Case Summary
| Citation | State of Orissa v. Titaghur Paper Mills Co. Ltd.AIR 1985 SC 1293 : 1985 Supp SCC 280 |
| Keywords | sec 3 tpa, immovable property, benefit arising out of land, standing timber, bamboos |
| Facts | One of the contracts related to an agreement of the petitioner’s company with state of Orissa for the purpose of felling, cutting and obtaining and removing bamboos from forest areas for converting the bamboo into paper pulp, or for purposes connected with the manufacture of paper, or in any connection incidental therewith. Thus, the company had the right to use all lands, roads and streams within, as well as outside the contract areas for the purposes of free ingress to, and egress from, the contract areas. The agreement extended to 14, 13 and 11 years with respect to different contract areas with an option to the company to renew the contract for a further term of twelve years and it embraced not only bamboos which were in existence at the date of the contract but also bamboos that were to grow and even come in existence thereafter. Orissa government, through a notification under the Orissa Act (on account of the purchase of bamboos agreed to be severed and standing trees agreed to be severed), introduced a tax by declaring this contract as a contract for movable property. |
| Issues | Whether it is a contract of moveable or immovable property? |
| Contentions | |
| Law Points | The court held that the bamboo contract related to immovable property as a benefit to arise out of land and did not relate to a contract of movable property. Bamboo Contract is not a contract of sale of goods but is a grant of a profit a prendre, that is, of a benefit to arise out of land and that it is not possible to bifurcate the Bamboo Contract into two: one for the sale of bamboo existing at the date of the contract and the other for the sale of future goods, that is, of bamboos to come into existence in the future. Contract for the purpose of felling, cutting and removing bamboos from forest areas for the purpose of converting the bamboos in proper pulp etc., have been held to be profit a prendre. “Standing timber” must be a tree that is in a state fit for these purposes and, further, a tree that is meant to be converted into timber so shortly that it can already be looked upon as timber for all practical purposes even though it is still standing. If not, it is still a tree because, unlike timber, it will continue to draw sustenance from the soil. A tree will continue to draw sustenance from the soil so long as it continues to stand and live; and that physical fact of life cannot be altered by giving it another name and calling it “standing timber”. But the amount of nourishment it takes, if it is felled at a reasonably early date, is so negligible that it can be ignored for all practical purposes. It is an agreement for a long period extending to fourteen years, thirteen years and eleven years with the respondent Company to renew the contract for a further term of twelve years and it embraces not only bamboos which are in existence at the date of the contract but also bamboos which are to grow and come into existence thereafter. |
| Judgement | Court held that the agreement between the parties for cutting, felling and removing bamboos from forest for 14,13,11 years for different contract areas is benefit arising out of land, i.e., immovable property and cannot termed as standing timber, movable property. |
| Ratio Decidendi & Case Authority |
Full Case Details
MADON, J. – Genesis of the Appeals: 2. On May 23, 1977, the Government of Orissa in the
Finance Department issued two notifications under the Orissa Sales Tax Act, 1947. We will
hereinafter for the sake of brevity refer to this Act as “the Orissa Act”. These notifications were
Notification S.R.O. No. 372 of 1977 and Notification S.R.O. No. 373 of 1977. Notification S.R.O.
No. 372 of 1977 was made in exercise of the powers conferred by Section 3-B of the Orissa Act and
Notification S.R.O. No. 373 of 1977 was made in exercise of the powers conferred by the first proviso
to sub-section (1) of Section 5 of the Orissa Act. We will refer to these notifications in detail in the
course of this judgment but for the present suffice it to say that Notification S.R.O. No. 372 of 1977
amended Notification No. 20209-CTA-14/76-F dated April 23, 1976, and made bamboos agreed to be
severed and standing trees .agreed to be severed liable to tax on the turnover of purchase with effect
from June 1, 1977, while Notification S.R.O. No. 373 of 1977 amended with effect from June 1, 1977,
Notification No. 20212-GTA-14/76-F dated April 23, 1976, and directed that the tax payable by a
dealer under the Orissa Act on account of the purchase of bamboos agreed to be severed and standing
trees agreed to be severed would be at the rate of ten per cent. After the promulgation on December
29, 1977, of the Orissa Sales Tax (Amendment) Ordinance, 1977 (Orissa Ordinance 10 of 1977),
which amended the Orissa Act, two other notifications were issued on December 29, 1977, by the
Government of Orissa in the Finance Department, namely, Notification No. 67178-C.T.A.
135/77(Pt.)-F (S.R.O. No. 900 of 1977) and Notification No. 67181-C.T.A. 135/77-F (S.R.O. No; 901
of 1977). The first notification was expressed to be made in exercise of the powers conferred by
Section 3-B of the Orissa Act and in supersession of all previous notifications issued on that subject.
By the said notification the State Government declared that the goods set out in the Schedule to the
said notification were liable to be taxed on the turnover of purchase with effect from January 1, 1978.
Entries 2 and 17 in the Schedule to the said notification specified bamboos agreed to be severed and
standing trees agreed to be severed respectively. The second notification was expressed to be made in
exercise of the powers conferred by sub-section (1) of Section 5 of the Orissa Act and in supersession
of all previous notifications in that regard. By the said notification the State Government directed that
with effect from January 1, 1978, the tax payable by a dealer under the Orissa Act on account of the
purchase of goods specified in column (2) of the Schedule to the said notification would be at the rate
specified against it in column (3) thereof. In the said Schedule the rate of purchase tax for bamboos
agreed to be severed and standing trees agreed to be severed was prescribed as ten per cent. The
relevant entries in the Schedule in that behalf are Entries 2 and 17. The Orissa Sales Tax
(Amendment) Ordinance, 1977, was repealed and replaced by the Orissa Sales Tax (Amendment)
Act, 1978.
3. As many as 209 writ petitions under Article 226 of the Constitution of India were filed in the
High Court of Orissa challenging the validity of the aforesaid two notifications dated May 23, 1977,
and the said Entries 2 and 17 in each of the said two notifications dated December 29, 1977 (“the
impugned provisions”). The petitioners before the High Court fell into two categories. The first
category consisted of those who had entered into agreements with the State of Orissa for the purpose
of felling, cutting, obtaining and removing bamboos from forest areas “for the purpose of converting
the bamboo into paper pulp or for purposes connected with the manufacture of paper or in any
connection incidental therewith”. This agreement will be hereinafter referred to as “the Bamboo
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Contract”. The other group consisted of those who had entered into agreements for the purchase of
standing trees. We will hereinafter refer to this agreement as “the Timber Contract”. All the Bamboo
Contracts before the High Court were in the same terms except with respect to the contract area, the
period of the agreement and the amount of royalty payable; and the same was the case with the
Timber Contracts. By a common judgment delivered on September 19, 1979, reported as Titaghur
Paper Mills Company Ltd. v. State of Orissa [(1980) Tax LR 1643], the High Court allowed all the
said writ petitions and quashed the impugned provisions. The High Court made no order as to the
costs of these petitions.
4. Each of the present two appeals has been filed by the State of Orissa, the Commissioner of
Sales Tax, Orissa, and the Sales Tax Officer concerned in the matter, challenging the correctness of
the said judgment of the High Court. The respondents in Civil Appeal 219 of 1982 are the Titaghur
Paper Mills Company Limited (“the respondent Company”) and one Kanak Ghose, a shareholder and
director of the respondent Company. The respondents in Civil Appeal 220 of 1982 are Mangaiji Mulji
Khara, a partner of the firm of Messrs M.M. Khara, and the said firm. The Chief Conservator of
Forests, Orissa, the Divisional Forest Officer, Rairkhol Division, and the Divisional Forest Officer,
Deogarh Division, have also been joined as pro forma respondents to the said appeal.
48. What now falls to be determined is the subject-matter of the impugned provisions. Relying
upon the definition of the term “goods’“ in the Sale of Goods Act, 1930, and in the Orissa Act, it was
submitted on behalf of the appellant State that the subject-matter of the impugned provisions is goods
and that what is made exigible to tax under the impugned provisions is a completed purchase of
goods. On behalf of the contesting respondents it was submitted that by impugned provisions a new
class of goods not known to law was sought to be created and made exigible to purchase tax and that
this attempt on the part of the State Government was unconstitutional as being beyond its legislative
competence. The High Court held that the impugned provisions amounted to a tax on an agreement of
sale and not on a sale or purchase of goods. It further held that in the case of Bamboo Contracts, the
impugned provisions also amount to levying a tax on a profit a prendre.
49. The term ‘goods’ is defined in clause (7) of Section 2 of the Sale of Goods Act as follows:
(7) “goods” means every kind of movable property other than actionable claims and
money; and includes stock and shares, growing crops, grass and things attached to or forming
part of the land which are agreed to be severed before sale or under the contract of sale;
We have already reproduced earlier the definition of ‘goods’ given in .clause {d} of Section 2 of
the Orissa Act. However, for the purposes of ready reference and comparison, we arc reproducing the
same here again. That definition is as follows:
(7) “Goods’“ means all kinds of movable property other than actionable claims, stocks,
shares or securities, and includes all growing crops, grass and things attached to or forming
part of the land which are agreed before sale or under the contract of sale to be severed.
What is pertinent to note, however, is that under both the definitions the term ‘goods’ means all
kinds of moveable property (except the classes of movable property specifically excluded) and
includes growing crops, grass and things attached to or forming part of the land which are agreed to
be severed before sale or under the contract of sale. The Transfer of Property Act, 1882, does not
give any definition of the term ‘moveable property’, but clause (36) of Section 3 of the General
Clauses Act, 1897, clause (27) of the Orissa General Clauses Act, 1937 and clause (9) of Section 2 of
the Registration Act, 1908. Section 3 of the General Clauses Act provides as follows:
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(36) “movable property” shall mean property of every description, except immovable
property.
The definition in the Orissa General Clauses Act is in identical terms The definition in the
Registration Act is as follows:
(9) “moveable property” includes standing timber, growing crops and grass, fruit upon
and juice in trees, and property of every other description, except immovable property;
The Transfer of Property Act does not give any exhaustive definition of ‘immovable property’.
The only definition given therein is in Section 3 which states:
“immovable property” does not include standing timber, growing crops or grass.
50. This is strictly speaking not a definition of the term ‘immovable property’ for it does not tell
us what immovable property is but merely tells us what it does not include. We must, therefore, turn
to other Acts where that term is defined. Clause (26) of Section 3 of the General Clauses Act defines
‘immovable property* as follows:
(26) “immovable property” shall include land, benefits to arise out of land, and things
attached to the earth, or permanently fastened to any thing attached to the earth.
The definition of immovable property in clause (21) of Section 2 of the Orissa General Clauses Act is
in the same terms A more elaborate definition is given in clause (6) of Section 2 of the Registration
Act which states:
(6) “immovable property” includes land, buildings, hereditary allowances, rights to
ways, lights, ferries, fisheries or any other benefit to arise out of land, and things attached to
the earth, or permanently fastened to anything which is attached to the earth, but not standing
timber, growing crops nor grass.
What is pertinent to note about these definitions is that things attached to the earth are immovable
property. The expression “attached to the earth” is defined in Section 3 of the Transfer of Property
Act as follows:
“attached to the earth” means –
(a) rooted in the earth, as in the case of trees and shrubs;
(b) imbedded in the earth, as in the case of walls or buildings; or
(c) attached to what is so imbedded for the permanent beneficial enjoyment of that to
which it is attached.
51. Thus, while trees rooted in the earth are immovable property as being things attached to the
earth by reason of the definition of the term ‘immovable property’ given in the General Clauses Act,
the Orissa General Clauses Act and the Registration Act, read with the definition of the expression
“attached to the earth” given in the Transfer of Property Act, standing timber is moveable property by
reason of it being excluded from the definition of ‘immovable property’ in the Transfer of Property
Act and the Registration Act and by being expressly included within the meaning of the term
‘moveable property’ given in the Registration Act. The distinction between a tree and standing timber
has been pointed out by Vivian Bose, J., in his separate but concurring judgment in the case of Smt
Shantabai v. State of Bombay [AIR 1958 SC 532 ] as follows:
Now, what is the difference between standing timber and a tree? It is clear that there must
be a distinction because the Transfer of Property Act draws one in the definitions of
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“immovable properly” and “attached to the earth”; and it seems to me that the distinction must
lie in the difference between a tree and timber. It is to be noted that the exclusion is only of
“standing timber” and not of “timber trees”
Timber is well enough known to be-
“wood suitable for building houses, bridges, ships, etc., whether on the tree or cut and
seasoned.” {Webster’s Collegiate Dictionary).
Therefore, “standing timber” must be a tree that is in a state fit for these purposes and,
further, a tree that is meant to be converted into timber so shortly that it can already be looked
upon as timber for all practical purposes even though it is still standing. If not, it is still a tree
because, unlike timber, it will continue to draw sustenance from the soil.
Now, of course, a tree will continue to draw sustenance from the soil so long as it
continues to stand and live; and that physical fact of life cannot be altered by giving it another
name and calling it “standing timber”. But the amount of nourishment it takes, if it is felled at
a reasonably early date, is so negligible that it can be ignored for all practical purposes and
though, theoretically, there is no distinction between one class of tree and another, if the
drawing of nourishment from the soil is the basis of the rule, as I hold it to be, the law is
grounded, not so much on logical abstractions as on sound and practical commonsense. It
grew empirically from instance to instance and decision to decision until a recognisable and
workable pattern emerged; and here, this is the shape it has taken.
Thus, trees which are ready to be felled would be standing timber and, therefore, moveable
property. What is, however, material for our purpose is that while trees (including bamboos) rooted in
the earth being things attached to the earth are immovable property and if they are standing timber are
moveable property, trees (including bamboos) rooted in the earth which are agreed to be severed
before sale or under the contract of sale are not only moveable property but also goods.
52. In this connection it may be mentioned that in English law there exists (or rather existed) a
difference between fructus naturales and fructus industriales. Fructus naturales are natural growth of
the soil, such as, grass, timber and fruit on trees, which were regarded at common law as part of the
soil. Fructus industrials are fruits or crops produced “in the year, by the labour of the year” in sowing
and reaping, planting, and gathering, e.g., corn and potatoes. Fructus industriales are traditionally
chattels being considered the ‘representative’ of the labour and expense of the occupier and thing
independent of the land in which they are growing and were not treated as an interest in land. Fructus
naturales are regarded until severance as part of the soil and an agreement conferring any right or
interest in them upon a buyer before severance was a contract or sale of an interest in land and were,
therefore, governed by Section 4 of the Statute of Frauds of 1677 (29 Car. II c. 3). If they were
severed before sale. Section 17 of that statute applied. This distinction was, therefore, important in
England for the purposes of the formalities required under the Statute of Frauds. Under the definition
of goods given in Section 62(1) of the old English Sale or Goods Act of 1893, ‘goods’ included inter
alia all industrial growing crops and things attached to or forming part of the land which were agreed
to be severed before sale or under the contract of sale. The formalities required for a contract for the
sale of goods of the value of £10 and upwards by Section 17 of the Statute of Frauds were re-enacted
in Section 4 of the Sale of Goods Act, 1893. This section was repealed by the Law Reform
(Enforcement of Contracts) Act, 1954. The definition of ‘goods’ in Section 61(1) of the new Sale of
Goods Act, 1979, is the same as in the earlier Sale of Goods Act. Thus, the position now in English
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law is that crops and other produce whether fructus naturales or fructus industriales (except in the
case of a sale without severance to a landlord, incoming tenant or purchaser of the land) will always
be ‘goods’ for the purposes of a contract of sale since the agreement between the parties must be that
they shall be severed either “before sale” or “under the contract of sale”.
53. As pointed out in Mahadeo v. State of Bombay [AIR 1959 SC 735] the distinction which
prevailed in English law between fructus naturales and fructus industriales does not exist in Indian
law, and the only question which would ‘fall to be considered in India is whether a transaction
concerns ‘goods’ or ‘movable property’ or ‘immovable property’. The importance of this question is
twofold: (1) in the case of immovable property, a document of the kind specified in Section 17 of the
Registration Act requires to be compulsorily registered and if it is not so registered, the consequences
mentioned in ‘ Sections 49 and 50 of that Act follow, while a document relating to goods or moveable
property is not required to be registered; and (2) by reason of the interpretation placed on Entry 54 in
List II in the Seventh Schedule to the Constitution of India by this Court a State cannot levy a tax on
the sale or purchase of any property other than ‘goods’.
59. The fallacy underlying the reasoning of the High Court is that it has confused the question of
the interpretation of the impugned provisions with the interpretation of Timber Contracts and the
Bamboo Contract. On the interpretation it placed upon the Timber Contracts it came to the conclusion
that the property in the standing trees passed only after severance and after complying with the
conditions of that contract and therefore, the impugned provisions purported to levy a purchase tax on
an agreement to sell. In the case of bamboos agreed to be severed, the High Court on an interpretation
of the Bamboo Contract held that it was a grant of a profit a prendre and from that it further held that
the impugned provisions were bad in law because they amounted to a levy of purchase tax on a profit
a prendre. This approach adopted by the High Court was erroneous in law. The question of the
validity of the impugned provisions had nothing to do with the legality of any action taken thereunder
to make exigible to tax a particular transaction. If a notification is invalid, all actions taken under it
would be invalid also. The converse, however, is not true. Where a notification is valid, an action
purported to be taken thereunder contrary to the terms of that notification or going beyond the scope
of that notification would be bad in law without affecting in any manner the validity of the
notification. Were the interpretation placed by the High Court on the Bamboo Contract and the
Timber Contracts correct, the transactions covered by them would not be liable to be taxed under the
impugned provisions and any attempt or action by the State to do so would be illegal but the validity
of the impugned provisions would not be affected thereby. The challenge to the validity of the
impugned provisions on the ground of their unconstitutionality must, therefore, fail.
98. The meaning and nature of a profit a prendre have been thus described in Halsbury’s Laws
of England, Fourth Edition, Volume 14, paragraphs 240 to 242 at pages 115 to 117:
“240. Meaning of ‘profit a prendre’.- A profit a prendre is a right to take something off
another person’s land. It may be more fully defined as a right to enter another’s land and to
take some profit of the soil, or a portion of the soil itself, for the use of the owner of the right.
241. Profit a prendre as an interest in land.- A profit a prendre is an interest in land, and
for this reason any disposition of it must be in writing. A profit a prendre which gives a right
to participate in a portion only of some specified produce of the land is just as much an
interest in the land as a right to take the whole of that produce.
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242. What may be taken as a profit a prendre. – The subject-matter of a profit a prendre,
namely the substance which the owner of the right is by virtue of the right entitled to take,
may consist of animals, including fish and fowl, which are on the land, or of vegetable matter
growing or deposited on the land by some agency other than that of man, or of any part of the
soil itself, including mineral accretions to the soil by natural forces. The right may extend to
the taking of the whole of such animal or vegetable matters or merely a part of them. Rights
have been established as profits a prendre to take acorns and beech mast, brakes, fern, heather
and litter, thorns, turf and peat, boughs and branches of growing trees, rushes, freshwater fish,
stone, sand and shingle from the seashore and ice from a canal; also the right of pasture and of
shooting pheasants. There is, however, no right to take seacoal from the foreshore. The right
to take animals ferae naturae while they are upon the soil belongs to the owner of the soil,
who may grant to others as a profit a prendre a right to come and take them by a grant of
hunting, shooting, fowling and so forth.”
99. A profit a prendre is a servitude for it burdens the land or rather a person’s ownership of land
by separating from the rest certain portions or fragments of the right of ownership to be enjoyed by
persons other than the owner of the thing itself. “Servitude” is a wider term and includes both
easements and profits a prendre (see Halsbury’s Laws of England, Fourth Edition, Volume 14,
paragraph 3, page 4). The distinction between a profit a prendre and an easement has been thus stated
in Halsbury’s Laws of England, Fourth Edition, paragraph 43 at pages 21 to 22:
“The chief distinction between an easement and a profit a prendre is that whereas an
easement only confers a right to utilise the servient tenement in a particular manner or to
prevent the commission of some act on that tenement, a profit a prendre confers a right to take
from the servient tenement some part of the soil of that tenement or minerals under it or some
part of its natural produce or the animals ferae naturae existing upon it. What is taken must be
capable of ownership, for otherwise the right amounts to a mere easement.”
In Indian law an easement is defined by Section 4 of the Indian Easement Act, 1882 as being “a
right which the owner or occupier of certain land possesses, as such, for the beneficial enjoyment of
that land, to do and continue to do something, or to prevent and continue to prevent something being
done, in or upon, or in respect of, certain other land not his own”. A profit a prendre when granted in
favour of the owner of a dominant heritage for the beneficial enjoyment of such heritage would,
therefore, be an easement but it would not be so if the grant was not for the beneficial enjoyment of
the grantee’s heritage.
100. Clause (26) of Section 3 of the General Clauses Act, 1897, defines “immovable property” as
including inter alia “benefit to arise out of land”. The definition of “immovable property” in clause (f)
of Section 2 of the Registration Act, 1908, illustrates a benefit to arise out of land by stating that
immovable property “includes … rights to ways, lights, ferries, fisheries or any other benefit to arise
out of land”. As we have seen earlier, the Transfer of Property Act, 1882, does not give any definition
of “immovable property” except negatively by stating that immovable property does not include
standing timber, growing crops, or grass. The Transfer of Property Act was enacted about fifteen
years prior to the General Clauses Act. However, by Section 4 of the General Clauses Act, the
definitions of certain words and expressions, including “immovable property” and “movable
property”, given in Section 3 of that Act are directed to apply also, unless there is anything repugnant
in the subject or context, to all Central Acts made after January 3, 1968, and the definitions of these
two terms, therefore, apply when they occur in the Transfer of Property Act. In Ananda Behera v.
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State of Orissa [AIR 1956 SC 17] this Court has held that a profit a prendre is a benefit arising out
of land and that in view of clause (26) of Section 3 of the General Clauses Act, it is immovable
property within the meaning of the Transfer of Property Act.
101. The earlier decisions showing what constitutes benefits arising out of land have been
summarized in Mulla on the Transfer of Property Act, 1882, and it would be pertinent to reproduce
the whole of that passage. That passage (at pages 16-17 of the Fifth Edition) is as follows:
“A ‘benefit to arise out of land’ is an interest in land and therefore immovable property.
The first Indian Law Commissioners in their report of 1879 said that they had ‘abstained from
the almost impracticable task of defining the various kinds of interests in immovable things
which are considered immovable property’. The Registration Act, however, expressly
includes as immovable property benefits to arise out of land, hereditary allowances, rights of
way, lights, ferries and fisheries. The definition of immovable property in the General Clauses
Act applies to this Act. The following have been held to be immovable property: a
varashasan or annual allowance charged on land, a right to collect dues at a fair held on a plot
of land; a hat or market; a right to possession and management of a saranjam; a malikana; a
right to collect rent or jana; a life interest in the income of immovable property; a right of
way; a ferry; and a fishery; a lease of land.”
102. Having seen what the distinctive features of a profit a prendre are, we will now turn to the
Bamboo Contract to ascertain whether it can be described as a grant of a profit a prendre and
thereafter to examine the authorities cited at the Bar in this connection. Though both the Bamboo
Contract in some of its clauses and the Timber Contracts speak of “the forest produce sold and
purchased under this Agreement”, there are strong countervailing factors which go to show that the
Bamboo Contract is not a contract of sale of goods. While each of the Timber Contracts is described
in its body as “an agreement for the sale and purchase of forest produce”, the Bamboo Contract is in
express terms described as “a grant of exclusive right and licence to fell, cut, obtain and remove
bamboos … for the purpose of converting the bamboos into paper pulp or for purposes connected with
the manufacture of paper. …”.
Unlike the Timber Contracts, the Bamboo Contract is not an agreement to sell bamboos standing
in the contract areas with an accessory licence to enter upon such areas for the purpose of felling and
removing the bamboos nor is it, unlike the Timber Contracts, in respect of a particular felling season
only. It is an agreement for a long period extending to fourteen years, thirteen years and eleven years
with respect to different contract areas with an option to the respondent Company to renew the
contract for a further term of twelve years and it embraces not only bamboos which are in existence at
the date of the contract but also bamboos which are to grow and come into existence thereafter. The
payment of royalty under the Bamboo Contract has no relation to the actual quantity of bamboos cut
and removed. Further, the respondent Company is bound to pay a minimum royalty and the amount of
royalty to be paid by it is always to be in excess of the royalty due on the bamboos cut in the contract
areas.
104. Under the Bamboo Contract, the respondent Company has the right to use all lands, roads
and streams within as also outside the contract areas for the purpose of free ingress to and egress from
the contract areas. It is also given the right to make dams across streams, cut canals, make water
courses, irrigation works, roads, bridges, buildings, tramways and other work useful or necessary for
the purpose of its business of felling, cutting and removing bamboos for the purpose of converting the
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same into paper pulp or for purposes connected with the manufacture of paper. For this purpose it
has also the right to use timber and other forest produce to be paid for at the current schedule of rates.
The respondent Company has the right to extract fuel from areas allotted for that purpose in order to
meet the fuel requirements of the domestic consumption in the houses and offices of the persons
employed by it and to pay a fixed royalty for this purpose. Further, the Government was bound, if
required by the respondent Company, to lease to it a suitable site or sites selected by it for the erection
of storehouses, sheds, depots, bungalows, staff offices, agencies and other buildings of a like nature.
105. We have highlighted above only the important terms and conditions which go to show that
the Bamboo Contract is not and cannot be a contract of sale of goods. It confers upon the respondent
Company a benefit to arise out of land, namely, the right to cut and remove bamboos which would
grow from the soil coupled with several ancillary rights and is thus a grant of a profit a prendre. It is
equally not possible to view it as a composite contract one, an agreement relating to standing bamboos
agreed to be severed and the other, an agreement relating to bamboos to come into existence in the
future. The terms of the Bamboo Contract make it clear that it is one, integral and indivisible contract
which is not capable of being severed in the manner canvassed on behalf of the appellant. It is not a
lease of the contract areas to the respondent Company for its terms clearly show that there is no
demise by the State Government of any area to the respondent Company. The respondent Company
has also no right to the exclusive possession of the contract areas but has only a right to enter upon the
land to take a part of the produce thereof for its own benefit. Further, it is also pertinent that while this
right to enter upon the contract areas is described as a “licence”, under Clause XXV of the Bamboo
Contract the respondent Company has the right to take on lease a suitable site or sites of its choice
within the contract areas for the erection of storehouses, sheds, depots, bungalows, staff offices,
agencies and other buildings of a like nature required for the purposes of its business. The terms and
conditions of the Bamboo Contract leave no doubt that it confers upon the respondent company a
benefit to arise out of land it would thus be an interest in immovable property. As the grant is of the
value exceeding Rs 100, the Bamboo Contract is compulsorily registrable. It is, in fact, not registered.
This is, however, immaterial because it is a grant by the Government of an interest in land and under
Section 90 of the Registration Act it is exempt from registration. The High Court was, therefore, right
in holding that the Bamboo Contract was a grant of a profit a prendre, though the grant of such right
not being for the beneficial enjoyment of any land of the respondent Company, it would not be an
easement. Being a profit a prendre or a benefit to arise out of land any attempt on the part of the State
Government to tax the amounts payable under the Bamboo Contract would not only be ultra vires the
Orissa Act but also unconstitutional as being beyond the State’s taxing power under Entry 54 in List II
in the Seventh Schedule to the Constitution of India.
106. We will now turn to the authorities cited at the Bar. The cases which have come before the
courts on this point have mainly involved the question whether the document before the court required
registration. After the coming into force of the Constitution of India and the introduction of land
reforms with consequent abolition of “Zamindari” and other proprietary interests in land, the question
whether a particular document was a grant of a proprietary interest in land has also fallen for
determination by various courts. It is unnecessary to refer to all the decisions which were cited before
us and we propose to confine ourselves to considering only such of them as are directly relevant to the
question which we have to decide. Of the High Court decisions the one most in point is that of a Full
Bench of the Madras High Court in Seeni Chettiar v. Santhanathan Chettiar [(1897) ILR 20 Mad
58]. The question in that case was whether a document which granted to the defendant a right to enjoy
14
the produce of all the trees on the bank and bed of a tank as also the grass and the reeds and further
to cut and remove the trees for a period exceeding four years required registration. The Court held that
the document was not a lease because it did not transfer to the defendant exclusive possession of the
tank but conferred upon him merely a right of access to the place for the reasonable enjoyment of
what he was entitled to under the contract. The Court, however, came to the conclusion that the
document required registration as it transferred an interest in immovable property, and that it was not
a sale of mere standing timber but it was contemplated by the document, as shown by the fact that a
comparatively long period of a little more than four years was granted to the defendant for cutting and
removing the trees, that “the purchaser should derive a benefit from the further growth of the thing
sold, from further vegetation and from the nutriment to be afforded by the land”. The above words
quoted in the judgment in that case were those of Sir Edward Vaughan Williams in the following
passage cited with approval by Lord Coleridge, C.J., in Marshall v. Green [1875) 1 CPD 35.39]:
“The principle of these decisions appears to be this, that wherever at the time of the
contract it is contemplated that the purchaser should derive a benefit from the further growth
of the thing sold, from further vegetation and from the nutriment to be afforded by the land,
the contract is to be considered as for an interest in land; but where the process of vegetation
is over, or the parties agree that the thing sold shall be immediately withdrawn from the land,
the land is to be considered as a mere warehouse of the thing sold, and the contract is for
goods.”
107. So far as the decisions of this Court are concerned, the one which requires consideration first
is Firm Chhotabhai Jethabai Patel & Co. v. State of M.P. [AIR 1953 SC 108]. This was one of the
two cases strongly relied upon by the appellant, the other being State of M.P. v. Orient Paper Mills
Ltd.[AIR 1977 SC 687] The facts in Chhotabhai case were that the petitioners had entered into
contracts with the proprietors of certain estates and mahals in the State of Madhya Pradesh under
which they acquired the right to pluck, collect and carry away tendu leaves; to cultivate, culture and
acquire lac; and to cut and carry away teak and timber and miscellaneous species of trees called
hardwood and bamboos. On January 26, 1951, the Madhya Pradesh Abolition of Proprietary Rights
(Estates, Mahals, Alienated Lands) Act, 1950 came into force and on the very next day a notification
was issued under the said Act putting an end to all proprietary rights in estates, mahals and alienated
villages and vesting the same in the State for the purposes of the State free of all encumbrances with
effect from March 31, 1952. The petitioners thereupon approached this Court under Article 32 of the
Constitution of India praying for a writ prohibiting the State of Madhya Pradesh from interfering with
the rights which they had acquired under the contracts with the former proprietors. It was averred in
the petitions that not only had the petitioners paid the consideration under the said contracts but had
also spent large sums of money in the exercise of their rights under the said contracts. This Court held
that the contracts appeared to be in essence and effect licences granted to the petitioners to cut, gather
and carry away the produce in the shape of tendu leaves, lac, timber or wood and did not create any
interest either in the land or in the trees or plants. In arriving at this conclusion the Court relied upon a
decision of the Judicial Committee of the Privy Council in Mohanlal Hargovind of Jubbulpore v.
CIT, C.P. & Berar, Nagpur [AIR 1949 PC 311]. In that case the assessees carried on business as
manufacturers and vendors of bidis composed of tobacco contained or rolled in tendu leaves. The
contracts entered into by the assessees were short term contracts under which in consideration of a
sum payable by instalments the assessees were granted the exclusive right to collect and remove tendu
leaves from specified areas. Some of the contracts also granted to the assessees a small ancillary right
15
of cultivation. The Judicial Committee held that the amounts paid by the assessees under the said
contracts constituted expenditure in order to secure raw materials for their business and, therefore,
such expenditure was allowable as being on revenue account. In Chhotabhai case this Court took the
view that the contracts before it were similar to the contracts before the Judicial Committee and
quoted with approval the following passage from the judgment in Mohanlal Hargovind case:
The contracts grant no interest in land and no interest in the trees or plants themselves.
They are simply and solely contracts giving to the grantees the right to pick and carry away
leaves, which of course, implies the right to appropriate them as their own property. The small
right of cultivation given in the first of the two contracts is merely ancillary and is of no more
significance than would be, e.g., a right to spray a fruit tree given to the person who has
bought the crop of apples. The contracts are short-term contracts. The picking of the leaves
under them has to start at once or practically at once and to proceed continuously.
According to this Court, the contracts entered into by the petitioners before it related to goods
which had a potential existence and there was a sale of a right to such goods as soon as they came into
existence, the question whether the title passed on the date of the contract itself or later depending
upon the intention of the parties. This Court, therefore, came to the conclusion that the State had no
right to interfere with the petitioners’ rights under the said contracts.
108. As we will later point out, the authority of the decision in Chhotabhai case has been
considerably shaken, if not wholly eroded, by subsequent pronouncements of this Court. For the
present, it will be sufficient for us to point out that the reliance placed in Chhotabhai case on the
decision of the Judicial Committee in Mohanlal Hargovind case does not appear to be justified for
the contracts before the Judicial Committee and before this Court were different in their contents and
this Court appears to have fallen into an error in assuming that they were similar. For instance, the
contracts before the Privy Council were short term contracts while those before the Court in
Chhotabhai case were for different periods including terms of five to even fifteen years. Apart from
this, we have pointed out above the features which go to make the Bamboo Contract a benefit to arise
out of land. These features were conspicuously absent in the contracts before the Court in Chhotabhai
case.
109. The decision next in point of time on this aspect of the case is Ananda Behera v. State of
Orissa. The petitioners in that case had obtained oral licences for catching and appropriating fish from
specified sections of the Chilka Lake from its proprietor, the Raja of Parikud, on payment of large
sums of money prior to the enactment of the Orissa Estates Abolition Act 1951. Under the said Act,
the estates of the Raja of Parikud vested in the State of Orissa and the State refused to recognize the
rights of the petitioners and was seeking to reauction the rights of fishery in the said lake. The
petitioners, contending that the State had infringed or was about to infringe their fundamental rights
under Articles 19(1)(f) and 31(1) of the Constitution of India, filed petitions in this Court under
Article 32 of the Constitution. In their petition, the petitioners claimed that the transactions entered
into by them were sales of future goods, namely, fish in the sections of the lake covered by the
licences and that as fish was moveable property, the said Act was not attracted because it was
confined to immovable property. The Court observed that if this contention of the petitioners was
correct, then their petition under Article 32 was misconceived because until any fish was actually
caught, the petitioners would not acquire any property in it. The Court held that what was sold to the
petitioners was the right to catch and carry away fish in specific sections of the lake for a specified
future period and that this amounted to a licence to enter on the land coupled with a grant to catch and
16
carry away the fish which right was a profit a prendre and in England it would be regarded as an
interest in land because it was a right to take some profit of the soil for the use of the owner of the
right and in India it would be regarded as a benefit arising out of the land and as such would be
immovable property. The Court then pointed out that fish did not come under the category of property
excluded from the definition of “immovable property”. The Court further held that if a profit a
prendre is regarded as tangible immovable property, then the “property” being over Rs 100 in value,
the document creating such right would require to be registered, and if it was intangible immovable
property, then a registered instrument would be necessary whatever the value; but as in the case
before the Court the sales were all oral and therefore, there being neither writing nor registration, the
transactions passed no title or interest and accordingly the petitioners had no fundamental rights
which they could enforce. Ananda Behera case was the first decision in which Chhotabhai case was
distinguished. The relevant passage in the judgment (at pages 923-4) is as follows:
“It is necessary to advert to Firm Chhotabhai Jethabai Patel & Co. v. State of M.P. and
explain it because it was held there that a right to ‘pluck, collect and carry away’ tendu leaves
does not give the owner of the right any proprietary interest in the land and so that sort of
right was not an ‘encumbrance’ within the meaning of the Madhya Pradesh Abolition of
Proprietary Rights Act. But the contract there was to ‘pluck, collect and carry away’ the
leaves. The only kind of leaves that can be ‘plucked’ are those that are growing on trees and it
is evident that there must be a fresh drop of leaves at periodic intervals. That would make it a
growing crop and a growing crop is expressly exempted from the definition of ‘immovable
property’ in the Transfer of Property Act. That case is distinguishable and does not apply
here.”
110. The next decision which was cited and on which a considerable debate took place at the Bar
was Shantabai v. State of Bombay [AIR 1958 SC 532]. The facts in that case were that by an
unregistered document the petitioner’s husband had granted to her in consideration of a sum of Rs
20,000 the right to take and appropriate all kinds of wood from certain forests in his Zamindari. On
the coming into force of the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, and
Alienated Lands) Act, 1950, all proprietary rights in land vested in the State of Madhya Pradesh and
the petitioner could no longer cut any wood. She thereupon applied to the Deputy Commissioner and
obtained from him an order permitting her to work the forest and started cutting the trees. The
Divisional Forest Officer took action against her and passed an order directing that the cut materials
be forfeited. She made representations to the Government and they proving fruitless, she filed in this
Court a petition under Article 32 of the Constitution of India alleging breach of her fundamental rights
under Article 19(1)(f) and (g) of the Constitution. Four of the five learned Judges who heard the case
pointed out that the foundation of the petitioner’s claim was an unregistered document and that it was
not necessary to determine the true meaning and effect thereof for whatever construction be put on it,
the petitioner could not complain of breach of any of her fundamental rights. The majority of the
learned Judges held that if the document were considered as conveying to the petitioner any part or
share in her husband’s proprietary right, no such part or share was conveyed to her as the document
was not registered and assuming that any such part or share was conveyed, it had become vested in
the State under Section 3 of the said Act; if the document were considered as a licence coupled with a
grant, then the right acquired by the petitioner would be either in the nature of a profit a prendre
which being an interest in land was immovable property and would require registration and as the
document was not registered, it did not operate to transmit to her any such profit a prendre as held in
17
Ananda Behera case and if the document were construed as conferring a purely personal right under
a contract, assuming without deciding that a contract was “property” within the meaning of Articles
19(1)(f) and 31(1) of the Constitution, she could not complain as the State had not acquired or taken
possession of the contract which remained her property and as the State was not a party to the contract
and claimed no benefit under it, the petitioner was free to sue the grantor upon that contract and
recover damages by way of compensation; and assuming the State was also bound by the contract she
could only seek to enforce the contract in the ordinary way and sue the State if so advised and claim
whatever damages or compensation she might be entitled to for the alleged breach of it. After so
holding the majority of the learned Judges observed (at page 269):
“This aspect of the matter does not appear to have been brought to the notice of this
Court when it decided the case of Chhotabhai Jethabai Patel and Co. v. State of M.P. and
had it been so done, we have no doubt that case would not have been decided in the way it
was done.”
Unlike the majority of the Judges, Vivian Bose, J., in his separate judgment considered in detail
the nature of the document in that case. Vivian Bose, J. pointed out the distinction between standing
timber and a tree. We have earlier extracted those passages from the learned Judge’s judgment. The
learned Judge then pointed out that the duration of the grant was for a period of twelve years and that
it was evident that trees which would be fit for cutting twelve years later would not be fit for felling
immediately and, therefore, the document was not a mere sale of trees as wood. Vivian Bose, J., held
that the transaction was not just a right to cut a tree but also to derive a profit from the soil itself, in
the shape of the nourishment in the soil that went into the tree and made it to grow till it was of a size
and age fit for felling as timber and if already of that size, in order to enable it to continue to live till
the petitioner chose to fell it. The learned Judge, therefore, held that though such trees as can be
regarded as standing timber at the date of the document, both because of their size and girth and also
because of the intention to fell at an early date would be moveable property for the purposes of the
Transfer of Property Act and the Registration Act, the remaining trees that were covered by the grant
would be immovable property and as the total value was Rs 26,000, the deed required registration and
being unregistered, it did not pass any title or interest and, therefore, as in Ananda Behera case the
petitioner had no fundamental right which she could enforce.
111. According to learned counsel for the appellant, the judgment of Vivian Bose, J., in that case
was not the judgment of the Court since the other learned Judges expressly refrained from expressing
any opinion as to the actual nature of the transaction under the document in question. Learned counsel
submitted that what the Court really held in that case was that there was no breach of any fundamental
right of the petitioner which would entitle her to approach this Court under Article 32 of the
Constitution, and this decision was, therefore, not an authority for the proposition that a document of
the type before the Court was a grant of a profit a prendre as held by Vivian Bose, J. It is true as
contended by learned counsel that the majority expressly refrained from deciding the nature of the
document because, as it pointed out, in any view of the matter, the petition would fail and it would,
therefore, be difficult to say that what Vivian Bose, J., held was the decision of the Court as such.
However, the judgment of Vivian Bose, J., is a closely reasoned one which carries instant conviction
and cannot, therefore, be lightly brushed aside as learned counsel has attempted to do. It is also
pertinent to note that the majority in that case pointed out the principal errors into which the Court had
fallen in Chhotabhai case and disapproved of what was decided in that case.
18
112. The decision to which we must now advert is Mahadeo v. State of Bombay [AIR
1959 SC 735]. The facts in that case were that some proprietors of Zamindaris situate in territories,
then belonging to the State of Madhya Pradesh and on the reorganisation of States transferred to the
erstwhile State of Bombay, granted to the petitioners rights to take forest produce, mainly tendu
leaves, from forests included in their Zamindaris. The agreements conveyed to the petitioners in
addition to the tendu leaves other forest produce like timber, bamboos, etc., the soil for making bricks,
and the right to build on and occupy land for the purpose of their business. In a number of cases, these
rights were spread over many years. Some of the agreements were registered and the others
unregistered. After the coming into force of the Madhya Pradesh Abolition of Proprietary Rights
(Estates, Mahals, and Alienated Lands) Act, 1950, the Government disclaimed the agreements and
auctioned the rights afresh, acting under Section 3 of the said Act. The petitioners thereupon filed
petitions under Article 32 of the -Constitution of India challenging the legality of the action taken by
the Government on the ground that it was an invasion of their fundamental rights. The main
contention of the petitioners was that the agreements were in essence and effect licenses granted to
them to cut, gather and carry away the produce in the shape of tendu leaves, or lac, or timber or wood,
and did not grant to them any “interest in land” or “benefit to arise out of land” and the object of the
agreements could, therefore, only be described as sale of goods as defined in the Indian Sale of Goods
Act. In support of that contention, the petitioners relied upon the decision in Chhotabhai case. The
Court examined the terms of the agreements in question and concluded that under none of them was
there a naked right to take the leaves of tendu trees together with a right of ingress and of egress from
the land but there were further benefits including the right to occupy the land, to erect buildings and to
take other forest produce not necessarily standing timber, growing crop or grass. The Court further
held that whether the right to the leaves could be regarded as a right to a growing crop had to be
examined with reference to all the terms of the documents and all the rights conveyed thereunder and
that if the right conveyed comprised more than the leaves of the trees, it would not be correct to refer
to it as being in respect of growing crops simpliciter. On an examination of the terms of the
documents and the rights conveyed thereunder the Court came to the conclusion that what was
granted to the petitioners was an interest in immovable property which was a proprietary right within
the meaning of the said Act and, therefore, it vested in the State. With reference to Chhotabhai case
relied upon by the petitioners, Hidayatullah, J., as he then was, speaking for the Court, said (at page
346):
“It is clear from the foregoing analysis of the decision in Chhotabhai case that on a
construction of the documents there under consideration and adopting a principle enunciated
by the Privy Council in Mohanlal Hargovind of Jabbulpore v. CIT, Central Provinces and
Berar [AIR 1949 PC 311] and relying upon a passage each in Benjamin on Sale and the
well-known treatise of Baden Powell, the Bench came to the conclusion that the documents
there under consideration did not create any interest in land and did not constitute any grant of
any proprietary interest in the estate but were merely contracts or licences given to the
petitioners ‘to cut, gather and carry away the produce in the shape of tendu leaves, or lac, or
timber or wood’. But then, it necessarily followed that the Act did not purport to affect the
petitioners’’ rights under the contracts or licences. But what was the nature of those rights of
the petitioners? It is plain, that if they were merely contractual rights, then as pointed out in
the two later decisions, in Ananda Behera v. State of Orissa, Shantabai case, the State has not
acquired or taken possession of those rights but has only declined to be bound by the
agreements to which they were not a party. If, on the other hand, the petitioners were mere
19
licensees, then also, as pointed out in the second of the two cases cited, the licences came to an
end on the extinction of the title of the licensors. In either case there was no question of the
breach of any fundamental right of the petitioners which could support the petitions which
were presented under Article 32 of the Constitution. It is this aspect of the matter which was
not brought to the notice of the Court, and the resulting omission to advert to it has seriously
impaired, if not completely nullified, the effect and weight of the decision in Chhotabhai case
as a precedent.”
We may also usefully reproduce the following passages (at page 354) from the concluding portion
of the judgment;
“From this, it is quite clear that forests and trees belonged to the proprietors, and they
were items of proprietary rights. …
If then the forests and the trees belonged to the proprietors as items in their ‘proprietary
rights’, it is quite clear that these items of proprietary rights have been transferred to the
petitioners. … being a ‘proprietary right’, it vests in the State under Sections 3 and 4 of the
Act. The decision in Chhotabhai case treated these rights as bare licences, and it was
apparently given per incuriam, and cannot therefore be followed.”
113. Faced with this decision, learned counsel for the appellant sought to distinguish it on the
ground that the terms of the agreements in that case were different from the terms of the Bamboo
Contract. We are unable to accept this submission. It is unnecessary to set out in detail the terms of
the agreements in Mahadeo case. The differences sought to be pointed out by learned counsel for the
appellant are unsubstantial and make no difference. The essential and basic features are the same and
the same interpretation as was placed upon the agreements in Mahadeo case must, therefore, apply to
the Bamboo Contract.
114. In State of M.P. v. Yakinuddin [AIR 1962 SC 1916] the respondents had entered into
agreements with the former proprietors of certain estates in the State of Madhya Pradesh acquiring the
right to propagate lac, collect tendu leaves and gather fruits and flowers of Mahua leaves. Some of
these documents were registered and others unregistered. On the coming into force of the Madhya
Pradesh Abolition of Proprietary Rights (Estates, Mahals, Alienated Lands) Act, 1950, the State of
Madhya Pradesh took possession of all the villages comprised in the respective estates of the
proprietors who had granted the aforesaid rights to the respondents and refused to recognize the
respondents’ rights. The respondents thereupon filed petitions under Article 226 of the Constitution in
the High Court of Madhya Pradesh and the High Court relying upon the decision in Chhotabhai case,
granted to the respondents the reliefs claimed by them. A Bench of five Judges of this Court allowed
the appeals filed by the State of Madhya Pradesh. In its judgment, this Court considered its earlier
decisions in Shantabai v. State of Bombay and Mahadeo v. State of Bombay and observed as
follows:
“In view of these considerations, it must be held that these cases are equally governed by
the decisions aforesaid of this Court, which have overruled the earliest decision in the case of
Chhotabhai Jethabai Patel and Co. v. State of M.P.”
115. In Board of Revenue v. A.M. Ansari [AIR 1976 SC 1813] the respondents were the highest
bidders at an auction of forest produce, namely, timber, fuel, bamboos, minor forest produce, bidi
leaves, tanning barks, parks, mohwa, etc., held by the Forest Department of the Government of
Andhra Pradesh. They were called upon to pay in terms of the conditions of sale stamp duty on the
20
agreements to be executed by them as if these documents were leases of immovable property. The
respondents thereupon filed petitions under Article 226 of Constitution in the High Court of Andhra
Pradesh. In the said petitions, the State contended that under the agreements, the respondents had
acquired an interest in immovable property. The High Court held in favour of the respondents. The
State went in appeal to this Court. On a consideration of the terms of the agreements, this Court held
that the agreements were licences and not leases. The Court laid emphasis upon three salient features
of those agreements for reaching its conclusion, namely, (1) that these were agreements of short
duration of nine to ten months, (2) that they did not create any estate or interest in the land, and (3)
that they did not grant exclusive possession and control of the land to the respondents but merely
granted to them the right to pluck, cut, carry away and appropriate the forest produce that might have
been existing at the date of the agreement or which might have come into existence during the short
period of the currency of the agreements, and that the right of the respondents to go on the land was
only ancillary to the real purpose of the contract. The Court observed as follows:
“Thus the acquisition by the respondents not being an interest in the soil but merely a
right to cut the fructus naturales, we were clearly of the view that the agreements in question
possessed the characteristics of licences and did not amount to leases so as to attract the
applicability of Article 31(c) of the Stamp Act.
The conclusion arrived at by us gains strength from the judgment of this Court in Firm
Chhotabhai Jethabai Patel and Co. v. State of M.P. where contracts and agreements entered
into by persons with the previous proprietors of certain estates and mahals in the State under
which they acquired the right to pluck, collect and carry away tendu leaves, to cultivate,
culture and acquire lac, and to cut and carry away teak and timber and miscellaneous species
of trees called hardwood and bamboos were held in essence and effect to be licences.
There is, of course, a judgment of this Court in Mahadeo v. State of Bombay where
seemingly a somewhat different view was expressed but the facts of that case were quite
distinguishable. In that case apart from the bare right to take the leaves of tendu trees, there
were further benefits including the right to occupy the land, to erect buildings and to take
away other forest produce not necessarily standing timber, growing crop or grass and the
rights were spread over many years.”
We fail to see how this authority in any way supports the case of the appellant before us or
resuscitates the authority of Chhotabhai case. In Ansari case the Court seems to have assumed that
Chhotabhai case dealt with short term contracts while, as we have seen above, most of the contracts
in Chhotabhai case were of far greater duration extending even to fifteen years, nor was the Court’s
attention drawn to the case of State of M.P. v. Yakinuddin. While the agreement in Ansari case was a
mere right to enter upon the land and take away tendu leaves, etc., the right under the Bamboo
Contract is of a wholly different nature. Further, the question whether the agreements were a grant of
a profit a prendre or a benefit to arise out of land was not raised and, therefore, not considered in
Ansari case and the only point which fell for decision by the Court was whether the agreements were
licences or leases. In fact, another question which arose in that case was whether the respondents were
liable to pay the amounts demanded from them as reimbursement of sales tax. Affirming the decision
of the High Court on this point, the Court held that the Forest Department did not carry on any
business by holding auctions of forest produce and was therefore, not a dealer within the meaning of
that term as defined in the Andhra Pradesh General Sales Tax Act, 1957. The question whether the
agreements were contracts of sale of goods was, however, not considered in that case.
21
116. We now come to the case of State of M.P. v. Orient Paper Mills Ltd. [AIR 1977 SC 687],
the second of the two cases on which learned counsel for the appellant relied so strongly in support of
his submission that the Bamboo Contract was a contract of sale of goods. The facts in that case as
appearing from the judgment of the High Court reported as Orient Paper Mills Ltd. v. State of M.P.
[(1971) Tax LR 1249] were that the President of India acting on behalf of the former Part C State of
Vindhya Pradesh had entered into an agreement with the respondent The said agreement was a
registered instrument and was styled as a lease and under it the respondent acquired the right for a
period of twenty years with an option of renewal for a further period of twenty years to enter upon
“the leased area” to fell, cut or extract bamboos and and salai wood and to remove, store and utilize
the same for meeting the fuel requirement of its paper mill. A copy of the said agreement has been
produced before us. Some of the terms of the said agreement were the same as those contained in the
Bamboo Contract as also in the case of Mahadeo v. State of Bombay. The said agreement provided
for payment of royalty including a minimum royalty. It also conferred upon the respondent the right to
take on lease such suitable site or sites as were at the disposal of the State Government within “the
leased area” for the erection of storehouses, sheds, depots, bungalows, staff offices, agencies and
other buildings of a like nature bona fide required for the purposes of its business connected with the
said agreement as also a right to make dams across streams, cut canals, make water-course, irrigation
works, construct roads, railways and tramways and do any other work useful or necessary for the
purposes of its business connected with the said agreement in or upon “the leased area” in terms very
similar to those in the Bamboo Contract. After the the States Reorganization Act, 1956, came into
force, the territories comprised in the State of Vindhya Pradesh became part of the new State of
Madhya Pradesh. At the date when the said agreement was entered into the C.P. and Berar Sales Tax
Act, 1947, was in force in the State of Vindhya Pradesh and the definition of ‘goods’ contained in
clause (g) of Section 2 of that Act as modified and in force in that State excluded from the purview of
the said Act forest contracts that gave a right to collect timber or wood or forest produce. The C.P.
and Berar Sales Tax Act was repealed by the Madhya Pradesh General Sales Tax Act, 1958, with
effect from April 1, 1959, and the new Act did not contain any exclusion of forest contracts from the
definitions of “goods”. Further, the term “dealer” as defined in the 1958 Act included the Central
Government and the State Government or any of its departments. The Forest Department of the State
Government was, however, exempted from the payment of sales tax for the period April 1, 1959, to
November 2, 1962. After the period of the said exemption expired, the Forest Department got itself
registered as a dealer and the Divisional Forest Officer called upon the respondent to reimburse to him
the amount which, according to him, he was liable to pay as sales tax in respect of the transaction
covered by the said agreement. Challenging his right to do so, the respondent filed in the High Court
of Madhya Pradesh a writ petition under Article 226 of the Constitution. In the said writ petition the
respondent contended that the transaction covered by the said agreement was not a sale of goods and
accordingly, no sales tax was payable in respect of bamboos and salai wood extracted by the
respondent thereunder that the said agreement did not provide for the recovery of the amount of sales
tax from the respondent, and that neither the State Government nor the Forest Department of that
Government was a “dealer” and that even if the sales tax was payable it was not recoverable as arrears
of land revenue. The High Court held that the transaction was one of sale of goods and that if sales tax
was payable it would be recoverable under Section 64-A of the Sale of Goods Act, 1930, but the State
Government or the Forest Department could not merely by selling the forest produce grown on its
own land be regarded as carrying on any business of buying, selling, supplying or distributing goods
and, therefore, in respect of mere sales of forest produce neither the State Government nor the Forest
22
Department was a “dealer” within the meaning of that term as defined in the 1958 Act. In coming to
the conclusion that the said agreement was a contract of sale of goods, the High Court proceeded upon
the basis that what it had to consider was “the stage when bamboo and salai wood have already been
felled and appropriated”. By reason of the judgment of the High Court, the definition of the term
‘dealer’ was amended with retrospective effect by the Madhya Pradesh General Sales Tax
(Amendment and Validation) Act, 1971, so as to nullify the finding of the High Court that neither the
State Government nor its Forest Department was a ‘dealer’. The State of Madhya Pradesh as also the
respondent came in appeal to the Supreme Court. The appeals were heard in the Court by a Division
Bench of two learned Judges. At the hearing of the appeals, the respondent desired to challenge the
vires of the amending Act, but in view of the Presidential Proclamation suspending the operation of
Article 14, it could not do so and the Court held that after the proclamation lapsed, it was open to the
respondent to take up the point but so far the appeals were concerned that challenge was not available
and the appeals must be decided on the basis that the amendment was valid and constitutional. The
main point before this Court, therefore, was whether the said agreement was a lease as it was styled or
a simple sale of standing timber coupled with a licence to enter and do certain things on another’s
land. The Court held that the label given to a document was not conclusive of its real nature and that
under the said agreement, possession of the land was not given to the respondent as it would have
been had the said agreement been a lease and that as the terms of the said agreement showed, it
conferred in substance a right to cut and carry away timber of specified species and till the trees were
cut, they remained the property of the owner, namely, the State, and that once the trees were severed,
the property in them passed to the respondent. The Court further observed that the term used in the
said agreement, namely, “royalty”, was “a feudalistic euphemism for the ‘price’ of the timber”.
117. We are unable to agree with the interpretation placed by the Court on the document in the
Orient Paper Mills case. We find that in that case this Court as also the High Court adopted a wrong
approach in construing the said document. In Mahadeo v. State of Bombay a five-Judge Bench of this
Court categorically held (at page 349) that “Whether the right to the leaves can be regarded as a right
to a growing crop has, however, to be examined with reference to all the terms of the documents and
all the rights conveyed thereunder”. In spite of this clear and unequivocal pronouncement by a fiveJudge Bench of this Court, the learned Judges of the High Court who decided the Orient Paper Mills
case held (at page 538) that “we have to consider the stage when bamboos and salai wood have
already been felled and appropriated”, while a two-Judge Bench of this Court evolved for itself in the
appeal from that judgment a rule of interpretation which was thus stated (at page 152) by Krishna
Iyer, J., who spoke for the Court:
“The meat of the matter is the judicial determination of the true character of the
transaction of ‘lease’ from the angle of the MGST Act and the Sale of Goods Act whose
combined operation is pressed into service for making the tax exigible from the Forest
Department and, in turn, from the respondent mills. It is the part of judicial prudence to
decide an issue arising under a specific statute by confining the focus to that statutory
compass as far as possible. Diffusion into wider jurisprudential areas is fraught with unwitting
conflict or confusion. We, therefore, warn ourselves against venturing into the general law of
real property except for minimum illumination thrown by rulings cited. In a large sense, there
are no absolutes in legal propositions and human problems and so, in the jural cosmos of
relativity, our observations here may not be good currency beyond the factual-legal
boundaries of sales tax situations under a specific statute.”
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118. A little later the learned Judge stated as follows:
“We may also observe that the question before us is M not so much as to what
nomenclature would aptly describe the deed but as to whether the deed results in sale of trees
after they are cut. The answer to that question, as would appear from the above, has to be in
the affirmative.”
The above rule enunciated by this Court in that case falls into two parts, namely, (1) a document
should be so interpreted as to bring it within the ambit of a particular statute relevant for the purpose
of the dispute before the Court, and (2) in order to do so, the Court can look at only such of the
clauses of the document as also to just one or more of the consequences flowing from the document
which would fit in with the interpretation which the court wants to put on the document to make that
statute applicable. The above principle of interpretation cannot be accepted as correct in law. It is
fraught with considerable danger and mischief as it may expose documents to the personal
predilections and philosophies of individual judges depending upon whether according to them it
would be desirable that documents of the type they have to construe should be made subject to a
particular statute or not. The result would be that a document can be construed as amounting to a grant
of a benefit to arise out of land when the question before the Court is whether proprietary rights and
interests in estates have been abolished and the same document or a document having the same tenor
could be construed as a contract of sale of goods when the question is whether the amounts payable
thereunder are exigible to sales tax or purchase tax, making the interpretation of the document
dependent upon the personal views of the judges with respect to the legislation in question. In the very
case which we are considering, namely, the Orient Paper Mills case as shown by the very first
sentence in the judgment, this Court obliquely expressed its disapproval of the transactions of the type
represented by the document before it. That sentence is as follows (at page 688):
“The State of Madhya Pradesh, blessed with abundant forest wealth, whose exploitation,
for reasons best known to that Government, was left in part to the private sector, viz., the
respondent, Orient Paper Mills….”
We may point out here that in making this observation the Court overlooked three important
aspects of the matter, namely, (1) it was a matter of policy for the State to decide whether such
transactions should be entered into or not, (2) the transaction was entered into by the State so that a
paper mill could be started in the State as shown by the various terms of the said agreement and thus
was an encouragement to setting up of industries in the State, and (3) the transaction ensured
employment for the people of the area because the said agreement expressly provided that the
respondent was to engage minimum 50 per cent of the labour for the working of the contract area
from the local source if available.
124. The authorities discussed above show that the case of Chhotabhai Jethabai Patel & Co. v.
State of M.P. is not good law and has been overruled by decisions of larger benches of this Court.
They equally show that the case of State of M.P. v. Orient Paper Mills Ltd is also not good law and
that this decision was given per incuriam and laid down principles of interpretation which are wrong
in law and cannot be assented to. The discussion of the above authorities also confirm us in our
opinion that the Bamboo Contract is not a contract of sale of goods but is a grant of a profit a prendre,
that is, of a benefit to arise out of land and that it is not possible to bifurcate the Bamboo Contract into
two: one for the sale of bamboo existing at the date of the contract and the other for the sale of future
goods, that is, of bamboos to come into existence in the future. In order to ascertain the true nature
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and meaning of the Bamboo Contract, we have to examine the said contract as a whole with
reference to all its terms and all the rights conferred by it and not with reference to only a few terms or
with just one of the rights flowing therefrom. On a proper interpretation, the Bamboo Contract does
not confer upon the respondent Company merely a right to enter upon the land and cut bamboos and
take them away. In addition to the right to enter upon the land for the above purpose, there are other
important rights flowing from the Bamboo Contract which we have already summarized earlier and
which make it clear that what the Bamboo Contract granted was a benefit to arise out of land which is
an interest in immovable property. The attempt on the part of the State Government and the officers of
its Sales Tax Department to bring to tax the amounts payable under the Bamboo Contract was,
therefore, not only unconstitutional but ultra vires the Orissa Act.
