NA VINCHANDRA CHHOTELAL v.

CENTRAL BOARD OF EXCISE AND CUSTOMS & ORS.

January 13, 1971

[J. M. SH

0ELAT AND C. A. VAIDIALINGAM, JJ.]

Customs Act (32 of 1962), ss. 128 and 129(1) and provis<>-Scope of.

The Collector of Customs and Excise confiscated certain smuggled i; oods and levied a personal penalty of Rs. 20,000 on the appellant under s. 112 of the Customs Act, 1962. He filed an appeal under s.· 128 before the first respondent and pleaded that the deposit of penalty as required by s. 129 may be waived.

The first respondent, after hearing him on the preliminary point regarding waiver, of deposit of penalty ordered that the appeal would be heard on merits l'f a sum of Rs. 10,000 out of, the total penalty was deposited by the appellant; but, since the , appellant failed to deposit even the amount of Rs. 10,000 within the prescribed period, the appeal was rejected. The appellant carried the matter in revision to. the Government.

He was given a further opportunity to deposit the sum of Rs. 10,000 but as he again failed to do so, the revision petition was rejected.

A writ pelition to quash the orders of the first respondent and the Government was dismissed by the High Court.

In appeal to this Court,

HELD: (1) Section 129(1) makes it obligatory on the person filing an appeal to deposit the penalty levied pending the disposal of the appeal on merits. The proviso to the section gives power to the Appellate Anthority, in appropriate cases, to dispense with such deposit unconditionally or subject to such conditions as it may deem fit.

Even though the section, does not expressly provide for the rejection of the appeal for non-compli ance with the requirements regarding deposit or with any order that may be passed under the proviso, the Appellate Authority is competent to reject the appeal in those circumotances. Otherwise, the appeal will have to be kept on file and such retention will serve no purpose, because, the Appellate Authority canno'. dispose of the appeal on merits when the re quirements of s. 129(1) are not complied with. [362 F-G; 364 A-C}

(2) The rejection of the appeal and revision would mean that the appellant was bound by the order of the Collector, but that result was brought about only by the appellant's default. [364 D-EJ

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 105 ol. 1967.

Appeal by special leave from the order dated August 24, 1966 of the Punjab High Court. Circuit Bench at Delhi in Civil Writ No. 666-D of 1966.

ff U. M. Trivedi, Swaranjit Sodhi and S. S. Shukla, for the appellant.

L. M. Singhvi and S. P. Nayar, for the. respondents.

The Judgmeint of the Court was delivered by A Vaidfalingam, J. This appeal, by special leave, is against the judgment and order datc:ct.August 24, 1966 of the Circuit Bench of the Punjab High Cotllf at New Delhi dismissing in limine Civil Writ No. 666-D of 1966 filed by the appellant to quash the orders of the first and second rpondents dated December 7, 1965 and April 23, 1966 respectively.

B The main question that arises for consideration in this appeal is whether the order of the first respondent, Central Board of Excise and Customs, New Delhi, rejecting the appeal filed by the · appellant for non., comp!i3jllce with the provisions of s. 129 of .the Customs Act, .1962 (Act 32 of 1962) (hereinafter to be referred as the Act) was justified .. The point lies within a very C narrow compass and hence it is not necessary to state elaborately the.allegations. made against the appellant for taking action under the Act read With the material provisions of the Import and Export Control Act, 194 7. . The appellant was called up0n by the third. respondent, Collector' of Customs and Excise, Cochin, to show cause why he should not be penalised under s. 112(b) of the Act and why he should not be prosecuted under s. 135 (b) D of the Act.

Similarly anot1¥:r notice was issued against one Rodrigues, with whom we are not concerned in these proceedings.

The appellant made representations against the show cause notice and he was also given an opportunity to contest the allegatio, ns

madlagainst him. The third respondent by his order dated July 18, A 964 held that th~ ruby stone in question was smuggled into E India by Rodrigues at the instance of the appellant and in pursuance of an agreement entered into between them and that the ruby stone was handed over to Rodrigues by the brother of the appellant at Rangoon.

By the said order the third respondent confiscated the ruby stone and levied a personal penalty of . Rs. 20,000/- on the appellant under s. 112~(if.the Act on the ground that he was the PJ:ime mover behind-Smuggling of the F ruby stone. A perso11al penalty was also imPl'sed on Rodrigues who had carried the ruby stone. It was spe<; ifically stated in the order that the.penalties imposed were without:prejuelice to institu-. tion of any action under s. 135 of the Act. . The appellant filed an appeal on October 7, 1964 before the first respondent under s. 128: After raising his contentions in. G the memorandum of appeal on merits, he pleaded that it will not be possible for him to deposit the penalty amount of Rs. 20,000/- as was necessary under s. 129 of the Act, on the ground that he was innocent and that compliance with the requirement of deposit will result in undue hardship.

He further pleaded that it was bevond his means to .deposit such a large amount. Accordingly.

H he'. requested the first respondent to exempt him from making the

eposit of the penalty imposed as a preliminary rquirement for hearing the appeal.

NAVlNCHANDRA v. EXCISE & CUSTOMS BOARD 35~ tVaidialingam, J.J A The first respondent by his mder datd Decembe!. 7, ~9,65, rejected the appeal for non-compliance with the proviSlons P, f s. 129 of the Act. From the order it is seen that as the appea~ had been filed without depositing the penalty levied by the third respondent, the appellant was called upon on November 23, 1964 to deposit the same within 15 days and he was also further. informed B that his failure to deposit the penalty amount would render his appeal liable. to be rejected for non-compliance with. the provisions of s. 129. The appeal was heard on this preliminary point regarding waiver of the deposit under the said section.

After considering the various grounds that appear to have been pressed c on behalf of the appellant, the order of the first respondent pro~ ceeds to state that it agreed to consider the appeal on merits provided a sum of Rs. 10,000/- out of the total penalty levied was deposited.

The appellant was infotmed on August 17, 1965 about this requirement by registered letter and\ was called upon to deposit the same within 14 days. As the registered letter was returned unserved, a communication was sent to the appellant's D lawyer, who was on record arid. jt was acknowledged on Oct?ber

18, 1965. But as the amount of Rs. 10,000/- was not deposited, the appeal was rejected for non-compliance, with the provisions of s. 129 of the Act.

- The appellant carried the matter in revision before the second respondent under s. 130 of the_ Act. . The appellant was given a It further opportunity by the. second re5pondent to deposit the • sum of Rs. l~,000/- as required by the first respondent. As the appellant again failed to avail, himself of this opportunity, the second

rsponn.t by' its .prder ated April 23, 1966 rejected the revision petl(J<>n hold111g that the matter cannot be considered on .merits and at the Goveylunent of India saw no reason to interf fere with the decision ¢ the Central Board of Excise and Customs.

The writ petition filed by the appellant to quash the orders of the

fir~ and second respondent{ wa, s dismissed in /imine by the High

Court and it is the said order \hat Js challenged beforjl us.

It may be mentioned at this stage that the appellant was prosecuted under s. 135(a) and (b) of the Act, before the District G Magistrate, Ernakulam. The District Magistrate by his judgment da!ed February 28. 1966 found the appellant and Rodrigues not gmlty of the offence with which they were charged and acquitted them under s. 258 of the Code of Criminal Produre.

_Yarious gro':1ds of attack against the legality of the demand notice for deposit mg the penalty under s. 129 ( 1) of the Act have been. taken, h?!h before. the. High Court in the writ petition as also m the hhon filed m this Court for special leave. But only two contentrons were urged before us by Mr. U. N. Trevedi .

360 SUPRllME COURT REPORTS [1971]3 s.c.R.

learned counsel for the appellant, namely, (i) section 129 of the A Act does not give any power to the first respondent to dismiss the ap~J for non-compliance with the requirements regarding the deposit of the penalty amount; and (Ii) by rejecting the appeal, the respondent as approved the order of the third respondent

levyg penalty agamst the appellant. It will be noted that the vahd1ty of s. 129 of the Act is not challenged.

Dr. L. M. Singhvi, learned counsel for the respondents, on the other hand, urged that the first respondent has acted strictly according to law when it passed the order rejecting the appeal for non-compliance withs. 129. If the appellant, who was given an opportunity not only by the first respondent but also by the c second respondent to deposit the half amount of penalty, cjid not avail himself of the said opportunity, he was entirely to blame for bringing on him the consequences of the rejection of his arpeal.

In view of the contentions taken before us on behalf of the appellant, it is ulljllecessary for us to consider in great detail the D decisions referred to by Mr. Trevedi.

In Hoosein Kasam Dada (India) Ltd. v.

Te State of Madhya Pradesh and others(') the question that atose for 7onsideration was whether s. 22( 1) of the Central Provinces and Berar Sales Tax Act, 194 7, requiring the deposit of the penalty along with tl1e appeal applied to an appeal filed against an order E of assessment on the bais of return filed on date when tht> c.iginal s. 22( 1) was in force. This Court held that it was only s. 22(1) as it stood on the date of filing of the return that applied and not the amended section.

In Himmatlal Harilal Mehta v. The State df Madhya Pradesh F and others( 2 ) the question 'related to the right of a p<. rty. to approach the High Court under Art. 226 of the Consptution without availing himself of the other remedies provided under the Central Provinces and Berar Sales Tax Act, 194 7. This Court held that by the me[\! fact that a remedy was available under the said Act, .an assessee was not disentitled to relief under Art. 226 when he G comes with an allegation that his fundamental right is sougl!t to be infringed.

In Collector of Customs and Excise, Cochin and others v.

A. S. Bava(') the point that arose for consideration was whether s. 129 of the Act governed an appeal filed under the Central Excise and Salt Act, 1944, by virtue of the notification dated H

0) [1953] S.C.R. 987.

(2) [1954] S.C.R.1122.

(J) [1968] 1S.C.R.82.

NAVINCHANDRA V. EXCISE & CUSTOMS BOARD 361 ( Vaidialingam, J.) A May 4, 1963 issued by the Central Government under s. 12 of

the said Act. This Court held that s. f29 of the Act was not attracted.

None f the above decisions have any bearing on the contentions raised by Mr. Trevedi.

In order to appreciate the contentions of the learned counsel for the appellant, it is now necessary to refer to ss. 128 and 129 relating to appeals and deposit of penalty or duty pending appeal.

"128(1) Any person aggrieved by any decision or order passed under this Act may, within three months from the date of the communication to him of such decision or orelet-

(a) where the .decision or order has been passed by a Collector of Customs, appeal to the Board;

(b) where the decision or order has been passed by an officer of customs lower in rank than a Collector of Customs, app(:lll to the Appellate Collector of Customs;

Provided that the Appellate Authority may, if it is satisfied that the appellant was prevented by sufficient cause from presenting the appeal within the aforesaid period of three months, allow it to be presented within a further period of three months.

(2) The Appellate Authority may, after giving an opportunity to the appellant to be heard, if he so desires, and making such further inquiry as may be necessary, pass such order as it thinks fit, confirming, modifying or annulling the decisions or order appaled against :

Provided that an order enhancing any penalty or fine in lieu of confiscation or confiscating goods of greater value shall not be passed-

( a) by an Appellate Collector of Customs;

(b) by the Board unless the appellant has been given a reasonable opportunity of showing cause against the proposed order;

Provided further that where the Appellate Authority is of opinion that any duty of customs has been shortlevied, no order enhancing the duty shall be passed unless the appellant is given notice within thi;. lime-limit specified in section 128 to show cause against the proposed order.

129 ( 1) Where the decision or order appealed against related to any duty demanded in respect of goods which are not uner the control of customs authorities ur any

penalt~ levied under this Act, any person desirous of appealmg against such decision or order shall, pending the appeal, deposit with the proper officer the dutv demanded or the penalty levied; .

Provided that where in any particular case the appellate authority is of opinion that the deposit of duty demanded or penalty levied will cause undue hardship to the appellant, it may in its discretion dispense with such deposit, either unconditionally or subject to such conditions as it may deem fit.

(2) If upon any such appeal it is decided that the whole or any portion of such duty or penalty was not leviable, the proper officer shall return to the appellant such amount of duty or penalty as was not leviable."

From the provisions extracted above it is to be seen that s. 128 gives a right of appeal against the decision or order passed by the authorities mentioned therein. It also specifies the authorities to whom and the period within which the appeal is to be filed. The proviso to sub-section (1) of s. 128 gives rower to the Appellate Authority on sufficient cause being shown to extend the period for filing the appeal by a further period not exceeding three months. Sub-section (2) provides for an opportunity being given to the appellant to be heard, if he so desires, and the Appellate Authorities passing such orders by way of confirming, modifying

or annulling the decision or order app:!aled against, subject to two provisos contained therein.

Section 129(1) makes it obligatory on the person filing ap appeal to deposit, pending the appeal, with F the proper officer the duty demanded or penalty levied where the order or decision appealed against relates to any duty demanded in respect of goods, which are not under the control of Custom Authorities or of penalty levied under the Act.

The proviso gives power to the Appellate Authority in particular cases to dispense with such deposit either unconditionally or subject to such conditions, as it may deem fit, when it is of the opinion that the deposit of duty demanded or penalty levied will cause undu~ har~

ship to the appellant.

Under s. 129(1) the appellant, in this case, when he filed the appeal to the first respondent against the order of the Collector of Customs levying penalty had to normally deposit the entire amount of penalty, namely,. Rs .. 20,00~/-, but as the appellant had made a request for dispensmg w1!h such 'deposit, the first respondent heard him on that point and ultnnately.

as mntioned earlier. reduced the amount of penalty to be deposit-

NAVINCHANDRA v. EXCISE & CUSTOMS BOARD 353 ( Vaidialingam, J.) ed to Rs. 10,000/-. But as the appellant did not comply with the said requirement, his appeal was rejected without going into merits for non-compliance of s. 129.

The second respondent also when it was moved in revision gave the appellant further time to deposit the sum of Rs. 10,000/-, but as the appellant failed to avail himself of that opportunity, the Government of India declined to interfere with the order of the first respondellt.

Section 128 no doubt gives a right of appeal. But it is followed by s. 129(1) regarding making of deposit pending the appeal. It must also be noted that so far as the deposit of duty is concerned, the requirement regarding the deposit will come into force only if the goods in respect of which duty is demanded are not under the control of Customs Authorities.

Though subsection ( 1) of s. 129 may appear to make it necessary that an appellant should deposit the duty or penalty before his appeal could be heard on merits, the proviso whittles down the rigour of sub-section(!). In this connection it is to be noted that under s. 189 of the Sea.Customs Act, 1878, it was obligatory on the part of an. appellant to deposit the duty or penalty pending the appel.

There was no provision therein by which the. appellate authonty could waive the requirement regarding the deposit of the entire amount of duty or penalty. But in the Act by the proviso to subsection ( 1) of s. 129, which has been quoted above, discretion has been given to the appellate authority to either waive the deposit of the entire amount of penalty or duty or reduce the quantum to be so deposited if the appellate authority is of the opinion that the requirement regarding the deposit of the full amount of penalty or duty will cause undue hardship to an appellant.

We have already pointed out that the appellant did make a request to •the first respondent to exempt him from the requirement regarding the deposit of the penalty levied against him. The grounds pleaded by him in this behalf were he was innocent and that it was not possible for him to deposit the penalty amount.

The appellant was heard initially on his request for exempting him from depositing the penalty and having regard to the representatioas made by him, the first respondent reduced the amount of penalty to be deposited to Rs. 10,000/- that is half the amount of the penalty levi.d by the Collector.

The appellant did not comply with this requirement and therefore his appeal was rejected for non-compliance with the provisions of s. 129 ( 1). The appellant availed himself of his right to challenge this order in revision under s. 130 of the Act, before the second respondent.

The appellant was given a further opportunity to deposit the sum of Rs. 10,0001-, but he failed to avail himself of this further opportunity afforded to him by the second respondent and hence his revision was rejected.

No doubt s. 129 does not expressly provide for the rejection A of the appeal for non-compliilnce with the requirement regarding the deposit of penalty or duty, but when sul1-seccion (1) of s. 129 makes it obligatory on an appellant to dep0sit the duty or penalty pending the appeal and if a party does not comply either with the main sub-section or with any order that may be passectunder the proviso, the appellate authority is fully competent to reject the B appeal for non-compliance with the provisions of s. 129(1).

That is exactly wli.at the first respondent has done in this case.

Accepting the contention of Mr. Trevedi will mean that the appeal will have to be kept on file for ever even when the requirement of s. 129(1) has not been complied with.

Retention of such an appeal on file will serve no purpose whatsoever because unless . c section 129(1) is complied with; the appellate authority cannot proceed to hear an appeal on merits. Therefore, the logical con- .sequence of failure to comply with s. 129 ( 1) is the rejection of appeal on that ground.

No douqt, the rejection of the appeal by .the first respondent will mean that the appellant is bound by the order of the third D respondent levying penalty. Such a result has been brought about only by the default of the appellant in complying with the order of the first responc\ent to deposit half the amount of penalty.

Therefore, it follows that the rejection of the appeal by the first respondent was legal and the order of the High Court. dismissing the writ petition is valid.

n the result the appeal fails and is dismissed with costs.

V.P.S.

Appeal dismissed.

NA VINCHANDRA CHHOTELAL

January 13, 1971

Customs Act

ss. 128 and 129(1)

s. 112

Customs Act, 1962

s. 129

Section 129(1)

s. 129(1)

ff U. M. Trivedi

Swaranjit Sodhi

S. S. Shukla

L. M. Singhvi

S. P. Nayar

A Vaidfalingam

s. 129

Customs Act

s. 112(b)

s. 135

Rodrigues

Rangoon

s. 112

s. 135

October 7, 1964

s. 128

s. 129

s. 129

November 23, 1964

s. 129

August 17, 1965

Oct?ber

18, 1965

s. 129

s. 130

Central Board of Excise and Customs

s. 135(a)

District G Magistrate, Ernakulam

February 28. 1966

s. 258

s. 129

U. N. Trevedi

section 129

s. 129

L. M. Singhvi

Trevedi

s. 22( 1)

s. 22( 1)

s. 22(1)

Art. 226

Art. 226

s. 129

s. 12

ss. 128 and 129

section 128

s. 128

s. 128

Section 129(1)

s. 129(1)

Vaidialingam

s. 129

Government of India

Section 128

s. 129(1)

s. 129

s. 189

Customs Act, 1878

s. 129

s. 129

s. 130

s. 129

s. 129

s. 129(1)

s. 129(1)

section 129(1)

s. 129


A €0MMISSIONER OF INCOME-TAX, ANDHRA PRADESH,

HYDERABAD

v .

.JAYALAKSHMI RICE AND OIL MILLS CONTRACTOR CO.

January 15, 1971

[J. c. SHAH, C.J., K. s. HEGDE AND A. N. GROVER, JJ.]

Income-tax Act, 1922, s. 26A-Income-ta!< Rules, r. 2(b)-Indian Partnership Act, 1932, ss. 58, 59, 69-Rule 2(b) 11taviding that in respect of firms registered under Partnership Act the application for registration of firm u/s 26A of the Income-tax Act shall be made before the end of the previous year-Firm can be said to be registered under Parwrship

Act not on date of receipt of app/iCQ/ion under a. 58 but when entry is made in register of firms under s. 59--:-IJ such an entry is made after end of 'previous year' firm is not registered under the Partnership Act for the purpose of r. 2(b).

Tue assessee firm was constituted under a deed of partnership dated October 6, 1955. It was to come into existence with effect from November 5, 1954. Tue assessee filed an application under s. 26A of the Act for registratlon of the firm for the assessment year 1956-51. The previous year of the firm was shown as the year ending October 26, 1955. The application was received by the Income-tax Officer an October 14, 1955.

On October 20, 1955 the assessee filed before the Regiatrar df Firms a statement under s. 58 of the Indian Partnership Act, 1932. On November 2, 1955 the Registrar of Firrmr1iled the statement of he assessce and made entries in the register of firms. On March 23, 1961 the Income-tax Officer passed an order refusing to register the firm under s. 26A inter alia for the reason that the application had not been made in time. The appeal taken to the Appellate Assistant Commissioner failed. The Tribunal also upheld the order of the authorities below. In reference t!fe High Court answered the question in favour of the assessee holding that the partnership should be deemed to have been registered on the date when the application was presented and that the requirement of r. 2(b) of the Rules would be satisfied if it became registered under the Partnership Act even after the application under s. 26A was filed. In appeal by the Revenue.

HELD : (i) The view taken by the High Court was not correct. Under the Partnership '•w it can be taken to have been settled by decisioRs of High Courts, from. a long time that the registration of firm takes place only when necessary entries are made in the register of firms under s. 59 of the Partnership Act by_the Registrar. Section 58 of the Act no doubt employs language which, without anything more may appear to lend support to the view that the registration of a firm may be effected merely by sending an application which would mean that as soon as an application is sent and if entry is made under s. 59 pursuant to it the registration would be effective from the date when the application was presented. But ;. 58(2) is not to be read in isolation and has to be considered along with the scheme df the other provisions of the Act viz. ss. 59 and 69. The latter section which deals with the effect of non-registration throws light on what was contemplated by the Legislature with regard to the point of time when the firm could be regarded as registered. [368 C-OJ H Ram Prarttd v. Kamta Prasad, A.LR. 19l5 All. 898, Danmal Parshotamadas v. Haburam Chhotelal. I.L.R. [1936) 58 All. 495 and Kera/a Road Lines Corporation v. Commissioner of Income-tax, Kera/a 51 J.T.R. 71 1, approved.

(ii) The views expressed by the Special Committee appointed by the Government of India in respect of the Bill which came to be passed by the Central Legislative as the Partnership Act were irrelevant for the purpo"' of construing the provisions of the Act. [1369 Bl

CIVIL APPELLATE JURISDICTION; Civil Appeal No. 545 of 1967. .

Appeal from the judgment and order dated April 15, 1966 of the Andhra Pradesh High Court in Case Referred No. 40 of 1963.

S. C. Manchanda. B. D. Sharma and R. N. Sachthey, for the appellant.

K. Rajendra Chaudhuri, for the respondent.

The Judgment of the Court was delivered by

Grover, J.

This is an appeal from a judgment of the Andhra

Pradesh High Court arising out of a reference made under s. 66( 1) of the Income-tax Act, 1922, hereinafter called the 'Act' of the question whether on the facts and in the circumstances of the case ( the application under s. 26A of the Act was filed out of time.

The facts are not in dispute.

The assessee firm was constituted under a deed of partnership dated October 6, 1955.

It was to come into existence with effect from November 5, 1954.

The assesse_e filed an application under ~. 26A of the Act for registration of the firm for the assessment year 1956-57.

The 'previous year' of the fim1 was shown as the year ending October E 26, 1955.

This application was received by the Income-tax Officer on October 14, 1955. On October 20. 1955 tile assessee filed before the Registrar of Firms a statement under s. 58 o.f the Indian Partnership Act 1932. On November 2, 1955 the Registrar of Firms filed the statemt of the assessee and made entries in the registrar of fimls.

On March 23, 1961 the Income-tax F Officer passed an order refusing to register the firm under s. 26A 1inter alia, for the reason that the application. had not been made in time.

The appeal taken to the Appellate Assistant Commissioner by the assessee failed. The Income-tax Appellate Tribunal also upheld the order of the Income-tax Officer and the Appellate Assistant Commissioner. On that a refe\ence was sought and the G High Court answered the question referred in favour of the asses-

.ee on the ground that the application had been filed in time.

Section 26A of the Act provicks that an application may be made to the Income-tax Officer on behalf of any firm constituted tmder an fostrument of pertnership specifying the individual H >hares of the partners for registration for the purposes of the Act.

The application has to be made by such person or persons and at such time and has to contain such particulars etc. as may be

C.I.T. v. JAYALAKSHMI RICE MILLS (Grover, J.) 367

prescribed. Rubs 2 to 6 (b) of the Rules made under s. 59 of the Act deal with registration of firms.

We are concerned with the following material portion of Rule 2.

''Such application shall ........ be .... made ... .

(a) Where the firm is not registered under the Indian Partnership Act, 1932 (IX of 1932) o: or where the deed of Partnership is not registered under the Indian Registration Act, 190~

(XVI of 1908), and the application for registration is being made for the first time under the Act,

(i) Within a period of six months of the constitution of the firm or before the end of the 'previous year' of the firm whichevec is earlier, if the firm was constituted in that previous year.

(ii) before the end of the previous year in any

other case;

(b) Where the firm is registered under the Indian Partnership Act. 1932 (IX of 1932) or where

the need of partnership is registered under the Indian Registration Act (XVI of 1908) befor<! the end of the previous year of the firm ...... ..

Now it is common ground that the application for registration was not made within the period prescribed by rule 2 (a). What has been urged throughout on behalf of the assessee is that the application to the Income-tax Officer was governed by rule 2(b) and was in time as the firm should be deemed to have been registered not on 'the date on which it was actually registered by the Registrar of Firms but with effect from the date on which the application for registration was presented to the Registrar.

In other words the firm should be considered to have been registered on October 20, 1955 on which date the statement under s. 58 of the Partnership Act was filed by the assessee before the Registrar of Firms.

The real question which has to be <ietermined is whether the registration of a firm under the Partnership Act takes plac.e with effect from the date on which the application for registration is made in accordance with s. 58 of that Act. Section 58 ( 1 I provides that the registration of a firm may be effected. at any time by sending by post or delivering tu the Registrar of the area in which any place of business of the firm is situated or proposed to be situated a statement in the prescribed form and 3companied by the prescribed fee stating. . . . . . . . Under s. 59 when A the Registrar is satisfied that the provisions of s. 58 have. been duly complied with he shall record an entry of the statement in a registrar called the "register of firms' and shall file the statement. In Ram Prasad v. Kamta Prasad(') it was laid down that the registration of . a firm under the Pertiwrship Act takes place only when the necessary entry is made in the register of firms, B Even under s. 69 of the Partnership Act which deals with th.; effect of non-registration it has been consistently held that the registration of a firm subsequent to the filing of the suit did not cure the defect; See Danmal Parshotamdas v. Baburam Chhotela/(2).

Thus under the Partnership law it can be takcm to have been settled by decisions of High Courts from a long time that the C registration of a firm takes place only when the necessary entry is made in the register of firms under s. 59 of the Partnership Act by the Registrar.

It is true that sub-section ( 1) of s. 58 employs language which without anything more may land support to the view that the registration of a firm may be effected merely by sending an application which would mean that as soon D as an application is sent and if entry is made under s. 59 pursuant to it the registration would be effective from the date. when the application was presented. But s. 58 ( 1) is not to be read in isolation and has to be considered along with the scheme of . the other provisions of the Act, namely, s. 59 and s .. 69.

The latter section may not have a direct bearing on the point under our consideration but it throws light on what was contemplated by the legislature with regard to the point of time when tlie firm could be regarded as registered.

The Ker ia High Court has in Kera/a Road Lines Corporation v. Commissioner of

Incotax, Kerala( 8 ), clearly expressed the view that reading

SS. 58 and 5c; of the Indian Partnership Act together a firm , cannot be said to be registered when the statement prescribed by F . s. 58 and the required fee are sent to the Registrar and th11t the registration of the firm is effected only when the entry of the statement is recorded in the registrar of firms and the statement is field by the Registrar as provided in s. 59. In that case also an identically similar question arose in respect of registration of a fu:!n under s. 26A of the Income-tax Act.

the High Court in the judgment under appeal referred to the statement extracted from the report of the Special Committee which had been appointed by the Government of India to examine the provisions of the Bill before it came to be passed by the Central Legislature as the Partinership Act and reference was made

in particular to the statement relating to clause 58 corresponding H

(I) AIR [1935] All. 898.

(2) I.LR. [1936] 58 All. 495.

(3) 5HT.R. 711.

C.I.T. v. JAYALAKSHM! '""" MILLS (Grover, I.) 369

A to s. 59 of the Partnership Act to the effect that the Registrar was

a mere recording officer and that he had no discretion but to record the entry in the registrar of firms.

We are unable to see how that statement can be taken into consideration for the purpose of interpreting the relevant provisions of the Partnership Act.

We also cannot concur with the other. reasoning of the High Court B for coming to the conclusion that the partnership should be deemed to have been registered on the date when the .application was preser.ted and that the requirement of rule 2(b) would be satisfied if it became registered under the .Partnership Act even after the application was filed.

c For the reasons given above the apPeal is allowed and the judgment of the High Court is set aside. The answer to the question referred must be given in the affirmativ~ and against the assessee. The appellant shall be entitled to costs .in this Court.

G.C.

Aea/ al/owetf.

10-L807Sup. Cl/71 .

January 15, 1971

c. SHAH, C.J.

K. s. HEGDE

A. N. GROVER, JJ.

Income-tax Act, 1922

s. 26A

Indian Partnership Act, 1932

ss. 58, 59, 69

s 26A

Income-tax Act

s. 59

October 6, 1955

November 5, 1954

s. 26A

October 14, 1955

October 20, 1955

s. 58

Indian Partnership Act, 1932

November 2, 1955

March 23, 1961

s. 26A

s. 26A

s. 59

Section 58

s. 59

ss. 59 and 69

S. C. Manchanda

B. D. Sharma

R. N. Sachthey

K. Rajendra Chaudhuri

Grover

s. 66( 1)

Income-tax Act, 1922

s. 26A

s. 58

Indian Partnership Act 1932

s. 26A

Income-tax Appellate Tribunal

Section 26A

s. 59

Indian Partnership Act

Registration Act

s. 58

s. 58

Section 58

s. 59

s. 58

s. 69

s. 59

s. 58

s. 59

s. 58

s. 59

Ker ia High Court

SS. 58 and 5

Indian Partnership Act

s. 58

s. 59

s. 26A

Income-tax Act

clause 58

s. 59


RAMAKRISHNA HARi HEGDE & ANR. v.

MARKET COMMITTEE, SIRSI & ORS.

January 15, 1971

[S. M. S!KRI, P. JAGANMOHAN REDDY AND I. D. DUA, JJ.]

Bombay Agricultural Produce Market• Act (22 of 1939), as amended in 1954, ss. 4 and 4A-Notificalion changing Principal Market Yard- Titne insuffir; ient for per.sons carrying on business to shift to new yard- Notification, if violates their fundamental right to carry on business.

Under the Bombay Agricultural Produce Mar1<ets Act, 1939 as amend- ed in 1954, a Market area is first declared unuer s. 4( 1), after which, under s. 4A, a Principal Market Yard and one or more sub-Market Yards may be constituted for the area. The effect of constituting the Market Area and Market Yard is that the purchase or sale of agricultural produce in any place in the area is prohibited except in the Principal and sub-Market Yards.

Under s. 5 the State Government may establish a Market Committee fpr the market area.

In .195 r, the town in which the appellants were carrying on business in agricultural produce ws declared, along with ourrounding villages, as the Market Area.

In 1954, after the Act was amended by the addition of s. 4A, the Government notified the area in which the appellants were carrying on business as the Principal Market Yard of the Market area. On 5th January 1965, the Government issued a Notification by which land grant- ed to the Market Committee established under the Act for the Market Area, was declared to be the Principal Market Yard with effect from 15th January 1965. The appellants challenged the Notification, but the High Court dismissed their writ petition.

In appeal to this Court:

HELU : ( 1) The Government has the power to issue the Notification in public interest, but the prohibition on the appellants, implicit in the Notification, was unreasonable and to that extent violated the fundamental rights

of the appellants to carry on their business, because, it was impossible for them to shift their business to the new Principal Market Yard within ten F days. [376 A-C, D-F]

( 2) The Government could have dec:ared the area in which the appellants were carrying on the business as a Sub-MarRet Yard and rectified the Notification, but this Court cannot assume the functions of the Government and direct the Government to do so. [376 F-G] ·

( 3) Since the Market Committee had however agreed to grant a 'rea- G sonable period of one and a half years time to the appellants to enable them to shift to the Principal Market Yard and to permit them to continue their business in the old Market Yard during that eriod, the Notification need can be struck down. [376 G-H, 377 Al

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1072 of 1966.

Appeal by special leave from the judgment and order dated July 30. 1965 of the Mysore High Court in Writ Petition No. 141 of 1965.

H f

y_

RAMAKRISHNA v. MARKET COMMITTEE 371 (Jagunnwhan Reddy, J.) V. M. Tarkunde and Naunit Lal, for the appellants.

R. B. Datar, for respondent No. I.

S. K. Dholakia and S. P. Nayar, for respondent No. 2.

The J ud5ment of the Court was delivered by

P. Jaganmoban Reddy, J.

This Appeal is by Special Leave against the Judgment of the Mysore High Court dismissing the Writ Petition filed by the Appeallants and Respondent No. 3 against Respondents 1 and 2, the Market Committee Sirsi and the State of Mysore respectively, by which they challenged the Notification of the Govt. of Mysore No. DPC 203 CMD 64(i) C dated 5th January 1965. The Town of Sirsi in the North Canara which was once part of the Bombay State is one of the leading markets for Areca, Cardimom and Pepper. The Appellants have been carrying on business in these 3 commodities on a large scale for many years in this town mainly in the localities comprising

Channapattan Galli, Basti Galli and Nadged Galli, while the Respondent 3 who is a dealer in the said commodities was carrying on business in Nadged Galli.

In the Channapattan Galli there are nearly 20 Commission Agents who own shops and goaowns who also deal in these commodities. It was stated that the three Ga!lis constitute the main market where wholesale business in the aforesaid commodities is being carried on for more than a century.

The Bombay Legislature had passed the Bombay Agricultural Produce Markets Act 1939 (Act XXII of 1939) and thereafter made rules under the Act known as Bombay Agricultural Produce Mark.t Rules hereinafter referred to as the Act and Rules respectively.

In. 1951 under the provisions of Section 4( 1) o' the Act the Govt. of Bombay declared the town of Sirsi and various surrounding villages. 59 in number.as a market area in respect of Areca. Pepper and Cardimom and by Notification dated 24th April I 951 had also declared the 3 Gall is referred to above as the Market Yard under the Act.

Jn 1954 the Act was amend hy the addition of Section 4A to which a reference will be made pre- G sently. After the amendment of the said Act, on 31-8-1954 the Govt. of Bombay Notified the three Gailis of Channpattan, Basti and Nadged which previously had been declared as a Mar\cet Yard, as the Principal Market Yard of the said Market area under Section 4-A(2) proviso.

After this declaration it is said the Appellants invested large amounts in buildings which are worth ten lacs of Rupees and improved their trade.

Similarly in the Nadged Galli the properties of Commission Agents are worth about Rs. 5 lacs and in the Basti Galli the business premises are worth about.Rs. 2 lacs.

It is alleged that Shri Hegde Kadve is a Congressman and as the Chairman of the Market Committee and alsci as the Chairman of the Sirsi Totgars Cooperative Society and President of the Taluka Board had considerable personal influence over the Congress Ministry & consequently prevailed on the Government to grant to the Market Committee free of cost land measuring about I 0 acres and 3 7 gunthas for a market at a distance of more than a mile from the present market, which was divided into plots, o.n which he managed to get shops, godowns and offices constmcted with the money secured by the Society as a loan from the Governmnt at a very low rate of inteest. The Market Committee disposed of eleven sites to private parties and also allowed the Cooperative Society to construct premises for a Rice mill, but notwithstanding these constructions the new site for the Market has no amenities. The 'impugned Notification had the effect of prohibiting

ersqns from carrying on business in the said three main commodities at the old market Yard, and has thus destroyed the business of traders including that of the.Appellants. The new site it was said was only so declared with a view to confer on the Cooperative Society a monopoly in trade as it would not be possible for

tradrs to invest money and construct new buildings and godowns for carrying on trade at the new market site. The Notification was thus challenged as being ultra vires of the provisions of the Act, illegal, arbitrary, capricious and discriminatory, violating Articles, 14, 19(l)(g) and 31 of the Constitution.

~ Respondents denied the several allegations made against them.

Respondent 1 stated that the Market Committee having felt as early as 1958 that the area of th.e three Gailis was insuffi- . cient to cope 'e'ith the expanding business and made efforts to acquire a more convenient and spacious area to house the market.

In furtherance of this desire and with the object of providing better F facilities to the Agriculturists, the Committee from time to time made representations to the Government, which ultimately granted in all 35 acres-29 gunthas of land. Thereafter steps were taken for the development of the said area by leasing out plots to Commission Agents and traders who were induced to build premises for the purpose of sale and purchase of the Agricultural produce G in the Market Yard. The Committee thereafter resolved on 13-7-1964 to request the Government to declare the new area as ihe Principal Market Yard while at the same time permitting the traders to continue their business in the existing place for a period of one or two years. It was also pointed out that the Market Committee of which the Appellant No. I was a Member H had never objected to the shiftin!( of the Market Yard since 1958 but on the contrary had applied for the grant of plots and was complaining that the Government was delaying the issue of the

RAMAKRISHNA V. MARKET COMMITTEE 373 (Jaganmohan Reddy, J.) necessary Notification. Besides the Appellant there were 14 others, who had obtained leases of the plots and constructed buildings on these plots. The allegation that there are no Roads or well was incorrect. The new site was only about half a mile from the 3 Gallis and was centrally situated within the Municipal limits of Sirsi as is evident from the fact that the Totgars Society B itself 'Was transacting 30% of the entire business of Sirsi Market Committee in the rel(ulated commodi1ies with an annual turnover of more than a crore of Rupees within that area. . Thse allega tions were considered by the High Court which held that it was open to the Government under Section 4 to alter the declaration regarding the Principal Market Yard. After setting out the history C of the legislation it was of the view that the impugned Notification was issued in the public interest, and not with any ulterior purpose and consequently rejected the Writ Petition.

The short point in this appeal is whether by reason of the impugned Notification the Appellants have been prevented from D exercising th.ir right to trade and whether it is discriminatory and .affects in any manner his right to property.

The Act under which the Notification is issued deals with the regulation of purchase and sale of agricultural produce in the State of Bombay including the area which has now become part of Myrnre State as a consequence of the States Reorganisation Act E

1956. An examination of the provisions of the Act would show that there is no warrant for holding that th.ere is anthin~ which affects the freed um to carry on trade or busmess. nor 1s there anything which can be said to be discriminatory. Section 2 of the Act is in so far as relevant defines Market. Market Area, Principal Market Yard, Sub-Market Yard. Section 3 provides for F the constitution of Markets and Market Committees and confers power on the Commissioner by Notification to declare his intention of regulating the purchase and sale of such agricultural produce and in such area as may be specified and invi~ng objections and suggestions within a month of the publication of the Notification. The Commissioner may after considering the objections and sugestions if any received by him during that period and after. holding such enquiry as may be necessary declare the area under Section 4-A to be Market area for the purposes of the Act.

Section 4(2) provides that after the Market area is declared. no place i, n the said area shall subject to the provisions of Section

SA be used for the purchase or sale of any agricultural produce specified in the Notification. Section 5 confers power on the State _Government after the declaration of the Market area to establish a _Markel Committee for evecy Market area and under

Section SAA it becomes the duty of the Market Committee to enforce.the provisions of the Act and also to esablish a Market therein on being required to do so by the State Government. In as much as there may be a time lag between the declaration of a Market area and establishment of a Market; the proviso to Sec. 4 ( 2) lays down that pending the establishment of a market in a Market area the Commissioner may grant a licence to any person to use any place in the said area for the purpose of purchase and sale of any such agricultural produce and it is the duty of the Market Committee under Sec. 5AA to enforce the conditions of the licence granted under Section 4(2).

Section 26 confers power on the State Government to frame rules for the purpose of carrying out the provisions of the Act, and Section 27 confers power on the Market Committee to frame bye, laws with the pre- C vious sanction of the Director or any other officer specially empowered in this behalf by the State Gevernment under Sec. 26.

The State Government has power under S.ec. 29 to add to, amend or cancel any. of the items of agricultural produce specified in the Schedule to the Act.

The Act was amended in 1954 by the addition of Sec. 4A D which under sub-s. (I) makes it necessary for each Market area to have one Principal Market Yard and one or more sub-Market Yards as may be necessary. Sub-s. (2) of the said section empowers the Commissioner by Notification to declare any enclosure, building or locality in any market area to be a frincipal Market Yard for the area and other enclosures, buildings or localities to E be ime or more sub-Market Yards for the area. The proviso requires that one of the enclosures, buildings or localities declared to be market yards beforf.! the commencement of the amendment of that section, shall be declared to be the Principal Market Yard for the Market area and others, if any, to be one or more Sub- Market Yards for the area, subject to such variation as may be F necessary.

The effect of these provisions is that a Market area is first declared undf.!r Sec. 4 (1 ) after which a market yard may be constituted for the market area as Princ:iJal Market Yard. and sub-Market Yard or yards if any. The declaration of the Market G area sub]ect to Sec. 5A has the effect of prohibiting the purcha&~ or sale of agricultural produce in any place in that area except in the area declared as a Principal Market Yard or sub-Market yard or yards, if any.

This Court had earli!.!r in Mohammed Hussain Gu/am Mohammad & Anr. v.

The State of Bombay &

Ar. (') held Section 4, 4A, 5, 5A and 5AA to be constitutional and that none of t)ie said provisions imposed unreasonable restrictions on the right to carry on trade in the agricultural produce

(I) [1962] 2 S.C.R. 659.

RAMAKRISHNA V. MARKET Cl)MMITTEE 375 (Jaganmohan Reddy. J.) A regulated under the Act and as such were not violative cf Art.

19( 1) (g) of the Constitution.

It is, however, contended that the impugned Notification violative of Articles 19 (1 )( g), 14 and 31 of the Constitution.

The Notification as we have already stated was issued on 5-1-1965 under Section 4(A) of th.~ Act and is in the following terms :

•Jn exercise of the powers conferred by Sub-Section ( 2) of Section 4A of the Bombay Agricultural Produce Markets Act 1939 (Bombay Act 22 of 1949) as in force in the Bombay area, and in supersession of Bomba) Government notification Development Department No. APM 4554, dated 31-8-1954, the Government of Mysore hereby declares the following lccality in the market area of the Agricultural Produce Market Committee, Sirsi of Sirsi Taluka of North Kanara District, to be a Principal market yard for the area with effect from th.~ 15th January,

1965. namely:-

Locality : An area measuring about 35 acres and 29 gunthas and 4 acres of Sirsi Totagaras' Cooperative Sales Society Ltd., Sirsi in R.S.

No. 116, 117, 59 and 60 of Sirsi Taluka. ·

E On the North by :-Sirsi-Yellapur Main Road & R. S. No. 116 On the South by :-R.S. Nos. 55, 57 and portion of R.S. No. 299.

On the East by :-Portion of R.S. Nos. 299, 58, 129-A & 118.

On the West by :-R.S. Nos. 61, 64 and 68."

It may be mentioned that the earlier Notification of 31-8-1954 also made in exercioe of the Powers conferred by sub- Section (2) of Section 4-A of the Act had declared as the Principal Market Yard all !!Odowns, storage places and open places lying within the limits of the Sirsi Municipality and approved by the Agricultural Produce Market Committee, Sirsi for storage and for the purpooe of sale of commodities under regulation including the area locally known as Channapattan Gali, Basti Galli and Nadger Galli which had earlier been declared by Notification of the Government in the Development Department dated 24-4-1951 to be a Market Yard The affect of the super1.ssion of thi> Notification by the impugned Notification is that as from 15-1-1965 the area of the 3 Gallis ceased to be the Principal Market Yard. and as such no business could be transacted therein <Jin and after H that date.

This position could not be seriously controverted by the learned Advocate for the Respondents.

In our view the prohibi-

SUPREME COURT REPQRTS

A tion imolicit in the Notification was unreasonable and to that extent violated the fundamental rights of the Appellants and Respondent 3 to carry on their business because it coµJd not have been pos:ulated that they could immediately in 10 days shift their business to the Principal Market Yard declared by the impugned notification. The learned Advocate for the Market Committee however pointed out that it was never their intention to prohibit at-once any business being conducted in the1Market Yard n the Gallis, but they had in fact in their proposals to the Government suggested the business in th.' Gailis should be allowed to be continued for a year or two.' Whatever their proposals may have been we have no doubt that the effect of the otification as long

as it is in force is to prohibit the Appellants and Respondent 3 C trom carrying on business in the Market Yard of the Gailis.

It il submitted .. by the learned Advocate for the Respondents that the Appellants and Respondent 3 had sufficient time till now to make arrangements to shift their business, as such they are not eqtitled to complain, but the contention on behalf of the.App., llants D is that they were entitled to challenge the Notification and as they

-h~ invested large amounts in buildings etc. 'in the 3 Gailis they

·· are justified in asking this Court to. direct Respondents to have these areas decl:ired as a sub-Market area. While the Govern m1mt has the power to issue a Notification in public interest & to declare the. area specified in the impugned Notification as the Piincipal Market area, without necessarily declaring ot!J.'r areas E

simutaneously as sub-Market area, in our view sufficient time should have been given for the Appeallants, Respondent ., and . other petoons doing business in the area of the 3 Gailis to shift their business.

As Jong as the Notification prohibited t)iem from doing business in those Gailis they had a right to challenge the validity of that Notification. No doubt the Govt. could have de- F dared the 3 Gailis as sub-Market Yard but it is not for this Court to arrogate to itself the functions of the Govt. and direct them to do so merely because that would be one of the ways in which the impugned Notification cain be rectified. The learned Advocate for the Market Committee, however, consistent with the stand taken by the Market Committee in its counter before the High G Court that it had requested the Govt. to ailow the business in the Gailis to be carried on for one or two years agrees to give one -l!Dd a half years time for the Appellants and Respondents to enable them to shift during this period. to the Principal Market Yard decliiil'ed under the' impugned Notification and till then permit them to continue their business in the 3 Gailis. The period 11 agreed to in our. view is a reasonable period within which the Aopellants and Respondents 3 can shift their business to the new Market Area and till then they should not be prohibited from

RAMAKRISHNA V. MARKET COMMITTEE 377 (Jaganmohan Reddy, J.) A doing business in the Market area of the 3 Ga!Iis as heretofore.

In view of this agreement except to give the above direction there is no need to strike down the Notification.

The Appeal is accordingly allowed subject to the above directions. There will be no costs in this Appeal.

V.P.S.

Appeal allowed and direct-ions given.

RAMAKRISHNA HARi HEGDE & ANR

MARKET COMMITTEE, SIRSI & ORS

January 15, 1971

P. JAGANMOHAN REDDY

I. D. DUA, JJ.

ss. 4 and 4A

s. 4( 1)

s. 4A

s. 5

s. 4A

5th January 1965

15th January 1965

Mysore High Court

V. M. Tarkunde

Naunit Lal

R. B. Datar

I.

S. K. Dholakia

S. P. Nayar

P. Jaganmoban Reddy

Govt. of Mysore

Sirsi

Bombay State

Areca

Cardimom

Basti Galli

Nadged Galli

Nadged Galli

Channapattan Galli

Section 4( 1)

Govt. of Bombay

24th April I 951

Section 4A

Channpattan

Basti

Nadged

Section 4

Basti Galli

Hegde Kadve

Sirsi Totgars Cooperative Society

Taluka Board

Jaganmohan Reddy

Totgars Society B

Sirsi Market Committee

Section 4

Bombay

States Reorganisation Act

Section 2

Section 3

Section 4

Section 4(2)

Section 5

Sec. 4

Sec. 5A

Section 4(2)

Section 26

Section 27

Sec. 26

Sec. 4A

Sec. 4

Sec. 5A

Section 4, 4A, 5, 5A and 5A

[1962] 2 S.C.R. 659

Art.

19( 1)

Articles 19

Section 4(A)

Section 4A

Government of Mysore

Section 4

Sirsi Municipality


STANDARD REFINERY & DISTILLERY LTD. v.

COMMISSIONER OF INCOME-TAX:, CALCUTTA

January 18, 1971

[K. S. HEGDE AND A. N. GROVER, JJ.]

Income-tax Act (11 of 1922), s. 22(4)-'Same busines.', tests for.

The assessee owned a distillery and a refinery. In 1945, it obtained on lease the sugar factory belonging to another .company, and during the period from January to April 1946, it purchased about 41,000 shares of the lessor company, and in April 1947, sold the entire block of shares.

The transation resulted in a loss.

After setting off the loss against the other income for the assessment year 1948-49, the unabsorbed loss was carried forward under s. 24(2) of the Income.tax Act, 1922, to the assessment year 1949-SO. But the assessee's claim to set off the loss pertaining to the sha; re business against the profits in th~ sugar business was negatived by the Department, the Appellate Tribunal and the High Court.

In appeal to this Court, this Court reframed the question referred to the High Court as 'whether the business of dealing in shares and the business of manufacturing sugar etc. constituted the same. l>usinc'Ss within the meaning of s. 24(2/'Qf the Act,' and directed the Tribunal to submit a supplementaty •tatementofcase. The Tribunal submitted that the two businesses had a single trading and profit and loss account, that they had been dealt with by a common organisation, that the transaction relating to shares was treated as part and parcel of the business of the assessee company, that a common fund was utilized 'for both businesses and that they were carried on iii the same place of business ..

HELD : In determining whether two lines of business constitute the 'came business' within the meaning of s. 24(2), the income-tax authorities must .consider the inter-connection, inter-lacing inter-dependence and unity furnished by the existence of common management, mon business organisation, common administration, common fund .-- a common place, of business.

Applying those. tes:s the share transaction as well as the other business of the assessee should be considered u the 'same business.·

(380 F-G] C.l.T., Madr~ v. Prithvi (nsuraricL Co. Lid., 63 i.T.R. 632, S.C. and Procedure ExchanM Corpn. Ltd. v. C.l.T. Central Ca/cu11a, 11 I.T.R. 739 S.C. followed. Satabganj ugar Mi/ls Ltd. v. C.l. T., Central Calcutta, 41 I.T.R., 72 S.C. and Scales v. Ger, rge Thompson & Co. Ltd., 13 Tax Cas. 83, referr- m. .

CIVIL APPELLATE JURISDICTION : Civil A-pl!I No. 1585 Of 1968. . ' Appeal from tpe judgment and order dated July 23, 1963 of the Cakutta Hih court in Income-tax Refereince No. 64 of 1958. . .

S. C. Manchanda, Gobind Das and D. N. Gupta, for the appel- H ~. ., . ~

S. Mitra, S. K. Aiyar and R. N. Sachthey, for the respondent.

1; he Judgme~ of the Court was delivered by

Hegde, J. This is an assessee's appeal. The assess¢e is a public limited company and the appeal relates to the assessment for the assessment year 1949-1950, corresponding to the accounting year which is the calendar year ending on December 31, B

1948. The assesse company was incorporated in 1942. At the beginning it owned a distillery at Unnao. It acquired a refinery in 1943._. With effect from June 1, 1945, the assessee company obtained on lease the New Sawan Sugar and Our Refining Co . .Quring the period from Iainuary 29, 1946 to April 23, 1946, the

asses~~ company purchased 41,300 shares of the said company C for Rs. '12,17,006/-.

On April 30, 1947 the entire block of shares was sold to Produce Exg.hange Corporation Ltd. for Rs. 8,46,750/-. The transaction resulted in a loss of Rs. 3,70,356/-.

This loss was trea~ by the assessee as a trading loss for the assessment year 1948-49- After •ting off this loss against the other income of the assessee company, a loss of Rs. 2,27,085/- was carried forward under s. 24 ( 2) of the Income-tax Act, 1922 D (to be hereinafter:Crred to as the Act) to the year 1949-50 and later years. e assessee claimed to set off this. unabsorbed loss pertaining to e share business against its profits in the sugar business for the assessment year 1949-1950. The Income-tax Officer did not permit this set off. The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer.

In a E further appeal, the Appellate Tribunal agreed with the conclusion reached by the Income-tai, Officer. Thereafter at the instance of the High Court, the Appellate Tribunal stated a case under s. 66(2) of the Act on the following question of law:

"Was there any evidence before the Tribunal on which it could hold that the business in dealing with

Shares was distinct and separate from the business of

suga~ manufacturing and distillery?"

lly its judgment dated April 23, 1963, the High Court answered the question in the affirmative . and against the assessee. This appeal has been brought against the decision -0f the High Court G after obraig a certificate under s. 66(A) (2) of the Act.

The appeal came up for hearing before this Court on February 6, 1969. After heating the Counsel for the parties this Court observed:

In the present case how1Wer it is not possible for us to satisfactorily dispose of this appeal because t!wstatement of the case submitted by the Tribunal is incomplete and has omitted to state material facts bearing upon the question referred. For instance, it is not clear as to

SUPREME COURT REPORTS [1971] 3 S.C.)l.

whether the assessee aduced any evidence as to why it started purchasing the shares of the lessor company about six months after the commencement of the lease. It is also not stated by the Tribunal whether there is any evidence of inter-relation between the purchase of shares

and the manufacture of sugar." B

In view of that conclusion this Court directed the Tribunal to submit a supplementary statement of case on some of the :points formulated ill the order.

The Tribunal accordingly submitted a supplementary statement of case.

Even after considering that supplementary statement; this Court found itself unable to record its opinion on the C question/ referred to.

This Court was also of the opinion that the qU.estion which the Tribunal was directed to and did refer was defective and restricted the scope of the enquiry. It accordinglY, reframed the question as follows :

"Whether the business of the company of dealing in shares and the business of manufacturing sugar and other commodities constitute the saMe business within the. meaning of s. 24(2) of the Indian Inoome-tax Act, 1922, in force m the year of assessment?"

It further directed the attention of the Tribunal to the 'decision

-of this Court in Commissioner of Income-tax, Madras v. PriJhvi E Insurance Co. Ltd. (1) in order to assist the Tribu1nal to fitid out the relevant points for consideration. ' In the order calling for a further supplementary statement, this Court , observed :

"As pointed out by this Court i)l Commissigner of Inc'ome Tax, Madras v. Prithvi Ins. Co. Ltd. in deter-. mining whether two lines of business constitute the F same busines~ within the meaning of s. 24(2) of the Income-tax Act, the income-tax authorities must consider the inter-connection, inter-lacing, inter-dependence and unity furnished by the existence of common .management, common business organisation, common administration, common fund and .a common place of

, G business." The Tribunal has now submitted the second supplementary statement of case called for by this Court.• The facts found by it are as follows : ( 1 ). There is a single trading and profit ond loss account.

In the same account the sales of spirit, sugar and H molasses as well as stock and shares appear; ---------- --]-. 63 I.T.R. 63c.

( 2) The share transactions as well as the business has been dealt with by a common organisation, though the sale of shares is a single transaction and the pur chase of those shares is also more or Jess of the same character; ( 3) The business of the company as well as the transaction relating to the shares were attended to as part and parcel of the business of the assessee company; ( 4) A common fund was utilised both for business purposes as well as for the purchase of shares. A part of the over-draft of Rs. 6,80,046/. taken from the bank on December 31, 194 7 has been discharged from out of the income of the business; and ( 5) the share transaction work as well as the other business of the assessee company were carried on in the same place of, business.

D From the facts found by the Tribunal, it is clear that the share trarisaction as well as the other busi, nesses of the company were dealt wtih by a common management, common business organization, commcm administration, common fund and common place of business.

E It was urged by Mr. Mitra, learned Counsel for the Revenue that from the facts found by the Tribunal, it is not possible to conclude that there, was any inter-connection, inter-lacing, interdependence and unity between the transactions of the assessee company relating to the shares as well as its other business and therefore the two activities cannot be considered as "the same F business''. He contended that this Court in Prithvi lmurance Co.

Ltd's case( 1) has accepted the correctness of the decision of the King's Bench in Scales v. George Thompso11, Co., Ltd. (2 ) and in that case Rciwlatt J. had held that before two or more businesses can be coinsidered as 'the same business' they should not be easily separable and there must be, a dovetailing o~ the one. with the

other. According to Mr. Mitra the transanct1ons relatmg. to the shares could have been easily separated rom the othr busmess of the company and terefore there is no mter-cn!lectton; equal!~ there is no i; nter-lacmg because the s.hare transaction busmess does not dovetail itself into the other busmess o{ the asessee company.

Further there is neither inter-dependence or ll:mty bet\yeen the two businesses.

The concepts of inter-connectmn ad nter-lac , inter-dependence and unity are n6t free of amb1gm1¥· But

mth~, Court has laid down certain objective tests for :!indmg out 1s / /

(l) 63 l.T, R, 632,/

(2) ll TH CISCS 83.

382 SUPREME COURT REPORtS

(1971] 3 S.C.R.

the existence of inter-connection, inter:.lacing inter-dependence A and unity between two or more businesses. In Commissioner of Income-tax, Madras v. Prithvi Insurance C_o. Ltd.( 1), this Court rqled that inter-connection, inter-lacing, inter-dependence and unity were furnished by the existence of common management, common business organisation, common administration, common fund and a common Pface of business. This conclusion was re~ B iterated by this very bench Jn Produce Exchange Corporation Ltd.

v. Commissioner of Iome-tax, (Central Calcutta) (2). Therein the assessee company carried on business as a dealer in diverse commodities and also stock .and shares.

In the year of account 1949, it had suffered loss ofRs. 3,71,700/- in the sale of shares which the company claimed to carry forward and set off against / C the profits of subsequent years from transactions in other commodities.

The Tribunal found that there was complete unity of control and shares were one of a number of commodities in which the . company dealt in t!\e ordinary course of business and that ·.there was no element o'f' diversity or distinction or separateness_ about the transaction in shares, and accordingly upheld the claiin.

D On a reference the High Cou.rt he.Ithat the essential matter to be considered was the nature of the two lines of business and not merely their unity of control and that therefore the Tribunal erred in holding that the whole trading activity formed Ol)e business.

Reversing the decision of the High Court this Court !J®d that the decisive .test was unity of control and-.neHhe nature of the two E lines of business. ·

For the reasons mentioned above we allow this appeal, dis- charge the answer given by the High Court and answer the reframed question in the affirmative and in favou( of the assessee: The Revenue shall pay the costs of the assessee both in this Co11rt and in the High Court.

F ·

.V.P.S.

Appeal allowed.

(I) 631, T, R: 632. , ,,

(2) 77 I. T.R. 739.

STANDARD REFINERY & DISTILLERY LTD

COMMISSIONER OF INCOME-TAX:, CALCUTTA

January 18, 1971

K. S. HEGDE

A. N. GROVER, JJ.

Income-tax Act

s. 22(4)

s. 24(2)

CIVIL APPELLATE JURISDICTION

S. C. Manchanda

Gobind Das

D. N. Gupta

S. Mitra

S. K. Aiyar

R. N. Sachthey

Hegde

Unnao

Iainuary 29, 1946

April 23, 1946

April 30, 1947

Produce Exg.hange Corporation Ltd.

s. 24

Income-tax Act, 1922

Assistant Commissioner

s. 66(2)

April 23, 1963

s. 66(A)

February 6, 1969

SUPREME COURT REPORTS [1971] 3 S.C.)l.

s. 24(2)

Indian Inoome-tax Act, 1922

s. 24(2)

Income-tax Act

December 31, 194

Mitra

Prithvi lmurance Co.

Ltd

Rciwlatt


WESTERN STATES TRADING CO. LTD.

COMMISSIONER OF INCOME TAX, CENTRAL CALCUTTA

January 18, 1971

[J. C. SHAH, C.J., K. S. HEGDE ANDcA. N. GROVER, JJ.J

Income Tax Act 1922, s. 10(2)(vii) and: 24(2)-Appel/ant selling colliery after running it for part of the year-loss on sale written off-if allowable under s. 10(2) (vli)-Profits on shares forming part of stoc!<-in

trade of appellant's share-dealing business-Whether could be set off against business loss of previous years.

The asse~ entered, into an agreement with another company on November 2'9, 1954 for the sale of its colliery. It was provided , in the agreement that pending completion of the sale or delivery of pbssession, the vendor was to carry on business on behalf of the purhaser and .run the ro)liery as on and from September 1, 1954 on the account and at the cost .fl( the purchaser.

In the course o'f the jjppellant's assess!IJ'nt to income tax for which the accounting year was fr-Om September 1, 1954 to August 31, 1955, the Income Tax Officer, after making '3djustment for certain assets which according to him were not entitled to depreciation, worked " out the figure of loss at Rs. 11,257 .00; however he rejected a claim to set off this loss against the appellant's other income on the view that the assessee did not carry on the business of the colliery during the year since the transfer took place with t from September 1, 1954. The Appellate Assistant Commissioner /upheld this order and, although the Tribunal, in appeal, accepted the assessee's contention that it carried on busin.,.s till November 29, 1954, if did not allow the loss on the view thaJ.it had resulted from a closing down sale. In respect of the same year, cerli dividends on shares received by the assessee were .. included in its income unper s. 12 but i:s claim to set off this income against the loss in business for earlier yea<s brought forward, was disallowed: The High Gll>lrt, upon 11 iyference made to it, htid against the appellant on botll the~ mues. On appeal to this Court,

HELD : The T•.ibunal had, in clear and unequivocal tenns, upheld the.· contention of the appellant that it had actually carried on the business till November 29, 1954.

Section 10(2) (Vii) provides that profits or gains shall be computed after making the allowanin respect of any such build_ ing, machinery or plant which had been so e, tc., the amount by which the written down value thereof exceeds the ount 'for which the building, machinery or plant is actually sold or its scrap value . The first proviso requires that such amount should actually be written off in the books of the assessee.

It is difficult to see how all the conditions necessary for the allowance under the above provisions were not satisfied. The colliery business was carried on by the appellant during .p~ of the releval}t accounting year. The ntachinery and plant had bt!lll used for the purpose of the business. The sale of the colliery took pla'ce during the accounting year; and. the loss of Rs. 11,237.00 was written off inthe books of t, be appellant. [387 C-F]

Commisrioner of Income Tax, Bombay City II v. National Syndicate, 41 I.T .R. 225; followed.

SUPREME COURT IUU'ORTS

[1971] 3 S.C.R.

Once it is accepted that the colliery business was carried on for a part A of the relevant assessment year, the assessee would be entitled to. get a set off under s. 24(2) of the Act if the shares on account of which the dividendS were received formed part of the assessee's trading assets. It was not disputed that the shares formed part df the stock-in-trade of the sharedealing business of the assessee. There could be no reason, therefore, for the 3S.'lessee not being entitled to the set off claimed. [388 B-DJ

C.l.T., Andhra Pradesh v. Cocanada Radhaswami Bank Ltd., 57 I.T.R. 306; Commissioner of Income Tax Madhya Pradesh v. Shrikishan Chandmal, 60 I.T.R. 303 and Commissioner of Income Tax, Ahmedabad v.

Bhavnagar Trust Corporation (P,) Ltd., 69 l.T.R. 278; 'referred to,

C1v1L APPELLATE JURISDICTION : Civil Appeals Nos. 589' and 590 o.f 1967.

c Appeals by special leave from the judgment .ancl order dated May 7, 1965 of the Calcutta High Court in Income-tax Reference Nos. 183 aind 238 of 19'61.

C. K. Daphtary, B. P. Maheshwari and N. R. Khaitan, for the appellant (in both the appeals).

S. C. Manchanda, S. K. Aiyar, R. N. Sachthey and B. D.

Sharma for the respondent (in both the appeals).

The Judgment of the Court was delivered by

Grover, 1.

These appeals by special leave from a judgment of the Calcutta High Coul"t arise out-.of certain questions of law E which were referred relating to the assessment for the assessment year 1956-57, the relevant accounting year being from September 1, 1954 to August 31, 1955.

The assessee owned a colliery called the _Western Kajoria CollieryL ltereinafter referred to as "colliery". It entered into an agree- F ment with another company on November 29, 1954 to sell the colliery to it. According to this agreement the vendor was to sell and the purchaser was to buy as on and from September 1, 1954 all the underground rights etc of the colliery with the machinery and other articles detailed in the schedules annexed to the agreement. It is not necessary to give the details of the other stock-in- G trade which the piiri:haser-was to purchase.

The sale was to be completed within one year from the date of the execution of the agreement. According to clause 7 of the agreement pending completion of the sale or delivery of possession of the premises to the purchaser the vendor was to carry on business on behalf of the purchaser and run the said colliery as on and from September 1, 1954 on the account and at the cost. of the purchaser.

The purchased was to get all the profits and was liable for all the losses from that date.

\VESTERN STATES TRADING co. v. C.I.T. (Grover, J.) 385

The price fixed for the colliery was Rs. 3,50,000. The book value of the assets was Rs. 4,80,290/-. In the relevant assessment year the loss of :as. 70,290/- was claimed by the assessee. The Income tax Officer rejected. the claim for deduction of the Joss from the assessee's other income on the ground that during the accounting period the assessee did not carry on the business of colliery since the transfer took place with effect from September 1, 1954. After making adjustment for certain assets which, according to the Income tax Officer, were not entitled to .depreciation he detennined the figure of loss to be Rs. 11,251/-.. This los> was also disallowed.

The Appellate Assistant Commissioner upheld the order of the Income tax Officer.

The Appellate Tribunal, however accepted the contention of the assessee that it carried on business till November 29, 1954 but did not allow the loss as the Tribunal was of the view that it had resulted from a closing down sale.

There was another item of dividends received from certain shares held by the assessee during the relevant accounting year.

The Income tax Officer included these dividends in the Company's income under s. 12 of the Income tax Act, 1922, hereinafter called the "Act". The assessee failed to satisfy the authorities that the income received on account of the dividends could be set off against the loss in business of earlier years brought forward. The Tribunal made a reference of the following two questions under s. 66(1) of the Act :

"(I) Whether on the facts and in the circumstances of the case the sum of Rs. 11,257 /- being a claim for loss on sale of assets on which depreciation was allowable in earlier years is allowable under Section 10(2) (vii) in computing the total income of the assessee?

F •

(2) Whether on the facts and in the circumstances of the case dividend income was to be taken -as income, profits and gains of business of the company ar.d set off against losses brought forward from earlier years under section 24(2)?"

Since certain other questions had been sought to be referred by the assessee in respect of which the Tribunal declined to make a reference the asessee moved the High Court and the High Court directed that the following questions be referred :

"(3) Whether in the facts and circumstances of the case, the interest income from Western Kajoria Collieries Ltd. is income taxable under Section 10 of the Indian Income tax Act or under Section 12 of the said Act? 11-l807 Sup C.J/71

\ 4) Whether on the facts and circumstances of the .case there was any material to hold that the loan of M/ s.

Shri ViioY. Corporation Ltd. was . an accommodation loan not advanced during the normal course of money lending business? ( 5) If the answer to question ( 4) is that the loan was a business loan whether the debt had become bad in the year of account and deductible in computation of the total income? ( 6) Whether in the facts and circumstances of the case the Tribunal was right in refusing to allow set off of earlier year's business losses under section 24(2)?"

'Fhe two references were dealt with together by the High <::ourt.

On the first question the High Court was of the view that the sale was a closing down sale and the net result of the transaction was that the assessee was working the colliery from &ptember D 1, 1954 for and on account oi the purchaser. While recognising lliat the coal business was not stopped as from September l, ..._ '1954 the High Court came to the conclusion that it was on account " o( the purchaser 1hat the bus:aess was carried on and any profits

qtsses which might have resulted until the actual sale were to be those' of. the purchaser .and the vendor was to get only the price fixed togher with interest.

The first question was answered against the assessee.

The sec'Ond question was also answered against the assessee on the view 1hat no colliery business in the relevant yearwas carried on by it and therefore no question

of set off could'arise. The third and the fourth questions were

awered in accordance with the findings of fact given by the Tri- . bunal and against the assessee. The fifth question was not pressed F and was not answered.

The sixth question was covered by the second question and therefore no answer was returned wjth regard to it as well.

In the pr"sent appeals we are concerned with the first and the second q)iestion.

It has been submitted on behalf of the appel- G lant thatthe loss of Rs. 11,257 /-was allowable under s. 10(2)(vii) of the Act in computing the total income of the appeJlant. The Tribunal had recorded a findini; r which was one of fact; that in the relevant accounting year the appellant did carry on the colliery business.

The finding of the Tribunal had not been challenged by the department.by raising an appropriate question and therefore H it was not open to the High Court to go against the finding of the Tribunal and hold that the business was carried on for and on account of the purchaser. At any rate it was an un-

WESTERN STATES TRADING co. v. C.I.T. (Grover, J.) 387,

disputable faci that the appellant carried on the business upto November 29, 1954 and it was only by virtue of the agreement made on that day that it agreed to treat the business as having been transferred to the purchaser with effect from September l,

1954. By means of the agreement it was not possible to alter the actual state of affairs, namely, the carrying on of the business by the appellant.

In our judgment there is a good deal of subataqce il). the above contentions urged on behalf of the appellant. The Tribunal had, in clear and unequivocal terms, upheld the contention of the appellant that it had actually carried on the business till November 29, 1954.

Section 10(2)(vii) provides that profits or gains shall be computed after making the allowance in respect of any such building, machinery or plant which had been sold etc. the amount by which the wrrtten down value thereof exceeds the amounts for which the building, machinery or plant is actually sold or its scrap value.

Tbe first provise requires that such amount should actually be written off in the books of the assessee. It is difficult to see. how all 1he conditions necessary for the allowance under the above provisions were not satisfied.

The colliery business was carried on by the appellant during part of the relevant accounting year. The machinery and plant had been used for the purpose of the business.

The sale of the colliery took place during the accounting year. The loss of Rs. ll,2751was written off in the books of the appellant E The present case appears to be covered by the decision of this Court in Commissioner of Income tax, Bombay Citv TI v. Nmional

Synicate(') in which .~II the above conditions for the applicabhty of s. 10(2)(v11) were .. .held to be present.

It was said that there was no other condition to be found in the section or in the Act which had to be complied with.

There was nothing to show that the business of the assessee should have been carried on for the whole year or that the machinery or plant should have been F

used for the whole of the accounting period or if the assessee woked only for a part of .the year and then so:d out the loss that he. mcurred was not !1 bus mess loss. The decisions which were rehed upon by the High Court are hardly of much assistance in the matter and are distinuishable on facts. The first question should have been answered m favour of the assessee .

. on the secon~ quest!on once it is accepted that the collierv business was {; arried on ;.or a part of the relevant assessment war the ssessee would be enlltled to get a set off under s. 24(2) of the Act tf the shares on account of which the dividends wer .. d formed part of the assessee's fad' . e rece11e the decisions of this Court (see~ J°.j ~~~~1

5 • PTt tds wll settled by

<I) ~I l.T.R. 225.

 · 1ra ra es11 v. Cocanada

Radhaswami Bank Ltd. (1) that s. 6 of the Act classifies the taxable income under the several heads but the scheme is that income tax is one tax and s. 6 only classifies the taxable income under different heads for the purpose of computation of the net income of the assessee.

While sub-s. ( 1) of s. 24 provides for setting off the

Joss under one of the heads mentioned in s. 6 against the profits under a difierent head in the same year sub-s. (2) provides for the R carrying forward of the Joss for one year and setting off the same against the profits or gains of the assessee from the business in the subsequent year or years. It was emphasised in the aforesaid

decision that snb-s. (2) of s. 24 in contradistinction to sub-s. (1) is concerned only with the business and not with its heads under s. 6 of the Act. Dividends are included in the meaning of income C undersub-s. (IA) of s. 12 which is the residuary head. Applying the principles adverted to before the amount of dividends woiild form a part of the income from business of the assessee if the shares were a part of the assessee's trading assets and the assessee would be entitled to a set-off as claimed against the Joss from its business incurred during the previous years.

It does not appear to have 0 been disputed at any stage that the shares formed part of the stock-in-trade of the share dealing business of the assesee. Therse could be no reason, therefore, for the assessee not being entilled to the set off claimed. The High Courts have cqnsistently taken the view that business Joss carried forward from earlier years can be set off against dividend income derived from shares held as stock-in-trade. ( vide Commissioner of Income tax Madhya Pra- E desh v.

Shrikishan Chimdma/( 2 ) and Commissioner of Income tax, Ahmedabad v.

Bhavnagar Trust Corporation (P) Ltd.(') The second question, therefore, should have been answered in favour of the assessee.

In the result the appeals are allowed with costs in this Court F and the decision of the Hfgh Court is set aside only with regard to questions 1 and 2, the answers to which are returned as already indicated.

One hearing fee.

R.K.P.S.

(i) 57 l.T.R. 306.

(3) 69 I.TR. 278.

Appeals allowed.

(2) 60 I.T.R, 303.

WESTERN STATES TRADING CO. LTD

January 18, 1971

C. SHAH, C.J.

K. S. HEGDE ANDcA. N. GROVER, JJ

Income Tax Act 1922

s. 10(2)(vii)

s. 10(2)

November 2'9, 1954

September 1, 1954

November 29, 1954

s. 12

Section 10(2)

SUPREME COURT IUU'ORTS

[1971] 3 S.C.R.

s. 24(2)

C. K. Daphtary

B. P. Maheshwari

N. R. Khaitan

S. C. Manchanda

S. K. Aiyar

R. N. Sachthey

B. D.

Sharma

Grover

August 31, 1955

Western Kajoria CollieryL

clause 7

s. 12

Income tax Act, 1922

s. 66(1)

Section 10(2)

section 24(2)

Western Kajoria Collieries Ltd.

Section 10

Section 12

ViioY. Corporation Ltd.

section 24(2)

s. 10(2)(vii)

Section 10(2)(vii)

s. 10(2)(v11)

s. 24(2)

Radhaswami Bank Ltd.

s. 6

s. 6

s. 24

s. 6

s. 24

s. 6

s. 12