# THE NANDLAL BHANDARI MJI.JS LTD., INDORE v. THE STATE OF MADHYA BRAIUT - **Citation:** [1962] 2 S.C.R. 859 - **Court:** Supreme Court of India - **Decided:** 1962 - **Case number:** CIVIL APPELL.;1.'.l'E' JuRISDIC1'ION: Civil Appeals Nos. 34'1-346 of 1960 - **Bench:** S. K. Da!:!, M. H:!Dayatullah, J. C. SlliH - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-nandlal-bhandari-mji-js-ltd-indore-v-the-state-of-madhya-braiut-2303 - **Pages:** 12 ## Headnote Agem-Gommi&tio" paid 01.t of nel pra/iU-Jj dedvctib le from aM.-bie i1Ul0111t-TM J..dore bulwtrial l'ax RukdNotiji()1COme-tax, (1931) L. R. 58 I. A. 239, disallowing deduction of Commission paid out of profits to agents from the aaoesaabk profits, the Government of Holkar State of which the Mahar.aj& was the Supreme Ruler, issued certain Notifications ordering that the Agents' Commission on profits should not be allowed to be deducted from the assessable profits. The appellants who under an agrcemen t paid commission to their agents out of the company's net profits contended, illltt alia, that the Notifications in question did not have the force of law and was not enforceable against the appellants. Hild, that every general order emanating from the sovereign ruler having its roots in a resolution of the cabinet muat be regarded as a law binding on the subject and the Notification• di.allowing commission paid to agents to be deducted from the assessable profits were therefore binding on the appellants, because that was the normal mode by which laws were ma.de in the Holkar State. Rajkum»r Milt. Ltd. v. Madhya Bharat State, A. I. R. 1953 Madhya Bharat 135, approved, Ameer-un-nissa Begum v. Mahboob Begum, A. I. R. 1955 S.C. 352, followed. The Unio11 Cold Storage Co., Ltd. v. A11ders0fl, (1931) 16 T. C. 293 and l'he "llldian Radio and Gabl. Co-uai<.atiotu Co., Ltd. v. Commis•ioner of Income-tax, (1937) I. T. R. 270, discussed. Madhd<>orao v. State cf Madhya Bharat, A.I.R. 1961 S. C. 298, rcferrc to. Ml _,._, 17. 1961 The Na?tdlat lihandari Mills ltd., Indore v. The State of .lf adhya Bharat 8fi0 SUPRE.l\IE COURT R.EPORTS [l!J62) CIVIL APPELL.;1.'.l'E' JuRISDIC1'ION: Civil Appeals Nos. 34'1-346 of 1960. · Appeals.by SJ!f>Cial leave from tho judgment and ordn datf'd Scpt<'.mber 8, 1958, of the Madhya Prndcsb High Court (Indore Bench), Indore, in Civil Scc011clAppeals Nos. ll0-112 of 1952 . S. T. De,sai and J. B. Dadacharr;ji, for the appellant. B. Sen, R. J. l]lJave and ·I. N. Shroff, for the "respondent. · 1961. July 17. T,he Judgment of the Court was delivered by H ;duyatullczh J. HIDAYA'IUL-LAR, J.-'-These three consolidated appeals by spedal · leave are agairn~t a common judgm~nt and order of the High.Court of Madhya Pradesh, dated Septrmbe;r 8,.1958, in three second appeals !!led und<•r R. 13 of the Indore Industrial Tax Rules, 1927 of the .former Holkar St.ate, which wer<' i11 forcQ before the St.ate l;ccame part of Madhya Bharat St.ate. They c01w0rn thu·c a_sscssmr11ts r<' lating to tho asscssmeni yl'a rB, l !)4 J, JU,12 and l-!}4:{ respectively. These second app1·nls \\·cro originally .Jjlcd in the MacH1ya Bharat High Court as early as 19"52 ;- but the records of the appeals were dl'stroyed by fire· and had to be r,econstructed. By the time the appeals were ready, Madhya Bharat had me:·ged in the new state of l\fo.~a Pradesh, and t.he appeals were accordingTy heard by a Divisionnl Bench of that High Court. The appellant is a Textile Mill and a l"' blic Joint Stock Company call!•d the Nan dial Bhandari Mills, Lt.;ds of ~!l Jes of yarn, <: !o:.b, eto; 'I'he 2 S.C.R. SUPREME COURT REPORTS 861 remuneration of the agents for the three accounting years was as follows : Remuneration As per Accounting ,Years agree- ------------ ment. HJH 19 ±:l 19-±:l Rs. Rs. Rs. 1961 The Nand/al Bhandari Mills Ltd., Indore v. The State of Madhya Bharat Clause ti 1500 18,000 ## Text 2 S.C.R. SUPREME COURT RE~'tS 839 THE NANDLAL BHANDARI MJI.JS LTD., INDORE v. THE STATE OF MADHYA BRAIUT (S. K. DA!:!, M. H:!DAYATULLAH and J. C. SlliH, JJ.) Agem-Gommi&tio" paid 01.t of nel pra/iU-Jj dedvctib le from aM.-bie i1Ul0111t-TM J..dore bulwtrial l'ax RukdNotiji()1COme-tax, (1931) L. R. 58 I. A. 239, disallowing deduction of Commission paid out of profits to agents from the aaoesaabk profits, the Government of Holkar State of which the Mahar.aj& was the Supreme Ruler, issued certain Notifications ordering that the Agents' Commission on profits should not be allowed to be deducted from the assessable profits. The appellants who under an agrcemen t paid commission to their agents out of the company's net profits contended, illltt alia, that the Notifications in question did not have the force of law and was not enforceable against the appellants. Hild, that every general order emanating from the sovereign ruler having its roots in a resolution of the cabinet muat be regarded as a law binding on the subject and the Notification• di.allowing commission paid to agents to be deducted from the assessable profits were therefore binding on the appellants, because that was the normal mode by which laws were ma.de in the Holkar State. Rajkum»r Milt. Ltd. v. Madhya Bharat State, A. I. R. 1953 Madhya Bharat 135, approved, Ameer-un-nissa Begum v. Mahboob Begum, A. I. R. 1955 S.C. 352, followed. The Unio11 Cold Storage Co., Ltd. v. A11ders0fl, (1931) 16 T. C. 293 and l'he "llldian Radio and Gabl. Co-uai<.atiotu Co., Ltd. v. Commis•ioner of Income-tax, (1937) I. T. R. 270, discussed. Madhd<>orao v. State cf Madhya Bharat, A.I.R. 1961 S. C. 298, rcferrc to. Ml _,._, 17. 1961 The Na?tdlat lihandari Mills ltd., Indore v. The State of .lf adhya Bharat 8fi0 SUPRE.l\IE COURT R.EPORTS [l!J62) CIVIL APPELL.;1.'.l'E' JuRISDIC1'ION: Civil Appeals Nos. 34'1-346 of 1960. · Appeals.by SJ!f>Cial leave from tho judgment and ordn datf'd Scpt<'.mber 8, 1958, of the Madhya Prndcsb High Court (Indore Bench), Indore, in Civil Scc011clAppeals Nos. ll0-112 of 1952 . S. T. De,sai and J. B. Dadacharr;ji, for the appellant. B. Sen, R. J. l]lJave and ·I. N. Shroff, for the "respondent. · 1961. July 17. T,he Judgment of the Court was delivered by H ;duyatullczh J. HIDAYA'IUL-LAR, J.-'-These three consolidated appeals by spedal · leave are agairn~t a common judgm~nt and order of the High.Court of Madhya Pradesh, dated Septrmbe;r 8,.1958, in three second appeals !!led und<•r R. 13 of the Indore Industrial Tax Rules, 1927 of the .former Holkar St.ate, which wer<' i11 forcQ before the St.ate l;ccame part of Madhya Bharat St.ate. They c01w0rn thu·c a_sscssmr11ts r<' lating to tho asscssmeni yl'a rB, l !)4 J, JU,12 and l-!}4:{ respectively. These second app1·nls \\·cro originally .Jjlcd in the MacH1ya Bharat High Court as early as 19"52 ;- but the records of the appeals were dl'stroyed by fire· and had to be r,econstructed. By the time the appeals were ready, Madhya Bharat had me:·ged in the new state of l\fo.~a Pradesh, and t.he appeals were accordingTy heard by a Divisionnl Bench of that High Court. The appellant is a Textile Mill and a l"' blic Joint Stock Company call!•d the Nan dial Bhandari Mills, Lt.;ds of ~!l Jes of yarn, <: !o:.b, eto; 'I'he 2 S.C.R. SUPREME COURT REPORTS 861 remuneration of the agents for the three accounting years was as follows : Remuneration As per Accounting ,Years agree- ------------ ment. HJH 19 ±:l 19-±:l Rs. Rs. Rs. 1961 The Nand/al Bhandari Mills Ltd., Indore v. The State of Madhya Bharat Clause ti 1500 18,000 18,00(l 18,000 HidayatullahJ. (a) Fixed monthly allowance as office allowance. (b) Commission on the Company's Net Profits. P.M. for the for the year. year. @ 16% 2,68,:335 6, 15,946 10,52,939 net o.n profit~ (c) Commission @ 1-9-0 1,10,156 l,G4,751 2,71,672 on the sale Per Cent, proceeds of on •ales sales of yam, cloth etc. - --- In computing the ttion of August 1931. The latter has not been produced before us. This notification led to representations by the persons affected by it. The Maharaja of Holkar thereupon referred the matter for the opinion of the Full Bench of the High Court of the State. It appears that the opinion of the High Court was in favour of disallowing such dclductions. On July 14, 1933, another notification (No. 13) was issued which reads as follows : "In continuation of this office Notification No. 1 dated 3rd February, 1932, it is hereby published for the information of the mills and factories concerned that on submission of the Prime Minister's (Legal Department) report No. 25 dat.ed 11th May, 1933, His Highness the Maharaja is pleased to order (vide Huzur Shri Shankar Order No.173 dated 29th June,1933) that the opinion of the Full Bench of the High Court being that the Managing Agent's C'.ommiasion an Profit, ia 2 S.C.R. SUPREME COURT REPORTS 811& not an item of expenditure incurred solely for the purpose of earning the said profit within the meaning of Rule 3(2)(ix) of the said Industrial Tax Rules and this being also the view of the Cabinet as expressed in their resolution No. 1072 dated 28th August, 1931, the aforesaid Cabinet Resolution be given effect to and the industrial tax due on the amount of the managing agent's commission on profits be recovered with elfect from the date of the said Cabinet Resolution." This notification, it is contended before this Court had not the force of law and was not enforceable against the appellants, who claim that they are entitled to show that the remuneration paid to the agents was deductible from the profits of t,he Mills before computing the Industrial Tax. In this connection, the appellants wish to use the later decisions of the House of Lords in The Union Cold St-Orage Co., Ltd. v. Adamson (1) and of the Privy Council in The Indian Rridio and Cable Communications Co., Ltd. v. Commissioner of Inwme-tax ('), in which the decision in the Pondicherry Railway Company case (') was explained. In the case before the Privy Council, Lord Mangham observed: "It is not universally true to say that a payment the making of whic!i is conditional on profits being earned cannot properly be described as an El'Kpenditure incurred for the purpose of earning such profits. The typical exception is that of a payment to a director or a manager of a commission on the profits of a comrany .... If a company having made an apparent net profit of £ 10,000 has then to pay£ 1,000 to directors or managers as the contractual recompense for their service during the year, it is plain that the real net profit is only £ 9,000." }!l (1931) 16 T. 0~ 293. (2) (1937) I. T. R. 270. \Y) (1931) L.ll. 58 ~1) A. 239. ., 1961 The Nandlal Bhanclari M ilia Ltd., Indon v. The State of Madhya Bharat Hidayatullah J. 1961 TheNandlal B/ia,.dari Ni/ls Ltd., lrtrlore v. T.U State of MadAya Bliarat H idaratvllak J. 866 SUPREME COURT REPORTS [1962) Lord Macmillan in the former case observed that the Pondic.herry Railway Company c.ase (') must be read in the context of the facts of that case, and the obligation was first to find out the net profits of the company and then to divide them. These two gets of cases proceed upon different principles. If the agreement is to share the profits the expenditure cannot properly be treated as one incurred solely for the purpcrne of earning such profits; but if a slice of the profits is to be paid to persons as remmrnration to help in thP Parning of the profits, the deduction can be claimed. All this would of course be pertinent to consider, if th0re was no legislative enactment on the subject. If the matter was not one concluded by law, then there would bn room for judicial interpretation of the Ruk. The rival claims in these appeals are thus confined to the legislative force of the notifications issued in 1931, 1932 and 1933 respectively. The appellant's contention is that the notifications were not an act of legislation but an interpretation by the Sovereign .. Mr. Desai concedes that if they be regarded as legislation, then the later decisions of the Privy Council and some of this Court cannot be called in aid, because where the law itself speaks with clarity, judicial interpretation is out of place. He contends, how• ever that the two notifications were not framed as rules and were not expressly stated to be amendments of the rules then existing. He points out that after the first notification which was nothing more than an administrative direction to the assessing officers to include in the profits the remuneration of the agents, the opinion of the High Court was obtained, and the second notification merely pointed out that the earlier notificJ-tion wa.11 to be given effect to, and did no more than add a second administrative direction. On the other side, it is contended that the Cabinet could make laws as often as it pleased and that (I) (1931) L. R. 58 I. A. 239. 2 s.c.R. SUPREME COURT REPORTS 867 the notifications must be read either as independent rules or as a legislative explanation of R. 3 (2) (ix). In so far as the legislative supremacy of the Cabinet was concerned, no question was raised before us. When the Indore Industrial Tax Rules, 1926 wern framed, they came into existence by virtue of a Cabinet Resolution of that year. When they were modified, they were superseded by yet another Cabinet Resolution of the year 1927, which promul· gated the new Rules with retrospective effect from May 1926. The source of the Rules was thus a Resolution of the Cabinet on both the occasions, and it is not denied that the Rules thus framed had legislative sanction and were unquestionable. When the Cabinet promulgated its notifications in 1931, 1932 and 1933, it followed the same procedure, and it stated that the notification of 1932 was "in continuation of this office Notification No. 4733 dated December 6, 1927." This has reference to that notification under which the Indore Industrial Tax Rules, 1927 were orginally published. From this, it follows that new Rules were framed by a resolution of the Cabinet and were promulgated by a notification in the Gazette as part of the Rules. The mode followed in 1926 and 1927 was repeated in 1932 and 1933 and also presumably in 1931, though the notification of that year has not been printed in the record of this case. This view was taken by the Full Bench of theiMadhya Bharat High Court in Raj Kumar M~Us Ltd. v. Madhya Bharat State (1). The quest10n which is involved in these appeals also arose in that case. It was observed by the Full Bench : "This Notification makes it abundantly clear that His Highness the Maharaja ordered that the industrial tax due on the amount of the managing agent's commission on profit8 be recovered. This being an ordur of the (I) A.I.R. 1953 Madhy;i. Bharat 135. 1961 The Nand/al Bhandari Mill8 Ltd.,lndore "· The State of Madhya Bharat Hidayatulwh J. 1961 TheNan,dlal Bhan,dari Mills Ltd., lndore v: The Stat• of Madhya Bharat H idttyatullah j. 868 SUPREME CDU.RT REPORTS [1962 ruler, who enjoyed sovereign powers, that order is not open to challenge. This fa a mandate emanating f1 om a sovereign and as suoh hae the force of law. This Court has, therefore, no power to go behind the order and enquire as to whether the managing iigent.'s commission on profits is an item of expenditurP solely incurred for the purpose of earning profits or not. In this view of the matter the point at issue is concluded by Hu:i:nr Shri Shanker Order No. 173 dated 29th June, 1933." This view was affirmed by the High Court of Madhya Pradesh in the judgment under appeal. In our judgment, the two notifications cannot be described as "judicial interpretation". If any. thing, they must be interpreted as legislative exposition of R. 3(2)(ix) and in the nature of an explanation. This Court in Ameer-un-nis8a Begum v. Jfahboob Begum('), in dealing with the 'Firman~· of His Exalted Highness the Nizam of Hyderabad, observed as follows : "It cannot be disputed that prior to the integration of Hyderabad State with the Indian Union and the coming into force of the Indian Constitution, the Nizam of Hyderabad enjoyed uncontrolled sovereign powers. He was the supreme legislature, the supreme judidary and the supreme head of the executive, and there were no constitutional limitations upon his authority to act in any of these capacities. The •Firmans' were expressions of the sovereign will of the Nizam and they were binding in the same way as any other law;-nay, they would override all other laws which were in conflict with them. So long as a particular 'Firman' held the field, that alone would govern or regulate (I) A.I.R. 1955 S.C. 352. 2 s.c.R. SUPREME COURT REPORTS 869 the rights of the parties concerned, though it could be annulled or modified by a later 'Firman' at any time that the Nizam willed." The same can be said of the Ruler of the Holkar State. When to the order of the Ruler was added the usual mode of making and promulgating rules, the position which emerges is really unassailabl~. Mr. Desai in attempting to show that the raling does not apply to t,he case, raised two contentions. The first was based upon a more recent decision of this Court in Madhaorao v. State of Madhya Bharat (1), where certain Kalambandis of the Maharaja of Gwalior were considered. This Court in deciding whether the Kalambandis were existing law under Art. 372 of the Constitution, observed: "In dealing with the question as to whether the orders issued by such an absolute monarch amount to a law or regulation having the force of law, or whether they constitute merely administrative orders, it is important to bear in mind that the distinction between executive orders and legislative commands is likely to be merely academic where the Ruler is the source of all power. There was no constitutional limitation upon the authority of the Ruler to act in any capacity he liked ; he would be the supreme legis· lature, the supreme judiciary and the supreme head of the executive, and 'lll bis orders, however issued, would have the force of law and would govern and regulate the affairs of the State including the rights of its citizens." It was, however, pointed out in the case that even where an order is issued by the sovereign ruler, one must look to the character of the order and its con· tent to find out whether it enacted a binding rule, (1) A.l.R. 1961 S.C. 298. 1961 Tht N andlal Bl!a'ttthlti JlillB Ltd., IttdMt v. T/,e Slate of M a'dligo Bl!tsrat H idayatullah J, 1961 The Yand/!ll Bhandari Mills Ltd., Indore y, The State of Madhya Bharat H idayatul/!lh J. 870 SUPREME COURT REPORTS [1962] Mr. Desai has constructed his entire argument on the basiH of these observations, ~nd has contended that the orders only expressed an opinion and did not bind. Ho pointed out as the second limb of his argument that these notific:itions were not expressed as a rule bnt as an order, and that they did not seek to amend the rules, nor to add to them. He referred to other notifications in which a legislative act was dearly discernible, as for example, Notification No. 22/Com. d'.tted May 17, 1946, by which for the existing Rule 4, a new Rule was substituted. An examination of the Rules, however, shows that there was no set pattern of language. Some of the Rules do not read like rules at all. Notes have been appended to the rules, which are not rules proper, and R. 29 says: "All matters not dealt with in these rules may be submitted to the member-incharge, Commerce and Industry Department for decision." The existence of such a rule seems to obliterate the frontiers between legislative, judicial and executive exercise of the power of a State, such as we understand it. There being no invariable use of a clear-cut legislative language, each general order emanating from the sovereign ruler and promulgated in the same manner as any other rule and having its roots in a resolution of the Cabinet must be regarded as one binding upon the subject. This is the purport of the decisions of this Court, and the present case falls in line with those which have been previously decided. There is nothing in the content, the character or the nature of these notifications, which would put them 011 a level lower than the Rules, which had been earlier promulgated. In our opinion, the judgment of the High Court under appeal is correct, and the appeals are accordingly dismissed with costs, one set. Appeals dismissed.