# PUNJAB NATIONAL BANK AND ORS v. SURENDRA PRASAD SINHA

- **Citation:** [1992] 2 S.C.R. 528
- **Court:** Supreme Court of India
- **Decided:** 1992-04-20
- **Case number:** Civil Appeal No. 2805 of 1980
- **Bench:** K. Ramaswamy, B.P. Jeevan Reddy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/punjab-national-bank-and-ors-v-surendra-prasad-sinha-11309
- **Pages:** 46

## Headnote

...--
Limitation Act, 1963-Section 3-Whether bars the right to which a
remedy related--Right to enforce debt by judicial process-Scope of-Time
barred debt-Realisation of-Filing of suit to recover debt-Creditor's obliga_,,,
c ti oh.
.....
Penal Code, 1860-Section 40~Action in terms of a contract-Whether amounts to criminal breach of trust or misappropria-
~
tion-creditor in possession of security-Adjustment of debt due from
D
security-Justification of.
Penal Code, 1860-Sections 409, 109/114--Complaint petition-Maintainability-Duty of Magistrate, indicated-Accused to be legally responsible
for the offences charged-Magistrate's satisfaction of prima facie
case-criminal justice-Objects of.
E
On 5.5.1984, the Bank-appellant No.1, gave a loan of Rs.15,000 to one
S.N. Dubey. The respondent and his wife executed a Security Bond, as
guarantors and hande(l over a Fixed Deposit Receipt for a sum of Rs.
24,000 which was valued at Rs.41,292 on its maturity on 1.11.1988.
F
The principal debtor defaulted making payment of the debt. When
the respondent's F.D. matured, the Manager of the Bank (appellant No.5)
~
adjusting a sum of Rs.27,037.60 due and payable by the principal debtor
as on December 1988 and the balance sum of Rs.14,254.40 was credited to
the S.B. Account of the respondent.
G
The respondent filed a private complaint against the appellants in
the Court of Addi. Chief Judicial Magistrate u/ss.409,109/114, IPC, alleging
that the debt became barred by limitation as on 5.5.1987; that the liability
of the respondent being co-extensive with that of the principal debtor, his
liability also stood extinguished as on 5.5.1987; that without taking any
<'
H action to recover the amount from the principal debtor within the period
528
I,
P.N.B. v. S. P. SINHA
529
of limitation, on 14.1.1989, the Branch Manager credited to his S.B. A
Account only RS.14,254.00 on the maturity of his F.D.R. and thereby the
appellants criminally embezzled the amount.
The appellants filed this Criminal Appeal by special leave challenging the High Court's order declining to quash the complaint filed by the
respondent u/ss. 409, 109/114, IPC.
·
B
Allowing the appeal of the Bank, this Court,
HELD : 1.01. The rules of limitation are not meant to destroy the
rights of the parties. Section 3 of the Limitation Act only bars the remedy, C
but does not destroy the right which the remedy relates to. The right to the
debt continues to exist notwithstanding the remedy is barred by the
limitation. Only exception in which the remedy also becomes barred by
limitation is the right is destroyed. [532E-F]
L02. Though the right to enforce the debt by judicial process is D
barred, the right to debt remains. The time 'i>arred debt does not cease to
exist by reason of s.3. That right can be exercised in any other manner than
by means of a suit. The debt is not extinguished, but the remedy to enforce
the liability is destroyed. [532G]
1.03. What s.3. refers is only to the remedy but not to the right of the E
creditors. Such debt continues to subsists so long as it is not paid. It is
not obligatory to file a suit to recover the debt. [532G-H]
2.01. Action in. terms of the contract expressly or implied is a
negation of criminal breach of trust defined in s.405 and punishable under
s.409 I.P.C. It is neither dishonest, nor misappropriation. [533C]
2.02. The creditor when he is in possession of an adequate security,
the debt due could be adjusted from the security, in his possession and
custody. [533A]
2.03. The bank had in its possession the F.D.R. as guarantee for due
payment of the debt and bank appropriated the amount towards the debt
due and payable by the principal debtor. [5330)
F
G
2.04. The respondent and his wife stood guarantors to the principal
debtor, jointly executed the security bond and entrusted the F .D.R. as H
B
c
530
SUPREME.COURT REPORTS
[1992) 2 S.C.R.
security to adjust the outstanding debt from it at maturity. Therefore,
though the remedy to recover the debt from the

## Text

_Characters 0–39,424 of 98,288. This is a partial read: ask again with offset=39424 for what follows._

A
PUNJAB NATIONAL BANK AND ORS.
k
v.
SURENDRA PRASAD SINHA
APRIL 20, 1992
B
[K. RAMASWAMY AND B.P. JEEVAN REDDY, JJ.]
...--
Limitation Act, 1963-Section 3-Whether bars the right to which a
remedy related--Right to enforce debt by judicial process-Scope of-Time
barred debt-Realisation of-Filing of suit to recover debt-Creditor's obliga_,,,
c ti oh.
.....
Penal Code, 1860-Section 40~Action in terms of a contract-Whether amounts to criminal breach of trust or misappropria-
~
tion-creditor in possession of security-Adjustment of debt due from
D
security-Justification of.
Penal Code, 1860-Sections 409, 109/114--Complaint petition-Maintainability-Duty of Magistrate, indicated-Accused to be legally responsible
for the offences charged-Magistrate's satisfaction of prima facie
case-criminal justice-Objects of.
E
On 5.5.1984, the Bank-appellant No.1, gave a loan of Rs.15,000 to one
S.N. Dubey. The respondent and his wife executed a Security Bond, as
guarantors and hande(l over a Fixed Deposit Receipt for a sum of Rs.
24,000 which was valued at Rs.41,292 on its maturity on 1.11.1988.
F
The principal debtor defaulted making payment of the debt. When
the respondent's F.D. matured, the Manager of the Bank (appellant No.5)
~
adjusting a sum of Rs.27,037.60 due and payable by the principal debtor
as on December 1988 and the balance sum of Rs.14,254.40 was credited to
the S.B. Account of the respondent.
G
The respondent filed a private complaint against the appellants in
the Court of Addi. Chief Judicial Magistrate u/ss.409,109/114, IPC, alleging
that the debt became barred by limitation as on 5.5.1987; that the liability
of the respondent being co-extensive with that of the principal debtor, his
liability also stood extinguished as on 5.5.1987; that without taking any
<'
H action to recover the amount from the principal debtor within the period
528
I,
P.N.B. v. S. P. SINHA
529
of limitation, on 14.1.1989, the Branch Manager credited to his S.B. A
Account only RS.14,254.00 on the maturity of his F.D.R. and thereby the
appellants criminally embezzled the amount.
The appellants filed this Criminal Appeal by special leave challenging the High Court's order declining to quash the complaint filed by the
respondent u/ss. 409, 109/114, IPC.
·
B
Allowing the appeal of the Bank, this Court,
HELD : 1.01. The rules of limitation are not meant to destroy the
rights of the parties. Section 3 of the Limitation Act only bars the remedy, C
but does not destroy the right which the remedy relates to. The right to the
debt continues to exist notwithstanding the remedy is barred by the
limitation. Only exception in which the remedy also becomes barred by
limitation is the right is destroyed. [532E-F]
L02. Though the right to enforce the debt by judicial process is D
barred, the right to debt remains. The time 'i>arred debt does not cease to
exist by reason of s.3. That right can be exercised in any other manner than
by means of a suit. The debt is not extinguished, but the remedy to enforce
the liability is destroyed. [532G]
1.03. What s.3. refers is only to the remedy but not to the right of the E
creditors. Such debt continues to subsists so long as it is not paid. It is
not obligatory to file a suit to recover the debt. [532G-H]
2.01. Action in. terms of the contract expressly or implied is a
negation of criminal breach of trust defined in s.405 and punishable under
s.409 I.P.C. It is neither dishonest, nor misappropriation. [533C]
2.02. The creditor when he is in possession of an adequate security,
the debt due could be adjusted from the security, in his possession and
custody. [533A]
2.03. The bank had in its possession the F.D.R. as guarantee for due
payment of the debt and bank appropriated the amount towards the debt
due and payable by the principal debtor. [5330)
F
G
2.04. The respondent and his wife stood guarantors to the principal
debtor, jointly executed the security bond and entrusted the F .D.R. as H
B
c
530
SUPREME.COURT REPORTS
[1992) 2 S.C.R.
security to adjust the outstanding debt from it at maturity. Therefore,
though the remedy to recover the debt from the principal debtor is barred
by limitation, the liability still subsists. In terms of the contract the bank
is entitled to appropriate the debt due and credit the balance amount to
the saving bank account of the resp?ndent. Thereby the appellant did not
act in violation of any law, nor converted the amount entrusted to them
dishonestly for any purpose. [533B-C]
3.01. The Magistrate without adverting whether the allegation in the
complaint prima facie makes out an offence charged for, obvi(msly, in a
mechanical manner, issued the process against all the appellants. The
High Court committed grave error in declining to quash the complaint on
the finding that the Bank acted prima facie high handedly. [533E]
3.02. Judicial process should not be an instrument of oppression or
·~
needless harassment. The complaint was laid impleading the Chairman,
D the Managing Director of the Bank by name and a host of officers. There
lies responsiblity and duty on the Magistracy to find whether the concerned accused should be legally responsible for the offence charged for.
Only on satisfying that the law casts liability or creates offence, against
the juristic person or the persons impleaded, then only process would be
E
F
issued. At that stage the court would be circumspect and judicious in
exercising discretion and should take all the relevant facts and circumstances into consideration before issuing process, least it would be an
instrument in the hands of the private complainant as vendetta to harass
the persons needlessly. Vindication of majesty of justice and maintenance
of law and order in the society are the prime objects of criminal justice
but it would not be the means to wreak personal vengeance. [533F-534A]
CRIMINAL APPELLATE JURISDICTIO~ : Criminal Appeal No.
254of1992.
From the Judgment and Order dated 25.6.1991 of the Madhya
G Pradesh High Court in Misc. Criminal Case No. 1701of1991.
G.L. Sanghi, Dhruv Mehta, Aman Vachher and S.K. Mehta for the
Appellants.
H
The Judgment of the Court was delivered by
P.N.B. v. S. P. SINHA [K RAMASWAMY, J.]
531
-;f.
K. RAMASWAMY, J. Special leave granted.
A
Though the respondent was served on July 29,1991, neither appeared
in person, nor ti.rough counsel. The facts set OUL in the complaint eloquently manifests on its face a clear abuse of the process of the court to harass
the appellants. The respondent, an Advocate and Standing Counsel for the B
first appellant filed a private complaint in the court of Addi. Chief Judicial
Magistrate, Katni in C.C. No.933/91 for offences under s.409 and ss.109/114
I.P.C.
~-
The facts stated in the complaint run thus :
..---
c
The first appellant's branch at Katni gave a loan of Rs.15,000 to one
).-
Sriman Narain Dubey on May 5, 1984 and the respondent and his wife
Annapoorna stood as guarantors, . executed Annexure 'P' "security bond"
and handed .over Fixed Deposit Receipt for a sum of Rs.24,000 which
would mature on November l, 1988. At maturity its value would be at Rs. D
41,292. The principal debtor committed default in payment of the debt. On
maturity, the Branch Manager, 5th appellant, Sri V.K. Dubey, adjusted a
sum of Rs. 27,037.60 due and payable by the principal debtor as on
December, 1988 and the balance sum of Rs.14,254.40 was credited to the
Saving Banks Account of the respondent. The respondent alleged that the
E
~
debt became barred by limitation as on May 5, 1987. The liability of the
respondent being co-extensive with that of the principal debtor, his liability
also stood extinguished as on May 5, 1987. Without taking any action to
recover the amount from the principal debtor within the period of limitation, on Janua1y 14, 1989, Sri D.K. Dubey, the Branch Manager, intimated
that only Rs.14,254.40 was credited to his Saving Bank Account No.3763.
F
The entire amount at maturity, namely Rs.41,292 ought to have been
~
credited to his account and despite repeated demands made by the respondent it was not credited. Thereby the appellants criminally embezzled the
said amount. The first appellant with a dishonest interest to save themselves from the financial obligation neglected to recover the amount from the G
principal debtor and allowed the claim to be barred limitation and embezzled the amount entrusted by the respondent. The appellant 2 to 6 abated
the commission of the crime in converting the amount of Rs.27,037.40 to
its own use in violation of the specific direction of the respondent. Thus
they committed the offences punishable under s.409 and ss.109 and 114
I.P.C.
H
A
B
c
532
SUPREME COURT REPORTS
[1992) 2 S.C.R.
The security bond, admittedly, executed by the respondent reads the
material parts thus : "We confirm having handed over to you by way of
security against your branch office Katni F.D. Account No.77/83 dated
November 1, 1983 for Rs. 24,000 in the event of renewal of the said Fixed
Deposit Receipt as security for the. above loan." "We confirm .... the F.D.R.
will continue to remain with the bank as security here". "The amount due
and other charges, if any, be adjusted and appropriated by you from the
proceeds of the said F.D.R. at any time before, on or its maturity at your
discretion, unless the loan is otherwise fully adjusted from the dues on
demand in writing made by you ... " "We give the bank right to credit the
balance to our saving banks account or any other amount and adjust the
amount due from the borrowers out of the same". "We authorise you and
confirm that the F.D.R. pledged a security for the said loan shall also be
security including the surplus proceeds thereof for any other liability and
the obligation of person and further in favour of the bank and the bank
shall be entitl~d to retain/realise/utilise/appropriate the samr: without refD erence to us."
E
F
Admittedly, as the principal debtor did not repay the debt, the bank
as creditor adjusted at maturity of the F.D.R., the outstanding debt due to
the bank in terms of the contract and the balance sum was credited to the
Saving Banks account of the respondent. The rules of limitation are not
meant to destroy the rights of the parties. Section 3 of the Limitation Act
36 of 1963, for short "the Act" only bars the remedy, but does not destroy
the right which the remedy relates to. The right to the debt continues to
exist notwithstanding the remedy is barred by the limitation. Only exception
in which the remedy also becomes barred by limitation is that right itself
is destroyed. For example under s.27 of the Act a suit for possession of any
property becoming barred by limitation, the right to property itself is
destroyed. Except in such cases which are specially provided under the
right to which remedy relates in other case the right subsists. Though the
right to enforce the debt by judicial process is barred under s.3 read with
G the relevant Article in the schedule, the right to debt remains. The time
barred debt does not cease to exist by reason of s.3. That right can be
exercised in any other manner than by means of a suit. The debt is not
extinguished, but the remedy to enforce the liability is destroyed. What s.3
refers is only to the remedy but not to the right of t4e creditors. Such debt
continues to subsists so long as it is not paid . .It is not obligatory to file a
H suit to recover the debt. It is settled law that the creditor would be entitled
-
P.N.B. v. S. P. SINHA [K. RAMASWAMY, J.]
533
to adjust, from the payment of a sum by a debtor, towards the time barred A
debt. It is also equally settled law that the creditor when he is in possession
of an adequate security, the debt due could be adjusted from the security
in his possession and custody. Undoubtedly the respondent and his wife
stood guarantors to the principal debtor, jointly executed the security bond
and entrusted the F.D.R. as security to adjust the QUtstanding debt from it
at maturity. Therefore, though the remedy to recover the debt from the
principal debtor is barred by limitation, the liability still subsists. In terms
of the contract the bank is entitled to appropriate the debt due and credit
the balance amount to the saving bank account of the respondent. Thereby
the appellant did not act in violation of any law, nor converted the amount
entrusted to them dishonestly for any purpose. Action in terms of the
contract expressly or implied is a negation of criminal breach of trust
defined in s.405 and punishable under s.409 I.P.C. It is neither dishonest,
B
c
nor misappropriation. The bank had in its possession the fixed deposit
receipt as guarantee for due payment of the debt and the bank appropriated the amount towards the debt due and payable by the principal D
debtor. Further, the F.D.R. was not entrusted during the course of the
business of the first appellant as a Banker of the respondent but in the
capacity as guarantor. The complaint does not make out any case much
le!>s prim a f acie case, a condition precedent to set criminal law in motion.
The Magistrate without adverting whether the allegation in the complaint
prima facie makes out an offence charged for, obviously, in a mechanical
manner, issued the process against all the' appellants. The High Court
committed grave error in declining to quash the complaint on the finding
that the Bank acted prima fade high handedly.
E
It is also salutary to note that judicial process should not be an F
instrument of oppression or needless harassment. The complaint was laid
impleading the Chairman, the Managing Director of the Bank by name and
a host of officers. There lies responsibility and duty on the Migistracy to
find whether the concerned accused should be legally responsible for the
offence charged for. Only on satisfying that the law casts liability or creates
offence against the juristic person or the persons impleaded· then only G
process would be issued. At that stage the court would be circumspect and
judicious in exercising discretion and should take all the relevant facts and
circumstances into consideration before issuing process lest it would be an
instrument in the hands of the private complaint as vendetta to harass the
persons needlessly. Vindication of majesty of justice and maintenance of , H
534
SUPREME COURT REPORTS
{1992] 2 S.C.R.
A
law and order in the society are the prime objects of criminal justice but
it would not be the means to wreak personal vengeance. Considered from
any angle we find that the respondent had abused the process and laid
complaint against all the appellants without any prim a f acie case to harass
them for vendetta.
B
The appeal is accordingly allowed and the complaint is quashed.
V.P.R.
Appeal allowed.
-
..
•
] ' -:+
_,
-
MUNICIPAL CORPORATION OF DELHI ETC.
A
v.
CHILDREN BOOK TRUST ETC.
APRIL 21, 1992
[S. MOHAN AND G. N. RAY, JJ.]
B
Del/ti Municipal Corporation Act, 1957 :
Sections 115(4)(a) Proviso & Explanation, 115(5) and (6)--Property
tax-Levy and assessment of-General tax in respect of lands and buildings -
C
Exemption-Grant of-To land and buildings occupied and used by society
for 'charitable purposes'- Conditions to be fulfilled- 'Charitable purpose'-
Meaning of-Whether includes imparting education-Society 'supported wholly or in part by voluntary contribution'-Tests for detennination-Wliat
are-Exemption of tax-Not available 'if any trade or business is carried on
in such land or building'-lnterpretation of expression-Part of land and D
building-When becomes entitled to exemption.
Delhi School Education Act, 1973: Sections 4, 5, 17(3) and 18(3).
Delhi School Education Rules, 1973: Rules 50, 59(2)(g), 172, 173 and
177.
Property Tax liability under nm11icipal corporation of a registered
society running a recognised private· unaided school-Conditions to be fulfille<k:-Sotiety not found to b~ supported substantially by voluntary contrib~
tions-Not entitled to tax exemption.
Words and Phrases : 'charitable purpose'-Meaning of.
E
F
In Civil Appeal No.2805 of 1980 the Respondent, a Trust registered
under the Societies' Registration Act 1960 owned the property. From the
year 1964-65, only a part of the property was subject to the General Tax
in accordance with the provisions of the Delhi Municipal Corporation Act. G
For the said year, the value of the property was assessed at Rs. 8,51~480.
In the year 1970, the appellant-Munieipal Corporation served a notice on
the .Trust propos.ing that the rateable value of the building should be
revised. On February 1, 1973, the Deputy Assessor and Collector passed
an order to the effect that the rateable value of the property be revised and H
535
536
SUPREME COURT REPORTS
[1992] 2 S.C.R.
A
enhanced to Rs.16,29,750. The Deputy Assessor and Collector held that the
Respondent had not proved its charitable character, and further the user
of the property did not go to prove that the property was used for
charitable purposes and that the same cannot be exempt from tax.
B
Aggrieved by the aforesaid order, the Trust filed a Writ Petition
under Articles 220 and 227 of the Constitution and contended that the
withdrawal of exemption ~rom the payment of General ·Tax previously
enjoyed on portions of the property was wrong, and that the case was
covered by Section 115 (4) p"°oviso of the Delhi Municipal Corporation Act
which provides for exemption from the payment of General Tax if ex·
C elusively occupied and used by a society for charitable purposes.
A Single Judge allowed the Writ Petition, and held that the Trust
would be entitled to claim exemption from payment of tax under Section
115 (4) for all the portions occupied by it except that which is occupied by
the Press, viz., the basement area of 11217 sq. ft. for which a monthly rental
D value has been assessed at Rs.14,021.25 and an area of 2000 sq. ft. on the
ground floor rear portion for which the monthly rental value has been fixed
at Rs.3,462.50. In the result, the order of the Deputy Assessor and Collector was quashed to that extent and the matter was remitted back for
disposal.
E
F
Aggrieved, the Corporation appealed and a-Division Bench held that
because' of .the mandatory provisions of Section 115(4) no part of the
premises in occupation of the press in the basement and the area of 2000
sq. ft. in the ground Door rear portion for which the monthly rental value
has been fixed at Rs.17,483.75 could be exempt from tax and partly allowed
the appeal of the Corporation.
The appellant society in C.A. No.228 of 1990 filed a suit and sought
~-
interim injunction, questioning the proposal by the Deputy Assessor and
,r..
Collector assessing the society for the General Tax but the Senior sub-
·
G judge being of the view that the riubject matter of the suit being Rs.5,32,683
the suit could not be entertained. Thereupon, the appellant wit~ the
'-
suit, and filed a writ petition in the High Court challenging the as~essment
order. The writ petition was heard by a Division Bench which held that the
exemption cl~inied by the appellant was unav~ilable to it, that the case was
not covered by seetion 115(4) of the Act and finding no infirmity in the
Jll'"
H order of assessment dismissed the writ petition in limine.
MUNICIPAL CORPN. v. BOOK TRUST
537
In the appeals to this Court, it was contended on behalf of the A
Municipal Corporation that Section 115(4) is a peculiar· section which
provides for relief to those societies or bodies on charitable support either
fully or in part, and that the proviso to the said Section distinguishes itself
from other enactments, in that the legislat~ve intent is to narrow down the
clauses of exemption. To claim exemption it must be shown that the society B
is supported by voluntary contribution. Where the activity of the society
generates income to support itself and, therefore, the society does not any
longer depend on the voluntary contribution, the exemption should certainly be made unavailable, It was further contented that the Municipal
General Tax is an annual tax, and that the question of assessability to such
tax or exemption will, therefore, have to be determined each year and that
unless and until the Society satisfies the assessing authorities that it fulfils
the conditions for exemption in respect of that particular year, it cannot
claim exemption as a rule and, therefore,,the facts in each case will have
to be ascertained in each year. It was shown that the method adopted under
c
the Income Tax Act in ~espect of the assessment of societies under Sections D
11 and i3 of the said Act or even with regard to exempting donations to
charitable societies under Section 80(G) was similar.
On behalf of the Societies which owned the buildings which were
assessed to tax, it was contended, that the society owns a building, which
houses· the school recognised under the Delhi School Education Act 1973 E
and the Rules made thereunder, and, therefore, the issue is whether the
·building which houses the school is exempt from tax, and that the test to
be applied under Section 115(4) are two in principle, viz., (i) society must
be a charitable society, and (ii) use must be for a charitable purpose, and
it was submitted that the proviso to section 115(4) does not lay down the
quantitative test in relation to voluntary contribution but only qualitative
test. It was further contended that education per se is a charitable purpose
and, therefore, even irthe the school charges a fee, that would be irrelevant.
F
The memorandum of objects and the bye-laws of the society have to be
seen, and if the object is a charitable one, that would be enough, it makes
little difference as to how the funds are utilised, if the profits continue to G
feed the charity, the mere occurance of profits would not detract from the
charitable nature of the enterprise. It was further contended that in
construing the scope of Section 115(4), the several provisions of the Delhi
School Education Act, and the Delhi School Education Rules 1973 also
H
538
SUPREME COURT REPORTS
(1992) 2 S.C.R.
A
have a great bearing, and that the proviso to section 115(4) prescribes the
qualitative test for identifying charitable societies.
On behalf of the intervenors • petitions in W.P.No.1754 of 1979 • the
Court's attention was drawn to Section 115(4) and it was submitted that
the exemption would be available only if the lands or buildings or portions
B thereof should be in exclusive occupation and use and such user must be
by a society or body for charitable purposes, and charitable purpose
includes education, relief· of poor and medical relief and the society is
supported wholly or in part by voluntary contributions and applies its
profits for furthera~ce of and to promote the objects of the society and
C that it does not pay dividend or bonus to its members. It was also
contended that education per se is charity and that the voluntary support
talked of under the section must be qualitative in nature and not quantitative.
D
E
On the questions :
(i) Whether the society or body is occupying and using the land and
building for a charitable purpose within the meaning of section 115(4)?
(ii) What is the meaning of the expression 'supported wholly or in
part by voluntary contribution?'
(iii) ~ether any trade or business is carried on in the premises
within the meaning of section 115(5)?
Dismissing both the appeals, the Court,
F
HELD: 1. (i) Every municipality is a local self-goverm1:1ent. Therefore, in order that it may sustain itself a power of taxation has been
delegated to municipal bodies. The taxes are local taxes for local needs.
Such taxes must obviously differ from one municipality to another. It is
impossible for the Legislature to pass statute for the imposition of such
G taxes in local areas. In a democratic set up the municipalities which need
the proceeds of these taxes for their own administration, it would be but
proper to leave to these municipalities the power to impose and collect
taxes. (554 ~-555 A]
(ii) The lacal authorities do not act as Legislature when they impose
H a tax but they do so as the agent of State Legislat'(e. The powers and the
·j
'
MUNICIPAL CORPN. v. BOOK TRUST
539
extent of these powers must be found in the statute which creates them A
with such powers. [SSS BJ
(iii) Local bodies being subordinate branches of governmental ac·
tivities are democratic institutions managed by the representatives of the
people. They function for public purpose. They bear the burden of government affairs in local areas as they are required to carry on local self· B
government. The power of taxation is a necessary adjunct to their other
powers. There are various kinds of taxes provided under each Municipal
Act, the important being property tax. [SSS CJ
(iv) The Delhi Municipal Act after providing for exemption under C
Section 11S(4) and (S) categorises cases, which will lose the exemption
under sub-section (4). Again, sub-section (6) clarifies that a part of a
building in the occupation of a society may not be entitled to exemption
though the other part is clearly exempt. [SS7 BJ
(v) 'Charity' in its legal sense comprises four principal divisions: D
trusts for the relief of poverty, trusts for the advancement of education,
trusts for the advancement of religion and trusts for other purposes
beneficial to the community not falling under any of the preceding heads.
The underlying idea of charity is the involving of an element of
philanthropy or something derived from pity, and has been from early
times the fundamental of the concept of charity. [S61 D, FJ
E
Special Commissioners of Income Tax v. Pemsel, 3 Tax Cases 53 at
96, rt:ferred to.
(vi) Thus, if education is run on commercial lines, merely because it
is a school, it does not mean it would be entitled to the exemption under
Section 11S(4) of the Act. (562 BJ
(vii) Where the predominant object is to subserve charitable purpose
and not to earn profit it would be a charitable purpose. [56S DJ
F
17ie King v.The Commissioners for Special Purposes of the Income Tax G
(S Tax Cases 408); The Abbey Malvern Wells Ltd. v. Minister of Town and
Country Planning, [1951] (2) All England Law Reports 1S4 at 161; The
Tntstees of the 'Tribune' (1939 (VU) Income Tax Reports 415); All India
Spinners' Association v. Commissioner of Income-Tax. Bombay (12 Income
Tax Reports 1944 482); Commissioner of Income-Tax, Bombay Cicy v.Breach H
540
SUPREME COURT REPORTS
[1992] 2 S.C.R.
A
Candy Swimming Bath Trust, Bombay (21 Income Tax Reports 1955 279 at
pages 288-289) and Addi. C.I. T., Gujarat v. Surat Alt Silk Cloth Manufactures Association (121 Income Tax Reports 1980 Page 1 at Pages 11 at.d
24), referred to.
B
(viii) Merely because education is imparted in the school, that by
itself, cannot be regarded as a charitable object. Today, education has
acquired a wider meaning. If education is imparted with a profit motive,
to hold, in such a case as charitable purpose, will not be correct. (565 F]
(ix) The rulings arising out of Income-tax Act may not be of great
C help because in the Income-tax Act 'charitable purpose' includes the relief
of the poor, education, medical relief and. the advancement of any other
object or general public utility. The advancement of any other object of
general public utility is not found under the Delhi Municipal Corporation
Act. In other words, the definition is narrower in scope. [565 G]
D
2. (i) The Delhi Municipal Corporation Act of 1957 in so far as it
grants an exemption under Section 115(4) makes a departure from the other
statutes of similar kind. Only the Delhi Municipal Corporation Act and
Kerala Act adopt this pattern of exemption. Therefore, unlike the other Acts
relating to municipalities of the various other States, the legislative intent
E appears to be to narrow down the nature of exemption. [566 D-EJ
(ii) It cannot be gainsaid that the Municipal general tax is an annual
tax. Therefore, normally speaking, the liability for taxation must be determined wi_th reference to each year. In other words, the society claiming
F
exemption will have to show that it fulfils the conditions for exemption
each year. If it shows, for example, that for its support it bas to depend
on, either wholly or in part, voluntary contributions, in that particular
year, it may be exempt. But where in that year, for its support, it need not
)
depend on voluntary contributions at all or again if the society produces
surplus income and excludes the dependence on voluntary contributions,
G it may cease to be exempt. Of course, the word 'support' will have to mean
sustenance of maintenance. (566 F-GJ
(iii) The reasonable way of giving effect to this exemption, will be to
tak~ each case and ass.ess for a period of five years and find out whether
H the society or body depends on voluntary contributions. Of course, at th·e
I
>--
MUNICIPAL CORPN. v. BOOK TRUST
541
end of each five year period the assessing authority could review the A
position. [566 HJ
(iv) The test must be whether the society could survive without
receiving voluntary contributions, even though it may have some income
by the activiti~s of the society. The word 'part' must mean an appreciable
amount and not an insignificant one. The 'part' in other words, must be B
substantial part. What is substantial would depend upon the fact and
circumstances of each case. (567 B-C]
(v) The word 'contribution' used in the proviso must also be given
its due meaning. It cannot be understood as donations. If that be so, a
voluntary contribution cannot amount to a compulsive donation. If the
donor, in order to gain an advantage or benefit, if he apprehends that but
for: the contribution some adverse consequence would follow, makes a
donation certainly it ceases to be voluntary. [567 DJ
c
(vi) The test to be applied is not merely qualitative but quantitative D
as well. [567 EJ
(vii) Under the Delhi School Education Act no provision is f0\1Dd by
which the school is made a separate juristic entity. (569 DJ
The school being a separate entity, premises occupied by the school E
will belong to it and not to the society. Therefore, the society cannot clai.m
to be in exclusive occupation and use of the land and building in question.
[569 EJ
(viii) Section 115(4) of the Act covers those cases where a part of the
land or building is used for trade or business or for getting rental income F
_therefrom. That part undoubtedly will be subject to tax. Suppose, there is
another portion of the same lands or buildings where trade or business is
carried on and profits are made and are applied to charitable purposes
then that portion shall, for purposes of municipal taxation, be deemed to
be a separate property. In other words, this part of the lands or buildings G
will qualify for relief. But the other part will be subject to tax. The trade
portion is subjected to tax. (572 C-DJ
3. Trade or business can be present in both sub-sections (4) and (5)
of section 115. But,Jf the profits or income of trade or business is devoted
to a charitable purpose and no part thereof is distributed among the· H
542
SUPREME COURT REPORTS
(1992] 2 S.C.R.
A
members as dividends or bonus, then that trade or business is a means to
an end. It is charity. But, if there is a trctde or business carried on in a
land or building and its profits are not applied to a charitable purpose,
sub- section (6) says that that part of the land or building where a trade
or business is carried on or from which rent is derived, will be subject to
B
c
D
tax. [S72 E-F]
In the instant case, though the society running the school has a
charitable purpose, beyond that it does not strengthen its case as it fails
to _answer the test that it is supported wholly or in part by voluntary
contributions. [572 G]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2805 of
1980.
From the Judgment and Order dated 29.2.1980 of the Delhi High
Court in L.P.A. No.102 of 1974.
AND
Civil Appeal No. 228 of 1990.
From the Judgment and Order dt. 3-2-89 of the Delhi High Court in
E
C.W.P. No. 263 of 1989.
B.Sen, R.K. Maheshwari and Vineet Maheshwari for the Appellant
in C.A.No.2805 of 1980 and Respondent in C.A. No.228 of 1990.
Barish N. Salve, Anil Mallick, Vineet Kumar and Vijay Bhasin for
F
the Appellant in C.A.228 of 1990.
G .B. Pai, Ms. U ma Mehta Jain for the Respondent in C.A.2805 of 1980 .
. Barish N. Salve, Rajiv Shakdhar, Ms. Rita Bhalla, S.S. Shroff for S.A.
Shroff & Co. Dr. A.M. Singhvi and R.Sasiprabhu for the Interveners.
G
The Judgment of the Court was delivered by
MOHAN, J. Both these appeals can be dealt with under common
judgment since the scope of Section 115( 4) Delhi Municipal Corporation
Act, 1957 (hereinafter referred to as the. Act) alone arises. However, it is
H
necessary to state the facts of each case separately.
>
MUNICIPAL CORPN. v. BOOK TRUST [MOHAN, J.]
543
CWIL APPEAL NO. 2805 OF 1980
The property known as Nehru House, No.4 Bahad'Qt- Shah Zafar
Marg, New Delhi is owned by respondent (Childern Boot Trust). It is a
society registered under the Society's Registration Act, 1960.
From the year 1964-65 only a part of property was subject to the
General Tax in accordance with the provisions of the Act. For the said year
the value of the property was assessed at Rs.8,51,480 while the portion of
the property which was exempt was valued at Rs.5,96,870.
In the year 1970 the appellant-Corporation served a notice on the
respondent proposing that the rateable value of the building should be
revised. On 1st February, 1973 the Deputy Assessor and Collector of the
appellant-Corporation passed an order to the effect that the rateable value
A
B
c
of the property be revised and enhanced to Rs. 16,29,750. The Deputy D
Assessor and Collector held that the respondent had not proved its
charitable character. Further, the user of the property did not go to prove
that the property was used for the charitable purpose and the same cannot
be exempt from tax. Aggrieved by this order dated 1.2.1973, a writ petition
under Articles 226 and 227 of the Constitution was filed before the High
Court of Delhi in C.W. No.318 of 1974. The claim of the respondent, who E
figured as the petitioner therein, was that the withdrawal of exemption
from the payment of General Tax previously enjoyed on portions of the
property was wrong. It was contended that the case of the Trust was
covered by Section 115( 4) proviso of the Act; proviso exempts buildings
from the payment of General Tax if exclusively occupied and used by a F
society for charitable purpose. The learned Single. Judge (Rajinder Sachar,
J.) allowed the writ petition. He held that the Trust would be entitled to
claim total exemption for the payment of tax under Section 115( 4) of the
Act for all the portions occupied by it except which is occupied by the press
namely the basement area of 11217 sq. ft. for which a monthly rental value G
has been assessed at Rs.14.021.25 and an area of 2000 sq. ft. on the ground
floor rear portion for which the monthly rental value has been fixed at
Rs.3,462.50. Even from this rental Vjllue the Trust was entitled to claim
exemption in the proportion of the income accruing to it from the publication of children books etc. In the result, the impugned order of the
Deputy Assessor and Collector was quashed to the above exent and the H
544
SUPREME COURT REPORTS
[1992] 2 S.C.R.
A
mattter was remitted to him to dispose of in accordance with law and in
~
B
c
D
E
F
the light of the observations made in the judgment.
Aggrieved by the judgment L.P.A. No.102 of 1974 was preferred by
the appellant to the Division Bench of the said Court. By a judgment and
order dated 29th February, 1980 it was held inte; alia as under:-
"Suffice it is. to say that 'education' cannot be understood
in the limited sense of teaching being given by holding classes
or by delivery of lectures. The acquisition of information or
knowledge, from whatever source and in any manner has to be
regarded as education. The Library, Dolls Museum and holding
of exhibitions help in providing an opportunity to acquire
information and knowledge. Premises used for such purposes
would be regarded as being used for education and thus for
charitable purpose."
. In this view the Division Bench held that, because of the mandatory
provisions of sub-section (5) of Section 115 no part of the premises in
occupation of the press in the basement and the area of 2,000 sq. ft. on the
ground floor rear portion for which the monthly rental value has been fixed
at Rs.17,483.75 could be exempt from tax. The judgment of the learned
Single Judge in this regard could not be sustained. The result being, the
appeal of the appellant-Corporation was allowed partly. Under these circumstances, the Municipal Corporation of Delhi has come up in appeal.
By an order dated 26.11.80 special leave was granted. Hence Civil Appeal
No.2805 of 1980.
CIVIL APPEAL NO. 228 OF 1990
The appellant-Society is registered under the Society's Registration
Act~ 1860. When there was a proposal by the Deputy Assessor and Collector fo assess the Society for the General Tax, the appellant-Society claimed
G that it was a Society for charitable purpose and, therefore, no tax cowd be
levied on its building since the exemption under sub-section ( 4) of Section
115 of the Act would be applicable.to it. This contention was rejected. The
ultimate order of assessment is of 4th of November, 1:988 whereby the
respondent imposed the property tax of Rs.5,32,683 by assessing the rateH able value.
-..j_.
r
I
v
.)..
l
.
MUNICIPAL CORPN. v. BOOK TRUST [MOHAN, J.)
545
The appellant-Society filed a suit and sought interim injunction but A
the Senior Sub-Judge was of the view that the subject-matter of the suit
being Rs.5,32,683 he could not entertain the suit. Therefore, on 24.12.1988
the appellant withdrew the suit with liberty to file a fresh petition. Thereupon, the appeallnt-Society filed Civil Writ Petition No.263 of 1989
challlengi.ng the assessment order dated 4th November, 1988 in the High B
Court of Delhi. That was heard by a Division Bench. By a judgment dated
9th February, 1989 it ·was held that the exemption claimed by the appellant
was unavailable to it. Therefore,. the case was not covered by Section 115(4)
of the Act. Accordingly, finding no infirmity in the order of assessment the
writ petition was dimissed in limine. By an order dated 23rd January, 1990
special leave having been granted, this appeal is before us.
C
We will now advert to the arguments addressed in Civil Appeal
No.228 of 1990 since the main arguments were addressed by Mr. Harish
Salve, learned counsel for the appellant. The appellant is a Public School
called Green field School. It is recognised under Delhi School Education
Act, 1973 and the Rules made thereunder. The conditions for recognition D
are:-
(i) The society must run the School.
(ii) The School must maintain its accounts.
The Society in this case owns a building. Therefore, the building
which houses the School, whether exempt from tax, is the issue. The tests
to be applied under Section 115{ 4) are two in principle.
(i) Society must be a charitable Society.
(ii) Use must be for a charitable purpose.
In the submission of the learned counsel, the proviso does ·not lay
down the quantitative test in relations to voluntary contribution but only
E
F
qualitative test.
G
Education per se is a charitable purpose. Therefore, even if the
School charges a fee, that would be irrelevant.