y r

EKNATH SHANKARRAO MUKKAWAR

STATE OF MAHARASHTRA

April 12, 1977

5!3

{Y. V. CHANDRACHUD, P. K. GOSWAM! AND P. N. SHI:-IGHAL, JJ.]

Re1lsional jurisdiction-Suo motu po!vrs of tire 1/ig!J Court to wlrancc sentence-Power not takm away by proi'ISI0/1 for appeal against illlldtquacy of se111ence by the Stale Govemml'llt or the Central Govermncnt-Crlrni~al Procl'durc Coac. C1ct ll of 1974), 1973, section 397 read with s. 401 (Section 435/-439, CmmtUJI Proctdure Code, 1898).

Crfminal Procedure fode (Act 11 of 1974), 1973, Section 317(1), (21- Meanmg of the words by any other a~ncy empowered to make investiatiolt into any oOem:_e under any Central Act"-lm•estigation under Pr., emion cf Pood Adulterntton Act by Food lttrpcctors-Sution 377(1) and not.._ 377(2) o!rh1 Cr. P. C. applies-Appeal at the instance of State Go>•ernrnent is mainlaiTUJble.

Prc•emion of Food Adulteration Act, 1954, Section 16(1), Pro•i.<o [- Power to impose S<"lltence less thatt minintttm-lnrerference by appellate ccmrt.

' Appeal against inadequacy of scllfcnce-Power of court to alter cotll'l'ction to an aggral'ated caregory-CrimiMI Procedure Code (Act II of 197-4), 1973, Section 377- Scope of.

Practice and precedents-Binding effect of decisiOIIS of coordinate court.

 The llppcllant nnd his !.1ther were t:harged u/s. 2(1) (c) of the Prc\-ention of Food Adulteration Act, 19j.f for adulteration of chilly powder. The &ample of chilli powder which was seiud by the Food ln.sP.ector on April 13, 1974 cont<aincd 37.25% of the total ash against the permis~1ble pert:entage or 8%. It Y.lS atakd in the Analyst"5 nport that the percentage of e., tr:tneou5 matter which \\&s common salt mixed with the chilli power was 32.-4%. The judicial magis- Irate, Udgir, found that the chilli powder wu adulterated within the meaning of

1. 2(i) of the Act and convicted the appellant under e. 16(1) Cal (i), proviso I of the Preention of Food Adulterauon Act, 1954 r/w s. 2(1)(1) and s. 7(1) !J( the •id Act and sentenced him to simple imprtonment Ill! the risin~: of the court and to pay a lin.: of Ks. SOO /· nnd in default rigor~ us lmprisooment

lor two month~. T~ 11ppellant's fnther was, however. ncqu1tted. The St:ttc of Aiahara.htra preferred an appeal agrunst the order of acqUittal of the father Hod again,! the mdequacy of the bCntence awarded to the appellant. The H1gh Olurt di.!m~ the appeal agairut acquittal of th~ appe!laot's father but allow~.! the appeal of the State '"'ith regard to the inadequacy o~ the sentef!Ce. A!lifl!lina the conviction of the appelluot under s. 16(1) (a) (1) r/w sectJo~ 2(1)(•). and 7(1) of the Act, the High Court enhanc~ the senl~!1c¢ to. slX, months imple imprisonment and a line of Rs. 1000/-, 1n default s•mple 1mpnsooment '"' two months.

Allowin1: the appeal by •reciul leave, the Court, HElD : (I) The new Code uf Criminlll Procedure, 1973 ha~ .not al~<i rbe High Court'a pov.er of enhancement of senten.ce y exercJSm8 f re~•on_a iurbdktion suo mo1u. The proviion for appeal IIIJ111nsJ madcu)cJd ~0 seuh'~

by the SUite Government or the Central Government Dell no1 e riat" concJu\ioo. High Courts power of enhanmef!l o! sei:~~"u/~

83~7~~~~:P with ':lee by exerciiina 3UO motu power of revrsloo 11 btill ctho High. cOurt eao "by

~· . ~! Criminal Procedure Code, l:J-3, tna;~~~ h':fcrior criminal court under lllielf e:..ll for the record of proce 101l' 0 Is bar to a party who d<lell not its Jurudictlon. The provision of': -401 (-4) . such 8 legal bar under

app~:<~[ when appeal liCll, . but applies tot! u 15~ 0Court's exorcise of power of ' ~~1(4) d~ not atand m t~ wnr .o.! .. r'~ ingtho new Code.l'-''H, $46A.CJ tev~•on s11o molu, wbkh c:ontlnu~ a> "" 0

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1.·

~· ' I, r

SUPREME COURT REPORTS

[1977] 3 S.C.R.

(2) Under sub-section (l) of s. 377, the State Government has a right to appeal against the inadequacy of sentence in all cases other than those referred to in sub-section (2) of that section. The true test under s. 377(2) Criminal Procedure Code is whether the offence is investigated by the Delhi Special Police Establishment or is investigated by any other agency empowered to make investigation under any Central Act other than the Code of Criminal Procedure.

In other words, just like s. 3 of the Delhi Special Police Establishment Act, there should be an express provision in an Act empowering the making of investigation under the Act No such express provision is found in tbe Prevention of Food Adulteration Act. Mere provision of an in-built mechanism of some kind of investigation in that Act is not decisive of the matter. There should be an express provision in that Act empowering the Food Inspectom to make investigation of offences under the Act. In the absence of any express provision in the Act in that behalf, it cannot be held that the Food Inspectors are empowered to make investigation under the Act.

Section 377(2) Criminal Procedure Code, therefore, is not attracted and the appeal under s. 377(1), Criminal Procedure Code at the instance of the State Government is maintainable. [517 A, H, 518A, B, C, F}

(3) The Prevention of Food Adulteration Act provides that when conviction is under s. 16(1) (a) {i) for selling an adulterated article coming within the

- definition of section 2(i) (1 ), the Magistrate by recording adequate and special reasons has jurisdiction to award a sentence less than the minimutn.

[519-H-520 A-C]

(4) Courts have to give due recognition. to the intent of the Legislature in awarding proper sentence including the minimum sentence in appropriate caaes described under the Act. When the Legislature itself intends not to visit an offence under the Act with an equal degree of severity under specified circumstances, it is permissible for the courts to give the benefit in suitable cases. {519 F-Gl

( 5) In an appeal under s. 3 77, Criminal Procedure Code, the High Court may interfere with the sentence, if no reasons for awarding a lesser sentence are recorded by the Magistrate. Again if the reasons recorded by the Magistrate are irrelevant, extraneous, without materials and grossly inadequate, the High Court will be justified in enhancing the sentence. In the instant case the reasons given by th: Magistrate were not so grossly inadequate that the High Court could interfere with the sentence in a petty case. [520 A-B, C]

( 6) In an appeal against inadequacy of sentence it is not permissible to alter a conviction to an aggravated category of offence for which the accused was not convicted. While the accused in such an appeal under s. 377 can show that he is innocent of the offence, the prosecution is not entitled to show that be ls guilty of graver offence and that on that basis the sentence should be enhanced.

The prosecution will only be able to urge that the sentence is inadequate on the chargl! as found or even on an altered Jess graver charge. [519 DE]

(7) When there is a decision of a co-ordinate court, it is open to the Judge to differ from it, but in that case, the only judicial alternative is to refer to a larger Bench and not to dispose of the appeal by taking a contrary view.

Judicial discipline as well as decorum should suggest that as the only course.

1520 F1

76~

CRIMINAL APPELLATE JuRISDICTioN: Criminal Appeal No. 577 I •

(Appeal by Special Leave from the Judgment and Order dated the 4th Nov. 1976 of the Bombay High Court in Criminal Appeal No. 448 of 1973).

H V. M. Tarkunde, S. V. Tambwekar and Miss M. Tarkunde, for the appellant.

H. R. Khanna and M. N. Shroff, for the respondent".

EKNATH SHANKARRAO MUKKAWAR v. MAHARASHTRA 515 (Goswami, J.) The Judgment of the Court was delivered by

GoswAMI, J.-The appellant was convicted by the Judicial Magistrate, Udgir, under section 16(1)(a)(i) proviso (i) of the Prevention of Food Adulteration Act, 1954, read with section 2(D(l) and section 7 (i) of the said Act and sentenced to simple imprisonmen_t till rising of the court and to pay a fine of Rs. 500/-, in default rigorous imprisonment for two months.

The appellant's father who was also charged for the same offence was, however, acquitted.

The charge against the appellant was that he sold chilli powder which was adulterated inasmuch as the percentage of the total ash was more than the permissible limit.

The sample of chilli powder which was seized by the Food Inspector on April 13, 1974, contained 3 7.25% of the total ash against the permissible percentage of 8%. It was stated in the Analyst's report that the percentage of extraneous matter which was common salt mixed with the chilli powder was 32.4%. The learned Magistrate found that the chilli powder was adulterated within the meaning of section 2(i) (I) although the prosecution was on the basis of the article being adulterated within the meaning of section 2 (i )(c) of the Prevention of Food Adulteration Act, 1954 (briefly the Act).

The State of Maharashtra preferred an appeal against the order of acquittal of the father of the appellant and against the inadequacy of the sentence awarded to the appellant. The High Court dismissed 1he appeal against acquittal of the appellant's father but allowed the appeal of the State with regard to the inadequacy of the sentence. The High Court while affirming the conviction of the appellant under section 16(l)(a)(i) read with sections 2(D(I) and 7(i) of the Act enhanced the sentence to six months' simple imprisonment and a fmc Df Rs. 1000/-, in default simple imprisonment for two months.

Hence this appeal by special leave.

Mr. Tarkunde, appearing on beh-alf of the appellant, submits that the appeal by the State of Maharashtra under section 377 (1), Criminal

Procedure Code, 1973, was incompetent in view of the provisions of sub-section (2) of that section.

He further submits that the High Court was not at all justified in a case of this nature to interfere with the sentence when the trial court had given adequate reasons for imposing the lesser sentence.

It is also pointed out, more or less as an alternative sumission, that the power of th.e High Court to enhance sentence hrch was available under sectton 435/439 Cr.P.C. of the old Code rs replaced by the provision of appeal under section 377 Cr.P.C. of the new Code.

It is also stated that the High Court's power of revision, suo motu, long exercised nder the old Code !s nw taken away under the new Code by providrng for apppeal agamst madequacy of sentence. The above submission is. put forward ex abundanti caufelalest we. ay

not interfere with the sentence imposed by the Hrgh Court havng regard to the possibility of exercise of powrs, suo motu, y he High Court for enhancement of sentence assummg the appeal 1s mcompetcnt on the ground urged by the appellant.

5!6

(1977] 3 S.C.R.

. V(c -should at once remove the misgiving that the new Code of Cnmmal Procedure, 1973, has abolished th~ High Court's power of !enhancement of sent~ce by exercising rev1sional jurisdiction, suo motu.

The prov1S1on for appeal against inadeq_uacy of sentence by the State Government or the Central Government does not lead to sucl.1 a conclusion.

High Court's power of enhancement of senenc~, m an appropriate case, by exercising suo motu power of revision

JS stlll extent under section 397 read with section 401 Criminal Procedure Code, 1973, inasmuch as the High Court can "by itself" calf for the record of proceedings of any inferior criminal court under its jurisdiction. The provision of section 401 ( 4) is a bar to a party, who docs not appeal, whe_n appeal lies, but applies in revision.

Such a legal bar under section 401 ( 4) does not stand in the way of the High Courts exercise of power of revision, suo motu, which continues as before in the new Code. ·

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Before we proceed further we may set out section 3 77 (1) and: ... ........_

(2) Cr. P. C. with. which we arc concerned :

377. ( 1) "Save as otherwise provided in sub-section (2), the State Government may, in any case of conviction on a trial held by any Court other than a High Court, direct the Public Prosecutor to present an appeal to the High Court against the sentence on the ground of its inadequacy.

(2) If such conviction is in a case in which the offence has been investigated by the Delhi Special Police Establishment, constituted under the Delhi Special Police Establishment Act, 1946, or by any other agency empowered to make investigation into an offence under any Central Act other than this Code, the Central Government may direct the Public Prosecutor to present an appeal to the High Court against the sentence on the ground of its inadequacy".

Mr. Tarkundc emphasised upon the difference of language . in section 377(2) and section 378(2) Cr. P.C.

In the latter section the word "also" appears making provision for both the State Govern-

''tr'

ment and the Central Government to appeal against acquittal. 9:

On the other hand it is urged on behalf of the State that the word "also" may be read in section 377(2) Cr.P.C. in the context of the scheme of the two provisions in section 377 and section 378 Cr.P.C.

It is true that section 378(2) follows the pattern of section 417(2) of the old Code and the right to appeal is confrred upon both te State Government and the Central Government m express terms m section 378(2). It is clear that the legislature has maiJ?.tained. a watertight dichotomy while dealing the D?atter of appeal agamst inadequacy of sentence.

We agree that m the absence of a similar word "also" in section 377 (2) it is not possible for the court

EKNATH SHANKARRAO MUKKAWAR V. MAHARASHTRA 517 (Goswami, J.) to suppply a casus omissus. The two sections, section 377 and section 378 Cr. P. C. being situated in such close proximity, it is not possible to hold that omission of the word "also" in section 37i(2) is due to oversight or per incuriam. ·

 Secon 37~ Cr. P. C. introduces a new right of appeal which was not earl1er avmlable under the old Code.

Under sub-section ( 1) of section 377 Cr. P. C. the State Government has a right to appeal against inadequacy of sentence in all cases other than those referred to in sub-section (2) of that section.

This is made Clear under section 377 (1) by its opening clause "save as otherwise provided in

subection (2)". Sub-section (2) of section 377, on the other hand, confers a right of appeal on the Central Government against a sentence on the ground of its inadequacy in two types of cases :

( 1) Those cases where investigation is conducted by the Delhi Special Police EstaQtishment constituted under the Delhi Special Police Establishment Act, 1946.

( 2) Those other cases which are investigated by any other agency empowered to make investigation under any Central Act not being the Code of Criminal Procedure.

There is no difficulty about the first type of cases which are investigated by the Delhi Special Police Establishment where, certainly, the Central Government is the competent authority to appeal against inadequacy of sentence.

The controversy centres round the second type of cases viz., E those which arc investigated by any other agency empowered to make investigation under any Central Act not being .the Code of Criminal Procedure.

The Criminal Procedure Code inter alia, provides for investigation of all categories of criminal offences. The First Schedule of the Code

classifies offences under the Indian Penal Code as well as offences against other laws.

Between the above two classifications the entire denotation of criminal offences is exhausted. It is clear that the Delhi Special Police Establishmeqt also has to comply with the provisions of the Cede of Criminal Procedure in investigation of offences just as the State Police has to do.

By ~&ection 3 of the Delhi Special Police Establishment Act, the Central Government may by notification in the official gazette specify the offences or class of offences which are to be investigated by the Delhi Special Police Establishment. It is only when uch a. notifia tion is made by the Central Government that the Delhi Spec1al Pohce Establishment is empowered to investigate the specified offences.

Similarly if in any other Central Act, not being the Code of Criminal Procedure, a provision is made for empowering a particular agency

to make investigation of offences under that Act, then also the Central Government alone will be the competent authority to prefer appeal under section 377 (2) Cr. P. C. The true tes.t! .theret:ore, under section 377 (2) Cr. P. C. i~ whether the offence 1S mvestlgated by the

Delhi Special Police Establishment or is investigated by any other agency empowered to make investigation under any Central Act other than the Code of Criminal Procedure. In other words, just like section 3 of the Delhi Special Police Establishment Act, there should be an express provision in the Prevention of Food Adulteration Act empowering the making of investigation under the Act. But no such express provision is found in the Prevention of Food Adulteration Act.

Mr .. Tarkunde took us through all the relevant provisions of the Prevention of Food Adulteration Act and in particular rule 9 of the Central ~lcs to 'point ot tha.t it_ is a self-contained code detailing the reqs1tc manner of mvestlgatlon for the purpose of efficient prosecution of offenders under that Act.

Mere provision of an

in-u_ilt mechanism of some kind of investigation in that Act is not dectstve of the matter.

There should be an express provision in that Act empowering the Food Inspectors to make investigation of offences under the Act.

It is true that investigation under section 2(h) Cr. P. C. is an inclusive definition and is of wide import. It may also be true that some of the powers exercised by the Food Inspectors under section 10 of the Act are included in the imrestigatory process of the police although the Food Inspectors have no powers of arrest of the offenders unless they refuse to give name and residence or give suspicious name or residence.

This procedure in the Act follows from the fact that on the date of taking a sample of an article, the Food Inspector :is not in a position to come to a conclusion whether the article is adulterated within the meaning of the Act.

It is only on receiPt of_ the Analyst's report certifying the article to be adulterated that the Food Inspector will be able to submit a report to the Magistrate for taking cognizance of the offence and his report will have to be accompanied also by a written consent of the appropriate authority under section 20 of the Act The scheme of the Act is such that the case is instituted on his report and dealt with under the Criminal Procedure Code as a case of which cognizance is taken under section 190(1 )(a) of the Criminal Procedure Code. In the absence of any express provision in the Act in that behalf it is not possible to hold that the Food Inspectors are empowered to make investi~Sation under the Act.

Section 3 77 (2) Cr .P. C., therefore, is not attracted and the appeal under section 377(1) Cr.P.C. at the instance of the State Government is maintainable.

The first submission of the appellant has no force.

With regard to the second and last submission on sentence Mr.

Khanna on behalf of the State submits that this was a case under section 16 for violation of section 2(i)(c) of the Act in which case the Magistrate had no jurisdiction to award a sentence less than six months.

According to counsel, the High Court was right in enhancing the sentence of the appellant.

We are concerned in this case with the Prevention of Food Adulteration Act prior to the amendment by Act 34 of 1976, which

)I... ..

•. -4:

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EKNATH SHANKARRAO MUKKAWAR V. MAHARASHTRA 519 (Goswami, 1.) inter alia, amended section 2 ( i) (1) and added a sub-clause ( m) to section 2 ( i) . ,

It is true that under section 16(1) (a) (i) if any person sells any article of food which is adulterated he shall b~ punishable with imprison~

ment for a term which shall not be less than six months but which may extend to six years and a fine which shall not be less than one thousand rupees.

The proviso to that section, however, relieves an offence under sub-clause (i) of clause (a) when inter aUa, it is with respect to an article of food which is adulterated under sulrclause

(1) of clause (i) of section 2, from the rigour of the above penal provision and the court may, for any adequate and special reason, impose a sentence of imprisonment for a term of less -than six months or a fine of less than one thousand rupees etc.

It is by invoking the above proviso that the trial court sentenced the appellant as set out above:

Mr. Khanna submits that we should alter the finding of conviction to one for violation of section 2(i)(c) from section 2(D(l), since, according to him, that will be the proper conviCtion on the facts. 0}'

the case.

We are unable to entertain this plea for altering the conviction in such a manner for the purpose of enhancing the sentence under section 377 Cr.P.C.

The State did. not appeal against the acquittal of the appellant under section 16(1) (a) (i) read with section 2(i)(c) and proceeded on the basis that the article was adulterated within the meaning of section 2(i) (1) as held by the trial court.

This is clear also from the judgment of the High Court. In an appeal against inadequacy of sentence it is not permissible to alter the conviction to an aggravated category of offence for which the accused was not convicted. While the accused in such an appeal under section 377 Cr.P.C. can show that he is innocent of the offence, the prosecution is not entitled to show that he is guilty of a graver offence and on that basis the sentence should be enhanced.

The prosecution will only be able to urge that the sentence is inadequate on the charge as found or even on an altered less graver charge.

The submission of Mr. Khanna is clearly untenable.

Mr. Khanna next submits that this Court should not interfere with the sentence in a case under the Prevention of Food Adulteration Act :as the offence is against society at large affecting the health and wellbeing of the people in general.

We are alive to the seriousness of offences under the Prevention of Food Adulteration Act. Courts have to give due recognition to the intent of the legislature in awarding proper sentence including the minimum sentence in appropriate cases described under the Act. such offences cannot be treated in a lighthearted manner. Even so justice has to be done in accordance with 1aw. The Prevention of Food Adulteration Act, itself, permits for some leniency in an excepted category of cases as pointed out earlier.

When the legislature itself intends not to visit an offence under the Act with an equal degree of severity under specified circumstances, it is permissible for the courts to give the benefit in suitable cases.

As seen earlier the Prevention of Food Adulteration Act provides that when convictin is under section 16(]) (a) (i) for selling r.n adulterated article coming within the defi'nition of section 2(i)(l), the

(1977] 3 S.C.R.

Magistrate, by recording adequate and special reasons, has jurisdiction

t? award a sentence less than the minimum. In an appeal under section 377 Cr.P.C. the High Court may interfere with the sentence if no reasons for awarding a lesser sentence are recorded by the Magistrate.

Again, if the reasons recorded by the Magistrate are irrelevant, extraneous, without materials and grossly inadequate, the High Court will be justified in enhancing the sentence. . ·

While dealing with the question of sentence the Magistrte noted that the appellant was a small retail shopkeeper who had only 3 kgs.

of chilli powder in his shop for sale out of which 450 gms. were purchased by the Food Inspector.

He also considered the nature of the offen<; e as disclosed in the report of the Public Analyst. There is nothing in the evidence to show that any injurious ingteaicnt to health was mixed with the article.

We find that the Magistrate had the jurisdiction under the first proviso to section 16 ( 1 ) to a ward less than the minimum sentence in this case by recording adequate and special reasons. We are unable to hold that the reasons given by the Magistrate are so grossly inadequate that the High Court was right in interfering with the sentence m this petty case.

We must hasten to add that the matter would have been absolutely different if the article sold contained ingredients injurious to health.

Our attention is drawn to a disquieting feature in the procedure adopted by the learned single Jud.ge (G. N. Vaidy~, J.) in disposin$ of the appeal.

The learned Judge tgnored the dec1smn of another ~; mgle Judge of the same court (J. M. Gandhi, J.) who had earlier held in a similar case that the appeal by the State was not competent under section 377(1) Cr.P.C. It is true that the decision is pending before this Court in appeal by special leave.

That, however, cannot be sufficient reason for the learned Judge to ignore it and observe that it is

"unnecessary to keep back this matter till the Supreme Court decides matter". When there was a decision of a coordinate court, it was open to the learned Judge to differ from it but in that case the only jlldicial

alternative was to refer it to a larger bench and not to dispose of the appeal by taking a contrary view.

Judicial discipline as w~U as decorum should suggest that as the only course.

In the result the appeal is allowed and the judgn1e?t and order of the High Court arc set aside. The appellant shall be dtscharged from his bail bond.

S.R.

Appeal allowed.

r

EKNATH SHANKARRAO MUKKAWAR

STATE OF MAHARASHTRA

April 12, 1977

Y. V. CHANDRACHUD

section 397

s. 401

Section 435

CmmtUJI Proctdure Code, 1898

Section 317(1)

Pood Adulterntton Act

Food Adulteration Act, 1954

Section 16(1)

CrimiMI Procedure Code

Section 377

s. 2(1)

Food Adulteration Act

Preention of Food Adulterauon Act, 1954

s. 2(1)(1)

s. 7(1)

s. 16(1)

Criminal Procedure Code

s. 377

s. 377(2)

Delhi Special Police Establishment

Code of Criminal Procedure

s. 3

Delhi Special Police Establishment Act

Section 377(2)

Criminal Procedure Code

s. 377(1)

Criminal Procedure Code

s. 16(1)

section 2(i)

s. 3

Criminal Procedure Code

s. 377

H V. M. Tarkunde

S. V. Tambwekar

H. R. Khanna

M. N. Shroff

GoswAMI

section 16(1)(a)(i)

section 2(D(l)

section 7

April 13, 1974

section 2(i)

section 2

State of Maharashtra

section 16(l)(a)(i)

sections 2(D(I) and 7(i)

Tarkunde

section 377

Procedure Code, 1973

Cr.P.C

section 377

Cr.P.C

Code of Cnmmal Procedure, 1973

Central Government

section 397

section 401

Criminal Procedure Code, 1973

section 401

section 401

section 3

Tarkundc

section 377(2)

section 378(2)

section 377(2)

Cr.P.C

section 377

section 378

Cr.P.C

section 378(2)

section 417(2)

section 378(2)

section 377

Goswami

section 377

section 378

section 37

section 377

section 377

section 377

Code of Criminal Procedure

Code of Criminal Procedure

First Schedule

Indian Penal Code

Delhi Special Police Establishment Act

Delhi Spec1al Pohce Establishment

Similarly if in any other Central Act

Code of Criminal Procedure

section 377

section 377

Code of Criminal Procedure

section 3

Delhi Special Police Establishment Act

section 2(h)

section 10

section 20

section 190(1 )(a)

Section 3

section 377(1)

Cr.P.C

Khanna

section 16

section 2(i)(c)

We are concerned in this case with the Prevention of Food Adulteration Act prior to the amendment by Act 34 of 1976, which

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EKNATH SHANKARRAO MUKKAWAR V. MAHARASHTRA 519 (Goswami, 1.)

section 2

section 2

section 16(1)

section 2

Khanna

section 2(i)(c)

section 2(D(l)

section 377

Cr.P.C

section 16(1)

section 2(i)(c)

section 2(i)

section 377

Cr.P.C

section 16(])

section 2(i)(l)

section 377

Cr.P.C

section 16

G. N. Vaidy~

J. M. Gandhi

section 377(1)

Cr.P.C

Supreme Court


NRJSINGHA MURARI CHAKRABORTY & ORS A

STATE OF WEST BENGAL April 12, 1977

[Y. V. CHANDRACHUD, P. K. GOSWAMI AND P. N, SHINGHAL. JJ.J

indiun Penal Code 1860-Sec. 415·420-whether Passport is a Property- Meaning of property.

The appellants \Vere charged under section 420 read with section 120B of the Indian Penal Code on the ground that there was a conspiracy between them as a result of which hundreds of applications were filed for the issue of pass ports. The applications were made by suppressing the real facts about the nationality and addresses of the applicants and by making false representations in several other respects. The prosecution alleged that hundreds of passports were issued and delivered to persons who were not entitled to have them under the law.

Special Leave was granted limited to the question whether the pass ports were property within the meaning of section 420 of the Indian Pchal Code.

Dismissing the appeal,

HELD : I. A passport is a document which by its nature and purpose i3 a political document for the benefit of its bolder. It recognises him as a citizen of the country granting it and is in the nature of a request to the other country D tor hia free passage there.

[522-C] Satwant Singh Sawhney v. D. Raniuratlmam (1967) 3 SCR 525 refercd to;

Abhayanand Mishra v. The State of Bihar (1962) 2 SCR 241 followed; Queen Empress v.

Appasan1i (1889) I.L.R. 12 Mad. 151 and Queen Enrpres. v. Sashi Bhuslian (1893) I.L.R. 15 All. 210 approved; Ishwarlal Girdharilal Parekh v. State of Maharashtra and Other (1969) 1 E SCk 13 followed:

Jn Packiannthan A.I.R. 1920 1iad. 131 ( 1) and Local Governnze11t v.

Ganga Ram A.l.R. 1922 Nagpur 229 approved.

2. The word 'property' is defined as the right to the use or enjoyment or the beneficial right of disposal of anything that can be the subject of ownership, specially ownership of tangible things. Passport is a tangible thing and is capable of ownership. It is the property of the State so long as it is with the passport issuing authority and has not been issued to the person concerned, and after issue F it becomes the property of the person to \vhom it bas been granted. Passport can be the subject of ownership or exclusive possession and is therefore property within the meaning of sections 415 and 420 1.P.C. [523 A-C, 524 GJ CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 277 of 1971.

Appeal by Special Leave from the Judgment and Order dated the 23rd June, 1971 of the Calcutta High Court in Cr!. A. No. 45 of 1964.

G P. K. Chatterjee and Rathin Das for the Appellanis.

D. N. Mukherjee and G. S. Chatterjee for Respondents.

The Judgment of the Court was delivered by SHINGHAL, J.-Thi> appeal by special leave is directed against the judgment of the Calcutta High Court dated June 23, 1971, upholding H the conviction of the appellants for offences under sections 420 znd 420/120B of the Penal Code but reucig their sen.tences.

The charge related to cheating the passport 1ssumg authority of the Hooghly

district by disho!1estly indcing him to _iss)le passports on the basis of false .representations.

This Court has limited the special leave to the

quet10n whether the passports were "property" within the meaning of sect10n 420 of the Penal Code ? ·

Speaking broadly, the allegation against the appellants was that

tere was a conspiracy btween them as a result of which 1480 applications were file~ for the issue of passports from July, 1956 to April, 1957, by Muslims and Chinese nationals.

These applications were alleged to have been made by suppressing the real facts about the nationality and addresses of the applicants, and by making false representations in several other respects.

The prosecution alleged titat hundreds of passports were thus issued and delivered to persons who were not entitled to them under the law.

Some of the appellants were alleged to be directly concerned with those applications, and it was further alleged that the orders of the Passport Authority were obtained by dishonest inducement and false representation.

A passport is a document which, by its nature and purpose, is a political document for the benefit of its holder.

It recognises him as a citizen of the country granting it and is in the nature of a request to the other country for his free passage there.

Its importance was examined by this Court in Satwant Singh Sawhney v. D. Ramarathnam(') with reference to the provisions of the Indian Passport (Entry Into India) Act, 1920, (hereinafter referred to as the Act) and tho

Rules made thereunder which were in force at the time when the offences were said to have been committed in this case.

After referring to sectioQS 3 and 4 of the Act, and rules 4 and 5 of the Rules, this Court observed as follows,-

" ...... possession of passport, whatever may be its meaning or legal effect, is a necessary requisite for leaving India for travelling abroad.

The argument that the Act does not impose the taking of a passport as a condition of exit from India, therefore it does not interfere with the right of a person to leave India, if we may say so, is rather hypertechnical and ignores the realities of the situation.

Apart from the fact that possession of passport is a necessary condition of travel in the international community, the prohibition against entry indirectly prevents the person from leaving India.

The State in fact tells a person living in India 'you cau leave India at your pleasure without a passport, but you would not be allowed by foreign countries to enter them without it and you cannot also come back to India withoi:t. it.' No perso!' in India can possibly travel on those cond1t10ns.

Indeed 1t is impossible for him to do so. 1 hat apat, even that tho retical possibility of exit is expressly restncted by executive instructions and by refusal of foreign-exchange."

There can therefore be no doubt that a passport is a document of importance for travel abroad and is of considerable value to its holder.

(I) (1967] 3 S.C.R. 525.

N. M. CHAKRABORTY v. WEST BENGAL (Shinghal, /.) 523

The word "property" has been defined in the Century, Dictionary, which is an encyclopedic lexicon o~ the English language, as follows,-

"the right to the use or enjoyment or the beneficial light of disposal of anything tht can be the subject of ownership; ownership; estate; especially, ownership of tangible things .... ; anything that may be exclusively possessed and enjoyed; ...... possessions."

As has been stated, a passport provides the several benefits mentioned above.

It is a tangible thing and is capable of ownership.

There can therefore be no doubt that it is "property". It is property of the State so long as it is with the passport issuilig authority and has not been issued to the person concerned and, after issue, it becomes the property of the person to whom it has been granted.

Our attention has not been invited to any case where the question now before us arose for consideration on an earlier occasion.

But a somewhat similar question was considered by this Court in Abhayanand Mishra v. The State of Bihar (').

The appellant there applied to the Patna University for permission to appear at the M.A. examination as a private candidate, representing that he was a graduate having obtained the B.A. degree in 1951 and had been teaching in a school.

On that basis, an admission card was despatched for him to the Headmaster of the school. It was however found that he was neither a graduate nor a teacher. He was prosecuted for the offence under section 420 read with section 511 of the Penal Code. He contended that his conviction was unsustainable because the admission card had no pecuniary value and was not property. This Court repelled the contention and held that although the admission card as such had no pecuniary value, it had immense value to the candidate appearing in the examination for he could not have appeared at the examination without it, and that it was therefore property within the meaning of section 415 of the Penal Code.

While reaching that conclusion, this Court relied on Queen Empress v. Appasami (') and Queen Empress v.

Sashi Bhushan. (') In Appasami's case it was held that the ticket entitling the accused to enter the examination room was "property", and in Sashi Bhushmi s case it was held that the term "property" included a written certificate to the effect that the accused had attended a course of lectures and had paid up his fees.

On a parity of reasoning, we have no doubt that looking to the importance and characteristics of a passport, the High Court rightly held that it was property within the meaning of sections 415 and 420 of the Penal Code.

We may make a reference to lshwarlal Girdharlal Parekh v. State of Maharashtra and others (') also.

There the question for consideration was whether an order of assessment was "property" within the

(1) [1962] 2 S.C.R. 241.

(3) [18931!.L.R.15 All. 210.

(2) [1889] I.L.R. 12 Mad.151. <4J [1969]1 s.~.193.

meaning of. section 420 I.P.C.

The charge in.that case was that the appellant dishonestly or fradulently induced the income-true authorities and obtained an assessment order for less income-tax than due. It was held that the order of assessment received by an assessee was "property", since it was of greau importance to the assessee, as containing a computation,' of his total assessable income and, as containtion of his tax liability.

This Court also expressed the view that the word "property" did not necessarily mean that the thing, of which delivery was dishonestly desired by the person who cheats, "must have a money value or a market value, in the hand of the person cheated". It was held that "even if the thing has ne money value, in the hand of the person cheated, but becomes a thing of value, in the hand of the person, who may get possession of it as a result of the cheating practised by hini, it would still fall within the connotation of the term 'property' in section 420 I.P.C." This decision also lends support to the view we have taken for, as has been stated, a passport is a valuable document.

Our attention has also been invited to In re Packianathan(') and Local Government v. Gangaram.(2) The accused in Packianathan's case was prosecuted for an offence under section 419 read with section 511 of the Penal Code.

He was going to Ceylon, and he used the permit which stood in the name of one Kumarswami, while his own name was J. Packianathan.

On seeing the permit the Heaffl1 Officer issued a health certificate. It was held that the health certificate was "property" within the meaning of section 415 of the Penal Code and that if a person dishonestly and fraudulently induced the Health Officer to deliver it to him, he was guilty of an offence under section 419 I.P.C. Local Government v. Gangaram was a case where the accused obtained a certificate from the Deputy Inspector of Schools by stating untruly that he .had passed the examination.

It was held that the certificate was 'property' within the meaning of sections 415 and 420 I.P.C. and that the accused was guilty of an offence punishable under section 420 I.P.C. In taking that view the Nagpur High Court relied on Queen Empress v. Appasami (supra) and Queen Empress v. Sashi Bhushan (supra) on which reliance was placed by this Court in Abhayanand Mishra v.

The State of Bihar (Supra) referred to above.

So as passport was a tangible thing, and was a useful document, and could be the subiect of ownership or exclusive possession, it was "property" within the meaning of sections 415 and 420 I.P.C. There is therefore nothing wrong with the view which has been taken by the High Court and the appeal is hereby dismissed .. '_fhe appellants who are on bail shall surrender to serve out the remammg sentence.

P.H.P.

(l) AI.R. 1920 Mad. 131 (1)

(2) A.LR. 1922 Nagpur 229.

Appeal dismissed.

...

·--<.._

NRJSINGHA MURARI CHAKRABORTY & ORS

A

STATE OF WEST BENGAL

April 12, 1977

Y. V. CHANDRACHUD

P. K. GOSWAMI

Penal Code 1860

Sec. 415

section 420

section 120B

Indian Penal Code

section 420

(1967) 3 SCR 525

(1962) 2 SCR 241

sections 415 and 420

Rathin Das

D. N. Mukherjee

G. S. Chatterjee

SHINGHAL

sections 420

Penal Code

Penal Code

Passport (Entry Into India) Act, 1920

India

(1967] 3 S.C.R. 525

Patna University

section 420

section 511

Penal Code

section 415

Penal Code

Appasami

Sashi Bhushmi

sections 415 and 420

Penal Code

[1962] 2 S.C.R. 241

section 420

I.P.C

section 420

I.P.C

Packianathan

section 419

section 511

Penal Code

Ceylon

Kumarswami

J. Packianathan

section 415

Penal Code

section 419

I.P.C

sections 415 and 420

I.P.C

section 420

I.P.C

Nagpur High Court

sections 415 and 420

I.P.C


. -

I 525

NATIOC\AL TEXTILE CORPORATION AND ANOTHER

STATE OF MAHARASHTRA AND OTHERS

April 12, 1977

[A. C. GUPTA AND P. S. KAILASAM, JJ.]

Sick Te.tt£le Undertakings (Nationalisation) Act, 1914-Inc1anbra11ce- Meani11g of-"A'otificatjon issued under Land A'cquisition Act-If an incurnbrance.

The Stat...-: Government issued two notifications under ss. 4 and 6 of the Land Acquisition Act seeking to acquire certain land belonging to a textile mill.

When the Letters Patent Appeal of the Textile mil! was pending before the C High Court the mill was taken over by the Central Government and later the appeJlant \vas substituted for the original appellant.

By virtue of s. 3 of the Sick Textile Undertakings (Nationalisation) Act, 1974 the management of every sick textile mill vested absolutely_ in the Central Government and later in the appellant. Section 4(2) of the Act provides that all property which vested in the Central Government shall, by force of such vesting, be freed and discharged from trust, obligation, mortgage, charge, lien and all otlier incu111brances affecting it and any attachment, injunction or decree D or order of a:iy court restricting the use of such property in any manner shall be deemed to have been withdrawn. The appellants• contention that by reason of s. 4(2) the t\\'0 notifications must be held to have become ineffective because the .section provides that all property vested in the Central Government shall be free from all incumbrailces affecting it was rejected by the High Court.

Dismisstni; the appeal to this Court,

HELD : The High Court was right in its view that the notification& issued E under ss. 4 and 6 of the Land Acquisition Act were not incumbrances and could not be held v have become inoperative on the land vesting in the Central.

Government,

[528 BJ

1. The te.:.-m "incumbrance" has not been defined in the Act, The dictionary meaning given to incumbrance is a claim, lien or liability attached to property.

An incu.mbrance in. this sense has to. b~ a liability "attached to property", a burden or liability that runs with the land. The notifications issued under the Land Acquis'.tion Act are not a burden or liability attached to the property.

F f528 Bl

2, .. 'Incumbrance" in the context of s. 4(2) means some burden or liability attached to the property like mortgage, charge, lien.etc. That this is so would appear from the words "all other_ incumbrances affecting it".

Having said that the vesting 'ill be free from tfust etc., sub-s. (2) goes on to add that "any attachment, injunction or decree .... shall be deemed to be withdra\\-n" upon vesting. If "incumbrance" meant any kind of fetter, any attachment, injunction or decree or order restricting use of the propert}' \\'ould be included in "all G other incumbraces" and it would have be!n quite unnecessary to mention them separately. This means that fetters on the property like attachment injunction or decree o:· order of any court restricting the use of the propertY which are deemed to have been withdrawn upon the property vesting in the Central Government are not really incumbrances within the meaning of the word as used in s, 4(2). [528 E-G]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 309 of 1976.

Appeal by Special Leave from the Judgment and Order dated the 22nd January, 1975 of the Bombay Flih Court in Appeal No. 106 of 1969 in Misc. Petition No. 320 of 1964. 7-S02SC!n7

SUPREME COURT RE).'ORTS

[1977] 3 S.C.R.

A I. N. Shroff and H. S. Parihar for the Appellanfs.

M. N, Shroff for Respondents 1 and 2.

V. P. Raman, Addi. Sol. Gen!, K. J. John and Shri Narain for Respondent No. 3.

The Judgment of the Court was delivered by

GUPTA, J. Ahmedabad Jupiter Spinning Weaving and Manufacturing O:>mpany Limited was the owner of 5\100 Sq. yds of land torming part of its mill premises at Lower Pare! in Bombay which was sought to be acquired by the Maharashtra Government for a municipal

chool. Notifications under sections 4 and 6 were issued on June 19, 1961 and May 29, 1964 respectively. The company filed a petition in the Bombay High Court challenging the validity of the notifications on several grounds.

A single Judge of the High Court having dismissed the writ petition on August 11, 1969 the company preferred a letters patent appeal.

During the pendency of the appeal, the management of the company was taken over by the Central Government on October 8, 1972 under the Industries (Development and Regulation) Act, 1951.

On September 21, 1974 an ordinance called the Sick Textile Undertakings (Nationalisation) Ordinance, 1974 was promulgated by virtue of which the textile undertaking of the company the management of which had been taken over by the Central Government, vested absolutely in the Central Government with effect from the

"appointed day", which was April 1, 1974, and immediately thereafter stood transferred and vested in the National Textile Corporation. The Ordinance was later replaced by the Sick Textile Undertakings (Nationalisation) Act, 1974 (hereinafter referred to as Sick Textile Act).

Sections 3 and 4 of the Act are as follows :

Acquisition of rights of owners in respect of sick textile undertakings.

"3. (1) On the appointed day, eYery sick textile undertaking and the right, title and interest of the owner in relation to every such sick textile undertakings shall stand transferred to, and shall vest absolutely in, the Central Government.

(2) Every sick textile undertaking which stands vested in the Central Government by virtue of sub-section ( 1) shall, immediately after it has so vested, stand transferred to, and vested in, the National Textile Corporation.

General effect of vesting

4. ( 1) The sick textile undertaking referred to in section 2 shall be deemed to include all assets, rights, leaseholds, powers, authorities and t?rivileges and . all_ property, movable and immovable, includm~ lands, buildings, workshops stores instruments, machinery and equipment, cash

balanes cash on hand, reserve funds, investments and book debts and all other rights and }nterests in, or arising ot of, such property as were immediately before the appomted

NATIONAL TEXTILE CORP. v. MAHARASHTRA (Gupta, J.) 527

day in the ownership, possession, power or control of the owner of the sick textile undertaking, whether within or outside India, aud all books of account, registers and all

other documents of whatever nature relating thereto and shall aclso be deemed to include the liabilities and obligations specified in sub-section (2) of section 5.

(2) All property as aforesaid which have vested in the B Central Government under sub'section ( 1) of section 3 shall, by force of such vesting, be freed and discharged from any trust, obligation, mortgage, charge, lien and all other incumbrances affecting it, and any attachment, injunction or decree or order of any court res!ricting the use of such property in any manner shall be deemed to have been withdrawn." C

The other sub-sections of section 4 are not relevant for the pree11t purpose.

The National Textile Corporation applied to the High Court for being substituted in place of the original appellant in the letters patent appeal which was pending and th<_! application was allowed.

The main contention on behalf of the substituted appellant in the High D Court was that the two notifications under sections 4 and 6 of the Land Acquisition Act must be held to have become ineffective in view of section 4(2) of the Sick Textile Act which provides that all property which vests in the Central Government under section 3 (1) does so free from all "incumbrances affecting it." The High Court dismissed the appeal holding that the notifications under the l..and Acquisition Act were not incumbrances within the meaning of sec- E lion 4(2) of the Sick Textile Act. In the appeal before us filed with special leave obtained from this Court, the National Textile Corporation questions the correctness of the view taken by the High Court.

Thus the only question for determination in the appeal is whether the notifications issued under the Land Acquisition Act are incumbrances within the meaning of the word as used in section 4( l) ., f the Sick Textile Act.

Section 3 and the first two sub-sections of section 4 of the Sick Textile Act are the only provisions relevant in this context. Section 3 provides that on the appointed day

every .sick textile undertaking shall vest absolutely in the Central Government, and then in the National Textile Corporation.

Subsection (1) of section 4 states that the undertakings vesting in the Central Government under section 3 shall be deemed to include all assets, rights and interests in the ownership, possession or control of the owners of such undertakings immediately before the appointed day.

Sub-section, (2) of section 4 provides that all property vesting in the Central Government under section 3 shall, "by force of such vesting, be freed and discharged from any trust, obligation, mortgage, charge, lien and all other incumbrances affecting it, and any attachment, injunction or decree or order of any court restricting the use of such property in any manner shall be deemed to have been withdrawn".

Counsel for the appellant argues that sub-section (2) of section 4 is intended to vest the sick textile undertakings in the Central Goven1-

SUPREME COURT REPORTS (1977] 3 s.c.R.

ment free from all fetters, and the notifications issued under the Land Acquisition Act wh!ch had the effect of freezing the price of the land were fetters falling m the category of "other incumbrances" mentioned in section 4(2) of the Sick Textile Act.

The term 'incumbrance' has not been defined in the Act.

In Wharton's Law lexicon incumbrance is described as being a claim, lien or liability, attached to property.

This is the sense in which the term is ordinarily used.

An iqcumbrance in this sense has to be a liability "attached to property"• it must be a burden or liability that runs with the land, as the High Court has held. But a notification issued by the Government under the Land Acquisition Act not a burden or liability that is attached to the property.

The sovereign right of the State _to take proceedings for the acquisition of any land for public purpose is similar to its tight to impose a tax on the land which is "paramount to the . ownership over the land and outside it". [see The Collector of Bombay v.

Nusserwanj, i Rattanji.Mistri & others (1955] 1 SC R 1311 (at 1323).

Under sub-section (2) of section 4 of the Sick Textile Act all property which have vested in the Central Government under section 3 ( 1) shall be freed and discharged from any trust, obligation, mortgage, charge, lien and all other incumorances affecting it, and any attachment, injunction or decree or order of any court restricting the use of such property shall be deemed to have been withdrawn.

Counsel for the

rspondent, State of Maharashtra, submits that the term incumbrance should take colour from the different kinds of burden on the land specified in section 4(2) preceding the words 'all other incumbrances"; it is ai:gued that incumbrance in the context means some burden or liability that is attached to the property, like mortgage, charge, . lien etc. That t11is is so would also appear from what follows the words "all other incumbrances affecting it". Having said that the ves!ffig will be free from trust, obligation, mortgage, charge, lien and all other incumbrances affecting it, sub-section (2) goes on to add that. "any attachment, injm1ction or decree or order of any court restricting the use of such property in any manner shall be deemed to have been withdrawn" upon vesting. If the appellant's construction of the provision were correct. and incumbrance meant any kind of fetter, any attachlnent, injunction or decree or order restricting the use of the property would be included in "all other incumbrances" and it would have i>een quite unnecessary to mention them separately.

This makes it clear that fetters on the property like attachment, injunction or decree or order of any court restricting tlie use of the property which are deemed to have been withdrawn upon the prooerty vesting in the Central Government are not reallv incumbrRnces within the meaning of the word as used in sub-section (2) of section 4. We therefore agree With the High Court that the notifications i.ssued under sections 4 and

6 of the Land Acquisition Act are not incumbrances and cannot be held to have become inoperath-e on the land in question vesting in t'te Central Government.

Tlle appeal is dismissed but in the circumstances of tbe case with- H cu.~ nny order as to cost.

PS.R.

Appeal dismissed.

.--._.

NATIONAL TEXTILE CORPORATION AND ANOTHER

STATE OF MAHARASHTRA AND OTHERS

April 12, 1977

A. C. GUPTA

P. S. KAILASAM, JJ.

ss. 4 and 6

s. 3

Central Government

Section 4(2)

s. 4(2)

ss. 4 and 6

s. 4(2)

CIVIL APPELLATE JURISDICTION

A I. N. Shroff

H. S. Parihar

M. N

V. P. Raman

K. J. John

Narain for

GUPTA

Maharashtra Government

sections 4 and 6

June 19, 1961

May 29, 1964

Bombay High Court

August 11, 1969

October 8, 1972

September 21, 1974

April 1, 1974

National Textile Corporation

Sick Textile Act

Sections 3 and 4

section 2

India

section 5

B Central Government

section 3

section 4

sections 4 and 6

section 4(2)

section 3

section 4( l)

Section 3

section 4

Section 3

section 4

section 3

section 4

section 3

section 4

section 4(2)

Wharton

(1955] 1 SC R 1311

section 4

section 3

State of Maharashtra

section 4(2)

section 4

sections 4 and

6


SHAHZADA NAND & SONS

THE COMMISSIONER OF INCOME TAX, PATIALA

April 12, 1977 f P. N. BHAGWATI, N. L. UNIWALIA AND S. MuRIAzA FAzAL ALI, JJ.J

1-llowable expenditure in computing the profits of the assessee from busuzess-Whether the commission paid by the assessee to its employees an allolvable expenditure u/s. 36(1) (ii) of Income Tax Act.

The appellants were the sole selling agents of the Oriental Carpet- 1'.fanu- . facturers India Pvt. Ltd. in respect of yarn, cloth and blankets manufactured by them n-; J. for the ses effected by the appellnts, as such sole selling agenrs

com1ss1on was paid to them by OC]i.f. Since the appellants showed \'ery

at1sfactory turnover from year to year, OCA-1 started giving to them, in addi- 11on to the usual commissio~ over-riding commission@ 2t per cent on the sales effected by the appellants. Since the turnover of the sales reached the figure of Rs. 54.28 lacs and over-riding commission increased to Rs. 1,13,449/- <luring the previous year corresponding to the assessment year 1963-64, the appellants paid out of the over-riding commission received by them a sum of Rs. 22,690/- (i.e. at the rate of !% of the sales) each to two of their employees viz" Saheb Dayal and Gurditta ]I.fall since they were primarily responsible for the i.ncreased prosperity of the appellants. The commission so paid viz. Rs. 45,380/- was claimed by the appellants as -a deductible expenditure in .their assessment to income tax for the assessment year 1963-64. The Income Tax Officer disallowed the claim onthe ground that there was no evidence to show that the increase in sales during the relevant accounting year was due to the efforts of Saheb Dayal and Gurditta Mal. The Appellate Assistant Comm.is-_ sioner rejected the appeal preferred to him and held that since no evidence had been produced by the assessee to prove that the activities -of Saheb Dayal and Gurditta 1-fal in the relevant account year were of a nature different from those in th: earlier years so that they put in any extra time or energy in the conduct of _the business of the assessee so as to justify the payment of the commission, it could not be said that the commission was paid for services rendered by them.

The Tribunal, in further appeal took the same view and held that since there was no proof to show that any extra services were rendered by Saheb Dayal and Gurditta l\.Ial for which payment of commission in addition to salary and bonus could be justified, commission could not be said to have been paid for services rendered so as to attract the applicability of s. 36(1) (ii) of the Act • . The High Court was also of the same view and answered the reference made to it, in favour of the Revenue.

Allowing the appeal by .special leave, the C.ourt;- . HELD : (!) The sum of Rs. 45,380/- paid by the assessee to Saheb Dayal and Gurditta 1-Ial by way of commission during the relevant accounting year was reasonable, having regard to all the circumstances of the case and it ought to have been allowed as a deductible expenditure u/s. 36(1) (ii) of the Income Tax Act. [537 BJ . (2) Section 36, sub-section. (1) clause (ii) does not postulate that there should be any extra services rendered by an employee before payment of commission to him can b'! justified as an aUowable expenditure. What it requires, ls only this, namely, that com.mission paid to an employee. sl!onld be for son:ie se"ices rendered by him. It is not necessary that the commISSton should be paid under a contractual obligation. It may be purelyvoluntary.

(3) It is immaterial that the services rendered during the rlevant accout ing year were in no way greater or mor~ onerous than the sef!tces reneed tn the earlier years. There is no such reau1rement under the section and it ts not justified by the language of s. 36, sub-section(!), clause (ii) and indeed if it were pushed to its logical extreme, even payment of bot1US cannot be treated as permissible deduction under that provision.

[534. G-H]

~. --

(4) It is n<>w well-settled that the mere fact that commission is paid exgratla would not necessarily mean that it is unreasonable. Commercial ex4 pediency does not mean that an employer should not make any payment to an employee unless the employee is entitled to it under a contract. What is the requirement of commercial expediency must be judged not in the light of the 19th Century latssez faire doctrine which regarded man as an economic being concerned only to protect and advance his self-interest but in the context of current socio-economic thinking which places the general interest of the com~

munity above the personal interest of the individual and believes that a business or undertaking is the product of the combined efforts of the employer and the employees and wliere there is sufficiently large profit. after providing for the salary or remuneration of the employer and the employees and other prior charges such as interest on capital depreciation, reserves etc., as part of it should in alt fairness go to the employees. [536 E-GJ

(5) The question whether commercial expediency justified the payment of commission would have to be judged in the light of all the circumstances existing at the material time.

In the instant case, the assessee felt, on grounds of commercial expediency that a part of the over-riding commission should be paid besides salary aad bonus to its two employees who had worked so well and contributed to the prosperity of the assessee and did make the payment.

[525 AB] Laxmandas Seiram v. C.l.T. Guiarat 50 ITR 789 (Gujarat) approved.

(6) The question whether the amount of the commission is a reasonable amount or not has to be determined with reference to the three factors laid down in s. 36(1)(ii). Though described loosely as conditions, they are not really conditions on the fulfilment of which alone the amount of commi!JSion paid to an employee can be. regarded as reasonable.

The reasonableness of the amount of commission has to be considered from the point of view of a nor~ mal, prudent businessman, and not on any subjecting standard of the . assessing authority.

[525 CD]

Observation : It is high time that the administration of our tax la\v recognised the demand of social justice today viz., profit-sharing by the employees and encourag~ it by -adopting a progressive and liberal approach in the applicability of s. 36, subsection (!), clause (ii). [536 HJ

ClvIL APPELLATE JURISDICTION : Civil Appeal No. 1011 of 1972.

Appeal by Special Leave from the Judgment and Order dated the 18th August, 1971 of the Punjab and Haryana High Court iu Income Tax Reference No. 17 of 1971.

S. T. Desai, (Mrs.) A. K. Verma and Shri Narain for the Appellant.

T. A. Ramachandran and R. N. Sachthey for Respondent.

The Judgment of the Court was delivered by

BHAGWATI, J.-The short question that arises for determination in this appeal is whether certain commi.ssion paid by the assessee to two of its employees is an allowable expenditure in computing the profits of the assessee from business.

The assessee is a registered firm which at all material times consisted of five partners, namely, Chaman Lal, Madan Lal, Harbans Lal, Raj Mohau and Saheb Dayal representing a trust.

Chaman Lal was the son of Saheb Dayal and Raj Mohan was the son of one Gurditta Mal.

During the accounting year relevant to the assessment year 1963-64, Chaman Lal and Harbans Lal had 'their own independent factories and hence they were not attending

to the business of the assessee and Raj Mohan too was not actively A associated with the conduct of 1he business of the assessee as he was working with the Oriental Carpet Manufacturers India Pvt. Ltd. (hereinafter referred to as OCM). lhus, from amongst the partners . only Madan Lal was looking after the day-to-day management of the business of the assessee and he was assisted by Saheb Dayal and Gurditta Mal who were engaged as employees of the assessee.

Saheb Dayal and Gurditta Mal were looking after the business of the assessee B since a long time and they were each paid remuneration of Rs. 1000/- per month.

The business of the assessee consisted of sole selling agency of OCM in respect of yarn, ctoth and biankets manufactured by OCM and for the sales affected by the assessee as such sole selling agents, commission was paid to the assessee by OCM.

The figures show that the business of the assessee prospered from year to year from 1959-60 onwards and there was a o,>radual increase in th.e tum- C over of the assessee which jumped from the figure of Rs. 39.99 lacs .for the assessment year 1962-63 to the figures of Rs. 54.28 lacs for the assessment year 1963-64. Since the assessee showed very satisfactory turnover from year to year, OCM started giving to the assessee, in addition to the usual commission, over-riding commission at the rate of 2t % on the sales affected by the assessee and the over-riding commission thus received by the assessee during the previous years corres- D ponding to the assessment year 1960-61 to 1963-64 was as follows:

Assessment year

1960-61 1961-62 1962-63 1963-64

Amount Received Rs. 35,964/- Rs.

6L818/- Rs. 83,922/- Rs. 1,13,449/- E

Since the turnover of the sales reached the figure of Rs. 54.28 lacs and overriding commission increased to Rs. 1,13,449/- during tb.e previous year corresponding to the assessment year 1963-64, the assessee decided to give to each of Saheb Dayal and Gurditta Mal, who were looking after the business and were primarily responsible for the increased prosperity of the assessee, commission at the rate of F !% of the sales out of 2t% overriding commission received from OCM and each of these two employees was accordingly paid by the assessee a snm of Rs. 22,690/- by way of commission.

The aggregate amount of commission paid to Saheb Dayal and Gurditta Mal thns came to Rs. 45,380/- and this amount of commission was claimed by the assessee as a deductible expenditure in its assessment to income tax for the assessment year 1963-64. The Incori1e Tax Officer, disallow- G ed the claim of the assessee on the ground that there was no material produced by the assessee which would "prove the nature of services rendered by these two gentlemen in lieu of which the commission is claimed. to have been paid" and there being no evidence to show that the increase in sales during the relevant accounting year was dne to the efforts of Saheb Dayal and Gnrditta Mal, the claim for deduction of the amount of commffision as a business exoenditure remained un- H proved.

The assessee appealed against the disallowance of the amount of comn1ission but the Appellate Assistant Commssioner in appeal affirmed the disallowance on the ground that no evidence had been

produced by the. assessee to prove that the activities of Saheb Dayal and Gurditta Mal in the relevant account year . were of a nature different from those in the earlier years or that they put in any extra time or energy in the conduct of the business of the assessee so as to justify the payment of the commission and hence it could not he said that the commisson was paid for services rendered by them. The matter was carried in further appeal before the Tribuna~ but the Tribunal also took the same view and held that since there was no proof to show that any services were rendered by Saheb Dayal and Gurditta Mal for which payment of commission in addition to salarv and bonus could be justified, commission coqld not he said to have been paid for services rendered so as to attract the applicability of section 36, subsection (1), clause (ii). The Tribunal observed that it was not possible to say "that the increase in the turnover in the year under appeal was due to the extra efforts put in by these two employees or that the employees had worked in the hope of receiving extra commission" and since bonus equivalent to three months' sa:ary was paid to Sahe.b Dayal and Gurditta Mal in addition to their .salary during the releval!t

accounting year, any extra services rendered by them, if any, "should be deemed to have been covered by the payment of this bonus". Since in the view taken by the Tribunal it was necessary that there should be .some extra services rendered by Saheb Dayal and Gurditta Mal for which payment of commission could be said to be justified and there was nothing to show that any such extra services were rendered by them, the Tribunal came to the conclusion that the payment of commi5sion could .not be said to be justifieµ on grounas of commercial expediency and section 36, sub-section (1), clause (ii) had no application.

The assessee being aggrieved by the order made by the Tribunal applied for a reference of the question of law arising out of the order of the Tribunal and on the application of the assessee, tne following question of law was referred for the opinion of the High Court :

"Whether on the facts and circnmstances of the case, the sum of Rs. 45,380/- paid to L. Gurandittamal and L.

Sahebdiyal, employees of the applicant firm is pennissible deduction in computing the business income of tlie applicant?"

The High Court answered the question in favour of the Revenue.

The view taken by the High Court was that in order to attract the applicability of section 36, sub-section (1), clause (ii), it was necessary that the payment of commission should be for services rendered and since there was no evidence led on behalf of the assessee to show that any extra services were rendered by Saheb Dayal and Gurditta Mal, which were responsible for increase in the sales and consequent enlargement, of the overriding commission, there was no justification for payment of commission to them and the commission paid could not be said to be for services rendered.

The High Court in this view held that section 36, sub-section (1), clause (ii) was not applicable and no claim for deduction could be sustained under it.

The correctness of this decision is impinged in the present appeal preferred by the assessee with special leave obtained from this Court.

Now, before we proceed to consider, the question which Jrises for A determination before us, we must make it clear at the out set that m the present case the genuineness of the payment of commission made to Saheb Dayal and Gurditta Mal was at no time doubted by the Revenue authorities.

It was not the case of the Revenue that this payment was not made or that it was sham or bogus. If that had been the finding, there would have been an end of the case of the assessee.

No question would then have arisen for considering the applicab1lity B. of section 36, sub-section (1), clause (ii). No payment having been made, no deduction would have been permissible. But here the commission was paid : it was a genuine payment and th~ only question was whether it was deductible as an allowable expenditure under section 36, sub-section (1), clause (ii). Section 36, sub-section (1) provides for making of various deductions in computing the income of an assessee under the head : "Profits and Gains of Business or Pro- C fession" and one such deduction is set out in clause (ii) which, as it stood at the material time during the assessment year 1963-64, read as follows :

"36(1) (ii) Any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profit or dividend if it had D not been paid as bonus or commission :

Provided that the amount of bonus or commission is reasonable with reference to -

(a) the pay of the employee and the conditions of his service;

(b) the profits of the business or profession for the previous year in question; and

( c) the general practice in similar business or profession."

. Saheb Dayal and Gurditta Mal were admittedly employees of the assessee.

They were each paid a salary of Rs. 1000/- per month and F for the previous year relevant to the assessment year 1963-64 bonus equivalent to three months' salary was also paid to each of them. The Income Tax Officer disallowed even this salary and bonus paid to Saheb Dayal and Gurditta ]Mal on the ground that there. was nothing to show that any services were rendered by them and the payment of salary and bonus appeared to be ex-gratia. But this decision was reversed in appeal by the Appellate Asi; istant Commissioner who G foll?wing his .earlier order dated 12th December, 1967 in the appeal agamst the assessment to tax for the assessment year 1962-63, allowed the payment <?f salary and. b?nus as a deductible expenditure.

The Appellate Ass1stnt Comm1Ss10ner c:early recognised that Saheb Dayal and Gurd1tta Mal were employees of the assessee and were attend!ng to the bus!ness of the assessee as such employees since a

Ion~ time ai; i; ct Gurd1tta Mal was in fact "a seasoned and experienced H busmessman and he looked after the assessee's transactions with OCM

and on behal~ of the assessee advised OCM in connection with designs etc. The Tnbunal also found that Saheb Dayal and Gurditta Mal

"were looki11g after the business of the assessee firm for a long time".

Thus, there can be no doubt that services were rendered by Saheb Dayal and Gurd1tta Mal to the assessee and for these services, besides salary and bonus, co=ission was paid to them, because, according to".the assessee, during the relevant accounting year, there was considerable enlargement in the turnover of the sales with consequent increase in the amount of overriding commission and the assessee felt, on grounds orf co=ercial expediency, that a part o~ the overriding commission should be paid to the two employees who had worked so well and contributed to the prosperity of the assessee.

The question is whether this commission qualifies for deduction as an allowable expenditure under section 36, sub-section (1), c; ause (ii). The only ground on which the High Court negatived the. applicability of section 36, sub-section (1), clause (ii) was that during the relevant accounting year Saheb Dayal and Gurditta Mal rendered the same services which they were rendering in earlier years and no extra services were rendered by them which could justify payment of commission in addition to salary and bonus.

The High Court appeared to take the view that there must be correlation between the payment of commission and the services rendered and since commission was paid by the assessee for the first time during the relevant accounting year, there must be some extra services rendered by Saheb Dayal and .Gurditta Mal in that year over and above the usual services rendered by them in the earlier years.

Since, according to the High Court, there was no proof that any extra services were rendered by Saheb Dayal and Gurditta Mal, the High Court held that the payment ot co=ission could not be said to be for services rendered within the meaning of section 36, sub-section (1), clause (ii). This view taken by the High Court is, in our opinion, plainly erroneous. Section 36, sub-section (1), clause (ii) does not postulate that there should be any extra services rendered by an employee before payment of commission to him can be justified as on a!Jowable expenditure.

What it requires is only this, namely, that commission paid to an employee should be for services rendered by him. For example, if an empioyee has not rendered any services at all duri.ng the relevant accounting year, no commission can be paid to him which would be an alTowable expenditure.

There must be some services rendered by an employee and where commission is paid for the services so rendered, section 36 sub..section (I), clause (ii) would apply and the commission to the extent to which it is found reasonable would be an al:owable expenditure under that provision. 11 is not necessary that the commis.sion should be paid under a contractual obligation.

It may be purely voluntarv.

But it must be for services rendered and here services were in fact rendered by Saheb Dayal and Gurditta Mal during the relevant accounting year. It is true that the services rendered by these two employees during the relevant accounting year were in no way greater or more onerous than the services rendered by theJI! in the earlier years, but that is immaterial. There is no such requtrement and the argument based on it cannot be sustained. It is not 1ust1Hed by the lani'Uage of section 36, sub-section (1). clause (ii) and indeed, if it were pushed to its logical extreme, it wou!d be difficult to 5U?ort

even payment of bonus as a permissible rled11rt•<m under that prov1s10n.

Of course, the circumstance that no additional services are rendered

by an employee would undoubtedly be of some relevance in deter- A mining the reasonableness of the amount of commission but it would have to be considered along with other circumstances and the qnestlon whether commercial expediency justified the payment of commission wou:d have to be judged in the light of all the circumstances existing at the material time.

This was the view taken by the Gujarat High Court in Laxmandas Sejram v.

Commissioner of Income-Tax, Gujarat,(') and we wholly accept that view. It is, therefore, no B answer to the applicability of section 36, sub-section (1), clause (11) to say that no extra services were rendered by Saheb Dayal and Gurditta Mal during the relevant accounting year.

The amount of commission having been paid for services admittedly rendered by them, the only question would be whether it was reasonable under section 36, sub-section (1), clause (ii).

Turning to the provisions of section 36, sub-section (l), clause (ii), we find that the proviso to that clause lays down three factors for the purpose of determining the reasonableness of the commission paid to an employee. The question whether the amount of the commission is a reasonable amount or not has to be determined with reference to these three factors. Sometimes these three fators are loosely described as conditions but they are not really conditions on the fulfilment of which alone the amount of commission paid to an employee can be regarded as reasonable. They are merely factors to be taken into account by the Revenue authorities in determining the reasonableness of the amount of commission.

It may be that one of these factors yields a negative response.

To take an example, there may be no general practice in similar business or profession to give commission to an emp:oyee, but, yet, having regard to the other circumstances, the amount of commission paid to the employee may be regarded as reasonable.

What the proviso requires is merely that the reasonableness of the amount of commission shall be determined with reference to the three factors.

But it is well settled that these factors are to be considered from the point of view of a normal, prudent businessman.

The reasonableness of the payment with reference to these factors has to be judged not on any subjective standard of the assessing authority but from the point of . view of commercial expediency.

Let us see whether the amount of commission paid to Saheb Dayal and Gurditta Mal in the present case can be said to be reasonable from this stand point. It is clear froin the order of the Tribunal that reliance was placed by the Tribunal mainly and substantially on the fact that the nature. of the work done by Saheb Dayal and Gurditta Mal remained unchanged in the relevant accounting year and there was nothing to. show that the increase in the turnover during the relevant accounting year was as a result of any extra efforts made by t!Jese two employees and hence it could. not be said that there were any special circums•ances which warranted the payment of commission to them. But, as already pointed out above, the commission paid to an emn'.oyee cannot be branded as unreasonable merely because the employee ha.s done in the relevant accounting year the same work which he was doing in the earlier years.

Even where the nature of the work has remained the same, commercial expediency mav require pavment of commission to an employee.

Here, Saheb Dayal and Gurditta

(I) 50 I.T.R. 763:

Mal were each receiving a salary of Rs. 1000/- per month and besides this salary, there were admittedly no other perquisites given to them.

They were the persons attending to the business of the assessee and in fact Gurditta Mal was an experienced and seasoned businessman and it was he who was advising OCM in regard to designs etc. and he and Saheb Dayal were primarily responsible for the flourishing state of the business.

The turnover of the sales of the assessee steadily rose from 1960-61 and in the relevant accounting year, it reached the exciting figure of Rs. 54.28 lacs.

So also the overriding commission which started with the modest figure of Rs. 35,964/- in the accounting year relevant to the assessment year 1960-61 went on steadily increasing from year to year until it reached the figure of Rs. 1, 13,449 /- in the relevant accounting year.

The assessee, therefore, felt that in view of the tremendous progress in the business which was largely the result of the services rendered by Saheb Dayal and Gurditta Mal, a part of the overriding commission should be paid to them, so that they may carry a sense of satisfaction that their efforts have been suitably rewarded and they may have an added incentive to work and may be spurred to greater efficiency in the future.

It may be noted that the overriding commission of the assessee during the relevant accounting year was Rs.1,13,449/- and the total profit was Rs. 3,08,034/- and if out Qf this! total profit of Rs. 3,08,034/-, an aggregate sum of Rs. 45,380/- was paid to Saheb Dayal and Gurditta Mal as commission, it is diflicu:t to see how such payment could be regarded as unreasonable. It is true that there was no obligation on the assee to make payment of this commission to Saheb Dayal and Gurditta Mal, but it is now well settled that the mere fact that commission is paid ex-gratia would not necessarily mean that it is unreasonable.

Commercial expediency does not mean that an employer should not make any payment to an employee unless the employee is entitl\:d to i& under a contract. Even where there is no contract, an employer may pay commission to an employee if he thinks that it would be in the interest -of his business to do so. It is obvious that no business can prosper unless the employees engaged in it are satisfied and contented and they feel a sense of involvement and identification and tbis can be best secured by giving them a stake in the business and allowing them to share in the profits.

It would indeed be a wise step on the part of an employer to offer incentive to his employees by sharing 'a part of his profits. with them.

This W?uld not only be "s<J?d husine&S: but a¥.lo good ethics. It would be 1n consonance With Gandhian concept ·; is alsomodem socialistic thought which, with its deeply rooted faith in social and economic democracy, regards the employees as much as the 61llployer as co-sharers in the business. If an employer -earns profits to which the employees have necessarily contributed by putting in their labour, there is no reason why the employer should not share a part of these profits with the employees.

That is the demand of social justice today and it is high time that the administration of our tax law recognised it and encouraged sj:Jarine of pr-Ofim by employers with emoloyees by adopting a progressive and libec ral approach in the applicability of section 36, sub-section (1), clause (ii).

What is the requirement of commercial expediency must be judged not in the light of the 19th Century laissez faire doctrine which regarded man as an economic being concerned only to protect and

• '

. SHAHZADA NAND "· C.J.T. (Bhaf!Wati, J.) 537

advance his self-interest but in the context of current socio-economic A thinking which places the general interest of the community above the personal interest of the iqdividual and believes that a business or undertaking is the product of the combined efforts of the employer and the employees and where there is sufficiently large profit, after providing for the salary or remuneration of the employer and the employees ana other prior charges such as interest on capital, depreciation, reserves etc., a part of it should in all fairness go to the employees.

We are.

B therefore. of the view that the s11m of Rs. 45,380/- paid by the asBeSsee to Saheb Dayal and . Gurditta Mal by way of commission during the relevant accounting year was reasonable having regard. to all the circumstances of the case and it ought to have been allowed as a ddnctible expenditure under section 36, sub-section (I), clause (ii).

We c.; ordingly allow the appeal, set aside the judgment of the C High Court and answer the question referred by the Tribunal in the affirmative in favour of the assessee.

The Commissioner will pay the cos\3 0i the appeal as also of the reference to the assessee.

S.R.

Appeal allowed .

SHAHZADA NAND & SONS

THE COMMISSIONER OF INCOME TAX, PATIALA

1977 f P. N. BHAGWATI

S. MuRIAzA FAzAL ALI, JJ

s. 36(1)

Income Tax Act

Saheb Dayal

Gurditta ]I.fall

Gurditta Mal

Gurditta

The Appellate Assistant Comm.is- sioner rejected the appeal preferred to him and held that since no evidence had been produced by the assessee to prove that the activities -of Saheb Dayal and Gurditta 1-fal in the relevant account year were of a nature different from those in th: earlier years so that they put in any extra time or energy in the conduct of the business of the assessee so as to justify the payment of the commission, it could not be said that the commission was paid for services rendered by them.

Gurditta l\.Ial

s. 36(1)

s. 36(1)

Section 36

s. 36

s. 36(1)(ii)

s. 36

S. T. Desai

A. K. Verma

Narain

T. A. Ramachandran

R. N. Sachthey

BHAGWATI

Chaman Lal

Madan Lal

Harbans Lal

Raj Mohau

Raj Mohan

OCM

Gnrditta Mal

section 36

Sahe.b Dayal

section 36

L. Gurandittamal

L.

Sahebdiyal

section 36

section 36

section 36

section 36

Section 36

Gurditta ]Mal

12th December, 1967

Gurd1tta Mal

section 36

section 36

.Gurditta Mal

section 36

Section 36

section 36

section 36

Gujarat High Court

section 36

section 36

section 36

Mal

Gandhian

section 36

Bhaf!Wati,

section 36

C High Court