned  will     act     in  accordance  with
the directions given by this Court in its Order dated  7.05.2013  passed  in
Civil Appeal No.5470 of 2004.

      After the disbursement of the amount, as aforesaid, left over  amount,
 if   any, shall     be    returned  to respondent No. 4.

The Bank guarantee(s) furnished by respondent No. 4 be encashed   and    the
disbursement, as     aforesaid, be made. The encashed  amount  be  deposited
in an interest bearing account and the disbursement be made from  that  from
time to time. At the first instance, one of the Bank guarantees,  i.e.,  Rs.
15 Crore be encashed.

We fix the fee of the Commissioner @ Rs. 2 lac per sitting  and  that  shall
be  disbursed  from  the  amount  already     deposited   by      respondent
No.4.

For   the present,    a     sum    of     Rs.10     lac     be     disbursed
 to Mr. Justice S.N. Jha forthwith. Rest of the fee be paid to him  whenever
asked for.

All these  exercise including demolition be completed  within  a  period  of
ten weeks.

We make it clear that any deviation in carrying  out  this  order  shall  be
viewed seriously.

The writ petition is disposed  of   with   the directions aforesaid.”


In view of the disposal of the writ  petition,  all  the  I.As.  which  were
filed till then, were disposed of without any order.  Subsequently,  further
I.As., being I.A. Nos.7-14 & 15  were filed which were disposed  of  by  the
following order passed on 13.8.2014:

“Reference may be made to the Order dated 9.7.2014 whereby this  Court  very
categorically held that after the Writ Petition was finally disposed of,  no
further orders need be passed on the I.As. We are  of  the  same  view  that
after disposal of the  Writ  Petition,  I.As.  should  not  be  entertained.
Hence, all I.As. are hereby dismissed.

However, if the petitioners have any grievance with  regard  to  measurement
etc., they may approach the Commissioner and put their grievance.”



Subsequent thereto, I.A. No.16 was filed  which  was  also  disposed  of  on
8.9.2014,  clarifying  the order dated 13.8.2014, to  the  extent  that  the
word “Commissioner” used in the last but one line to the order  shall  refer
to  “Ld.  Court  Commissioner”.  Thereafter,  I.A.  No.17  was   filed   for
condonation of delay in renewing the Bank Guarantee  which  was  allowed  by
order dated 28.11.2014.

Thereafter,  Office Report for directions  was placed before this Court  and
an interim report was submitted by the learned  Court  Commissioner  and  on
22.02.2015 this Court requested the learned  Court  Commissioner  to  submit
the final report on or before 9.03.2015 and the Bank Guarantee was  extended
for another 10 weeks.

Parties, thereafter, prayed for report of the learned Court Commissioner  to
be furnished to them and on such prayer, an order was  passed  on  6.04.2015
to provide copies of the reports of the learned Court  Commissioner  to  all
the learned counsel appearing for the parties in the matter.

Thereafter, a proposal was filed before this Court by  the  petitioners  and
the matter was adjourned from time to time. The Patna Municipal  Corporation
was also directed to consult the Engineers and give suggestions with  regard
to the suggestions placed by the parties before this Court.

The proposals which were given on  behalf  of  the  petitioners/flat  owners
were as follows:

“(A) Direct permanent sealing/ demolition of the  mezzanine  floor  so  that
the FAR so released can be made available to the flat owners/petitioners  by
considering the second floor as  the  first  floor  and  in  the  same  way,
considering the seventh floor as the sixth floor;

(B) Direct the Ld. Court Commissioner to work out the number of flat  owners
whose areas can be saved in view of the fact that  the  mezzanine  floor  is
sealed and is not being utilized towards  the  FAR  and  also  in  terms  of
compounding vide order of the  Vice-Chairman,  Patna  Municipal  Corporation
dated 24.02.2000,  which  has  become  final  after  the  dismissal  of  the
builder’s Civil Appeal No.5470 of  2004  by  this  Hon’ble  Court  vide  its
judgment dated 07.05.2013.”



Patna Municipal  Corporation  filed  its  response  to  the  proposal  dated
31.8.2015 filed by the petitioners and it was further  submitted  before  us
that the proposals given by the petitioners cannot be accepted and the  same
should be rejected by this Court in  their  entirety.  It  is  submitted  on
behalf of the Municipal Corporation that  the  so  called  Mezzanine  Floor,
which is actually the First Floor of the building, be completely sealed  and
not be counted as a floor, has no merit. It was further submitted on  behalf
of the  Municipal  Corporation  that  it  is  not  possible  to  accept  the
suggestion of the petitioners as the Mezzanine Floor  is  a  complete  floor
built over 100% of the Ground Floor. As per the  rules,  a  Mezzanine  Floor
can only be one if it is over 1/3rd of the  Ground  Floor  area.  Therefore,
the said proposal is not accepted by the Municipal Corporation  Authorities.
It is further contended that the building was sanctioned for Ground and  six
floors (G+6 floors). The height of the building is important because if  the
proposal of the petitioners is accepted, then the building will be  Ground+7
Floors or more with one floor (the so called Mezzanine Floor) which  is  not
being counted.  It is further pointed out that the sanctioned  plan  is  G+6
Floors and it may not be safe to allow it to rise over the number of  floors
for which the foundation has been laid by the  Builder  –  Respondent  No.4.
Accordingly, it is submitted that it would not be safe to allow  compounding
of any part of the construction of the building.  It  is  further  submitted
that in case of sealing of the Mezzanine Floor, it is necessary  to  monitor
the same in the future. It is further stated that it may not  be  proper  to
do so on account of the severe deviation in  the  Floor  Area  Ratio  (FAR),
which in the building is 5.459  as  against  the  sanctioned  FAR  of  2.99,
further the  height  of  the  Building  was  illegally  increased  from  the
sanctioned height of 21 metres to 31.05 metres. Instead of G+6  Floors,  the
Builder has constructed G+9 Floors. It is further submitted that it is  also
contrary to the notification and guidelines issued by the Airport  Authority
of India as the height of the building  was  increased  by  the  Builder  to
beyond 23 metres without any sanction or approval of the  Airport  Authority
of India.  It is  further  submitted  that  it  would  not  be  possible  to
demolish the so called  Mezzanine  Floor.  In  these  circumstances,  it  is
submitted on behalf of the Patna  Municipal  Corporation  that  the  illegal
construction should be demolished.

We have considered the Report  of  the  Patna  Municipal  Corporation  filed
before this Court. We have also duly considered the Report dated  24.02.2015
filed by the Court Commissioner. However, we  do  not  accept  part  of  the
Report which has been specifically stated as follows:

“(13) In any case, I am inclined to think that as the Builder  was  pursuing
the legal remedies – by way of appeal before the Appellate Tribunal  or  the
writ petition/ LPA  before  the  High  Court  –  bona  fide,  the  issue  of
compounding should not be treated as a closed option.  If  it  is  allowable
under the bye-laws of the PRDA/PMC, the Hon’ble Court may give a fresh  look
at the same if it results in regularization of a few  flats  of  the  owners
who purchased them bona fide from their hard-earned money  and  are  now  on
the verge of being displaced.

(14)  To conclude the  discussions,  I  would  respectfully  recommend  that
while the offer of compounding may be allowed, the option of removal of  the
floor claimed to be mezzanine or the First Floor by either  side  –  may  be
considered. A favourable decision on these two  points  may  save  two  full
floors i.e. 14 flats of bona fide purchasers, without compromising  the  FAR
parameters. It may be mentioned that de hors the question of FAR, height  of
the building is not in issue. It may also be mentioned that three flats  out
of seven flats on the top floor – facing imminent demolition, belong to  the
Builder themselves.”



After the final report,  any suggestion which has been given  by  the  Court
Commissioner only to make an illegal construction as  a  legal  construction
by compounding the same by paying compounding  fee, is totally  unacceptable
to us.  In our opinion, the issue of compounding is a closed chapter as  the
writ petition as well as the appeal have  already  been  dismissed  by  this
Court. In these circumstances, we do not find any reason to change our  mind
and allow to keep this illegal construction which is contrary  to  law.   We
have already expressed our  views  in  our  order  passed  at  the  time  of
disposal of the writ petition. In these circumstances, we do not  intend  to
pass any further order in this matter. We only direct that  steps  shall  be
taken by the  respondent  authorities/Patna  Municipal  Corporation  in  the
matter in terms of our order dated 9th July, 2014 passed in  the  said  writ
petition.

We, however, make it clear  that  at  the  time  of  disposal  of  the  writ
petition, we had directed payment at the rate of  Rs.6,000/- per sq. ft.  to
the persons who shall be affected on account of the  demolition.  Since  the
matter is concluded today, we enhance the said rate from Rs.6,000/- per  sq.
ft. to Rs.7000/- per sq. ft.. We further direct that  all  the  flat  owners
will get their compensation and such compensation shall  be  paid  within  a
period of six weeks from date and they will vacate  the  premises  in  their
occupation, to give effect to the order so passed by us, within a period  of
one month thereafter.

We further direct that the Patna Municipal Corporation  shall  demolish  the
unauthorized structures within a period of four months and thereafter  shall
file a compliance report before this Court.


                                      …....................................J
                                                           (Pinaki Chandra
                                   Ghose)



                                       …...................................J
                                                     (R.K. Agrawal)
New Delhi;
March 10, 2016.
ITEM NO.1A               COURT NO.09                 SECTION X
(For orders)
               S U P R E M E  C O U R T  O F  I N D I A
                       RECORD OF PROCEEDINGS

                    Writ Petition(s)(Civil) No. 337/2013

BABITA BADASARIA & ORS.                            Petitioner(s)

                                VERSUS

PATNA MUNICIPAL CORPORATION & ORS.                 Respondent(s)



Date : 10/03/2016      This petition was called on for pronouncement
                       of orders today.


For Petitioner(s)      Mr. Devashish Bharuka, AOR

For Respondent(s)      Mr. Rajiv Shankar Dvivedi, AOR

                       Mr. Abhinav Mukerji, AOR
                       Ms. Tanya Shree, Adv.
                       Mr. Kaushik Poddar, AOR
                       Mr. Prem Prakash, AOR

                                            *****

      Hon'ble Mr. Justice Pinaki Chandra  Ghose  pronounced  the  reportable
order of the Bench comprising His Lordship  and  Hon'ble  Mr.  Justice  R.K.
Agrawal.
      This Court made the  following  directions  in  terms  of  the  signed
reportable order.
“12. .... .... In these circumstances, we do not intend to pass any  further
order in this matter.  We only direct that  steps  shall  be  taken  by  the
respondent authorities/Patna Municipal Corporation in the  matter  in  terms
of our order dated 9th July, 2014 passed in the said writ petition.

13.  We, however, make it clear that at the time of  disposal  of  the  writ
petition, we had directed payment at the rate of Rs.6,000/- per sq.  ft.  to
the persons who shall be affected on account of the  demolition.  Since  the
matter is concluded today, we enhance the said rate from Rs.6,000/- per  sq.
ft. to Rs.7000/- per sq. ft.. We further direct that  all  the  flat  owners
will get their compensation and such compensation shall  be  paid  within  a
period of six weeks from date and they will vacate  the  premises  in  their
occupation, to give effect to the order so passed by us, within a period  of
one month thereafter.

14. We further direct that the Patna Municipal  Corporation  shall  demolish
the unauthorized structures within a period of four  months  and  thereafter
shall file a compliance report before this Court.”



      (R.NATARAJAN)                                   (SNEH LATA SHARMA)
       Court Master                                      Court Master
            (Signed reportable order is placed on the file)




subsidies = Section 28(iii)(b) specifically states that income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, will be income chargeable to income tax under the head “profits and gains of business or profession”. If cash assistance received or receivable against exports schemes are included as being income under the head “profits and gains of business or profession”, it is obvious that subsidies which go to reimbursement of cost in the production of goods of a particular business would also have to be included under the head “profits and gains of business or profession”, and not under the head “income from other sources”.

                                  REPORTABLE



                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO.7622 OF 2014


COMMISSIONER OF INCOME TAX          …APPELLANT

      VERSUS
M/S. MEGHALAYA STEELS LTD.               …RESPONDENT
                                    WITH
                        CIVIL APPEAL NO.8493 OF 2012
                        CIVIL APPEAL NO.8494 OF 2012
                        CIVIL APPEAL NO.8496 OF 2012
                        CIVIL APPEAL NO.2560 OF 2016
                (ARISING OUT OF SLP (CIVIL) NO.36578 OF 2013)
                        CIVIL APPEAL NO.2561 OF 2016
                (ARISING OUT OF SLP (CIVIL) NO.36579 OF 2013)
                        CIVIL APPEAL NO.2562 OF 2016
                (ARISING OUT OF SLP (CIVIL) NO.36581 OF 2013)
                        CIVIL APPEAL NO.2563 OF 2016
                (ARISING OUT OF SLP (CIVIL) NO.37831 OF 2013)
                        CIVIL APPEAL NO.2564 OF 2016
                (ARISING OUT OF SLP (CIVIL) NO.37833 OF 2013)
                        CIVIL APPEAL NO.2565 OF 2016
                (ARISING OUT OF SLP (CIVIL) NO.37834 OF 2013)
                        CIVIL APPEAL NO.2566 OF 2016
              (ARISING OUT OF SLP (CIVIL) NO.6867 (CC 224/2014)
                        CIVIL APPEAL NO.2567 OF 2016
             (ARISING OUT OF SLP (CIVIL) NO.6869 (CC 1543/2014)



                        CIVIL APPEAL NO.2568 OF 2016
                (ARISING OUT OF SLP (CIVIL) NO.11094 OF 2014)
                        CIVIL APPEAL NO.2569 OF 2016
                (ARISING OUT OF SLP (CIVIL) NO.11095 OF 2014)
                        CIVIL APPEAL NO.2570 OF 2016
                (ARISING OUT OF SLP (CIVIL) NO.12710 OF 2014)
                        CIVIL APPEAL NO.3624 OF 2015
                        CIVIL APPEAL NO.2571 OF 2016
                (ARISING OUT OF SLP (CIVIL) NO.24620 OF 2014)
                        CIVIL APPEAL NO.2572 OF 2016
                (ARISING OUT OF SLP (CIVIL) NO.11319 OF 2015)
                        CIVIL APPEAL NO.3623 OF 2015
                        CIVIL APPEAL NO.5238 OF 2015
                        CIVIL APPEAL NO.5239 OF 2015
                        CIVIL APPEAL NO.5236 OF 2015
                        CIVIL APPEAL NO.6040 OF 2015
                        CIVIL APPEAL NO.6039 OF 2015
                        CIVIL APPEAL NO.7623 OF 2014
                        CIVIL APPEAL NO.7624 OF 2014



                        J U D G M E N T



R.F. Nariman, J.



1.    Delay condoned in filing the special leave petitions.



2.    Leave granted in SLP  (C)  Nos.  36578/2013,  36579/2013,  36581/2013,
37831/2013, 37833/2013, 37834/2013,  SLP(C)  No.………CC  No.224/2014),  SLP(C)
No.………CC  No.1543/2014),  SLP(C)  Nos.11094/2014,  11095/2014,   12710/2014,
24620/2014, 11319/2015.



3.    This group of appeals arises from the State of Meghalaya and  concerns
deductions to be made under Sections 80-IB and 80-IC of the Income Tax  Act,
1961.  Civil Appeal No.7622 of 2014 has been treated as the lead  matter  in
which a judgment  of  the  Gauhati  High  Court  dated  29.5.2013  has  been
delivered, which has been followed in all the other appeals.

4.    Civil Appeal No.7622 of 2014  concerns  itself  with  two  income  tax
appeals filed by  the  Revenue  against  the  judgment  of  the  Income  Tax
Appellate Tribunal, ITA  No.7/2010  arising  out  of  the  applicability  of
Section 80-IB, and ITA  No.16/2011  arising  out  of  the  applicability  of
Section 80-IC.   For  the  purpose  of  these  matters,  the  facts  in  ITA
No.7/2010 are narrated hereinbelow.



5.    The respondent is engaged in the business of manufacture of Steel  and
Ferro Silicon. On 9.10.2014, the Respondent submitted its return  of  income
for the year 2004-2005 disclosing an income of Rs.2,06,970/- after  claiming
deduction under Section 80-IB of the Income  Tax  Act  on  the  profits  and
gains  of  business  of  the  respondent’s  industrial   undertaking.    The
respondent had received the following amounts on account of subsidies:-

Transport subsidy -          Rs.2,64,94,817.00

Interest subsidy -           Rs.2,14,569.00

Power subsidy -              Rs.7,00,000.00

Total -                      Rs.2,74,09,386.00

6.    The Assessing Officer, in the assessment order dated  7.12.2006,  held
that the  amounts  received  by  the  assessee  as  subsidies  were  revenue
receipts and did not qualify for deduction under  Section  80-IB(4)  of  the
Act and, accordingly, the respondent’s claim for deduction of an  amount  of
Rs.2,74,09,386/- on account of  the  three  subsidies  afore-mentioned  were
disallowed.   The  respondent-assessee  preferred  an  appeal   before   the
Commissioner of Income Tax (Appeals), Guwahati, who, vide  his  order  dated
8.3.2007,  dismissed  the  appeal  of  the  respondent.   Aggrieved  by  the
aforesaid order, the respondent preferred an appeal before the  ITAT  which,
by its order dated 19.3.2010, allowed the appeal  of  the  respondent.   The
Revenue carried the matter thereafter to the High Court, under Section  260A
of the Act, which resulted in the impugned judgment dated  29.5.2013,  which
decided the matter against the Revenue.  Revenue is therefore before  us  in
appeal against this judgment.



7.    Shri Radhakrishnan, learned senior advocate  appearing  on  behalf  of
the Revenue, argued before us that any amount received  by  way  of  subsidy
was an amount whose source was the Government and not the  business  of  the
assessee.  He further argued that there is a  world  of  difference  between
the expression profits and gains “derived from” any  business,  and  profits
“attributable to” any  business,  and  that  since  the  section  speaks  of
profits and gains “derived from” any business, such profits and  gains  must
have a close and direct nexus with the business of the  assessee.  Subsidies
that are allowed to the assessee have no close and  direct  nexus  with  the
business of the assessee but have a close and direct nexus with grants  from
the Government.  This being the case, according to him, the  respondent  did
not qualify for deductions under Sections 80-IB and 80-IC of  the  Act.   In
the course of his lengthy submissions, he made  reference  to  a  number  of
judgments including the judgment reported as Liberty India  v.  Commissioner
of Income Tax reported in 2009 (9) SCC 328, which has been followed  by  the
Himachal Pradesh High Court in Supriya Gill  v.  CIT (2010)  193  Taxman  12
(Himachal Pradesh).   He  submitted  that  the  aforesaid  judgment  of  the
Himachal Pradesh High Court has taken a diametrically opposite view  to  the
judgment of the Gauhati High Court, impugned in  the  present  appeals,  and
deserves to be followed, as  it,  in  turn,  has  followed  Liberty  India’s
judgment and another Supreme Court judgment  reported  as  CIT  v.  Sterling
Foods, 237 ITR 579 (1999).  He also relied upon Sections 80-A and  80-AB  in
order to demonstrate the scheme of deductions allowable under  Part-VI-A  of
the Income Tax Act.  He also referred us to Sections 56 and 57 (iii) of  the
Act to buttress his  submission  that  subsidies  being  in  the  nature  of
“income from other sources”  could  not  be  allowed  to  be  deducted  from
profits and gains of business, which fell under a different  sub-heading  in
Section 14 of the Act.  According to him, there is  one  interpretation  and
one interpretation alone of  Sections  80-IB  and  80-IC,  which  cannot  be
deviated from with reference to any so-called object of the said sections.



8. Countering these submissions, Shri P. Chidambaram Learned Senior  Counsel
appearing on behalf of the assessee, referred to the Budget  Speech  of  the
Minister of Finance for 1999-2000 to buttress his submission that  the  idea
of giving these subsidies was to give a 10 year tax  holiday  to  those  who
come from outside Meghalaya to set up industries in that State, which  is  a
backward area.  He referred to several  judgments,  including  the  judgment
reported in Jai Bhagwan Oil and Flour Mills v. Union  of  India  and  Others
(2009) 14 SCC 63 and Sahney Steel and Press Works Ltd.  v.  Commissioner  of
Income Tax,  A.P.  -  I,  Hyderabad,  (1997)  7  SCC  764  to  buttress  his
submission that subsidies were given only in order that  items  which  would
go into the cost of manufacture of  the  products  made  by  the  respondent
should be reduced, as these subsidies  were  reimbursement  for  either  the
entire or partial costs incurred by the respondent towards transporting  raw
materials to its factory and transporting its finished products to  dealers,
who then sell the  finished  products.   Further,  power  subsidy,  interest
subsidy and  insurance  subsidy  were  also  reimbursed,  either  wholly  or
partially, power being a necessary element of the  cost  of  manufacture  of
the respondent’s products, and insurance subsidy being necessary  to  defray
costs for  both  manufacture  and  sale  of  the  said  products.   Further,
interest subsidy  would  also  go  towards  reducing  the  interest  element
relatable  to  cost,  and  therefore  all  four  subsidies  being   directly
relatable to cost of manufacture and/or  sale  would  therefore  necessarily
fall  within  the  language  of  Sections  80-IB  and  80-IC,  as  they  are
components of cost of running a business from which profits  and  gains  are
derived.   He  sought  to  distinguish   the   judgments   cited   by   Shri
Radhakrishnan, in particular the judgment of this Court in   Liberty  India,
on the ground that the said judgment did not deal with a  subsidy  relatable
to cost of manufacture but dealt with a DEPB drawback scheme, which  related
to export of goods and not manufacture of goods, thereby rendering the  said
decision inapplicable to the facts of the present  case.   Shri  S.  Ganesh,
learned senior counsel appearing  on  behalf  of  some  of  the  respondent-
assessees, reiterated the submissions made by Shri P. Chidambaram and  added
that as all the subsidies went towards cost of manufacture or  sale  of  the
products of the respondent, such subsidies being amounts of cost which  were
actually incurred by the respondent and thereafter reimbursed by the  State,
the principle of netting off recognized in several decisions of  this  Court
ought to be applied, and on application of the said principle, it  is  clear
that the subsidy received by the respondent was  only  to  depress  cost  of
manufacture and/or sale and would therefore be “derived  from”  profits  and
gains made from the business  of  the  assessee.   He  also  relied  upon  a
judgment of the Calcutta High Court dated 15.1.2015,  in  C.I.T.  v.  Cement
Manufacturing Company Limited, which has followed the  Gauhati  High  Court,
and a judgment of the Delhi High Court in CIT v. Dharampal  Premchand  Ltd.,
317 ITR 353.



9.    We have heard learned counsel for the parties.  Before embarking on  a
discussion of the relevant case law, we think it is  necessary  to  set  out
Sections 80-IB and 80-IC insofar as they are relevant for the  determination
of the present case.

“80-IB Deduction in respect of profits and  gains  from  certain  industrial
undertakings other than infrastructure development undertakings

(1) Where the gross total income of an assessee  includes  any  profits  and
gains derived from any business referred to  in  sub-sections  (3)  to (11),
(11A) and  (11B)  (such  business  being  hereinafter  referred  to  as  the
eligible business), there shall, in  accordance  with  and  subject  to  the
provisions of this section, be allowed, in computing  the  total  income  of
the assessee, a deduction from such profits and gains of an amount equal  to
such percentage and for such number of  assessment  years  as  specified  in
this section.

(2) This section applies to any industrial  undertaking  which  fulfils  all
the following conditions, namely:-
(i) it is not formed by splitting up, or the reconstruction, of  a  business
already in existence:
Provided that this condition shall not apply in  respect  of  an  industrial
undertaking  which  is  formed  as  a  result   of   the   re-establishment,
reconstruction or revival by the  assessee  of  the  business  of  any  such
industrial  undertaking  as  is  referred  to  in  section   33B,   in   the
circumstances and within the period specified in that section;
(ii) it is not formed by the transfer to a  new  business  of  machinery  or
plant previously used for any purpose;
(iii) it manufactures or produces  any  article  or  thing,  not  being  any
article or thing  specified  in  the  list  in  the  Eleventh  Schedule,  or
operates one or more cold storage plant or plants, in any part of India:
Provided that the condition in this clause shall, in  relation  to  a  small
scale industrial undertaking or an industrial  undertaking  referred  to  in
sub-section (4) shall apply as if the words "not being any article or  thing
specified in the list in the Eleventh Schedule" had been omitted.
Explanation 1- For the purposes of  clause  (ii),  any  machinery  or  plant
which was used outside India by any person other  than  the  assessee  shall
not be regarded as machinery or plant previously used for  any  purpose,  if
the following conditions are fulfilled, namely:-
(a) such machinery or plant was not, at any time previous  to  the  date  of
the installation by the assessee, used in India;
(b) such machinery or plant is imported into India from any country  outside
India; and
(c) no deduction on account of depreciation in respect of such machinery  or
plant has been allowed or is allowable under the provisions of this  Act  in
computing the total income of any person for any period prior  to  the  date
of the installation of the machinery or plant by the assessee.
Explanation  2-  Where  in  the  case  of  an  industrial  undertaking,  any
machinery or plant or any part thereof previously used for  any  purpose  is
transferred to a new business and the total value of the machinery or  plant
or part so transferred does not exceed twenty per cent of  the  total  value
of the machinery or plant used in the business, then, for  the  purposes  of
clause (ii) of this sub-section, the condition specified  therein  shall  be
deemed to have been complied with;
(iv) in a case where the industrial  undertaking  manufactures  or  produces
articles or things, the  undertaking  employs  ten  or  more  workers  in  a
manufacturing process carried on with the aid of power,  or  employs  twenty
or more workers in a manufacturing process carried on  without  the  aid  of
power.

(4) The amount of deduction in the case of an industrial undertaking  in  an
industrially backward State  specified  in  the  Eighth  Schedule  shall  be
hundred per cent of the profits  and  gains  derived  from  such  industrial
undertaking for five assessment years beginning with the initial  assessment
year and thereafter twenty-five per cent  (or  thirty  per  cent  where  the
assessee  is  a  company)  of  the  profits  and  gains  derived  from  such
industrial undertaking:
Provided that the total period of deduction does not exceed ten  consecutive
assessment years (or twelve consecutive assessment years where the  assessee
is a co-operative society) subject to fulfillment of the condition  that  it
begins to manufacture or produce articles or things or to operate  its  cold
storage plant or plants during the  period  beginning  on  the  1st  day  of
April, 1993 and ending on the 31st day of March, 2004:
Provided further that in the case of such industries  in  the  North-Eastern
Region, as may  be  notified  by  the  Central  Government,  the  amount  of
deduction shall be hundred per cent of profits and gains  for  a  period  of
ten assessment years, and the total period of  deduction  shall  in  such  a
case not exceed ten assessment years.
 Provided also that no deduction under this  sub-section  shall  be  allowed
for the assessment year beginning on the 1st  day  of  April,  2004  or  any
subsequent year to any undertaking or enterprise referred to in  sub-section
(2) of section 80-IC.
Provided also that in the case of an industrial undertaking in the State  of
Jammu and Kashmir, the provisions of the first proviso shall have effect  as
if for the figures, letters and words 31st day of March, 2004, the  figures,
letters and words 31st day of March, 2012 had been substituted:
Provided also that no deduction under this sub-section shall be  allowed  to
an industrial undertaking in  the  State  of  Jammu  and  Kashmir  which  is
engaged in the manufacture or production of any article or  thing  specified
in Part C of the Thirteenth Schedule.”


1  “80-IC  Special  provisions  in  respect  of  certain   undertakings   or
enterprises in certain special category States


2

(1) Where the gross total income of an assessee  includes  any  profits  and
gains derived by an undertaking or an enterprise from any business  referred
to in sub-section (2), there shall, in accordance with and  subject  to  the
provisions of this section, be allowed, in computing  the  total  income  of
the assessee, a deduction from such profits and gains, as specified in  sub-
section (3).”


10.   There is no dispute between the parties that the  businesses  referred
to in Section 80-IB are businesses which are eligible businesses under  both
the aforesaid Sections.  The parties have only locked horns on  the  meaning
of the expression “any profits and gains derived from any business”.



11.   The aforesaid provisions were inserted by the Finance  Act  1999  with
effect from 1.4.2000. The Finance Minister in  his  budget  speech  for  the
year 1999-2000 spoke about  industrial  development  in  the  North  Eastern
Region as follows:-

“Mr. Speaker, Sir, I  am  conscious  of  the  fact  that,  despite  all  our
announcements, the industrial development in North Eastern  Region  has  not
come up to our expectations. To give  industrialisation  a  fillip  in  this
area of the country, I propose a 10 year tax holiday for all industries  set
up in Growth Centres, Industrial  Infrastructure  Development  Corporations,
and for other specified industries, in the North  Eastern  Region.  I  would
urge the industrial entrepreneurs from this part of  the  country  to  seize
the opportunity and set up modern, high value added manufacturing  units  in
the region.”


12.   The reference to the 10 year tax holiday for the industries set up  in
the North Eastern Region is an obvious reference to the  second  proviso  to
sub-section (4) of Section 80-IB set  out  hereinabove.   The  speech  of  a
Minister is relevant insofar it gives the background  for  the  introduction
of a particular provision in the Income Tax Act. It is not determinative  of
the construction of the said provision, but gives the reader an idea  as  to
what was in the Minister’s  mind  when  he  sought  to  introduce  the  said
provision.  As an external aid to construction,  this  Court  has,  in  K.P.
Varghese v. Income Tax Officer,  Ernakulam  and  Anr.,  (1982)  1  SCR  629,
referring to a Minister’s speech piloting a Finance Bill, stated as under:-

“Now it is true that the speeches made by the Members of the Legislature  on
the floor of the House when a Bill for enacting  a  statutory  provision  is
being  debated  are  inadmissible  for  the  purpose  of  interpreting   the
statutory provision but the speech made by the Mover of the Bill  explaining
the reason for the introduction of the Bill can  certainly  be  referred  to
for the purpose of ascertaining the mischief sought to be  remedied  by  the
legislation and  the  object  and  purpose  for  which  the  legislation  is
enacted. This is in accord with the recent trend  in  juristic  thought  not
only in Western countries  but  also  in  India  that  interpretation  of  a
statute being an exercise in the ascertainment of meaning, everything  which
is logically relevant should be admissible.  In  fact  there  are  at  least
three decisions of this Court, one in Loka Shikshana Trust  v.  Commissioner
of Income-Tax [1975]  101  ITR  234(SC)  the  other  in  Indian  Chamber  of
Commerce v. Commissioner of Income-tax [1975] 101 ITR 796(SC) and the  third
in  Additional  Commissioner  of  Income-tax  v.  Surat   Art   Silk   Cloth
Manufacturers Association [1980] 121 ITR 1(SC) where the speech made by  the
Finance Minister while introducing the  exclusionary  clause  in  Section  2
Clause (15) of the Act was relied upon by  the  Court  for  the  purpose  of
ascertaining what was the reason for introducing  that  clause.  The  speech
made by the Finance Minister while moving  the  amendment  introducing  Sub-
section (2) clearly states what were the circumstances in which  Sub-section
(2) came to be passed, what was the mischief for  which  Section  52  as  it
then stood did not provide and which  was  sought  to  be  remedied  by  the
enactment of Sub-section (2) and why the enactment of  Sub-section  (2)  was
found necessary. It is apparent from the  speech  of  the  Finance  Minister
that Sub-section(2) was enacted for the  purpose  of  reaching  those  cases
where there was under-statement of consideration in respect of the  transfer
or to  put  it  differently,  the  actual  consideration  received  for  the
transfer was  'considerably  more'  than  that  declared  or  shown  by  the
assessee, but  which  were  not  covered  by  Sub-section  (1)  because  the
transferee was not directly or indirectly connected with the  assessee.  The
object and purpose of Sub-section (2), as explicated from the speech of  the
Finance Minister, was not to strike  at  honest  and  bonafide  transactions
where the consideration for the transfer  was  correctly  disclosed  by  the
assessee but to bring within the net of taxation  those  transactions  where
the consideration in respect of the transfer was shown at  a  lesser  figure
than that actually received by the assessee, so that they do not escape  the
charge of tax on capital gains  by  under-statement  of  the  consideration.
This was real object and purpose of the enactment  of  Sub-section  (2)  and
the  interpretation  of  this  sub-section  must  fall  in  line  with   the
advancement of that object and purpose. We  must  therefore  accept  as  the
underlying assumption of Sub-section (2) that there  is  under-statement  of
consideration in respect of the transfer and Sub-section  (2)  applies  only
where the actual consideration received by the  assessee  is  not  disclosed
and the consideration declared in respect of the  transfer  is  shown  at  a
lesser figure than that actually received.”


13.   A  series  of  decisions  have  made  a  distinction  between  “profit
attributable to” and “profit derived from” a business. In one of  the  early
judgments, namely, Cambay Electric  Supply  Industrial  Company  Limited  v.
Commissioner of Income Tax, Gujarat II, (1978) 2 SCC 644, this Court had  to
construe Section 80-E of the Income Tax Act, which referred to  profits  and
gains  attributable  to  the  business  of  generation  or  distribution  of
electricity. This Court held:

“As regards the  aspect  emerging  from  the  expression  "attributable  to"
occurring in the phrase "profits and gains attributable to the business  of"
the specified industry (here generation and distribution of electricity)  on
which the learned Solicitor General relied, it will be pertinent to  observe
that the Legislature has deliberately used the expression "attributable  to"
and not the expression "derived  from".  It  cannot  be  disputed  that  the
expression  "attributable  to"  is  certainly  wider  in  import  than   the
expression "derived from". Had the expression "derived from"  been  used  it
could have with some force been contended that a  balancing  charge  arising
from the sale of old machinery and buildings cannot be regarded  as  profits
and gains derived from  the  conduct  of  the  business  of  generation  and
distribution of electricity. In this connection it may be pointed  out  that
whenever the Legislature wanted to give a restricted meaning in  the  manner
suggested by the learned  Solicitor  General  it  has  used  the  expression
"derived from", as for instance in s. 80J. In our view since the  expression
of wider import, namely, "attributable to” has been  used,  the  Legislature
intended to cover receipts from sources other than  the  actual  conduct  of
the business of generation and distribution of electricity.” (Para 8)


14.    In  Commissioner  Of  Income  Tax,  Karnataka  v.   Sterling   Foods,
Mangalore, (1999) 4 SCC 98, this Court had to decide whether income  derived
by the assessee by sale of import entitlements on  export  being  made,  was
profit and gain derived from the respondent’s industrial  undertaking  under
Section 80HH of the Indian Income  Tax  Act.  This  Court  referred  to  the
judgment in Cambay Electric Supply (supra)  and  emphasized  the  difference
between the wider expression “attributable to” as contrasted  with  “derived
from”.   In  the  course  of  the  judgment,  this  Court  stated  that  the
industrial undertaking itself had to be  the  source  of  the  profit.   The
business of the industrial undertaking had directly to  yield  that  profit.
Having said this, this Court finally held:-

“We do not think that the source of the import entitlements can be  said  to
be the industrial undertaking of the assessee.  The  source  of  the  import
entitlements can, in the circumstances,  only  be  said  to  be  the  Export
Promotion Scheme of the Central Govt.  whereunder  the  export  entitlements
become available. There must be for the application of  the  words  "derived
from", a direct nexus between the  profits  and  gains  and  the  industrial
undertaking.  In  the  instant  case  the  nexus  is  not  direct  but  only
incidental. The  industrial  undertaking  exports  processed  sea  food.  By
reason of such export, the Export Promotion Scheme applies. Thereunder,  the
assessee is entitled to import entitlements, which it  can  sell.  The  sale
consideration therefrom cannot, in our view, be held to constitute a  profit
and gain derived from the assessees' industrial undertaking.” (Para 13)


15.   Similarly, in Pandian Chemicals Limited v Commissioner of Income  Tax,
262 ITR 278, this Court dealt with the claim for a deduction  under  Section
80HH of the Act.  The question before the Court was as to  whether  interest
earned on a deposit made with  the  Electricity  Board  for  the  supply  of
electricity to the appellant’s industrial undertaking should be  treated  as
income derived from the industrial undertaking  under  Section  80HH.   This
Court held that although electricity may be required  for  the  purposes  of
the industrial undertaking, the deposit required for its supply  is  a  step
removed from the business of the industrial undertaking.  The derivation  of
profits on the deposit made with the Electricity Board could not be said  to
flow directly from the industrial undertaking itself.  On  this  basis,  the
appeal was decided in favour of Revenue.



16.   The sheet anchor of Shri Radhakrishnan’s submissions  is the  judgment
of this Court in Liberty India v. Commissioner of Income Tax, (2009)  9  SCC
328.  This was a case referring directly  to  Section  80-IB  in  which  the
question was whether DEPB credit or Duty drawback receipt could be  said  to
be in respect of profits and gains derived from an eligible business.   This
Court first made the distinction  between  “attributable  to”  and  “derived
from” stating that the latter  expression  is  narrower  in  connotation  as
compared to the former. This court further went on to state  that  by  using
the expression “derived from”  Parliament  intended  to  cover  sources  not
beyond the first degree.  This Court went on to hold:-

“34. On an analysis of Sections 80-IA and 80-IB it becomes  clear  that  any
industrial  undertaking,  which  becomes   eligible   on   satisfying   sub-
section(2), would be entitled to deduction under  sub-section  (1)  only  to
the extent  of  profits  derived  from  such  industrial  undertaking  after
specified date(s). Hence, apart from eligibility, sub-section  (1)  purports
to restrict the quantum of deduction to a specified percentage  of  profits.
This is the importance of the words "derived  from  industrial  undertaking"
as against "profits attributable to industrial undertaking".

35. DEPB is an  incentive.  It  is  given  under  Duty  Exemption  Remission
Scheme. Essentially, it is an export incentive. No doubt, the object  behind
DEPB is to neutralize the incidence of customs duty payment  on  the  import
content of export product. This neutralization is provided for by credit  to
customs duty against export product. Under DEPB, an exporter may  apply  for
credit as percentage of FOB value of  exports  made  in  freely  convertible
currency. Credit is available only against the export product and  at  rates
specified by DGFT for import of raw materials, components etc.. DEPB  credit
under the Scheme has to be calculated by  taking  into  account  the  deemed
import content of the export product as per basic customs duty  and  special
additional duty payable on such deemed imports.

36. Therefore, in our view, DEPB/Duty Drawback  are  incentives  which  flow
from the Schemes framed by Central Government or from S. 75  of  the Customs
Act, 1962, hence, incentives  profits  are  not  profits  derived  from  the
eligible business under Section  80-IB.  They  belong  to  the  category  of
ancillary profits of such Undertakings.” (Paras 34,35 and 36)


17.   An analysis of all the aforesaid decisions  cited  on  behalf  of  the
Revenue becomes necessary at this stage.  In the first decision, that is  in
Cambay Electric Supply Industrial Company Limited v Commissioner  of  Income
Tax, Gujarat II, this Court held that since an expression  of  wider  import
had been used, namely “attributable  to”  instead  of  “derived  from”,  the
legislature intended to cover receipts from sources other  than  the  actual
conduct of the business of generation and distribution of  electricity.   In
short, a step removed from the business of the industrial undertaking  would
also be subsumed within the meaning of  the  expression  “attributable  to”.
Since we are directly concerned with the  expression  “derived  from”,  this
judgment is relevant only insofar as it  makes  a  distinction  between  the
expression “derived from”, as being something directly from, as  opposed  to
“attributable to”, which can be said to include something which is  indirect
as well.

18.   The judgment in Sterling Foods lays down  a  very  important  test  in
order to determine whether profits and gains are derived  from  business  or
an industrial undertaking.  This Court has stated that  there  should  be  a
direct nexus between such profits and gains and the  industrial  undertaking
or business.  Such nexus cannot be only incidental. It therefore  found,  on
the facts before it, that by  reason  of  an  export  promotion  scheme,  an
assessee was entitled to  import  entitlements  which  it  could  thereafter
sell.  Obviously, the sale consideration therefrom could not be said  to  be
directly from profits and gains  by  the  industrial  undertaking  but  only
attributable  to  such  industrial  undertaking  inasmuch  as  such   import
entitlements did not relate to manufacture or sale of the  products  of  the
undertaking, but related  only  to  an  event  which  was  post  manufacture
namely, export. On an application of the aforesaid test to the facts of  the
present case, it can be said that as all the four subsidies in  the  present
case are revenue receipts which are reimbursed to the assessee for  elements
of cost relating to  manufacture  or  sale  of  their  products,  there  can
certainly be said to be a direct nexus between  profits  and  gains  of  the
industrial undertaking or business, and  reimbursement  of  such  subsidies.
However, Shri Radhakrishnan stressed the fact that the immediate  source  of
the subsidies  was  the  fact  that  the  Government  gave  them  and  that,
therefore,  the  immediate  source  not  being  from  the  business  of  the
assessee, the element of directness is missing.  We  are  afraid  we  cannot
agree.  What is to be seen for the applicability of Sections 80-IB  and  80-
IC is whether the profits and gains are derived from the business.  So  long
as profits and gains emanate directly from the  business  itself,  the  fact
that the immediate source of the subsidies is the Government would  make  no
difference, as it cannot be disputed that the said  subsidies  are  only  in
order to reimburse, wholly or partially,  costs  actually  incurred  by  the
assessee in the manufacturing and selling of its products. The “profits  and
gains” spoken of by Sections 80-IB and 80-IC have reference to  net  profit.
And net profit can only be calculated by deducting from the  sale  price  of
an article all elements of cost which go into manufacturing or  selling  it.
Thus understood, it is clear that profits and gains  are  derived  from  the
business  of  the  assessee,  namely  profits  arrived  at  after  deducting
manufacturing cost and selling costs  reimbursed  to  the  assessee  by  the
Government concerned.


19.   Similarly, the judgment in Pandian Chemicals  Limited  v  Commissioner
of Income Tax is also distinguishable, as interest on  a  deposit  made  for
supply of electricity is not an element of cost at all, and this  being  so,
is  therefore  a  step  removed  from  the  business   of   the   industrial
undertaking.  The derivation of profits on such  a  deposit  made  with  the
Electricity Board could not therefore be said  to  flow  directly  from  the
industrial undertaking itself, unlike the facts  of  the  present  case,  in
which, as has  been  held  above,  all  the  subsidies  aforementioned  went
towards reimbursement of  actual  costs  of  manufacture  and  sale  of  the
products of the business of the assessee.



20.   Liberty India being the fourth judgment in this  line  also  does  not
help Revenue.  What this Court was concerned with was an  export  incentive,
which is very far removed from reimbursement of an element of cost.  A  DEPB
drawback scheme is not related to the business of an industrial  undertaking
for manufacturing or selling its  products.  DEPB  entitlement  arises  only
when the undertaking goes on to export the said product, that  is  after  it
manufactures or produces the same. Pithily  put,  if  there  is  no  export,
there is no DEPB entitlement, and therefore its relation to  manufacture  of
a product and/or sale within India is not proximate or  direct  but  is  one
step removed.  Also, the object behind DEPB entitlement, as  has  been  held
by this Court, is to neutralize the incidence of  customs  duty  payment  on
the import content of the export product which is provided for by credit  to
customs duty against the export product. In such a scenario,  it  cannot  be
said that such duty exemption scheme is derived from profits and gains  made
by the industrial undertaking or business itself.

21.   The Calcutta High Court in Merino Ply & Chemicals  Ltd.  v.  CIT,  209
ITR 508 [1994], held that transport  subsidies  were  inseparably  connected
with the business carried on by the assessee.  In that  case,  the  Division
Bench held:-
“We do not find any perversity in the Tribunal’s finding that the scheme  of
transport subsidies is inseparably connected with the  business  carried  on
by the assessee.  It is a fact that  the  assessee  was  a  manufacturer  of
plywood, it is also a fact that the assessee has  its  unit  in  a  backward
area and is entitled to the benefit of the  scheme.   Further  is  the  fact
that transport expenditure is an incidental expenditure  of  the  assessee’s
business and it is that expenditure which the subsidy recoups and  that  the
purpose of the  recoupment  is  to  make  up  possible  profit  deficit  for
operating in a backward area.  Therefore, it is beyond all manner  of  doubt
that the subsidies were inseparably connected with  the  profitable  conduct
of the business and in  arriving  at  such  a  decision  on  the  facts  the
Tribunal committed no error.”

22.   However, in CIT  v.  Andaman  Timber  Industries  Ltd.,  242  ITR  204
[2000],  the  same  High  Court  arrived  at  an  opposite   conclusion   in
considering whether a deduction was allowable under Section 80HH of the  Act
in respect of transport  subsidy  without  noticing  the  aforesaid  earlier
judgment of a Division Bench of that very court.  A Division  Bench  of  the
Calcutta High Court in C.I.T. v. Cement Manufacturing Company Limited, by  a
judgment dated 15.1.2015, distinguished  the  judgment  in  CIT  v.  Andaman
Timber Industries Ltd. and followed the impugned  judgment  of  the  Gauhati
High Court in the present case. In a pithy discussion  of  the  law  on  the
subject, the Calcutta High Court held:
“Mr.  Bandhyopadhyay,  learned  Advocate  appearing   for   the   appellant,
submitted that the impugned judgment is  contrary  to  a  judgment  of  this
Court in the case of CIT v.  Andaman  Timber  Industries  Ltd.  reported  in
(2000) 242 ITR, 204 wherein this Court held that transport  subsidy  is  not
an immediate source and does not have direct nexus with the activity  of  an
industrial undertaking.  Therefore, the  amount  representing  such  subsidy
cannot be treated as profit derived from the  industrial  undertaking.   Mr.
Bandhypadhyay  submitted  that  it  is  not  a  profit  derived   from   the
undertaking.  The benefit under section 80IC could not therefore  have  been
granted.

He also relied on a judgment of the Supreme court in  the  case  of  Liberty
India v. Commissioner of Income Tax, reported in (2009)  317  ITR  218  (SC)
wherein it was held that subsidy by way of customs duty draw back could  not
be treated as a profit derived from the industrial undertaking.

We  have  not  been  impressed  by   the   submissions   advanced   by   Mr.
Bandhyopadhyay.  The judgment of the Apex  Court  in  the  case  of  Liberty
India (supra) was in relation to the subsidy arising  out  of  customs  draw
back and duty Entitlement Pass-book  Scheme  (DEPB).   Both  the  incentives
considered by the Apex Court in the case of Liberty India could  be  availed
after the manufacturing activity was over and exports were  made.   But,  we
are concerned in this case with the transport  and  interest  subsidy  which
has a direct  nexus  with  the  manufacturing  activity  inasmuch  as  these
subsidies go to reduce the cost of production.  Therefore, the  judgment  in
the case of Liberty India v. Commissioner of Income Tax  has  no  manner  of
application.  The Supreme Court in the case of Sahney Steel and Press  Works
Ltd. & Others versus Commissioner of Income Tax, reported in [1997] 228  ITR
at page 257 expressed the following views:-

“…. Similarly,  subsidy  on  power  was  confined  to  ‘power  consumed  for
production’.  In other words, if power is consumed  for  any  other  purpose
like setting up the plant and machinery, the incentives will not  be  given.
Refund of  sales  tax  will  also  be  in  respect  of  taxes  levied  after
commencement of production and up to a period of five years  from  the  date
of commencement of production. It is difficult to hold  these  subsidies  as
anything but operation subsidies.  These subsidies were given  to  encourage
setting up of industries in the  State  of  Andhra  Pradesh  by  making  the
business of production and sale of goods in the State more profitable.”

23.   We are of the view that the judgment in Merino Ply  &  Chemicals  Ltd.
and  the  recent  judgment  of  the  Calcutta  High  Court  have   correctly
appreciated the legal position.


24.   We do not find it necessary to refer in detail to  any  of  the  other
judgments that have been placed before us. The judgment in Jai Bhagwan  case
(supra) is helpful on the nature of a transport  subsidy  scheme,  which  is
described as under:

“The object of the Transport Subsidy Scheme is not augmentation of  revenue,
by levy and collection of tax or duty.  The  object  of  the  Scheme  is  to
improve trade and commerce between the remote  parts  of  the  country  with
other parts, so as to bring about economic development  of  remote  backward
regions. This was sought  to  be  achieved  by  the  Scheme,  by  making  it
feasible and  attractive  to  industrial  entrepreneurs  to  start  and  run
industries in remote parts, by giving them a level  playing  field  so  that
they could compete with their counterparts in central (non-remote) areas.
The  huge  transportation  cost  for  getting  the  raw  materials  to   the
industrial unit and finished  goods  to  the  existing  market  outside  the
state, was making it unviable for industries in remote parts of the  country
to compete with industries in central areas. Therefore, industrial units  in
remote areas were extended the benefit  of  subsidized  transportation.  For
industrial units in Assam and other north-eastern States,  the  benefit  was
given in the form of a subsidy in respect of a percentage  of  the  cost  of
transportation between a point in central area  (Siliguri  in  West  Bengal)
and the actual location of the industrial unit in the remote area,  so  that
the industry could become competitive and economically  viable.”  (Paras  14
and 15)


25.   The decision in Sahney Steel and Press Works Ltd. v.  Commissioner  of
Income Tax, A.P. - I,  Hyderabad  (1997)  7  SCC  764,  dealt  with  subsidy
received from the State Government in the form of refund of sales  tax  paid
on raw materials, machinery, and finished goods; subsidy on  power  consumed
by the industry; and exemption from water  rate.   It  was  held  that  such
subsidies were treated as assistance given for the purpose  of  carrying  on
the business of the assessee.



26.   We do not find it necessary to further  encumber  this  judgment  with
the judgments which Shri Ganesh cited on the netting principle.  We find  it
unnecessary to further substantiate the reasoning in our judgment  based  on
the said principle.



27.   A Delhi High Court judgment was also cited  before  us  being  CIT  v.
Dharampal Premchand Ltd., 317 ITR 353 from which an  SLP  preferred  in  the
Supreme Court was dismissed.   This  judgment  also  concerned  itself  with
Section 80-IB of the Act, in which it was held that refund  of  excise  duty
should not be excluded in arriving at the profit derived from  business  for
the purpose of claiming deduction under Section 80-IB of the Act.



28.    It  only  remains  to  consider  one   further   argument   by   Shri
Radhakrishnan.  He has argued that as the subsidies  that  are  received  by
the respondent, would be income from other sources referable to  Section  56
of the Income Tax Act, any deduction that is to be made, can  only  be  made
from income from other sources and not from profits and gains  of  business,
which is a separate and distinct head as recognised by  Section  14  of  the
Income Tax Act.  Shri Radhakrishnan is not correct in  his  submission  that
assistance by way of subsidies which are  reimbursed  on  the  incurring  of
costs relatable to a  business,  are  under  the  head  “income  from  other
sources”, which is a residuary head of income that can be  availed  only  if
income does not fall under any of the other four heads of  income.   Section
28(iii)(b)  specifically  states  that  income  from  cash  assistance,   by
whatever name called, received or receivable by any person  against  exports
under any scheme of the Government of India, will be  income  chargeable  to
income tax under the head “profits and gains  of  business  or  profession”.
If cash assistance  received  or  receivable  against  exports  schemes  are
included as being income under the head “profits and gains  of  business  or
profession”, it is obvious that subsidies which go to reimbursement of  cost
in the production of goods of a particular business would also  have  to  be
included under the head “profits and gains of business or  profession”,  and
not under the head “income from other sources”.

29.   For the reasons given by us, we are of  the  view  that  the  Gauhati,
Calcutta and Delhi High Courts have correctly construed Sections  80-IB  and
80-IC.  The Himachal Pradesh High  Court,  having  wrongly  interpreted  the
judgments in Sterling Foods and Liberty India  to  arrive  at  the  opposite
conclusion, is held to be wrongly  decided  for  the  reasons  given  by  us
hereinabove.



30.   All the aforesaid appeals are, therefore, dismissed with no  order  as
to costs.



                                  ……………………………J.
                                  (Kurian Joseph)



                                  ……………………………J.
                                  (R.F. Nariman)
New Delhi;
March 09, 2016.