STATE OF PUNJAB

KISHANDASS January 19, 1971

[J. M. SHELAT AND C. A. VAIDIALINGAM, JJ.]

Constitution of India. Arr. 311-Forfeiiure of past service-If amounts to reduction in rank.

Pursuant to certain charges against the respondent, a police constable, his entire service with permanent effect were forfeited, which meant reducing his salary to the starting point in the time scale for constables. An appeal by him before the Deputy Inspector General having failed, he filed a suit. The trial court decreed the suit holding that the order amounted to reduction in rank, therefore, Art. 311(2) of the Constitution was attracted and as no show cause notice was served belfore the order was passed, the order was vitiated and was bad. The decree was affirmed by the first appellate court and thereafter in second appeal by the High Court. Allowing the appeal by the State, this Court,

HELD : The expression "reduction in rank" in Art. 311 (2) has to be construed according to the well-established meaning it bas acquired, as in the case of the other two expressions, namely, 'dismissal' and 'removal' in that Article, under the various service rules and under the provisions in that regard in the Constitution Acts of 1915 and 1935. The expression

"reduction in rank" in the Article, therefore, means reduction from a higher to a lower rank or post when imposed as a penalty. Therefore, an order forfeiting the past service which has earned a Government servant increments in the post or rank he holds, howsoever adverse it is to him, affecting his seniority within the rank to which he belongs or his future chances or promotion, does not attract the Article. His remedy, there/fore, is confined to the rules of service governing his post. [397 E]

High Court, Calcutta v. Amal Kumar Roy, [1963] 1 S.C.R. 437 and Shit/a S. Shrivastava v. Nol'th Eastern Rly. [1963] 3 S.C.R. 61, followed.

Parshotam Lal Dhingra v. Union of India, [1958] S.C.R. 828, disapproved.

Rupnarain Singh, State of Orissa, A.I.R. 1959, Orissa 167, P. C.

v. Union of India, A.IR 1970 S.C. 77, distinguished.

Shri Madhav Laxman Vaikunthe v. State of Mysore, [1962] I S.C.R. 886 and Afzalur Rahman v. Emperor, A.LR. 1943 F.C. 18, referred tv.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 359 of 1967.

Appeal by special leave from the judgment and order dated July 29. 1966 of the Punjab High Court in Civil Misc. No. 1144-C of 1966 in Regular Second Appeal No. 340 of 1966.

V. C. Mahajan, for the appellant.

A. N. Nag, for the respondent.

The Judgment of the Court was delivered by

Shelat, J.

The respondent was at all material times a con>table in the Punjab Police Service and was posted at Ambala.

In November 1960, he was served with a charge sheet attributing to

him arrogance towards his superior officers and indiscipline.

A depanmental enqiury was admittedly held in accordance with the )l. procedure laid down therefor in the Punjab Police Rules, 1934.

The said charges having been held to have been proved, an order followed forfeiting his entire service with permanent effect. This meant bringing down his salary to Rs. 45/- per month, which would be the, salary payable to a constable at the starting point of his service. An appeal by him before the Deputy InspectocGene- C ral having failed, he filed a suit in the Court of Sub-Judge, Ambala.

The suit was on th-~ basis that the said order amounted to reduction in rank, that therefore, Art. 311 (2) of the Ce>nstitution was. attracted and that no show cause notice against the action proposed against him having been served upon him before the D said order: was passed, the order was vitiated and was bad. The Trial Court accep•d this contention and decreed the suit.

An . appeal by the appellant-State failed as the District Judge, relying on Rupnarain Singh v. State of Orissa(1) . held that the said order amounted to reduction in rank and the respondent was therefore entitled to the procedural safeguards laid down in Art.

E 311 (2). A second appeal by the State before the High Court was summarily rejected.

Hence this appeal founded on special leave granted by this Court.

The only question arising in this appeal, the facts not .being in dispute, is whether the order forfeiting the respondent's service, which meant reducing his salary to the starting point in the time- F scale for constables, amounted to reduction. in rank witflln the meaning of Art. 311 (2).

The respondent being a constable, there was no question of his being reduced from a higher post or rank to a lower post or rank. The order, nonetheless, reduced the emoluments received by him as it deprived him of the increments earned by him as a result of the approved service, he had G . put iri, having been forfeited.

It also affected his seniority, and therefore, chances of promotion.

The question is, whether for that reason the order is tantamount to reduction in rank attracting Art. 311(2),

Rule 1.13 of he PuRjab Police Service Rules (hereinafter referred to as the Rules) provides that a 'gazetted police officer'' H means a p01ice officer appointed under s. 4 of Act V of 1861,

(I) A.l.R.1959 Orissa 167.

' "

and includes the Inspector-General, Deputy Inspectqrs-General,.

Assistant Inspectors-General, Superintendents, Assistant Superintendents and Deputy Superintendents.

The expression "enrolled police officer" means police officers appointed under s. 7 of the said Act and includes inspectors, sergeants, sub-inspectors, asistant sub-inspectors, head contables and constables.

The expression "upper subordinate" includes all enrolled police officer of and above the rank of assistant sub-inspector, and the expression "lower subordinate" includes all other enrolled police officers.

There is thus a hierarchy in the Police Service of the State comprised of several posts, the post of a constable being the last rung in the ladder. Rule 13.1, which deals with promotion of police officers from one rank to another, provides that such promotions from one rank to another and from one grade to another in the same

rank shall be made by selection tampered by seniority . Cl. 3 of that rule lays down that for purposes of regulating promotion. amongst enrolled police officers, six promotion lists, A, B, C, D, E and F should be maintained. Lists A, B, C and D'are meant to regulate promotion to the selection grade of constables and to the ranks of head constables and assistant sub-inspectors.

List E iregulates promotion to the rank of sub-inspector and List F regulates promotion to the rank of Inspector.

Rule 13.5 deals. with promotion of constables to selection grade and r. 13.6 provides that a list, called List A, shall be maintained by each Superintendent of Police of constables eligible under r. 13.5 for piromotion to the s.election grade of constables. Rule 13.7 provides for a list, called List B, divided into two parts, namely, selection

grade constables considered suitable as candidates for the Lower School course at the Police Training School, and constables, selection or time-scale, considered suitable for drill and other special courses at the Police Training School. Rule 13.8 lays down that promotion to the post of head constable has to be made in accordance with principle described in sµb-rules (1) and (2) of r. 13.1.

Rule 13.8-A . provides that infliction of any major punishment would be a bar to admission to or retention in lists A, B or C.

Rule 16.1 lays down diverse punishments which can be awarded to members of the service in accordance with the provisions con-· tained in the Rules.

These punishments are : ( 1) dismisal,

(2) reduction, (3) stoppage of increment or forfeiture of approv-· ed service for increment, ( 4) entry of censure, ( 5) confinement to qll'.lrters for a period not exceeding 15 days, ( 6) extra guards, fal!gue or other uty, an~ punishment drill for certain days. Under r. 16.1(3~, a m~1or pu?1shmen.t means any authorized punishment H of educt!on: w1thholdmg of mcrements, forfeiture of approved semce, d1sm1ssa1 and every judicial conviction on a criminal . charge. Rule 16.4 defines 'reduction' and provides that a police officer may be reduced (a) to a lower rank (except in the case

-0f sergents and of constables on the time-scale), (b) from the selection grade of a rank to the time-scale of the same rank, ( c) if in a graded rank to a lower position in the seniority list of

his grade or to a lower grade in his rank. Rule 16.5 provides that the increment of a police officer on a time-scale may be withheld as a punishment. Cl. (2) of that rule provides that approved service for increment may be forfuited, either temporarily B or permanently, and such forfeiture may entail either the deferment of an increment or increments or a reduction in pay.

It further provides that the order must state whether the forfeiture of approved service is to be permanent, or, if not, the period for which it has been forfeited.

Thus, under rules 16.4 and 16.5 the two punisliments of reduction C and forfeiture of service are two distinct puni l'P.nts. Rule 16.24 lays down the procedure to be followed in deparunental enquiries.

Cl. (ix) of that rule clearly provides that it is only in the case of an order of dismissal or reduction in rank that a second show cause notice against th!) proposed action against a police officer has to be served before an order is passed against him. Such a D second show cause notice is, therefore, not required to be served in the case of other major or minor punishments. There is no dispute that ic the present case the procedure laid down in these Rules and applicable to the respondent was followed.

The contention, however, was that though the Rules distinguish E the two punishments of reduction and forfeiture of service and treat them as distinct, there were certain decisions of this Courl which have held that for an order to amount to reduction iP rank within the meaning of Art. 311 (2) it was necessary that it must actually reduce a government servant from a higher to a lower post or rank, and that even if the order affected adversely his seniority or chances of promotion within the rank or cadre to F which he belongs, it would still constitute reduction in rank. •-

Parshotam Lal Dhingra v.

Union of India(') was one such case on which counsel leaned heavily. But the question there was whether the reversion of the the appellant from Class II service, wherein he was at the relevant time officiating, to Class III ser- G vice to which he permanently belonged, amounted to punishment, and therefore attracted Art. 311 (2), The decision laid down the principle 'that reduction in rank would be punishment if it carried with ft penal consequences and that the two tests to be applied were ( 1) whether the servant had the right to the post or rank and (2) whether evil consequences, such as forfeiture of H pay r allowances, loss of seniority in his substantive rank, stoppage

(I) [19581 s.c.R. 828.

. )

or post-ponement of future chances of promotion followed as a result of reduction in rank. The appellant in that case was holding an officiating pqst and had therefore no right under th.e Railway Code to continue in it.

The Court held that since under the general law such appointment was terminable at any time on reasonable notice, the reduction could not operate as a forfeiture B of any right, and therefore, the order could not be said to have visited him with any evil consequences. Consequently, it did not amount to reduction in rank by way of punishment. The decision also laid down that the words "dismissal'', "removal" and "reduction in rank" used in Art. 311 (2) were words of art, having

technical meanings, they having been adopted from service rules prevailing earlier, such as Classification Rules of 1920 and 1930, and having therefore acquired well-known meanings. Under those rules, dismissal, removal and reduction in rank were major puni~ shrnents provinding special procedural protection.

On examination of the history of the service rules, s. 96B(i) of the Government of India Act, 1915, and s. 240 of the 1935 Act, the Court h.eld that "both at the date of the commencement of the 1935 Act and of our Constitution the words "dismissed", "removed" and

"redur.ed in rank", as used in the service rules, were well-understood as signifying or denoting the three major punishments which could be inflicted on Government servants".

The decision concluded that "the principle is that when a servant has right to a post or to a rank either under the terms of the contract of employment, express or implied, or under the rules governing the conditions of his service, the termination of the service of such a servant or the reduction to a lower post is by itself and prima facie a punishment, for it operates as a forfeiture of his right to hold post or that rank and to get the emoluments and other benefits attached thereto".

The passage in the judgment emphasised before us was :

"A reduction in rank likewise may be by way of punishment or it may be an innocuous thing. If the Government servant has a right to a particular rank, than the very reduction from that rank will operate as a pena}tv, for he will then lose the emoluments and privileges of that rank. If, however, he has no right to the particular rank, his reduction from an officiating higher rank to his substantive lower rank will not ordinarilv be a punishment. But the mere fact that the servant has no title to the post or the rank and the Government has, by contract, express or implied, or under the rules, the right to reduce him to a lower post does not mean that an order of reduction of a servant to a lower post or rank cannot in any circumstances be a punishment. The real test for determining whether the reduction in such cases is

or is not by way of punishment is to find out if the order for the reduction also visits the servant with any penal consequences."

According to this decision, reduction in rank within the meaning of Art. 311 (2) means reduction from a higher to a lower rank or post in the hierarchy of the service to which a government B servant seeking protection of that article belongs and not reduction in the same rank; e.g., losing places in seniority in the rank to which he belongs.

Shri Madhav Laxman Vaikunthe v. The State of Mysore(') another decision relied on by counsel, was a case of a Mamlatdar, officiating s a District Deputy Collector. His reversion from C the officiating post to his permanent post was held to be p; inishmen attracting Art. 311 ( 2).

This was a clear case of reduction in rank as the reversion brought down the appellant from a higher to a lower post. It did not merely affect his seniority or the stage at which he was in the time-scale to which he belonged in the hierarchy of service.

The decision in point really is. The High Court Calcutta v.

Antal Kumar Roy(') where the respondent, a Munsif, was excluded by the High Court from consideration for the post of a Subordinate Judge for a year thereby depriving him eight places in the cadre of Subordinate Judges when he was appointed an Additional Subordinate Judge.

The respondent's contention was E that such an e, Kclusion amounted to withholding of promotion or reduction in rank. The first part of the contention was rejected on the ground that he had no right to pormotion and. the. second on the ground that deprivation of eight places in seniority in the same rank did not constitute reduction in rank.

This decision was foJ.lowed in Shit/a S. Srivastava v. North Eastern Railway(') F where it was held that the removal of the appellant's name from a provisional panel of persons for consideration for higher posts did not attract Art. 311 ( 2) as it did not amount to reduction in rank. The Court held that the expression "rank" in Art. 311 (2) had reference to a person's classification and not his particular place in the same cadre in the heirarchy of the service to which G he belongs.

It is thus clear that reduction in rank within the meaning of Art. 311 (2), as the expression itself suggests, means reduction from a higher to a lower rank or post and not merely losing places in the rank or cadre to which the Government servant belon2s, and consequently, his seniority within such cadre or rank.

II {

(1) [196211S.C.R.886.

(2) [1963]1S.C.R.437-

(J) [1966)3 S .. C.R. 61.

PUNJAB v. KlSHANDAS (She/at, !.) 395

This would be so, even if as a result of the Government's action he loses a higher salary or his chances of promotion to a higher post are reduced. For such action, the remedy would be under the rules governing the service and not under Art. 311(2) as such action does not amount to reduction in rank. as understood. for the purposes of Art. 311 ( 2).

Counsel for the respondent, however, argued that there were other decisions which have held otherwise and assisted him.

P. C. Wadhwa v. Union of India(') was one such decision which, he thought, assisted him. In that case, the appellant was officiating in the senior time-scale and was posted at Ferozepore as an Additional Superintendent of Police. In July 1958, he was re\erted to his substantive post. The reason for the reversion was that he was tried as a Superintendent of Police and was found to be immature. The record showed that the reversion was not due to t.he return of the permanent incumbent from leave or deputation or for any other administrative reason and other officers junior to him continued in the senior time-scale while he was reverted. The record also revealed that an enquiry was not resorted to only for the reason that it would take a long time. His contention in these circtimstances was that his reversion amounted to reduction in rank.

That was accepted because it would seem from the facts that the reversion was from senior time-scale to junior time-scale of the service. Though both the posts were cadre posts in the Police Service, the reversion was from the post of the Additional Superintendent of Police to one of Assistant Superintendent of Police, the former obviously being a post higher than the latter.

Although both the posts were in the same cadre, promotion from the junior to the senior time-scale was by seniority. It is clear, therefore, that appointment of one in the junior time-scale to a post in the senior time-scale was promotion, and therefore,. appointment to a higher post. Such is not, however, the position in the instant case.

Dubesh Chandra Das v. Union of India(") was another decision relied upon by Mr. Nag. The appellant there was the Chief Secretary of Assam and a member of the Iridian Civil Service.

He was appointed a Secretary in the Union Government, a tenure post, the tenure period of which was to expire in July 1969. In September 1966, he was asked to choose between reversion to the service of his parent State or compulsory retirement.

He complained against the order by a writ petition contending that the order was a stigma and amounted to reduction in raRk, which, therefore, could not be passed without undergoing the pro cedure laid down in Art. 311 ( 2). His appointmeJ;1t as the Secre-

(I) [1964) 4 S.C.R. 598.

(2) A.!.R. 1970 S.C. 77.

tary at the Centre was not by way of deputation but was by way A <>f appointment to a tenure post. This Court held, on an exami- .nation of the rules, that cadres for the Indian Administraiive Services were to be found in the States only, thiit there were no cadres in the Government of India, that a few of them were, however, intended to serve at the Centre and when they did so, they enjoyed better emoluments and better S'latus.

Such an appoint- B ment, the Court held, meant promotion to a higher post. In the circumstances, the order amounted to the appellant's reduction from a i1igher to a lesser rank. This, again, was a case where the government servant was reverted from a post higher than the post of the Chief Secretary, Assam, and not a reduction in the same time-scale post or deprivation of places in the same time-scale C post thereby adversely affecting his seniority therein or chances of promotion.

The decision of the High Court of Orissa in Rupnarain Singh

v. Orissa(') would apparently assist the respondent, for, the impugned order there was similar to the one in the instant case.

That order directed that the petitioner, who wathen serving as a D forester, be reduced to the lowest scale of Rs. 50/- in the scale of pay of Rs. 50-2-70 fixed for the foresters. The High Court upheld! the contentions of the petitioner, viz., (1) that the order was punishment, and (2) that it amounted to reduction in rank within the meaning of s. 240(3) of the 1935 Act and Art. 311(2). These conclusions were reached on two premises. The first was that r. 2 of the Bihar and Orissa Subordinate Services Discipline E and Appeal Rules in cl. (iii) provided, amongst others, the punishment of "reduction to a lower post or time scale or to a lower stage in the time-scale". Following the decision in Afza/ur Rahman v. Emperor(') where the Court had observed that in construing s. 240 of the 1935 Act, the long standing service prac- tice based on statutory rules in force Jong before the passing of F the 1935 Act, and which were continued in force by that Act, should be considered, the High Court held that the expression "reduction in rank" in s. 240(3) must also include reduction to a lower stage in the time-scale as r. 2.(iii) had treated reduction to a lower post and "reduction to a lower stage in the time-scale" as one kind of punishment. Such a reasoning does not apply to the G present case because r. 16.1 of the Punjab Police Rules makes a dear distinction between "reduction" and stoppage of increment or forfeiture of approved service for increment, the two being distinct and separate punishments permissible under that rule. The second premise upon which the High Court reached the said conclusions rested on the observations in Dhingra's case(•), wherein H this Court laid down the criterion to judge whether an order is a

(I) A LR. 19;9 Qrissa 167 P.C.

(2) A.LR. 1943 F.C. 18.

(3) [1958] S.C.R. 828.

PUNJAB v. KISHANDAS (She/at, J.) 397

A punishment or not by observing that it would be punishment if the order entailed or provided for forfeiture of pay or allowances or loss of seniority in his substantive rank or stoppage or postponement of his future chances of promotion. The passage relied on the High Court laid down detenninents for treating an order as one of punishment and not a test for reduction in rank. As already B stated, in Dhingra's case(') the impugned order was held to be one of reduction in rank because the appellant there was reduced from Class II to Class III service, i.e., from a higher to a lower post, the time-scales of the two posts being different. The reduction of rank was held not to be a punishment because the appelc

lant was not entitled to the better post wherein he was merely officiating and therefore did not visit him with any evil consequences. The observations relied on by the High Court thus related to the question whether the impl!gned order was one of punishment and not for deciding whether it amounted to a reduction in rank and were, therefore, not apposite. The basis for the second premise of the High Court, therefore, was not correct and therefore cannot elp the respondent.

The aforesaid analysis of the decisions leads us to the conclusion that the expression "reduction in rank" in Art. 311 (2) has to be construed according to the well-established meaning it has acquired, a~ in the case of the other two expressions, namely, dismissal' and 'removal' in that article, under the various ser1ice rules and the provisions in that regard in the Constitution Acts of 1915 and 1935. The expression "reduction in rank" in the article, therefore, means reduction from a higher to a lower rank or post when imposed as a penalty. Therefore, an order forfeiting the past service which has earned a government servant increments in the post or rank he holds, !wwsoever adverse it is to him, aff.ect- F ing his seniority within the rank to which he belongs or his future chances of promotion does not attract the article.

His remedy, therefore, is confined to the rules of service governing his post. In our view, neither Parshotam Lal Dhingra's case( 2 ) nor Rupnarain Singh's case(3 ) assisted the respondent, as the first does not lay down what he contended and the , second was not correctly

G decided.

The result is that the State's appeal succeeds and must be allowed. Consequently, the respondent's suit has to be dismissed.

In the circumstances of the case, however, there will be no order as to costs.

Appeal aNowed.

(2) [19S8] S.C.R. 828

STATE OF PUNJAB

KISHANDASS January

M. SHELAT

Constitution of India

Art. 311(2)

Art. 311

[1963] 1 S.C.R. 437

[1963] 3 S.C.R. 61

Rupnarain Singh

CIVIL APPELLATE JURISDICTION

V. C. Mahajan

A. N. Nag

Shelat

Punjab Police Rules, 1934

Art. 311

Art. 311

Art. 311(2)

PuRjab Police Service Rules

s. 4

s. 7

Cl. 3

Art. 311

Art. 311

Art. 311

s. 96B(i)

Government of India Act, 1915

s. 240

Art. 311

Art. 311

High Court Calcutta v.

Antal Kumar Roy

Munsif

Art. 311

Art. 311

Art. 311

Art. 311(2)

Art. 311

Ferozepore

Nag

Assam

Iridian Civil Service

Art. 311

[1964) 4 S.C.R. 598

Government of India

High Court of Orissa

s. 240(3)

Art. 311(2)

s. 240

s. 240(3)

Dhingra

Art. 311

Parshotam Lal Dhingra


:398

LIBERTY TALKIES & ORS.

STATE OF GUJARAT January 21, 1971

{J.C. SHAH, CJ., K. S. HEGDE AND A. N. GROVER, JJ.]

Bombay Entertainments Duty Act (1 of 1923), ss. 3 and 4.and r. 7 of tlze Rules made thereunder-Scope of.

From March 1960 to January 1962 entertainment duty, was1 levied on the appellants at the rates prescribed in s. 3 of the Bombay Entertainment Duty Act, 1923, on the net price receivable by the proprietor of a theatre and not on the total amount including entertainment duty collected from C visitors.

Thereafter entertainment duty was levied on the aggregate of the net value of the ticket and duty paid by the • visitors. The appellants challenged the validity o'f the levy but the High Court dismissed their petition.

Jn appeal to this Court,·

HELD: (1) Bys. 3 of the Act duty is leviable at the rates prescribed D on all payments for admission and the method of levy is prescribed by s.

4. Under s. 4(1) on the ticket for admission to any. entertainment, an impressed, einbossed, engraved or adhesive stamp issued by the State Government of the value specified in s. 3 must 'be affixed.

The definition of 'payment for admission' ins. 2(b)- includes payment for any purpose '"hat soever connected with an entertainment which a person is required to make as. a condition of attending. or continuing to attend the entertainment. The price which the visitor pays for a ticket for admission to the entertainment E is thus the value uf the stamp affixed and the net value -0f the ticket. and the proprietor of the theatre is therefore liable to pay entertainment duty on the gross sum received from a visitor. r402 E, H; 403 A-~; 404 Dl

(2) The use of the expression "affixed to it a stamp of the value of the duty payable out of the said price di admrssiori" "in rule 7 of the rules framed under the Act does not support the view that the amount of cntert.ainment duty represented by the ticket alone is payable by the pro- F prietor. It only means that the proprietor shall specify on the ticket the amount chargeable by him to the visitor. [403 :C-G]

( 3) !he proprietor thus passes on a part of the duty payable by him to the VIS1tor but he does not act as an agent of the,, GOvernment for col- 1ccting the duty, because. under ss. 3 and 4 tl}_e _liability for pavrncnt cf the duty is in1posed upon the proprietor and not upon the viSitors to the G theatre. [402 H; 403 BJ

( 4) A proprietor paying entertainment duty on the total amount received by him lfrorri the visitor will never be able to col!ect the full amount of entertainment duty from such visitor.

A part of the duty pavable b1 him will haye to come ?lit of the amo.unt receivd y him as the net charge

for a ticket. But questions of hardship cannot 1ushfy a departure from the provisions of ss. 3 and 4 o'f the Act The Legislature must be deemed to H have contemplated that only a part of the entertainment duty l1evied by the ;'1- Government must be collected from the visitors to the theatre and the balance should be paid by the proprietor. [404 F-H]

(5) But the Act contains no provision for reopening assessments already made and the State cannot therefore reopen the concluded assessments prior to January 1962. [405 Bl

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 416 to 426 of 1967.

8 Appeals by special leave from the judgment and order dated November, 8, 9, 1968 of the Gujarat High Court in Special Civil Applications Nos. 595, 634, 636, 693, 694, 695, 696, 771 of 1962, 57 and 128 of 1963 and 39 of 1964.

S. T. Desai, I. N. Shroff and M. N. Shroff. for the appellants (in al! the appeals).

C. K. Daphtary, K. L. Hathi, B. D. Sharma for S. P. Nayar, for the respondents (in all the appeals l.

The Judgment of the Court was delivered by

Shah, C. J.-Under the Bombay Entertainments Duty Act 1 of 1923 entertainment duty is chargeable on the total collections from the visitors to a theatre. On March 18, 1960 the Collector, Junagarh issued instructions to his subordinate officers directing

them to levy entertainment duty at the prescribed rate only on the net price recetvable by the proprietor of the theatre and not on the total amountlrrcluding entertainment duty collected from the visitors. Entertainmeni'11ufy so computed was paid till January 1962 by the appellants who own a theatre at Junagadh.

On January 11, 1962 the Government of Gujarat issued a memorandum thal "the duty (entertainment duty) is a percentage ot the payment for admission i.e. the amount which a person pays for bei, ng admitted to witness the entertainment, inclusive of the various items mentioned in clause (b) of section 2 of the Bombay Entertainment Dut, r Act, 1.923.

The amount which a person pays includes both sums-(i) what the Manager has to pay by way of duty; and (ii) what the Manager can retain as 'Net receipts' and hence the duty has to be barged on the total amount payable by the person buying the ticket, including any 'um charged separately by way of duty." Pursuant to that notification entertainment duty was levied on the gross sum leviec!

and paid by the visitors for admission to the theatre.

By a petition moved in the High Court (jf Gujarat the appellantschallenged the validity of the rnemorandum dated January 11, 1962 and the notice of demand issued pursuant thereto and urged that the primary_ liability for payment of entertainment duty is by the Act impo5ed upon the visitor to the theatre, and that the proprietor of the theatre i~ merely an agent of the Govern~

ment for collecting the duty : and that the proprietor has under

the Act to pay the duty which he collects from the visitors; and A that he cannot be required to pay an amount which he does not collect from the visitors.

The High Court rejected the petitions and against the order of the High Court this appeal has been cpreferred.

 The Act and the Rules framed thereunder prescribe the method of collection of entertainment duty. On each ticket issued to a B person entitling him to enter the theatre for entertainment, a revenue stamp of a specified face value is affixed.

The total amount that the visitor pays consists of two items, the net charge which the proprietor makes for the ticket and the value of the stamp.

Under the memorandum issued on March 18, 1960 the aggregate of the duty received by the appellants was paid over C to the Government and the net value of. the tickets remained with the proprietor.

Under the memorandum issued on January 11, 1962, the duty payable to the Government was calculated at the appropriate rate applicable to the aggregate of the net valur. of the ticket and the duty paid by the visitor. In consequence of the notification the proprietor could collect from the visitor the D amount shown as entertainment duty on the ticket but he was obliged to pay duty equal to the amount computed on the total amount paid by the visitor at the appropriate rate. The difference between the entertainment duty computed on the total value of the ticket and the value of the stamp affixed on the ticket was therefore borne by the proprietor.

The relevant provisions which have a bearing on the question are these : Section 3 of the Act is the charging section. Insofar as it is relevant it provides :

" ( 1) There shall be levied and paid to the State Government on all payments for admission to any entertainment a duty (hereinafter referred to as "entertainments duty" at the following rate--

(a) . • • • • ( b) in any other case--

• • • • • IL in any other area-

(i) out of the first 100 naye paise of payment for ad- 30 per cent of such mission payment.

(ii) out of the next 100 naye paise of payment for ad- 45 per cent of such n1ission payment.

(iii) out Or the balance of the total payment for ad- 60 per cent of such n1ission payment.

(IA) • * • • * ( 2) Where the payment for admission to an entertainment is made by means of a lump sum paid as a subscription or contribution to any society, or for a

,_ ..

' •

.; JI ,, ~

season ticket or. for the right of admission to a series of entertainments or to any entertainment during a certain period of time, or for any privilege, righ~. facility or thing combined with the right of admission to any entertainment or involving such right of admission without further payment or at a reduced charge, the entertainments duty shall be paid on the amount of the lump sum.

Section 3A provides for payment of duty at the appropriate rates on complimentary tickets.

By that section entertainment duty at the appropriate rates prescribed under s. 3 is payable as if full c payment had been made for admissioo to the entertainment according to the class of seat or accommodation which the holder of such ticket shall be deemed to t.ave been admitted for payment for the purpose of the Act.

Section 4 provides for the method of levy of duty. It provides, insofar as it is relevant :

"(1) Save as otherwise provided by this Act, no person other than a person who has to perform some duty in connection with an entertainment or a duty imposed upon him by any law, shall be admitted to any entertainment, except with a ticket stamped with an impressed, embossed, engraved or adhesive stamp (not before used) issued by the State Government for the

payments for admission to the entertainment tainments duty has been paid. -

(2) The State Government may, on the application of any entertainment in respect of which the entertainment duty is payable under section 3, allow the proprietor on such conditions as the State Government may prescribe to pay the amount of the duty due-

(a) by a consolidated payment of a percentage to be fixed by the (State Government) of the gross sum received by the proprietor on account of payments for admission to the entertainment and on account of the duty;

( b) in acCQrdance with returns of the payments for admission to the entertainment and on account of the duty;

( c) in accordance with the results recorded by any mechanical contrivance which automaticafly registers the number of persons admitted.

(3) 14-L807Sup CI/71 • • • . ..

Sectin 6 provides for exemptions from payment of entertainment A duty m certam specific classes of cases. Section 7 authorises the State qovernment to make rules for securing the payment of the

entetamment duty and generally for carrying into effect the prov1S1ons of t!ie Act. The expression "entertainment" is defined m s. 2(a) as mcludm.g any exhibition, performance, amusement, game or sport to which , persons. are admited for payment.

A B cmematograph. show 1s entertamment" within the meaning of the :\ct. Sectmn 2(b) defines "payment for admission" as in- .cJudmg-

(ii) any payment for seats or other accommodation in a place of entertainment.

(iv) any payment for any purpl'se whatsoever connected with an entertainment which a person is required to make as a condition of attending or continuing to attend the entertainment in addition to the payment, if any, for admission to the entertainn1ent;"

Section 2 ( c) defines "proprietor" in relation to any entertainment as including any person responsible for, 0r for the time being in charge of, the management thereof.

By section 3 the duty is levied at the rates prescribed on all payments for admission and the method of levy is prescribed by s. 4(2). The proprietor is enjoined bys. 4(1) not to admit any person to an entertainment without a ticket. The proprietor pays the entertainment duty determined in the manner provided by clauses (a), (b) & (c) of sub-clause (2) of s. 4.

He is permitted by the Act to collect entertainment duty on the net amount receivable by him, but he does not on that account become an agent for the Government.

The charge is by s. 3 on payments received by the proprietor for admitting visifors to entertainment.

Even where a ticket is not issued for an individual show but payment is received "by means of a lump sum" as subscription or contribution to any society; or by season ticket or for the .righLof admission to a series of entertainments or during a certain period of time, or for any privilege, right, facility, thing combined with the right of admission to any entertainment without further payment or at a reduced charge, the entertainments duty is payable on the Jump sum : see s. 3 (2). Where a complimentary ticket is issued the duty is payable by the proprietor at the appropriate rate prescribed under the Act as if full payment had been made for admission to the entertainment.

These provisions leave no room for doubt that liability for payment of the duty is imposed upon the proprietor and not upon the visitors to t.he theatre.

Under s. 4 ( 1) on the ticket for admission to any entertainment,

an impressed,-embossed, engraved or adhesive stamp (not before used) issued by the State Government of the value specified in s. 3 must be affixed. The price which the visitor pays for a ticket for admission to an entertainment is the value of the stamp affixed and the net value of the ticket. But the •statutory liability to pay the entertainment duty is imposed upon the proprietor and B not on the visitor. The proprietor it is true passes on a part of the duty payable by him to the vjsitor, but even in respect of that amount he does not act as an agent of the Government.

The rules framed under the Bombay Entertainments Duty Act, 1923 do not also suggest a contrary $cheme. Rule 7, insofar as 1t is relevant, provides :

"Except as provided in rules 15 and 23, every dutiable ticket, not being a complimentary ticket, issued on payment for admission to entertainment shall be in three parts. One part shall remain on the ticket book and the remaining two parts shall be detached therefrom and u issued to the purchaser. Every dutiable ticket shall have €ach part clearly marked with the price of admission, and with the date and show for which it is available and also with the book number and the serial numbers

• • • • • and

shall also have securely affixed to it a stamp of the value of the duty payable out of the said price of admission. • • • • *"

A similar provision is made in respect of "plural tickets" where a number of persons are to be admitted on a single ticket. The use of the expression "affixed to it a stamp of the value of the duty payable out of the said9 price of admission" does not support the view that the amount of entertainment duty represented by the ticket alone is payable by the proprietor.

It onlv means that the proprietor shall specify on the ticket the amoynt

chargeable by him to the visitor and the duty in respect of which the stamp has been affixed.

Rule 7 cannot operate to modify the charging section 3, nor section 4 relating to the method of levy. Rules 15 and 23 which are referred to in r. 7 also do not support the submission made by counsel for the appellant. Rule 15 deals with unstamped tickets and r. 23 deals with th' fonn of exemption granted by the District Magistrate or the Commissioner of Police.

Rule 16 imposes a duty upon every proprietor either making a consolidated payment under cl. (a) of sub-s. ('.!! of s. 4 or making payment in accordance with return of .the payments for admission under cl. (b) of. sub-s. (~) of s. 4, within ten days of the date of entertainment and to submit to the prescribed

officer a return in Form "B" showing the number of tickets (not A being complimentary tickets) issued at each rate the serial number of tickets issued, the gross amount received by sale of tickets and the amount of duty payable to the State Government. Under section 4(2) (a) the consolidated payment is a percentage of the gross sum (not charge and the entertainment duty) received by the proprietor on account of payments for admission to the enter- B ta!nment. That duty is charged under s. 4 ( 2) (b) in accordance - With the returns relating to the payments for admission to the entertainment, under r. 16 the duty is again chargeable on the gross amount received by the proprietor. The definition of the expression "payment for admission" in s. 2(b) of the Act, is an inclusive definition; it includes by clause (iv) payment for any c purpose whatsoever "connected with an entertainment which a person is required to make as a condition of attending or continuing to attend the entertainment''. In our judgment entertainment duty is a payment which the proprietor is required to make as a condition for enabling visitors to attend or continue to attend the entertainment. Without such a payment the visitor cannot be admitted to the entertainment under s. 4 (I) of the Act. That being D so the expression "payment for admission" includes entertainment duty.

We agree with the High Court that the appellant was liable to pay duty computed in the manner provided bys. 3(l)(b)(ii) on the total amount received by the proprietor. But the method E of levy of entertainment duty from the proprietors involves some hardship. It is implicit in the Act that the proprietor is entitled "to pass on the liability" for payment of entertainment duty to the visitors. But the visitor only pays the amount represented by the stamp affixed on the ticket. A proprietor paying entertainment duty on the total amount, received by him from the visitor F will never be able to collect Uie full entertainment duty from the visitor.

A part of the duty payable by him will have to come out of the amount received by him as net charge for the ticket. But we are dealing with a taxing statute and questions of hardship cannot justify us in departing from the provisions of ss. 3 and 4 of the Act. The Legislature must be deemed to have contemplated that only a part of the entertainment duty levied by the Gov- G emment may be collected in the manner provided from the visitors to the theatre and the balance shall be paid by the proprietors. It may be observed that between March, 18, 1960 and January 11, 1962 the appellant collected and paid the duty which was actually received from the visitors to the theatre by stamps affixed on the tickets issued to them according to the notification H issued by the Collector. It was thereafter when a fresh memorandum dated January 11, 1962 was issued requiring the proprietors of the theatres to pay tax on the aggregate amount of the net

" 1

LIBERTY TALKIES V. GUJARAT (S/zalz, C.J.) 4.05

value of the ticket and the entertainment duty that the proprietor was called upon to pay the difference.

Till January 11, 1962 the proprietor acted pursuant to the memorandum dated March 18, 1960 issued by the Collector and collected the duty and paid it over. The Government of Gujarat later advised that the method of collection notified by the Collector was not the correct method.

But the Act contains no provision for reopening assessments al

ready made.

When pursuant to return by the proprietor, payments were made and accepted under s. 4(2) (b), the tax may be deemed to .be assessed and paid, and the State cannot thereafter reopen the concluded assessments and seek to levy tax or duty which has escaped.

The appeals fail except as to the amount claimed to be due for the period between March 18, 1960 and January 11, 1962.

There will be no order as to costs.

V.P.S.

Appeals dismissed.

398

LIBERTY TALKIES & ORS

STATE OF GUJARAT

January 21, 1971

C. SHAH, CJ.

K. S. HEGDE

A. N. GROVER, JJ.

Bombay Entertainments Duty Act

ss. 3 and 4

s. 3

Bombay Entertainment Duty Act, 1923

s.

4

s. 4(1)

s. 3

ss. 3 and 4

ss. 3 and 4

Gujarat High Court

S. T. Desai

I. N. Shroff

M. N. Shroff

C. K. Daphtary

K. L. Hathi

B. D. Sharma

Shah

Junagadh

January 11, 1962

Government of Gujarat

section 2

High Court (jf Gujarat

March 18, 1960

Section 3

Section 3A

s. 3

Section 4

section 3

Section 7

s. 2(a)

Section 2

section 3

s. 4(2)

s. 4

s. 3

s. 3

s. 4

s. 3

section 3

section 4

s. 4

s. 4

section 4(2)

s. 4

s. 2(b)

s. 4

ss. 3 and 4

March, 18, 1960

LIBERTY TALKIES V. GUJARAT

18, 1960

s. 4(2)


C.I.T., U.P.

BANKEY LAL VAIDYA (DEAD) BY L.RS~

January 21, 1971

[J. C. SHAH, C.J., K. S. HEGDE AND A. N. GROVER, JJ.] Income-tax Act, 1922, s. 128(1)-Partition of asset• of a firm 011 dis-· K solution-Assets of firms valuett--Outgoing partner paid value of his share-Whet.her transaction amounts to sale resulting iii capital gain.

The respondent who was the karta of his Hindu undivided family entered into partnership with one D to carry on the business of manufacturing and selling pharmaceutical products etc.

On July 27, 1946 the partnership was dissolved. The assets of the firm which included goodwill, machinery, furniture etc. were valued on tile date of dissolution at Rs. 2,50,000 and the respondent was paid the sum of Rs. 1,25,000 in lieu of his share and the business together with the goodwill was taken over by D. The question in income-tax proceedings was whether_ the transaction was one of sale liable to capital gains tax under s. 12B(l) of the Income-tax Act. 1922.

The assessing and appellate authorities held against the respondent. The High Court in reference, however, held in hi< favour. The revenue appealed.

HELD : There was no clause in the partnership agreement providing for the method of dissolution of the firm or .for winding up ol. its affairs.

In the course of dissolution the assets of the firm may be valued and the assets divided between the partners according to their respective shares by allotting the individual assets or paying money value equivalent thereof.

This is a recognised method of making up the accounts elf the dissolved firm.

In that case the receipt of money by a partner is nothing but a receipt of bis share in the distributed assets of the firm.

The respondent received the money value of his share in the assets of the firm; he did not agree to sell, exchange on transfer his share in the assets of the firm.

Payment of the amount agreed to be paid to the respondent under the arrWJgernent elf his share was therefore not consequence of any sale, exchange .or transfer of assets. [408 C-EJ James , foderson v. Commissioner of Income-tax, Bombay City,. 39- I.T.R. 1!3 and Commissioner of lncome:tax, Madhya Pradesh and Nagpur & "1handara v. Dewas Cine Corppration, 68 I.T.R. 240, distinguished.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1223 of 1967.

Appeal from the judgment and decree dated Mardi.• 5i 1964 of the Allahabad High Court in l11eome-tax Reference No:. 7;1; of

1959.

G S. K. Mitra, B. ]J. Ahuja, R. N. Sachtht!y and B. D. Sharma:, for the appellaµt.

Ram Lal and A. T. M. Sampat, for the respondent.

The Judgment of the Court was delivered by

. . Shah, C.~. The respondent who is the Karta of a Hindu Un- H . d1.v1de~ Famliy eD:tered on behalf of the family into a partnership. with one Devi Sharan Garg to carry oi:i the business ot

A manufacturing and selling pharmaceutical products and literaturerelating thereto.

On July 27, 1946 the partnership was dissolved . The assets of the firm which included goodwill, machinery, fUl)lliture, medicines, library and copyright in respect of certain publications were valued at the date of dissolution at Rs. 2,50,000/-.

The respondent was paid a sum of B Rs. 1,25,000/- in lieu of his share and the business together with the goodwill was taken over by Devi Sharan Garg.

In proceedings for assessment of the respondent foJ the year 194 7-48 the Income-tax Officer sought to bring an amount of Rs. 70,000/- to tax as capital gains. The contention raised by c the respondent that no part of the amount of Rs. 1,25,000/-

received by the respondent represented capital gains was rejected by the Income-tax Officer, Appellate Assistant Commissioner and the Income-tax Appellate Tribunal.

The Tribunal hiwever reduced the amounts capital gains brought to tax to Rs. 65,000/-.

Th~ Tribunal referred the following question to the High Court

0 of Allahabad under s. 66 (1) of the Indian Income-tax Act,.

1922:

"Whether on a true interpretation of sub-section ( 1) of section 12-B of the Income-tax Act. the sum of Rs. 65,000/- has been correctly taxed as capital gains".

E The High Court answered the question in the negative. Against that order, with certificate granted by the High Court, this appeal has been preferred.

Section 12-B ( 1), insofar as it is relevant provides :

"The tax shall be payable by an assessee under the

he.a~ "Capital gains" in respect of any profits or gaLns ansmg f1om the sale, exchange or transfer of a capital asset effected after the 31st day of March 1946 .

nd such profits and gains shall be deemed to be mcome of the previous year in which the sale, exchange or transfer took place : Provided

Provided further

Provided further that any transfer of capital assets . . . . . . . . on the dissolution of a firm or other association of persons. . . . . . . shall not for the purposes of this section, be treated as sale ex- <"1ange or transfer of the capital assets; '

SUPREME COURT REPORTS

[1971] 3 S.C.R.

Liability to pay capital gains arises under s. 12-B ( 1) if there be A a sale, exchange or transfer of capital assi; ts, There was no sale or exchange of his share in the capital assets of the firm by the respondent to Shri Devi Shara.n Garg.

N.or did he transfer his share in the capital assets.

The assets of the firm included the goodwill, machijllery, furniture, medicines library and the copyright in respect of certain publications.

A large B majority of the assets were incapable of physical division, and the partners agreed that the assets be taken over by Devi Shara.n Garg at a valuation, and the respondent be paid his share' of the value in money. Such an arrangement, in our judgment, amounted to a distribution.of the ; issets of the firm on dissolutiqn, There is no clause in the partnership agreement providing for the methqd c of d!i; solution of the firm or for winding up of its affairs.

In the course of dissolution the assets of a firm may be valued and the assets divided between the partners according to their respective _§_hares by allotting the individual assets or paying the money value equivalent thereof. This is a recognized method of making up the accounts of a dissolved firm. In that case the receipt_ of D .money by a partner is nothing but a receipt of his share in the distributed assets of the firm. The respondent received the money value of his share in the assets of the firm; he did not agree to sell, exchange or tr3JJ1Sfer his share in the assets of the firm. Payment of the amount agreed to be paid to the respondent under the arrangement of his share was therefore not in consequence 'E <>f any sale exchange or . transfer of assets.

To persuade us to take a different view, reliance was placed on behalf of the Revenue upon James Anderson v. C:ommissioner

of Income-tax B•'mbay C:ity(11). In that case the assessee held a power of attorney from the executor of a deceased person, in the course of the administration of hise estate. He sold certain F shares and securities belanging to the deceased for distribution among the legatees. The excess realized by sale was treated by the Income-tax Department as Capital gains. The contention of the assessee that since the sale of the shares and securities fell within the purview of the third proviso to s. 12-B(i)-it could not be treated as a sale of capital assets within the meaning of s. 12-B(l) was rejected by this Court. This Court observed that the object of the third proviso to s. 12-B(l ), in providing that "any distribiitjon of capital assets under a will" shall not be treated as safe, exchange or transfer of capital assets for the purpose of s. 12-B was that as Jong as there was distribution of capital assets in specie and no sale, there was no transfer for the purposes of that sectioo. but if there was a sale of the capital assets and profits or gains arose therefrom, the liability to tax

(1) 39 I.TR. 123.

- '

A arose, whether the sale was by the administrator or executor or a legatee, and that the expression "distribution of capital assets" in the third proviso to s. 12-B(l) meant distribution in specie and not distribution of sale proceeds.

That case has no application.

There was no distribution of capital assets between the legatees : the assessee had pursuant to the authority reserved to B him from the executor of the deceased person sold the shares and securities, and from the sale of shares and securities capital gains resulted.

In the case in hand there is no sale and payment of price, but payment of the value of share under ain arrangement for dissolution of the partnership and distribution the assets. The rights of the parties were adjusted by handing over to one of the C partners the entire assets and to the other partner the moneyvalue of his share.

Such a transaction is 111ot in our judgment a sale, exchange or transfer of assets of the firm.

In Commissioner of Income-tax, Madhya Pradesh, Nagpur & Bhandara v. Dewas Cine Corporaiion(') in dealing with the meaning of the expressions "Sale" and "sold" as us~ n s. (l 0) D (2)(vii) of the Income-tax Act, 1922, this Court observed that the expression "sale" in its ordinary meaning is a transfer of property for a price, and adjustment of the rights of the partners in a dissolved firm by allotment of its assets is [!lot a transfer for a price. In that case the assets were distributed among the partners and it was contended that the assets must in law be deemed E to be sold by the partners to the individual partners in consideration of their respective shares, and the dilferf!llce between the written"down value and the price realised should be included in the total income of the partnership under the second proviso to s. 10(2) (vii).

This Court observed that a partner may, it is true, in an action for dissolution i1nsist that the assets of the partner- F ship be realised by sale of its assets, but property allotted to a family in 'satisfaction of his claim to his share, cannot be deemed in law to be sold to him.

We therefore agree with the High Court that the question referred must be answered in the negative.

The appeal fails and is dismissed with costs.

G.C.

Appeal dismissed.

(2) 68 I.T.R. 240

C.I.T., U.P

BANKEY LAL VAIDYA (DEAD) BY L.RS

January 21, 1971

C. SHAH, C.J.

K. S. HEGDE

A. N. GROVER, JJ.

Income-tax Act, 1922

s. 128(1)

July 27, 1946

s. 12B(l)

Income-tax Act

CIVIL APPELLATE JURISDICTION

G S. K. Mitra

R. N. Sachtht!y

B. D. Sharma

Ram Lal

A. T. M. Sampat

Devi Sharan Garg

27, 1946

High Court

0 of Allahabad

s. 66

Income-tax Act

section 12

Income-tax Act

Section 12

s. 12

Devi Shara.n Garg

s. 12

s. 12

s. 12

s. 12

s. 12

Income-tax Act, 1922

s. 10(2)


COMMISSIONER OF INCOME TAX, CALCUTTA A

BURJ., OP DEALERS LTD.

January 21, 1971

[J. C. SHAH, C.l, K. S. HEGDE AND A. N. GROVER, JI.] B

Income-tax Act, 1922, s. 34(1) (a)-Scope of-As, essee disclosing primary facts necessary for assessment-Duty of Income-tax Officer to draw necessary inferences.

For the assessment year 1949-50 the assessee submitted a profit and Joss account disclosing a certain amount as profit in a joint venture and claimed that half df this ptofit was paid to R under a partnership agreement. The Income-tax Officer accepted the return and included only half of the profit in the joint venture in computing the assessee's total income.

In the next assessment year the assessee filed a return accompanied by a profit 'and loss account and claimed that it had transferred half the profit to R as his share.

But the Income-tax Officer on examination of the transactions brought• the entire amount of profit in the joint venture to

tax, holding that the partnership agreement was got up a devise to re- D> duce the profits received from the joint venture. This order was confumcd by the Tribunal and the High Court.

Meanwhile, the Income-tax Officer issued a notice under s. 34 of the Income-tax Act, 19'22 to reopen the assessment for the assessment year 1949-50 .itnd to assess the amount allowed in that assessment as paid to R.

The Income-tax Officer reassessed the income under s. 34(1)(a) and added that amount to the income returned by the assessee in the assessment year 1949-50. The Appellate Assistant Commissioner confirmed that order but the Tilbunal

reversed.

The High Court, on re'ference, answered in favour of the assessee.

Dismissing the appeal by the Revenue,

HELD : Under s. 34( 1) (a), if the assessee has disclosed primary facts relevant to the assessment, he is under no obligation to instruct the Income-tax Officer about the inference which the Income-tax Officer may raise 'from these facts. The terms of the Explanation to S. 34(1) also do not impose a more onerous obligation.

Mere productign. of the books of account or other evidence from which material facts could with due dili-· gence, have oeen discovered does not. necessarily amoullt to disclosure within the meaning of s. 34(1);.but where on the evidence and_the materials produced the Incme-taii Officer could have reached a conclusion other than the one which he has reached, a proceeding under s. 34(1) (a) will not lie merely on the groufi'd that the Iacolhe-tax Officer has raised an

infer~ce 'Which he may later regard as erroneous.

The assessee had 'disclosed his books of account and evidence from which material facts could be discovered.

It was 'for the Income-tax Officer to raise the necessary inference and if he did not do so the income which has escaped assessment cannot be brought to tax under s. 34(1)(a).

[413 CJ .

Calcutta Discount Co. Ltd. v. Income-tax Office•·, Companies District I, Calcutta & Anr. 41 I.T.R. 191, 200, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 649 of 1967.

H -

Appeal by special leave from the order dated May 4, 1966 o~ the Calcutta High Court in Income-tax Reference No. 114 ot 1965.

Jagadish Swarup, Solicitor-Genera/, Ram Panjwani, R. N.

Sachthey and B. D. Sharma, for the appellant.

C. K. Daphtary, B. P. Maheshwari aind K. R. j(.haitan, for the respondent.

The Judgment of the Court was delivered by

Shah, C.J. Burlop Dealers Ltd.-hereinafter referred to as C 'the assessee'-is a limited company.

For the assessment year 1949-50 the assessee submitted a profit and loss account disclosing in the relevant year of account Rs. 1,75,875/- as profit in a joint venture from H.

Mnory Ltd. and claimed that Rs. 87,937/- being half the profit earned from H. Manory Ltd. was

jJaid to Ratiram Tansukhrai under a partnership agreement. The D assessee stated that on Ju11e 5, 1948, it had e.ntered into a11 agreement with H. Manory .Ltd. to do business in plywood chests aind in considerat.ion oi financing the business the assessee was to receive 50% df the profits of the business.

The assessee claimed that it had entered into an agreement on October 7. 1948, with Ratir"1fl Tansu.khrai for flnanding the transactions E of H. Manary Ltd. in the joint veinture, and had agreed to pay to Ratiram Tansukhrai 50% of the profit earned by it from the business with H. Manary Ltd.

The Incometax Officer accepted the return filed by the assessee and included in computing the total income for the assessment year 1949-50 Rs. 87 ,937 /- qnly as the profit earned on the F joint venture with H. Manory Ltd. In the assessment year 1950- 51 the assessee field a return also accompal!ied by a profit and loss account disclosing a total profit of Rs. 1,62,155/- in the relevant account ear received from H.

Mainory Ltd., a11d claimed that it had transferred Rs. 81,077 /- to the accolljllt of Ratiram Tansukhrai as his share.

The Income-tax G Officer on examination of the transactions brought the entire amount of Rs. 1,62,155/- to tax holding that the alleged agreement of Octoer 1948 between the assessee and Ratiram Tansukhrai had merely been "got up as a device to reduce the profits, received from H. Manory Ltd.".

This order was cQllfirmed by the Appellate Assistant Commissioner and by the Income-tax H Appellate Tribunal.

The 'Tribunal then stated a case under s. 66 (1) cf the Income-tax Act to t)le High Court of Calcutta.

The High Court agreed with the view of the Tribunal and a.nswered the question against the assessee,

412 SUPJ!:EME COURT REPOR'fS

[1971] 3 S.C.R.

In the meanwhile on May 13, 1955, the Income-tax Officer A issued a notice under s. 34 to the assessee for the assessment year 1949-50 to re-open the assessment and to assess the amooot

of Rs. 8 7 ,93 7 / - allowed in the assessment of income-tax as paid to Ratiram Tansukhrai. The assessee filed a return which did not include the amount paid to Ratiram Tansukhrai.

The Income-tax Officer re-assessed the ncome under s. 34 ( 1) (a) and added Rs. 87,937 /- to the income returned by the assessee in the assessment year 1949-50. The Appellate Assistant Commissioner held that the Income-tax Officer was entitled to take action under s. 34(1) (a) of the Income-tax Act 1922 after the amendmeint in 1948, and to re-open the assessment if income had been under-assessed owing to the failure of the assessee to disclose fully and truly all material facts necessary for the assessment.

He confirmed the order observing that the assessee had misled the Income-tax Officer ipto believin!:i that there was a genui1ne arrangement with Ratiram Tansukhrai and had stated in the profit anu loss account that the amount paid to Ratiram Tansukhrai was the share of the latter in the partnership, whereas no much share was payable to Ratiram Tansukhrai.

In appeal against the order of the Appellate Assistant Commissioner the Income-tax Appellate Tribunal held that the assessee had produced all the relevant accounts and documents necessary for completing the assessment, and the assessee was under no obligation to inform the Income-tax .Officer about the true nature of the transactions.

The tribunal on that view revers- ed the order of the Appellate Assistant Commisisoner and directed that the amount of Rs. 87,937 /- be excluded from the total income of the assessee for the year 1949-50.

An application under s. 66 (1) of the InC:ian Income-tax Act F for stating a case to the High Court was rejected by the Tribunal.

A petition to the High Court of Calcuttta under s. 66(2) for directing the Tribunal to submit a statement of the case was also rejected.

The Commissioner has appealed to this Court.

Section 34(1) of the Indian Income-tax Act, 1922, as it G stood in the assessment year 1949-50 provided : "If- ( a) the Income-tax Officer has reason to elieve that by reason of the omissin or failure on the part of an assessee to make a return of income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains

chargeable to income-tax have escaped assessment for that year, or have been under-assessed.

(b) notwithstainding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to Income-tax have escaped assessment for any year, or have been under-assessed. he may in cases falling under clause (a) at any time within eight years and in cases falling under clause

(b) at any time within four years of the end of that year, serve on the assessee, . . . . a notice containing all or any of the requirements which may be included in a notice under sub-secti0\11(2) of section 22, and may proceed to assess or re-assess such income, profits or gains "

The Income-tax Officer had in consequence of information in his possessioin that the agreement with Ratiram Tansukhrai was a sham transaction reason to believe, that income chargeable to E tax had escaped assessment.

Such a case would appropriately fall under s. 34 (1 )(b). But the period pres¢ribed for serving a notice uinder s. 34 (1 )(b) had elapsed. Under s. 34 (1 )(a) the Income-tax Officer had authority to serve a notice when he had reason to believe that by reason of omission or failure oin the part of the assessee to disclose fully and truly al! material facts

neessary for his assessment for the year, ir.come chargeable to F tax had escaped assessment.

As observed by this Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies District I, Calc:utta and another(').

"The words used are "omission or failure to disclose fully and truly all material facts necessary for his assessment for that year". It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment.

What facts are material and necessary for assessment will differ from case to case.

In every assessment proceeding, he assessing authority will, for the purpose of computmg or determining the proper tax d.ue from ssessee, require to know all the facts which help hi!11 1n coming to the correct conclusion. From the pnmary facts

(!) 41 I.T.R.191. 200.

414 SUPREME COURT REPORTs

[1971 ]3 S.C.R.

in his possession whether on disclosure by the assessee, or discovered by him on the basis of the facts disclose, or otherwise, the assessilllg authority has to draw inferences as regards certain other facts; and ultimately, fr9m the primary facts and the further facts inferred from them, the authority has to draw the proj)er legal inferences, and ascertain. on a correct mterpetation of th<: taxing enactmeint, the proper tax Jeviable".

c We are of the view that under s. 34(1)(a) if the assessee has dis- .closed primary facts relevant to the assessment, he is under no obligation to instruct the Income-tax Officer about the inference which the Income-tax Officer may raise from those facts.

The terms of the Explanation to s. 34(1) also do not impose a more onerous obligation.

Mere production of the books of ac'(_ount or oth'er evidence from which material facts could with due diligence have been discovered does not necessarily amount to disclosure within the' meaning of s. 34 (1), but where on the evicteince and the materials p_roduced the Income-tax Officer could D have reached a conclusion other than one which he has reached, a proceeding under s. 34(1) (a) will not lie merely on the ground that the klcome-tax Officer has raised an inference which he may later regard as erroneous.

The. assessee had disclosed his books of account and evi- E dence from which material facts could be discovered : it was under no obligation to inform the Income-tax Officer about the possible inferences which may be raised against him. It was for the Income-tax Officer to raise such ain inference and if he did not do so the income which has escaped assessment ;:annot be brought to lay under section 34(1)(a).

F The appeal fails and is dismissed with . costs.

K.B.N.

Appeal dismissed.

~,}.

COMMISSIONER OF INCOME TAX, CALCUTTA

January 21, 1971

C. SHAH

K. S. HEGDE

A. N. GROVER

Income-tax Act, 1922

s. 34(1)

s. 34

Income-tax Act

s. 34(1)(a)

s. 34( 1)

S. 34(1)

s. 34(1)

s. 34(1)

s. 34(1)(a)

Jagadish Swarup

Ram Panjwani

R. N.

Sachthey

B. D. Sharma

C. K. Daphtary

B. P. Maheshwari

Shah

Burlop Dealers Ltd

H.

Mnory Ltd.

H. Manory Ltd.

Ratiram Tansukhrai

Ju11e 5, 1948

H. Manory .Ltd

October 7. 1948

Ratir"1fl Tansu.khrai for flnanding the

H. Manary Ltd.

H.

Mainory Ltd.

s. 66

Income-tax Act

s. 34

s. 34

s. 34(1)

Income-tax Act 1922

Income-tax Appellate Tribunal

s. 66

Income-tax Act

High Court of Calcuttta

s. 66(2)

Section 34(1)

Indian Income-tax Act, 1922

section 22

section 22

s. 34

s. 34

s. 34

s. 34(1)(a)

s. 34(1)

s. 34

s. 34(1)

section 34(1)(a)


TIIEPFULO NAKHRO ANGAMI

V• SHRIMATI RAVALU alias RENO M. SHAIZA January 21, 1971

[J. C. SHAH, C.J., G. K. MITTER, K. S. HEGDE, A. N. GROVER

AND A. N. RAY, JJ.] B

Appeal-Respondent in Supreme Court seeking to rals• qu•stions decided in favour of appellant by High Court-Respondent is entitl•d to raise such question even though he has not filed substantive qpptal against High Court's iudgment-Princlp/e applies to appeals under Representation of the People Act, 1951, s. 116A as a1nended in 1966--C'ourt can devise appropriate procedure In absence of express provlsions-Provislqns of Civil Procedure Code 0. XL/ r. 22 can be drawn upon.

In an election petition there were charges under s. 123(6) read with s. 77 of the Representation of the People Act, 1951 against the appellant.

The High Court decided against him. although absolving him of certain charges. The appellant filed an appeal in this Court under s. 116A of the Representation of the People Act, 1951 as amended in 1966. The respondent contended that he was entitled to submit without preferring a >ubstantive appeal to this Court that the charges in respect of which the D appellant had been absolved by the High Court were proved and he should therefore be allowed to raise those questions. On the matter being te ferred to a large bench:

HELD : The respondent's contention must be accepted.

In Rambhai Ashabhai Patel's case it was ruled that this Court has power to decide all the points arising from the judgment appealed against F and even. in the absence of an el>press provision like OXLI r. 22 of the Code of Civil Procedure, this Court can devise appropriate procedure to be adopted at the hearing and there could be no better way of supplying the deficiency than by drawing upon the provisions of a general law Jike the Code of Civil Procedure and adopting surh of those provisions as are suitable. The decision di the Court did not rest either on the ground that the appeal before it was brought by special leave or on the interpretation of s. J 16A as it then stood. [426 D-GJ F

Ramanbhai Ashabhai Pate/ v. Debbi Ajitkumar Pulsinji cf< Ors. [196S] I S, C.R. 712, followed and applied.

CIVIL APPELLATE JURISDICTION ; Civil Appeal No. 1125 of 1970.

Appeal under s. 116-A of the R$Presentation of the People G Act, 1951 from the judgment and order dated March 26, 1970 of the Assam and Nagala.nd High Court in Election Petition No. 2 of 1969.

S. V. Gupte, S. K. Ghose, Advocate-General, Nagaland, Naunit Lal, A. R. Bharthakar, R. C. Chaudhry and B. K. Dass, b~~~~ H A. S. R. Chari, R. K. Garg, D. P. Singh, R. K. Mn, V. I.

Francis and S. Chakravarty, for the respondent.

On January 14, 1971 the Court passed, the following

ORDER

After hearing the arguments we are of the view that under s. 116A of the Representation of the People Act, 1951 as amend- B ed by the Act of 1966, the respondent is entitled to mpport the judgment of the High Court without preferring an appeal against an order made against him if the ultimate decision in the petition is in his favour.

The reasons for this order will be given hereafter.

The Judgment of the Court was delivered by

Hegde, J.

The decision on the .question of law considered by this Bench was announced on the 14th of this month.

We are now proceeding to give our reasons in 'support of that decision.

On September 14, 1970, two of us (Shah, C.J. and Grover, J.) passed the following order :

"This appeal raises an important question of procedure. We have heard learned Counsel appearing Qll behalf of the parties. Mr. Gupte appearing for the appellant contended that the charge under s. 123(6) read with s. 77 of the Representation of the People Act was not made out. Mr. Chari appearing on behalf of the respondent contended that he was entitled to submit without preferring a substantive appeal to this Court that the charges in respect of which the appellant has been absolved by order of the High Court are proved and he should be permitted to raise those questions in this appeal. Our attention has not been invited to any case which interprets the provisions of s. 116(A) of the Representation of the People Act at it stands after the amendment made in the year 1967:

In view. of the importance of the question, we direct that the case be referred to a larger bench of five judges.

Hearing expedited.

Though the entire appeal was referred to a larger bench for decision, at the hearing it was considered advisable to decide only the question of law set out in the order and not the whole case.

We accordingly heard arguments only on that question. In our opinion that question is concluded by the decision of this Court H in Ramanbhai Ashabhai Patel v. Debhi Ajitkumar Fulsinji and'

Ors.(1)

(I) [1965] 1 S.C.R. 712.

426.

SUPREME COURT REPORTS

Mr. S. V. Gupte, learned Counsel for the appellant tried to A distinguish that decision on two grounds viz. ( 1) that the decision in question was rendered in an appeal to this Court by special leave and as such the jurisdiction of this Court was much wider lhan that conferred on this Court by s. l 16A of the Representation of the People Act, 1951 and (2) that the scope of an appeal under.s. 116A before its amendment in 1966 wasdifferent than B from its scope at present. We are unable to accept either of these two contenti<; ms.

In the above decision, it was ruled that this Court has power to decide all the points arising from the judgmen' appealed against and even in the absence of an express provision like 0. XLI, r. 22 of the Code of Civil Procedure, this Court can devise appropriate procedure to be adopted at the hearing and there could be no better way of supplying the defi- .ciency than by drawing upon the provisions of a general law like the Code of Civil Procedure and adopting such of those provisions .as are suitable. The decision of the Court did not rest either on .the ground that the appeal before it was brought by special leave •Of this Court or on the interpretation of s. 116A as it than stood.

The reasons behind 1he rule laid down by this Court are found D .at p. 725 of the report. Therein it is observea :

"It is true that the rules framed by this Court in exercise of its rule making powers do not contain any provision analogous to 0. XLI, rule 22 of the Code of .Civil Procedure which permits a party to support the judgment appealed against upon a ground which has been found against him in that judgment. The provision nearest to it is the one contained in 0. XVIII, r. 3 of the Rules of this Court which requires parties to file statement of cases. Sub-rule ( 1) of that rule provides that Part I of the statement of the case shall also.set out the contentions of the parties and the points of Jaw and fact arising iri the appeal.

I~ further provides that in Part II a party shall set out the prositions of law to be urged in support of the contentions of the party lodging the case and the authorities in support . thereof.

There is no reason to limit the provision of this rule only to 'those contentions which deal with the point& found in favour of that party in the judgment appealed from.

Apart from that we think that while dealing with the appeal before it this Court has the power to decide all the pomts arising from the judgment awealed against and :even in the absence of an express provision like

0. XLI, r. 22 of the Code of Civil Procedure it can devise the appropriate procedure to be adopted at the hearing. There could be no better way of supplying the deficiency than by drawing upon the provisions of a

general law like the Code of Civil Procedure and adopting such of those provisions as are suitable. We cannot lose sight of the fact that normally a party in whose favour the judgment appealed irom has been given wm not be granted special leave to appeal from it. Considerations of justice, therefore, require that this Court should in appropriate cases permit a party placed in such a position to support the judgment in his favour even upon grounds which were natived in that judgment."

The decision referred to abO'l'e will govern the q uesti_on of law with which we are connected in this case. The appeal was C already directed by the Chief Justice to be posted before the Bench presided over by Mitter J. for further hearing.

G.C.

TIIEPFULO NAKHRO ANGAMI

SHRIMATI RAVALU alias RENO M. SHAIZA

January 21, 1971

C. SHAH, C.J.

G. K. MITTER

K. S. HEGDE

A. N. GROVER

A. N. RAY, JJ.

Representation of the People Act, 1951

s. 116A

s. 123(6)

s. 77

Representation of the People Act, 1951

s. 116A

Representation of the People Act, 1951

Rambhai Ashabhai Patel

the Code of Civil Procedure

the Code of Civil Procedure

Ramanbhai Ashabhai Pate/

CIVIL APPELLATE JURISDICTION

s. 116

Presentation of the People G Act, 1951

S. V. Gupte

S. K. Ghose

Naunit Lal

A. R. Bharthakar

R. C. Chaudhry

B. K. Dass

A. S. R. Chari

R. K. Garg

D. P. Singh

R. K. Mn

V. I.

Francis

S. Chakravarty

s. 116A

Representation of the People Act, 1951

Hegde

14th of this month

September 14, 1970

Shah

Grover

Gupte

s. 123(6)

s. 77

Representation of the People Act

Chari

s. 116(A)

Representation of the People Act

[1965] 1 S.C.R. 712

Representation of the People Act, 1951

s. 116A

the Code of Civil Procedure

the Code of Civil Procedure

s. 116A

the Code of Civil Procedure

the Code of Civil Procedure

Mitter