GENERAL GOVT. SERVANTS CO-OPERATIVE

HOUSING SOCIETY LTD., AGRA

WAHAB UDDIN & ORS. ETC. ETC.

Marrh 2, 1981

[R.S. PATHAK, 0. CHINNAPPA REDDY AND BAHARUL ISLAM, JJ.]

Land Acquisition Act-Sections 4, 5A and 6--Land acquired for a company- Part Vil of the Act, if attracted-Requirement of rule 4 of Land Acquisition (Companies) Rules 1963-Ifmandator)~"Person interested"-Meaning of.

The land in dispute originaly belonged to a person who had migrated to Pakistan. After acquiring the lessee rights in the land under section 12 of the Displaced Persons (Compensation and Rehabilitation) Act, 1954 the Central Government sold these rights by auction. The first respondent purchased a plot of land and a sale certificate was issued to him. The respondent, however, could not get possessi'On of the land as a result of litigation resorted to by the person in possession of the land. Jn the meantime the State Government filed a suit against the Custodian of Evacuee Property and the auction purchasers for possession; but the suit and later appeal were dismissed.

Before the respondent obtained possession of the land a notification under section 4 of the Land Acquistion Act was issued seeking to acquire the land for construction of residential houses for the members of the appellant society.

Having had no knowledge of the notification the respondent did not file any objection under section SA.

After the issue of notification under section 6 of the Act proceedings relating to determination of compensation for the lands were started. A notice was served on the respondent under section 9(3) of the Act 1 calling upon him to prefer his claim for compensation.

Allowing the respondent's petition impugning the action of the Government the High Court held that the State Government could acquire the land only after complying with the provisions of Chapter VII of the Act and the Land Acquisition (Companies) Rules, 1963 and this not having been done there was a breach of the principle of natural justice and that secondly the respondent was a "person interested" within the meaning of section 3(b) of the Act.

On the question whether the respondent was a 'person interested' and whether the notification issued under section 6 was valid.

HELD : The expression "person interested" is defined in section 3(b) as including all persons claiming an interest in compensation to be made on account of acquisition of land under the Act.

That the first respondent had interest in the land in question is warranted by the following circumstances : (i) a sale certi ficate had been issued to him after he purchased the land in auction sale; (ii) the Collector knew that he had purchased the land for he had himself filed a suit for ejectment against him from the land and that the suit was dismissed and the. appeal against that order was also dismissed; (iii) the Collector called upon the respondent to prefer his claim under section 9(3) of the Act which showed that

the Collector had admitted the first respondent's interest in the land ; and A

(iv) before the High Court the Collector had not denied the respondent's right to compensation. Therefore, the first respondent was a "person_ interested" within the meaning of section 3(b). [50 F-H)

2. The notification under section 6 is invalid for non-compliance with rule 4 of the Rules.

(54 G]

The appellant society is a "company" within the meaning of section 3(e) of the Act. When the land was acquired for the purpose of a company, Part VII of the Act is attracted and the provisions of that Chapter have to be followed.

Rule 4 is mandaiory and unless the directions enjoined by this rule are complied with the notification under section 6 would be invalid. Its compliance precedes the notification under section.4 as well as compliance of section 6 of the Act.

(51 F-G]

In the instant case on receipt of the notice under section 9(3) the respondent objected to the acquisition on the grounds that the land or lessee rights having been acquired by the Central Government under the provisions of the Displaced Persons (Compensation and Rehabilitation) Act, 1954 could not be acquired by the State Government, and that the mandatory procedure for acquisition of land for private companies had not been followed. No inquiry report had been submitted by the Collector. The report submitted was under section 5A and not under rule 4. '.\here had therefore been a failure of justice.

[54 C-F)

The appellant's contention that the first respondent's claim was barred by limitation under sections 45(f) and 180 of the Tenancy Act, has no force because there is no evidence to show that the requirements of the section have been satisfied. That apart, this is a mixed question of fact and law requiring investigation into facts. Since it had not been taken before the High Court but

sought to be urged for the first time in thi~ Court, it cannot be allowed to be E urged in an appeal by special leave under Article 136 of the Constitution. (50 C-D)

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2085 of 1978 and 7-8 of 1979.

Appeals by special leave from the Judgment and Order dated 18.5. 1977 of the Allahabad High Court in C.M.W. Nos. 5061/73, 5063/73. and 5080/73.

G.C. Lal, D.B. Vohra and O.P. Tewari for the Appellants in all the Appeals.

Prohir Mitra for R.I in CAs. 2085/78, 8/79 and RR 1-2 in CA 7/79.

G. N. Dixit, and Sabha Dikshit for RR. 2 to 4 in CA 2085/78 RR 2-4 in CA 8/79 and RR 3&5 in CA 7/79.

E.C. AggarW{[/a for R.4 in CA 7/79 and R. 3 in CA 8/79.

The Judgment of the Court was delivered by

BAHARUL ISLAM, J. The above appeals arise. out of land acquisi- H tion proceedings and involve similar questions of fact and the same

A question of law.

This common judgment, therefore, will dispose of all the three appeals. It will be sufficient if we refer to the material facts of Civil Appeal No. 2085 of l 978 only.

The land involved, belonged to one Imam Khan as an occupancy tenant. Before the partition of India, he migrated to Pakistan, whereafter his rights in the lands were declared evacuee property.

Subsequently, in pursuance of a notification issued under.

Section 12 of the Displaced Persons (Compensation and Rehabilitation) Act, 1954, the Central Government acquired the. lessee rights.

As a result of the notification, these rights vested in the Central Government free from all encumbrances. The Central Government thereafter sold these rights by auctions in August/September 1962.

The first Respondent purchased a plot of land for a sum of Rs. 21,700.

He deposited the entire amount with the Managing Officer, Evacuee Property, Agra. A sale certificate was issued to him on September 12, 1962.

It appears that one Ramlal Lamba was in the possessi on of the ']and in question. He was asked by the Managing Officer, Evacuee Property, to vacate the land, and deliver possession to the first respondent. Instead of delivering possession of the land to the first respondent Lamba, filed a Writ Petition under Article 226 of the Constitution in the Punjab High Court at Delhi.

The Writ Petition was dismissed on 4.12.69. He then filed an appeal which was also dismissed on 2.2.70. He then filed a suit in the Court of the Munsiff Agra, for restraining the Managing Officer, Evacuee Property, from interfering in his possession.

Thus the first respondent could not get possession of the land.

After the auction sale, the State of U. P. (Respondent No. 2 herein) filed a suit under Section 171 of U. P. Tenancy Act, 1939 (hereinafter 'the Tenancy Act') against the Custodian of the Evacuee Property, and the four auction purchasers including the first respondent, for possession.

This suit was dismissed by the Assistant Collector, Ist Class, on 24.3.69 on the ground that it was not maintainable. An appeal was filed.

This was also dismissed on 24.10.70.

Thus before the petitioner could obtain possession of the. land, the Collector of Agra (Respondent No.3 herein) issued a notification under Section 4 of the Land Aquisition Act (hereinafter 'the Act'} on March I, 1970, notifying that the plots in dispute '(and several other plots) were intended to be acquired by the State Government for construction of residential houses for the members of the General

Servants~· Co-operative Housing Society Ltd., Agra. the appellant

before us.

The first respondent did not have any knowledge or in- A formation of the said notification under Section 4 of the Act and so he did not, as he could not, file any objection under section SA of the Act. The notification under section 4 was followed by a notification under section 6 of the Act on May 4, 1973.

After the said notifications, proceedings relating to determination of compensation for the lands were started. In that connection the first Respondent was served with a notice under section 9(3) of the Act, calling upon him to prefer his claim for compensation.

Thereupon the first Respondent filed objections, but before the objections were disposed of he filed a writ petition before the High Court of Allahabad.

The High Court allowed the writ petition and struck down the notification dated 5th May 1973, under Section 6 of the Act. The High Court held that as the acquisition was made by the State Government for the benefit of a Co-operative Society, it could do so only after complying with the provisions of Chapter VU of the Act, and the Land Acquisition (Companies) Rules, 1963 (hereinafter called 'the rules'), but as the State Government did not do so, there was a breach of the principle of natural justice.

Repelling the argument of the appellant to the contrary, the High Court also held that the first respondent was a 'person interested' within the meaning of section 3 (b) of the Act.

Respondents No. 2, 3 and 4 who are co-respondents appearing through Mr. Dikshit before us have supported the case of the appellant.

The first question for determination is whether the first respondent is not a 'person interested' within the meaning of section 3(b) of the L.A. Act and as such he had no locus standi to file the writ petition before the High Court, as contended by the appellant.

Section 3 (b) of the Act is i11 the following terms (material portions only) :

"3. In this Act, unless there is something repugnant in the subject or context :-

(a) ........ .

(b) the expression "person interested' includes all persons claiming an interest in compensation to be made_on account

of the acquisition of land under this Act; and a person shall be deemed to be interested in land if he is interested in an ease- H ment affecting the land."

In support of the argument the appellant refers to section 45 (f) and section 180 of the Tenancy Act, 1939. Clause (f) of section 45 provides that the interest of the tenant shall be extinguished where the tenant has been deprived of possession and his right to recover possession is barred by limitation. The limitation provided is for a period of twelve years, for a suit for ejectment of a person occupying the land without title and for damages-if the land is contiguous to any other land lawfully occupied by such other person-(a) if such, person has, at the commencement of the Tenancy Act, occupied the land for more than six years, the period runs from the time the land holders first knew of the unauthorised occupation. In any other case the period of limitation is six years. This point which has been urged for the first time before us is a mixed question of fact and law. It does not appear to have been taken before the High Court.

A mixed question of law and fact needing investigation into facts cannot be allowed to be urged for the first time in an appeal by special leave under Art. 135 of the Constitution.

D It is true that admittedly the first respondent was out of possession at the relevant time but there is no evidence before us to show whether or not the land in question was contiguous to any other land occupied by the person who is in possession and that his possession had been lawful. We a_re therefore not in a position to accept the submission of the appellant that the first respondent's claim was barred by limitation.

On the contrary there is ample evidence before us to show that the first respondent had interes\ in the land in question.

We come to this conclusion from the following circumstances :

(I) A sale certificate had been issued to the first respondent after the purchase of the land in auctioa sale held in 1912; (2) the Collector, Agra, knew that the first respondent had purchased the land in auction, for he had himself filed a suit for ejectment from the land in question under section 171 of the Tenancy Act against the first respondent, and that the suit was dismissed by the Assistant Collector Jst Class, on 24th March, J 969; the appeal preferred against the said order had also been dismissed by the Commissioner on the 27th of October, 1970; (3) the Colle.i:; tor issued notice under section 9 (3) of the Act calling upon the first respondent to prefer his claim, if any for compensation of the land acquired. (This amounts to an admission of the first respondent's interest in the land by the Collector) and (4) that in the counter affidavit filed by the Collector, in reply to the affidavit filed by the first rerpondent before the High Court

the claim of the petitioner to get compensation for the rights acquired A by the Government was not denied by the appellant.

We therefore agree with the High Court that the first respondent was a 'person interested' within the meaning of clause (b) of section 3 of the Act.

The next point urged before us by the appellants is that the B first respondent in fact filed objection which was iriquired into and he was given an opportunity o( being heard. The High Court, therefore, it is contended, was not right in holding that thre was a breach of the principle of natural justice. In our opinion, the real question, as urged by the first respondent, is not whether there has been any violation of any principle of natural justice but wheth'er Rule 4 of C the Rules has been complied with by the Collector.

Sub-section (!) of Section 4 of the Act provides that whenever it appears to the appropriate Government that land in any locality is needed or is likely to be needed for any public purpose a notificatio!l to that effect shall be published in the official gazette and that he shall also cause a public notice of the substance of the notification to be given at D convenient places in the said locality.

Section 5A of the Act provides that any person interested in any land which has been notified under sub-section ( l) of section 4, as being needed or likely to be needed for a public purpose or for a Company may, within thirty days (twenty-one days according E to the U.P. amendment) after the issue of the notification object to the acquisition of the land or of any land in the locality as the case may be.

Under section 3 (e), the expression 'Company', inter alia, includes a society registered under the Societies Registration Act, 1860 and a registered society within the meaning of the Co-operative Societies Act, 1912 or any other law relating to co-operative society F for the time being in force in any State. The appellant-The General Govt. Servants Co-operative Housing Society Ltd., Agra,-is a Company. The appellant has not contended to the contrary. It is also not disputed that when land is acquired for the purpose of a company, Part VII of the Act is attracted and the provisions of that chapter have to be followed.

Rule 4 of the Rules which is material and falls for our interpretation runs thus :

"4. Appropriate Government to be satisfied with regard to certain matters before initiating acquisition proceedings.- H (I) Whenever a Company makes an application to the appropriate Government for acquisition of any land, that Govern- . ment shall direct the Collector to submit a report to it on the following matters, namely :-

(i) that the Company has made its best endeavour to find out lands in the locality suitable for the purpose of the acquisition;

(ii) that the Company has made all reasonable efforts to get

suchlands by negotiation with the persons interested therein on payment of reasonable price and such efforts have failed;

(iii) that the land proposed to be acquired is suitable for the purpose;

(iv) that the area of land proposed to be acquired is not excessive;

(v) that the Company is in a position to utilise land expeditiously; and

(vi) where the land proposed to be acquired is good agricultural land, that no alternative suitable site can be found so as to avoid acquisition of that land.

"'-.

(2) The Collector shall, after giving the Company a "easonable opportunity to make any representation in this

•ehalf, hold an enquiry into the matters referred to in subrule (I) and while holding such enquiry he shall,-

(i) in any case where the land proposed to be acquired is agricultural land, consult the Senior Agricultural Officer of the district whether or not such land is good agricultural land;

(ii) determine, having regard to the provisions of sections 23 and 24 of the Act, the approximate amount of compensation likely to be payable in respect of the land which in the opinion of the Collector, should be acquired for the Company ; and

(iii) ascertain whether the Company offered a reasonable price (not being less than the compensation so determined), to the persons interested in the land proposed to be acquired.

Explanation :-For the purpose of this rule "good agricultural land" means any land which, considering the level of agricultural production and the crop pattern of the area in which

it is situated, is of average or above average productivity and A includes a garden or grove land.

(3) As soon as may be after holding the enquiry under sub-rule (2), the Collector shall submit a report to the appropriate Government and a copy of the same shall be forwarded by that Government to the Committee.

(4) No declaration shall be made by the appropriate Government under section 6 of the Act unless-

(i) the appropriate Government has consulted the Committee and has considered the report submitted under this rule and the report, if any submitted under section 5A of the Act; and

(ii) the agreement under section 41 of the Act has been executed by the Company.'

Sub-rule (I) requires the Government to direct the Collector to submit a report to it on the matters enumerated in clauses (i) to (vi) of the sub-rule (1) which is for the benefit of the Company. The purpose is to avoid acquisition of land not suitable for a Compan}'.

Clause (ii) of sub-rule (1) requires that the Company has to make all reasonable efforts to get such lands by negotiation with the person interested therein on payment of reasonable prices and that such efforts have failed. The purpose of clause (ii) seems to be to avoid unnecessary land acquisition proceedings and payment of exorbitant prices. The purpose of clauses (iii), (iv) and (v) is obvious. The purpose of clause (vi) is to avoid acquisition of good agricultural land, when other alternative land is available for the purpose. Subrule 2 of rule 4 requires the Collector to give reasonable opportunity to the Company so that the Collector may hold an inquiry into the matters referred in sub-rule (1).

The Collector has to coll!ply with Clauses (i), (ii) and (iii) of sub-rule 2 during the course of the inquiry under sub-rule (I). The Collector under sub-rule 3 then has to send a copy of his report of the inquiry to the appropriate Government and a copy of the report has to be forwarded by the Government to the Land Acquisition Committee constituted under Rule 3 for the purpose of advising the Government in relation to acquisition of land under Part VII of the Act, the duty of the Committee being to advise the Government on all matters relating to or arising out of acquisition of land under Part VII of the Act (Sub-rule (5) of Rule 3). No declaration shall be made by the

appropriate Government under section 6 of the Act unless the Committee has been consulted by the Government and has considered the report submitted by the Collector under section SA of the Act. In addition, under clause (ii) of sub-rule (4) of rule 4, the Company has to execute an agreement under section 41 of the Act.

The above consideration shows that rule 4 is mandatory ; its compliance is no idle formality, unless the directions enjoined by rule 4 are complied with,. the notification under section 6 will be invalid.

A consideration of rule 4 also shows that its compliance precedes the notification under section 4 as well as compliance of section 6 of the Act.

8. In the instant case, as stated earlier, the first respondent on receipt of the notice under section 9(3) of the Act submitted a representation. After the representation, a brief written note of the arguments was also supplied (Annexure 6).

The first respondent's objections, inter alia against the acquisition of the land were : (I) that the land being that of the Government cannot be legally acquired ; (2) that the land or lessee rights having been once acquired by the Central Government under the provisions of the Displaced Persons (Compensation and Rehabilitation) Act, 19S4, it cannot be acquired by the State Government; and (3) that the proceedings fqr the acquisition of the land for the appellant were illegal as the mandatory procedure for acquisition of land for private companies has not been followed.

It was also stated in the representation that no efforts to purchase the rights of the first respondent by negotiation were made. The inquiry report submitted by Collector does not show that he applied .his mind to the provisions of rule 4. as stated above, or to the objections of the first respondent. In fact there was no report under rule 4. The report that was submitted was one under section SA of the Act.

We have examined this aspect of the matter to see that although the enquiry was belated and not in accordance with law, there has been no failure of justice. In our opinion there has been failure of justice.

Agreeing with the finding of the High Court, although for different reasons, we hold that the notification under section 6 is invalid for non-compliance of rule 4 of the Rules.

As a result we dismiss the appeals with costs.

P.B.R.

Appeals dismissed.

WAHAB UDDIN & ORS. ETC. ETC

R.S. PATHAK

0. CHINNAPPA REDDY

BAHARUL ISLAM, JJ.

Land Acquisition Act

Sections 4, 5A and 6

section 12

Central Government

section 4

section 6

section 9(3)

section 3(b)

section 6

section 3(b)

section 9(3)

section 3(b)

section 6

section 3(e)

Part VII of the Act

section 6

section 6

section 9(3)

section 5A

sections 45(f) and 180

Article 136

Allahabad High Court

G.C. Lal

D.B. Vohra

O.P. Tewari

Prohir Mitra

G. N. Dixit

E.C. AggarW{[/a

Imam Khan

India

Pakistan

Section 12

September 12, 1962

Ramlal Lamba

Lamba

Article 226

Punjab High Court at Delhi

Munsiff Agra

State of U. P.

Section 171

Tenancy Act, 1939

Agra

Section 4

March I, 1970

Section 4

section 4

section 6

May 4, 1973

section 9(3)

High Court of Allahabad

5th May 1973

Section 6

Chapter VU of the Act

section 3

Dikshit

section 3(b)

Section 3

section 45

section 180

Tenancy Act, 1939

section 45

Art. 135

section 171

24th March, J 969

27th of October, 1970

section 9

section 3

Section 4

Section 5A

section 4

section 3

Societies Registration Act, 1860

Co-operative Societies Act, 1912

Part VII of the Act

sections 23 and 24

section 6

section 5A

section 41

section 6

section 41

section 6

section 4

section 6

section 9(3)

section 6


GOKARAJU RANGARAJU ETC.

STATE OF ANDHRA PRADESH

April 15, 1981

[ 0. CHINNAPPA REDDY, A.P. SEN AND

BAHARUL ISLAM, JJ. ]

De facto doctrine-Nature and scope of-Appointment of District Judge declared void-Judgment rer.dered by him, whether becomes void.

Interpretation of statutes-Abundans cautela non nocet when applied-Legislature, whethr makes superfluous legislation.

The appellants in both the appeals were convicted of certain offences by two[District Judges.' By the time the appeals went up for hearing to the High Court, the appointment of the two District Judges was quashed by this Court as being in violation of Article 233 of the Constitution.

The appellants contended before the High Court that having regard to the fact that the Supreme Court had quashed the appointment of District Judges, the judgments rendered by them in these tw.o cases became void. The High Court, rejecting the contention, held that since the District Judges held office under lawful authority, the judgments rendered by them during the tenure of their office were valid and that in any event the validity of the judgments could not be questioned in collateral proceedings.

In appeal to this Court it was contended that trial by a Sessions Judge appointed in violation of Article 233 was not a trial by a Sessions Judge duly appointed to exercise jurisdiction in a Court of Sessions under section 9, Cr.P.C.

and that the appellants' liberty was being taken a way otherwise than in accordance with the procedure established by law and that the Constitution (Twentieth Amendment) Act, 1966 would be a surplusage if the de facto doctrine was applied to judgments rendered by persons appointed as District Judges contrary to the provisions of Article 233 of the Constitution. ·

Dismissing the appeals,

HELD : The l\\O Judges who gave the judgments in the two cases were not usurpers or intruders but were persons who discharged the functions and duties of Judges under colour of lawful authority. So long as an office is validily created it matters not that the incumbent was not validily appointed. A person appointed to a post of Sessions Judge would be exercising jurisdiction in the

G. RANGARAJU V. ANDHRA PRADESH 475

Court of Session and his judgments and orders would be those of that court and would continue to be valid notwithstanding that his appointment to such court might be declared invalid. On that account alone it cannot be said that the procedure prescribed hy law had not been followed. [487 E-F]

Mi/wardv. Thatsher [1787] 2 T. R. 81 @ 87, Seaddling v. Lorant [1851] 3 HLC 418, re. James (An Insolvent) [1977] 2 W.L.R. I, Norton v. Shelby County [1886] !18 US 425-30 Law Ed. 178; referred to.

The doctrine of de facto envisages that acts performed de facto by the officers within the scope of their assumed official authority, in the interest of the public or third persons and not for their own benefit, are generally as valid and binding as if they were the acts of officers de jure. [478 HJ

The de facto doctrine is founded on good sense, sound policy and practical expedience. It is aimed at the prevention of public and private mischief and protection of public and private interest. It avoids endless confusion and needless chaos. An illegal appointment may be set aside and a proper appointment may be made but the acts of those who hold office de facto are not so easily undone. They may have lasting repercussions and confusing sequels if attempted to be undone. [ 479 B]

Pu/in Behari v. King Emperor [1912] 15 Cal Law Journal 517@ 574, Immedisetti Ramkrishnaiah Sons v. State of Andhra Pradesh and Anr. AIR 1976 A.P. 193 ; referred to.

A defective appointment of a de facto judge cannot be permitted to be

questioned in a litigation between two private litigants. If this were not so, so E soon as a Judge pronounces a judgment litigation may be commenced for a declaration that the judgment was void because the judge was no judge. To question a Judge's appointment in an appeal against his judgment is such a collateral attack. [485 B-C]

The de facto doctrine saves acts done by a Judge whose appointment has later been declared void, from being invalidated.

The doctrine is recog- F nised in Article 71(2) (which declares that acts done by the President in the exercise of his powers shall not be invalidated by reason of the election being declared void) and section 107(2) of the Representation of the People Act, 1951 (which provides that acts or a person participating as member of Parliament or a State Legislature shall not be declared invalid by reason of his election being declared void). The doctrine, therefore, is no stranger to the Constitution and the laws. (485 E-F] G

The Constitution (Twentieth Amendment) Act, 1966 is an instance where the de facto doctrine was applied to remove and taint of illegality being attributed to the judgments or orders passed by District Judges appointed before 1966 otherwise than in accordance with the provisions of Articles 233 and 235 of the Constitution and which appointments were declared invalid by this Court in ff Chandra Mohan v. State of U.P., [1967] l SCR 77. (485 HJ

It is not a necessary inference from the Twentieth Amendment that but for that amendment the judgments, decrees etc. of those District Judges would have been void. As a general rule Parliament may be presumed not to make superfluous legislation. But this presumption is not a strong presumption in that it is not uncommon to !ind statutes containing provisions introduced because abundans cautela non nocet (there is no harm in being cautious). (486 C-D]

The statutory reiteration of the Jaw, a clear judicial pronouncement on a subject notwithstanding, only leads to the inference that the statute making body, though mindful of the real state of the law, was acting under the influence of excessive caution.

The Constitution (Twentieth Amendment) Act, 1966 is one such instance. [ 486 E-F]

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 234 of 1976.

Appeal by special leave from the judgment and order dated the 5th December, 1975 of the Andhra Pradesh High Court in Criminal Revision Case No. 816 of 1974 (Criminal Revision Petition No. 732 of 1974).

AND

Criminal Appeal Nos. 315 and 316 of 1976.

Appeals by special leave from the judgment and order dated the 12th April, 1976 of the Andhra Pradesh High Court in Criminal Appeal Nos. 310 & 311of1975.

P. Govindan Nair and A. Subha Rao for the Appellant in Cr!.

A. No. 234/76.

M. N. Phadke, and B. Kanta Rao for the Appellant in Cr!. A.

Nos. 315 & 316 of 1976.

G. N. Rao for the Respondent in all the appeals.

The Judgment of the Court was delivered by

CHINNAPPA REDDY, J.

What is the effect of the declaration by the Supreme Court that the appointment of an Additional Sessions Judge was invalid o; i, judgments pronounced by the Judge prior to such declaration is the question for consideration in these criminal appeals.

The question may seem to be short and simple H but it cannot be answered without enquiry and research. An answer, on first impression, may be 'a judgment by a judge who is not a judge is no judgment' a simple, sophisticated answer.

But it appears

second thoughts are necessary. What is to happen to titles settled, declarations made, rules issued, injunctions and decrees granted and even executed ? What is to happen to sentences imposed ? Are convicted offenders to be set at liberty and to be tried again ? Are acquitted accused to be arrested and tried again ? Public Policy

is clearly involved.

And, in the tangled web of human affairs, law must recognise some consequences as relevant, not on grounds of pure logic but for reasons of practical necessity. To clear the confusion and settle the chaos, judges have invented the de faeto doctrine, which we shall presently examine. de facto doctrine is thus a doctrine of necessity and public policy.

Crl. A. No. 234 of 1976 arises out of a proceeding under S.6A of the Essential Commodities Act, by which the District Revenue Officer West Godavari, Andhra Pradesh, ordered the confiscation of qs. 203. 74 kgs. of paddy and qs. 302.25 kgs. of rice. The appellant, Gokaraju Rangaraju, preferred an appeal under S. 6C of the Essential Commodities Act to the Court of Session, West Godavari.

The appeal was heard by Shri G. Anjappa, Additional Sessions Judge and was rejected.

The appellant preferred a Criminal Revision Petition before the High Court of Andhra Pradesh. Criminal Appeal Nos. 315 and 316 of 1976 arise out of Sessions Case No. 12 of 1975 in the Court of Session, Guntur Division' The case was heard and the judgment was pronounced by Shri Raman Raj Saxena, II Additional Sessions Judge, Guntur. The convicted accused preferred appeals to the High Court of Andhra Pradesh. By the time the Criminal Revision case filed by Gokaraju Rangaraju and the Criminal Appeals filed by the appellants in Crl. Appeals Nos. 315 and 316 of 1976 came up for hearing before the High Court of Andhra Pradesh, this Court by its judgment dated 2nd September 1975 quashed the appointment of Shri G. Anjappa, Shri Raman Raj Saxena and two others as District Judges Grade II, on the ground that their appointment was in violation of the provisions of Art. 233 of the Constitution. Thereupon a point was raised in the Criminal Revision case as well as in the Criminal

Appeals that the judgments , rendered by Shri Anjappa and Shri

Raman Raj Saxena were void and required to be set aside. -The High Court overruled the point raised by the present appellants and held that though the appointment of Shri Anjappa and Shri Raman Raj Saxena as District Judges Gr. H was invalid, yet they were not mere usurpers but had held office under lawful authority and therefore, the judgments rendered by them were valid and could not be questioned in collateral proceedings. The present

appeals have been preferred by special leave granted by this Court.

In Criminal Appeals Nos. 315 and 316 of 1976, however, the special leave granted by this Court was limited by the order granting leave to the question whether the judgments rendered by Sessions Judges were void where their appointment as Sessions_ Judges was subsequently declared illegal. ' --shri Govindan Nayar learned counsel for the appellants in Cr!. A. No. 234 of 1976 and Shri Phadke, learned counsel for the apJ'ellants in Cr!. Appeals Nos. 315 & 316 of 1976, argued before us that the judgments rendered by Shri Anjappa and Sbri Raman Raj Saxena were void as they were never duly appointed as District Judges.

It was _urged that there \Vas no need for them to question the appointment of Shri Anjappa or Shri Raman Raj Saxena as their appointment bad already be_en quashed by the Supreme Court.

It was saidJhat the de facto doctrine was based on public policy and necessity and that in the present case neither public policy or necessity required that the judgments should not be set aside. No inconvenience would be caused by ordering a rehearing of the appeals or a retrial of the accused. It was also urged that the attack, if any, on the appointment of Shri Anjappa and Shri Raman Raj was not a collateral attack. It was. submitted that a question of jurisdiction could be raised at any stage in a criminal case and a trial by a Sessions Judge who was appointed in violation of Art. 233 was not a trial by a Sessions Judge duly appointed to exercise jurisdiction in a Court of Session under S. 9 of the Code of Criminal Procedure.

It was argued that the de facto doctrine was not an absolute doc- • trine. , It was subject to certain limitations. One such limitation was that imposed by Art. 233 of the Constitution. A person

-~-----, appointed as a District Judge contrary to the provisions of Art. 233

was no judge and his judgments were no judgments. It was submitied that the 20th Amendment of the Constitution would be a

__ surplusage if the de facto doctrine was to b-e applied to judgments rendered by persons appointed as District Judges contrary to the provisions of Art. 233 of the Constitution. It was also suggested that the Fundamental Right of the _appellants under Art. 21 of the Constitution was violated as their liberty was being taken away otherwise than in accordance with the procedure established by law. ------

We are unable to agree with the submissions of the learned

cunsel for the appellants. The doctrine is now well established that "the acts of the Officers de facto performed by them within the scope of their assumed official authority, in the interest of the public

::,, '

or third persons and not for their own benefit, are generally as valid and binding, as if they were the acts of officers de jure" (Pulin Behari

v. King Emperor)(1).

As one of us had occasion to point out earlier "the doctrine is founded on good sense, sound policy and practical expedience. It is aimed at the prevention of public and private mischief and the protection of public and private interest. It avoids endless confusion and needless chaos.

An illegal appointment may be set aside and a proper appointment may be made, but the acts of those who hold office de facto are not so easily undone and may have lasting repercussions and confusing sequels if attempted to be undone.

Hence the de facto doctrine" (vide Immedisetti Ramkrishnaiah Sons v. State of Andhra Pradesh and Anr.(2)

c In Pu/in Behari v. King Emperor, (Supra) Sir Ashutosh Mukerjee J. \ noticed that in England the de facto doctrine was recognised from the earliest times. The first of the reported cases where the doctrine received judicial recognition was the case of Abbe of Fountaine decided in 1431. Sir Ashutosh Mookerjee noticed that even by 1431 D the de facto doctrine appeared to be quite well known and, after 1431, the doctri11e was again and again reiterated by English Judges.

In Milward v. Thatcher( 3), Buller J. said :

"The question whether the judges below be properly judges or not, can never be determined, it is sufficient if they be judges de facto.

Suppose a person were even criminally convicted in a Court of Record, and the Recorder of such Court were not duly elected, the conviction would still be good in law, he being the judge de farto".

In Seaddling v. Lorant(4), the question arose whether a rate for the relief of the poor was rendered invalid by the circumstance that some of the vestry men who made it were vestry men def acto ' and not de ju re.

The Lord Chancellor observed as follows :

With regard to the competency of the vestry men, who G were vestry men de facto, but not vestry men de jure, to make the rate, your Lordships will see at once the impor-

(!) [1912] 15 Cal Law Journal 517@ 574.

(2) AIR 1976 A.P. 193

(3) [1787] 2 T.R. 81@ 87.

(4) [1851] 3 HLC 418.

tance of that objection, when you consider how many public officers and persons there are who were charged with very important duties, and whose title to the office on the part of the public cannot be ascertained at the time. You will at once see to what it would lead if the validity of their acts, when in such office, depended upon the propriety of their election. It might tend, if doubts were cast upon them, to consequences of the most destructive kind. It would create uncertainty with respect to the obedience to public officers and it might also lead to persons, instead of resorting to ordinary legal remedies to set right anything done by the officers, taking the law int9 their own hands".

Some interesting observations were made by the Court of Appeal in England in re James (An Insolvent).(1) Though the learned Judges constituting the Court of Appeal differed on the principal question that arose before them namely whether "the High Court of Rhodesia" was a British Court, there did not appear to be any difference of opinion on the question of the effect of the invalidity of the appointment of a judge on the judgments pronounced by him. Lord Denning M. R., characteristically, said : "He sits in the seat of a judge.

He wears the robes of a judge.

He holds the office of a judge. May be he was not validly appointed. But, still, he holds the office. It is the office that matters, not the incumbent ......... so long as the man holds the office and exercises it duly and in accordance with law, his orders are not a nullity. If they are erroneous they may be upset on appeal. But if not erroneous they should be upheld".

Lord Denning then proceeded to refer to the State of Connecticut v. Carroll decided by the Supreme Court of Connecticut, Re Aldridge decided by the Court of Appeal in New Zealand and Norton v. Shelby County decided by the United States Supreme Court. Observations made in the last case were extracted and they were :

"Where an office exists under the law, it matters not how the appointment of the incumbent is made, so far as the validity of his acts are concerned. It is enough that he is clothed with the insignia of the office, and exercises its powers and functions ...... The official acts of such persons are recognised as valid on grounds of public policy, and for the protection of those having official business to transact."

(!) [1977] 2 W.L.R. 1.

Scarman LJ who differed from Lord Denning on the question whether the High Court of Rhodesia was a British Court appeared to approve the view of Lord Denning M. R. in regard to the de facto doctrine. He said :

"He (Lord Denning) invokes the doctrine of recognition of the de facto judge, and the doctrine of implied mandate or necessity.

I agree with much of the thinking that lies behind his judgment. I do think that in an appropriate case our courts will recognise the validity of judicial acts, even though they be the acts of a judge not lawfully appointed or derive their authority from an unlawful government.

But it is a fallacy to conclude that, because in certain circumstances our Courts would recognise as valid the judicial acts of an unlawful court or a de facto judge, therefore, the Court thus recognised is a British Court".

The de facto doctrine has received judicial recognition in the United States of America also. In State v. Gardner (Cases on Constitutional Law by Mc. Gonvey and Howard Third Edition 102) the question arose whether the offer of a bribe to a City Commissioner whose appointment was unconstitutional was an offence.

Broadbury, J. said.

"We think that principle of public policy, declared by the English Courts three centuries ago, which gave validity .to the official acts of persons who intruded themselves into an office to which they had not been legally appointed, is as applicable to the conditions now presented as they were to the conditions that then confronted the English Judiciary.

We are not required to find a name by which officers are to be known, who have acted under a statute that has subsequently been declared unconstitutional, though we think such officers might aptly be called de facto officers."

In Norton v. Shelby Cou11ty(1), Field, J., observed as follows :

"The doctrine which gives validity to acts of officers de facto whatever defects there may be in the legality of their appointment or election is founded upon considerations of policy and necessity, for the protection of the pub-

(I) [1886] 118 US 425-36 Law Ed 171.

lie and individuals whose interests may be affected thereby.

Offices are created for the benefit of the public, and private parties are not permitted to inquire into the title of persons clothed with the evidence of such offices and in apparent possession of their powers and functions.

For the good order and peace of society their authority is to be respected and obeyed until in some regular mode prescribed by law their title is investigated and determined.

It is manifest that endless confusion would result, if in every proceeding before such officers their title could be called in question."

In Cooley's 'Constitutional Limitations', Eighth Edition, Volume Up. I 355, it is said,

"An officer de facto is one who by some colour or right is in possession of an office and for the time being performs its duties with public acquiescence, though having no right in fact.

His colour of right may come from an election or appointment made by some officer or body having colourable but no actual right to make it; or made in such disregard of legal requirements as to be ineffectual in law; or made to fill the place of an officer illegally removed or made in favour of a party not having the legal qualifications; or it may come from public acquie.scence in the qualifications; or it may come from public acquiescence in the officer holding without performing the precedent conditions, or holding over under claim of right after his legal right has been terminated; or possibly from public acquiescence alone when accompanied by such circumstances of official reputation as are calculated to induce people, without inquiry, to submit to or invoke official action on the supposition that the person claiming the office is what he assumes to be.

An intruder is one who attempts to perform tbe duties of an office without authority of law, and without the support of public acquiescence.

No one is under obligation to recognise or respect the acts of an intruder, and for all legal purposes they are absolutely void. But for the sake of order and regularity, and to prevent confusion in the conduct of public business and in security of private rights, the acts of officers de facto are not suffered to be questioned because of the want of legal authority except by some direct proceeding instituted for

G. RANGARAJU v. ANDERA PRADESH (Chinnappa Reddy, J.) 483

the purpose by the State or by .some one claiming the office de jure, or except when the person himself attempts to build up some right, or claim some privilege or emolument, by reason of being the officer which he claims to be.

In all other cases the acts of an officer de facto are as valid and effectual, while he is suffered to retain the office, as though he were an officer by right, and the same legal consequences will flow from them for the protection of the public and of third parties.

There is an important principle, which finds concise expression in the legal maxim that the acts of officers de facto cannot be questioned collaterally."

In Black on judgments it is said:

"A person may be entitled to his designation although he is not a true and rightful incumbent of the office, yet he is no mere usurper but holds it under colour of lawful authority.

And there can be no question that judgments rendered and other acts performed by such a person who is ineligible to a judgeship but who has nevertheless been duly appointed, and who exercises the power and duties of tl•e office is a de f:1cto judge, and his acts are valid until he is properly removed."

 The de fi1cto doctrine has been recognised by Indian Courts also. Jn Pu/in Behari v, King Emperor, Sir Ashutosh Mookerjee, J after tracing the history of the doctrine in England observed as follows :

"The substance of the matter is that the de facto doctrine was introduced into the law as a matter of policy and necessity, to protect the interest of the public and the individual where these interests were involved in the official acts of persons exercising the duties of an office without being lawful officers.

The doctrine in fact is necessary to maintain the supremacy of the law and to preserve peace and order in the community at large.

Indeed, if any individual or body of individuals were permitted, at his or their pleasure, to collaterally challenge the authority of and to refuse obedience to the Government of the State and the numerous functionaries through whom it exercised its various

powers on the ground of. irregular existence or defective title, insubordination and disorder of the worst kind would be encouraged.

For the good order and peace of society, their authority must be upheld until in some regular mode their title is directly investigated and determined."

B In P. S. Menon v. State of Kera/a and Ors.(1) a Full Bench of

the Kerala High Court consisting of P. Govindan Nair, K.K. Mathew and T.S. Krishnamoorthy Iyer, JJ said about the de.facto doctrine :

"This doctrine was engrafted as a matter of policy and necessity to protect the interest of the public and individual involved in the official acts of persons exercising the duty of an officer without actually being one in strict point of law.

But although these officers are not offiers de jure they are by virtue of the particular circumstances, officers, in fact, whose acts, public policy requires should be considered valid".

In the judgment under appeal Kuppuswami and Muktadar, JJ observed :

"Logically speaking if a person who has no authority to do so functions as a judge and disposes of a case the judgment rendered by him ought to be considered as void and illegal, but in view of the considerable inconvenience which would be caused to the . public in holding as void judgments rendered by judges and other public officers whose title to the office may be found to be defective at a later date. Courts in a number of countries have, from ancient times evolved a principle of law that under certain conditions, the acts of a judge or officer not legally competent may acquire validity''.

J A judge, de facto, therefore, is one who is not a mere intruder or usurper but one who holds office, under colour of lawful authority, though his appointment is defective and may later be found to be defective. Whatever be the defect of his title to the office, judgments pronounced by him and acts done by him when he was clothed with the powers and functions of the office, albeit unlawfu11y, have the same efficacy as judgments pronounced and acts done by a Judge de

(1) AIR 1970 Kerala 165@ 170.

jure.

Such is the de facto doctrine, '!Jorn of necessity and public policy to prevent needless confusion and endless .mischief. There is yet another rule also based on public policy. The defective appointment of a de facto judge may be questioned directly in a proceeding to which he be a party but it cannot be permitted to be questioned in a litigation between two private litigants, a litigation which is of no concern or consequence to the judge except as a judge. Two litigants litigating their private titles cannot be permitted to bring . in issue and litigate upon the title of a judge to his office. Otherwise so soon as a judge pronounces a judgment a litigation may be commenced for a declaration that the judgment is void because the judge is no judge. A judge's title to his office cannot be brought into jeopardy in that fashion.

Hence the rule against collateral attack on validity of judicial appointments. To question a judge's appointment in an appeal against the judgment is, of course, such a collateral attack.

We do not agree with the submission of the learned counsel that the de facto doctrine is subject to the limitation that the defect in the title of the judge to the office should not be one traceable to the violation of a constitutional provision. The contravention of a constitutional provision may invalidate an appointment but we are not concerned with that. We are concerned with the effect of the invalidation upon the acts done by the judge whose appointment has been invalidated. The de facto doctrine saves such Acts. The de facto doctrine is not a stranger to the Constitution -or to the Parliament and the Legislatures of the States.

Art. 71 (2) of the Constitution provides !hat acts done by the President or Vice President of India in the exercise and performance of the powers and duties of his office shall not be invalidated by reason of the election of a person as President or Vice President being declared void.

So also Sec. I 07(2) of the Representation of the People Act 1951 (Act 43 of 1951) provides that acts and proceedings in which a person has participated as a Member of Parliament or a Member of the Legislature of a State shall not be invalidated by reason of the . election of such person being declared to be void.

There are innumerable other Parliamentary and State Legislative enactments which are replete with such provisions. The Tw1<ntieth Amendment of the Constitution is an instance where the de facto doctrine was applied by the Constituent body to remove any suspicion or taint of illegality or invalidity that may be argued to have attached itself to judgment, decrees sentences or orders passed or made by certain District Judges appointed before 1966, otherwise than in accordance with the provision of Art. 233 and Art 235 of

& the Constitution. The Twentieth Amendment was the consequence of the decision of the Supreme Court in Chandra Mohan v. Stale of Uttar Pradesh and Ors.(1)., that appointments of District Judges made otherwise than in accordance with the provisions of Arts. 233 and 235 were invalid. As such appointments had been made in many States, in order to preempt mushroom litigation springing up all over the country, it was apparently thought desirable that the precise position should be stated by the Constituent body by amending the Constitution.

Shri Phadke, learned counsel for the appellants,· argued that the constituen~ body could not be imputed with the intention of making superfluous amendments to the Constitution.

Shri Phadke invited us to say that it was a necessary inference from the Twentieth Amendment of the Constitution that, but for the amendment, the judgments, decrees etc. of the District Judges appointed otherwise than in accordance with the provisions of Art. 233 would be void.

We do not think that the inference suggested by Shri Phadke is a necessary inference. It is true that a> a general rule the Parliament may be presumed not to make superfluous legislation.

The presumption is not a strong presumption and statutes are full of provisions introduced because abundans cautela non nocet (there is no harm in being cautious).

When judiciai pronouncements have already declared the law on the subject, the statutory reiteration of the law with reference to the particular cases does not lead to the necessary inference that the law declared by the judicial pronouncements was not thought to apply to the particular cases but may also lead to the inference that the statute-making body was mindful of the real state of the law but was acting under the influence of excessive caution and so to silence the voices of doubting Thomases by declaring the law declared by judicial pronouncements to be applicable also to the particular cases.

In Chandra Mohan's case (Supra) this Court held that appointments of District Judges made otherwise than in accordance with Art. 233 of the Constitution were invalid.

Such appointments had been made in Uttar Pradesh and a few other States.

Doubts had been cast upon the validity of the judgments, decrees etc. pronounced by those District Judges and large litigation had cropped up.

It was to clear those doubts and not to alter the law that the Twentieth Amendment of the Constitution was made.

This is clear from the statement of objects and reasons appended to the Bill which wa5 passed as Constitution (20th Amendment) Act.

1966. The statement said :

(I) [1967] 1 SCR 77.

G. RANGARAJU v. ANDHRA PRADESH (Chinnapp'.l Reddy, J.) 487

"Appointments of District Judges in Uttar Pradesh and a few other States have been rendered invalid and ille gal by a recent judgment of the Supreme Court on the ground that such appointments were not made in accordance with the provisions of Art. 233 of the Constitution ......

As a result of these judgments, a serious situation has arisen because doubt has been thrown on the validity of the judgments, decrees, orders and sentences passed or made by these District Judges and a number of Writ Petitions and other cases have already been filed challenging their validity.

The functioning of the District Courts in Uttar Pradesh has practically come to a stand-still. It is, therefore, urgently necessary to validate the judgments, decrees, orders and sentences passed or made heretofore by all such District Judges in those States .......... "

In our view, the de facto doctrine furnishes an answer to the submissions of Shri Phadke based on Sec. 9 Criminal Procedure Code and Art. 21 of the Constitution. The judges who rejected the appeal in one case and convicted the accused in the other case were not mere usurpers or intruders but were persons who discharged the functions and duties of judges under colour of lawful authority. We are concerned with the office that the judges purported to hold. We are not concerned with the particular incumbents of the office.

So long as the office was validly created, it matters not that the incumbent was not validly appointed.

A person appointed as a Sessions Judge, Additional Sessions Judge or Assistant Sessions Judge, would be exercising jurisdiction in the Court of Session, and his judgments and orders would be those of the Court of Session. They would continue to be valid as the judgments and orders, of the Court of Session,

notwithstanding that his appointment to such Court might be declared invalid. On that account alone, it can never be said that the procedure prescribed by law has not been followed. It would be a different matter if the constitution of the Court itself is under challenge. We are not concerned with such situation in the instant cases. We, therefore, find no force in any of the submissions of the learned counsel.

Shri Govindan Nair attempted to argue that the confiscation

was not justified on the merits. We find no reason to interfere with H

the concurrent findings of fact arrived at by the lower Courts. Shri Phadke requested us to widen the scope of the appeals and to permit him to canvas the correctness of the convictions and sentences also.

We declined to do so. All the appeals are dismissed.

P.B.R Appeals dismissed.

GOKARAJU RANGARAJU ETC

STATE OF ANDHRA PRADESH

April 15, 1981

0. CHINNAPPA REDDY

A.P. SEN

BAHARUL ISLAM, JJ.

Article 233

Supreme Court

Article 233

section 9

Cr.P.C

Article 233

Article 71(2)

section 107(2)

Representation of the People Act, 1951

Parliament

Articles 233 and 235

P. Govindan Nair

A. Subha Rao

M. N. Phadke

B. Kanta Rao

G. N. Rao

Essential Commodities Act

Andhra Pradesh

Gokaraju Rangaraju

S. 6C

Essential Commodities Act

Court of Session, West Godavari

G. Anjappa

High Court of Andhra Pradesh

Court of Session, Guntur Division

Raman Raj Saxena

Gokaraju Rangaraju

2nd September 1975

Art. 233

Anjappa

Anjappa

Govindan Nayar

Phadke

Raman Raj Saxena

Raman Raj Saxena

It was urged that there \Vas no need for them to question the appointment of Shri Anjappa or Shri Raman Raj Saxena as their appointment bad already been quashed by the Supreme Court.

Raman Raj

Art. 233

S. 9

Code of Criminal Procedure

Art. 233

Art. 233

Art. 233

Art. 21

Sir Ashutosh Mukerjee

England

Ashutosh Mookerjee

Buller

High Court of Rhodesia

Denning M. R.

Denning

Supreme Court of Connecticut

Aldridge

New Zealand

United States Supreme Court

Scarman LJ

Denning

United States of America

Mc. Gonvey

Broadbury

Cooley

Chinnappa Reddy

Ashutosh Mookerjee

Government of the State

Kerala High Court

P. Govindan Nair

K.K. Mathew

T.S. Krishnamoorthy Iyer

Kuppuswami

Muktadar

Art. 71

India

Representation of the People Act 1951

Art. 233

Art 235

Arts. 233 and 235

Art. 233

Chandra Mohan

Art. 233

Uttar Pradesh

[1967] 1 SCR 77

Art. 233

Sec. 9

Criminal Procedure Code

Art. 21

Govindan Nair


COMMISSIONER OF INCOME TAX, NEW DELHI

FEDERATION OF INDIAN CHAMBERS OF

COMMERCE & INDUSTRIES, NEW DELHI

April 15, 1981

[R.S. PATHAK, A.P. SEN AND E.S. VENKATARAMIAH, JJ.]

Income Tax Act 1961, S. 52(15) and IJ(J)(a)-'Charitable object'-Object of general public utility-' Not involving the carrying on of any activity for profit'- Meaning of-Primary or dominant purpose of trust or institution to be charitable-

'Purpose' oftrust-'Powers' conferred on trustees for carrying out the purpose- C Distinction between.

The respondent assessee an existing company under the Companies Act, 1956 had neither any share capital nor distributed any dividend to its members and its entire income was expended for fulfilment of its objects, which were the premotion.. protection and development of trade, commerce and industry in

In~ D

During the assessment year 1962-63, the relevant accounting year for which the year ended December 31, 1961 the assessee submitted a return showing its total income as 'nil' claiming that all its income was exempt under section ll(l)(a) read with Section 2(15) of the Income Tax Act.

During the assessment year, the assessee held the Indian Trade Fair at New Delhi and derived receipts from rent for space allotted, temporary stalls and storage and realised deposit E and advances from the participants for hotel accommodation. In the relevant accounting year, the Conference of the Afro-Asian Organisation for Economic Cooperation, was sponsored by the assessee and for organising the Conference, the assessee received from the Government Rs. 3 lakhs as grant-in-aid and after meet ing the expenses, was left with a balance of Rs. 2 lakhs. It also received income by sale of books, fee forarbitration etc. The balance sheet for the accounting year indicated that it had an excess of income over expenditure under the head F 'income'.

The contention of the assessee before the Income Tax Officer was that the activities carried on by the Federation were not were not motive of earning profits, but that they were carried on with the object of promotion, protection and development of trade, commerce and industry in India and abroad, and therefore the income derived by the assessee was exempt under S. l l(l)(a).

The Income Tax Officer, held that the decision of this Court in the Andhra Chamber of Commerce's case [1965] 1 S.C.R. 565 was no longer good law due to the addition of the words 'not involving the carrying on any activity for profit' in the definition of 'cliaritable purpose' in Section 2(15) of the Act which qualify the fourth head of charity viz. 'any other object of general public utility' and, H therefore, must be read subject to the additional statutory requirement that the

A object of general public utility should not involve the carrying on of any activity for profit, and accordingly raised a demand.

On appeal by the assessee, the Appellate Assistant Commissioner disagreed with the view of the Income Tax Officer and held that the activities carried on by the assessee were not profit-oriented and, therefore, its income was exempt.

The Department appealed to the Appellate Tribunal, and the Appellate Tribunal upheld the view of the Appellate Assisstant Commissioner and held that the dominant object with which the Federation was constituted being a charitable purpose viz., promotion, protection and development of trade, commerce and industry, there being no motive to earn profits, it was not engaged in any activity in the nature of business or trade, and, if, any income arose from such activity, it was only incidental or ancillary to the dominant object for the welfare and common good of the country's trade, commerce and industry.

The Commissioner of Income-Tax applied to the Appellate Tribunal to make a reference to the High Court under sub-section (I) of section 256 of the Act, but in view of the conflict in the decisions of the High Courts on the construction of the expression 'charitable purpose' as defined in section 2(15) of the Act the Tribunal made a reference to this Court under Section 257.

On the question whether the words 'not involving the carrying on of any activity for profit' in the definition of 'charitable purpose' contained in section 2(15) of the Act, govern the word 'advancement' and not the words 'object of general public utility'.

HELD : [By the Court]

The reference must be answered against the Revenue and in favour of the asseesee, in the view of the majority opinion in A.id!. Commissioner of Income Tax v. Surat Art Silk Cloth Manufacturers, [1980) 1 S.C.R. 77. [492 F]

[Per A .P. Sen, J.]

I. The majority view in the Surat Art Silk case was that the condition that the purpose should not involve the carrying on of any activity for profit would be satisfied if profitmaking is not the real object. The theory of dominant or primary object of the trust, has, therefore, been treated to be the determining factor, even in regard to the fourth head of charity, viz. advancement of any other object of general public utility, so as to make the carrying on of business activity merely ancillary or incidental to the main object. This doctrine of dominant or primary object holds the field till there is a change of law. [496 C-D, 497 FJ

2. The majority decision had the effect of neutralising the radical changes brought about by Parliament in the system of taxation of income and profits of charities, with particular reference to "object of general public utility" to prevent tax evasion, by diversion of business profits to charities. It is the vagueness of-the fourth head of charity "any other object of general public utility" that impelled

C.l.T. v. FEDERATION OF INDIAN CHAMBERS 491

Parliament to insert the restrictive words "not involving the carrying on of any activity for profit". [ 496 G-497 A]

3. It was clearly inconsistent with the settled principles to hold that i( the dominant or primary object of a trust was 'charity' under the fourth head 'any other object of general public utility', it was permissible for such an obiect of general public utility to augment its income by engaging in trading or commercial activities. [497 BJ

When the Government did not accept the recommendation of the Direct Taxes Laws Committee in Chapter 2 for the deletion of the words "not involving the carrying on of any activity for profit"' occurring in Section 2(15) of the Act, it was impermissible for the Court by a process of judicial construction to achieve the same result. [ 496 F]

5. In the instant case, activities of the assessee in regard to holding Qf the Indian Trade Fair and sponsoring of the Conference of the Afro-Asian Organisation in the relevant accounting year were for the advancement of the dominant object and purpose of the trust, viz. promotion, protection and development of trade, commerce and industry in India. The income derived from such activities was therefore exempt under S. ll(l)(a) read with S. 2(15) of the Act.

[ 497 G-498 A]

There is a distinction between the "purpose" of a trust and the "power conferred upon the trustees• as incidental to the carrying out of the purpose. If the primary or dominant purpose of a trust or institute is charitable, any other object which is merely ancillary or incidental to the primary or dominant purpose, would not prevent the trust or the institution being a valid charity. [498 G, 499 A]

[Per Venkataramiah, J.]

1. It is open to the Legislature to give encourage!llent to objects which it considers to be laudable by means of fiscal exemptions.

At the same time, it takes care to enact fresh provisions from time to time to suppress any mischief which may have resulted from the misuse of existing law. Parliament deliberately

stepped in by adding the words "not involving the carrying on of any activity for F profit" in the definition of 'charitable purpoe' in section 2(15) of the Act, when the tax exemptions available to charitable and religious trusts came to be misused by some for the unworthy purposes of tax avoidance. The law had been so re structured to prevent allergy to taxation masquerading as charity. The law was thus designed by Parliament to prevent this misuse of tax exemption in the name of charity. [500 F-H]

This Court has enlarged the meaning "charitable purpose" in Section 2(15) beyond what it legitimately should mean in the Surat Art Silk Cloth Manufacturers Association's case. It has virtually wiped off the restrictive words "not involving the carrying on or any activity for profit" occurring in S. 2(15), thereby defeating the very object and purpose of the legislation. It is not the func

tion of a court of law to give the words a strained and unnatural meaning.

H Judicial attitudes cannot be formed iu isolation from legislatiw r recesses,

particularly, in connection with tax avoidance provisions. [500 D, SOJA, 50()EJ

Modern legislation has changed in pattern re-casting provisions of taxation with very wide language, while at the same time dealing in much more detail with some areas of law. Judges while responding to general trend~ of law, but also reacting; to the form of modern tax legislation, must be prepared to take account of the context and purpo5es or the change brought about. (501 E]

Greenberg v. Inland Revenue Commissioners (1972] _ A.C. 109 (HL) referred to.

4. When the Government had not accepted the recommendation of the Direct Taxes Laws Committee in Chapter 2 for the deletion of the words "not involving the carrying on of any activity for profit", by suitable legislation, it was impermissible by a process of judicial construction to achieve the same result.

. [501 Bl

5. People who are truly charitable do not think of the tax benefits while making charities. Even the poor who do not pay income tax can be charitable and their charities are made at great personal inconvenience. Charitable persons are not amongst the tax payers only.

[502 H-503 A]

CIVIL APPELLATE JuRJSOICTJON : Tax Reference Case No. 17 of 1975.

Under section 257 of the Income Tax Act, 1961 made by the Income Tax Appellate Tribunal, Delhi Bench in Reference Application No. 92/DEL/71-72 arising out of LT.A. No. 1339/DEL/68-69.

B.B. Ahuja and Miss A. Subhashini for the Appellant.

A.K. Sanghi and Narayan Netter for the Respondent.

The following Judgments were delivered :

PATHAK, J. In view of the majority opinion of this Court in Addit:'onal Commissioner f!f Income-tax, Gujarat v.

Surat Art Silk Cloth Manufactures,(1) the reference must be answered against the Revenue and in favour of the assessee.

SEN, J.

This direct reference under s. 257 of the Income tax Act, 1961 (hereinafter referred to as 'the Act') made by the Income Tax Appellate Tribunal Ddhi Bench 'B' at the instance of the Commissioner of Income Tax, Delhi U, New Delhi raises the much vexed question as to whether the words "not involving the carrying on of any activity for profit" in the definition of 'charitable purpose' contained ins. 2 (15) of the Act, govern the word 'advancement' and not the words 'object of general public utility .

(1) (1980] 121 I.T.R. l-[1980] 1 S C.R. 77.

C.I.T. v. FEDERATION OF INDIAN CHAMBERS (Sen, J) 493

The facts giving rise to the reference are as follows : The A Federation of Indian Chambers of Commerce and Industry, New Delhi-hereinafter referred to as 'the assessee'--is an existing company under the Companies Act, 1956. It was registered under s. 26 of that Act and permitted to omit the word 'Limited' from its name.

It has neither any share capital 1lor does it distribute any dividends to its members. The entire income is expended for the fulfilment of B its object.

The main object of the assessee is the promotion protection and <, ievelopment of trade, commerce and industry in India.

The main objects for which the Federation has come into existence are set out in cl. 3 of the Memorandum of Association which, insofar as material, reads :

3.(a) To promote Indian business in matters of inland and foreign trade, transport, industry and manufactures, finance and all other economic subjects and to encourage Indian banking, shipping and insurance.

While cl.3(a) defines the primary purpose of the trust, i.e. to promote trade and industry which undoubtedly being an object of general public utility engaged in carrying on activities without . any profit motive, the subsidiary objects set out in sub-els. (b) to (z2) of cl.3 are merely incidental or ancillary thereof.

During the assessment year 1962-63, the relevant accounting year for which was the year ended December 31, 1961 the assessee submitted a return showing its total income as 'nil' cla; ming that all its income was exempt under s. ll(l)(a) read withs. 2(15) of the Act.

During the assessment year in question, the assessee held the Indian Trade Fair at New Delhi and derived receipts totalling Rs. 75,18,548 from rent for space allotted, temporary stalls and storage. It also received Rs. 20,750 by sale of season tickets and Rs. 3,94,143 by daily gate tickets. It realised deposits and advance~ from the participants for hotel accommodation, In the relevent accounting year, the Conference of the Afro-Asian Organisation for Economic Cooperation, sponsored by the assessee, was held at New Delhi. For organising the Conference, the assessee received Rs. 3,00,000 from the Government -0f India as grant-in-aid and after meeting the expenses, was left with a balance of Rs. 2, 17,346.38, Further, the assessee received Rs. 265.50 as the share of profits on the sale of a book on Company Law, Rs. 5,371.82 as fee for arbitration.

It. realised advances from its members for arbitration amounting to Rs. 20,000 from out of which a balance of Rs. 299.18 was left. The balance-sheet for the

A accounting year shows that the assessee had in excess income of R.s.2,291.71 over the expenditure under the head 'income'.

The contention of the assessee before the Income Tax officer was that the activities carried on by the Federation were not with the motive of earning profits, but they were carried on with the object of promotion, protection and development of tra<!_e, commerce and industry in India and abroad.

Its contention was that the dominant object for which the Federation was constituted was for promotion, protection and development of the country's trade, commerce and industry and the activities carried on during the assessment year in question, namely, the holding of the Indian Trade Fair and of sponsoring the Conference of the Afro-Asian Organisation for Economic Cooperation were incidental or ancillary to the main 0bject, and, therefore, the income. derived therefrom was exempt under s. 11 (!)(a) of the Act. Reliance in support of this contention was placed on the decision of tLis Court in Commissioner of Income-Tax v. Andhra Clumber of Commerce(1).

In the immediately preceding assessment years 1960-61and 1961-62, the income of the assessee'was treated as exempt from tax under s. 4(3) (i) of the Income Tax Act, 1922.

The Income Tax officer, however, felt that the decision of this Court in the Andlira Chhmber of Commerce's case (supra) was no longer good law due to the addition of the words "not involving the carrying on of any activity for profit" in the definition of 'charitable purpose' in s. 2(15) of the Act which qualify the fourth head or' charity, vil .. "any other object of general public utility", and, therefore, must be read subject to the additional statutory requirement that the object of general public utility should not involve the carrying on of any activity for profit.

He accordingly raised a demand of Rs. 49,818 on a total income' of Rs. 84,430 on appeal, the Appellate Assistant Commissioner disagreed with the view of the Income Tax Officer and held that the activities carried on by the assessee were not profiit-oriented and, therefore, its income was exempt. The Commissioner of Income-tax appealed to the Appellate Tribunal without any success.

The Tribunal upheld the view of the Appellate Assistant Commis; ioner and held that the dominant object with which the Federation was constituted being a charitble purpose, viz., promotion, !protection and development of trade, commerce and industry, there being no motive to earn profits, it was not engaged; in any activity in the nature of business or trade, and, if any

(!) [1964] 55 I.T.R. 722 (S.C.)-[1965] 1 SCR 565.

c. J. T. v. FEDEARATION OF INDIAN CHAMBERS (&n, J.) 495

income arose from such activity, it was only incidental or ancillary to the dominant object for the welfare and common good of the country's trade, commerce and industry.

Thereupon, the Commissioner of Income Tax applied to the Appellate Tribunal to make a reference to the High Court under sub-s.(i) of s.256 of the Act, but the Tribunal, in view of the conflict in the decisions of the High Courts on the construction of the expression 'charitable purpose' as defined in s. 2( 15) of the Act, has made a reference of the following questions to this Court under s. 257 of the Act, for its opinion, namely :

1. Whether having regard to the definition of charitable purpose as contained in Section 2( 15) read with Sections 11 ( 1) and 11 (4), charging sections and sections dealing with computation of income, the assessee was liable to be taxed in respect of)ncome relating to assessment year 1962-63 ?

2, Whether on the facts and in 1he circumstances of the case, the Tribunal was right in law in, holding that the income earned by the assessee woull! not come within the provisions of Section 2(15) read with Section 11 of the Income-Tax Act, 1961 and the onus that this profit was not exempt from tax would be on the Revenue.?

Whether on the facts and in the circumstances of the case, the purpose of the Federation of Indian Chambers of Commerce and Industry was advancement of objects of general public utility not involving the carrying on of any activity for profit ?

There had been a sharp conflict of opinion between the different High courts as to the construction of the ten crucial words "not involving the carrying on of any activity for profit" qualifying the fourth head of charity "advancement of any other object of general public utility". This Court resolved the conflict in the Sole Trustee, Loka Shikshan Trust v.

C./.T.(1) and the Indian Chambers of Commerce v. C./. T. (2) by holding that the words "not involving the carrying on of any activity for profit" govern the word "advancement" and observed that if the advancement or attainment of the object involves an activity for profit, tax exemption would not be available.

(I) [1975] 10! I.T.R. 234

(2) [1975] IOI I.T.R. 796

Unfortunately for the Revenue, the Court has, in a five-Judges Bench, by a majority of 4 to 1, in Addi. Commissioner of Income Tax v. Surat Art Silk Cloth Manufactures' Association (1) reversed these two decisions in the Loka Shikshan Trust's case and the Indian Chambers of Commerce's case (supra). The Court has approved of the observations of Beg, J. in his separate but concurring judgment in the Loka Shikshan Trust's case that "if the profits must necessarily feed charitable purpose under the terms of the trust, the mere fact that the activities of the trust yield profit will not alter the charitable character of the trust." In other words, the majority view in the Surat Art SJk' s case (supra) was that the condition that the purpose should not involve the carrying on of any activity for profit would be satisfied if profit-making is not the real object. The theory of dominant or primary object of the trust has, therefore, been treated to be the determining factor, even in regard to the fourth head of charity, viz., the advancement of any other object of general public utility, so as to make the carrying on of business activity merely ancillary or incidental to the main object.

One should have thought that the correct way to approach this question of interpretation was to give the words used by Parliament their ordinary meaning in the English language and if, consistently :with the ordinary meaning, there was a choice between two alternative interpretations, then to prefer the construction that maintains a reasonable and consistent scheme of taxation without distorting the language.

When the Government did not accept the recommendation of the Direct Taxes Laws Committee in Chapter 2 (Interim Report, December, 1977) for the deletion of the words "not involving the carrying on of any activity for profit" occurring in s. 2( 15) of the Act, the Court has by a process of judicial construction achieved the same result.

Whatever reservations one may have regarding the correctness of this interpretation of the exclusionary clause in the definition of charitable purpose in s. 2(15) of the Act, there can be no doubt that the majority decision in the Surat Art Silk's case (supra) is binding on us.

With respect, I venture to say that the majority decision has the effect of neutralising the radical changes brought about by Parliament in the system of taxation of income and profits of charities, with particular reference to "objects of general public utility" to prevent tax evasion, by diversion of business profits to

(I) [1980] 121 l.T.R. l.

C.I.T. v. FEDERATION OF INDIAN CHAMBERS (Sen, J.) 497

charities. It is the vagueness of the fourth head of charity "any A other object of general public utility" that impelled Parliament to insert the restrictive words "not involving the carrying on of any activity for profit". In my minority opinion in the Surat Art Silk's case (supra) I had endeavoured to give reasons why the correctness of the majority decision was open to question. There is no point in traversing the same ground over again. It was clearly 8 inconsistent with the settled principles to hold that if the dominant or primary object of a trust was 'charity' under the fourth head 'any other object of general public utility', it was permissible for such an object of general public utility, to augment its income . by engaging in trading or commercial activities.

In retrospect it _seems that it would have been better for Parliament to have deleted the fourth head of "any other object of general public utility" from the ambit of the definition of 'charitable purpose' while enacting s. 2(15) of the Act rather than inserted the

words "not involving the carrying on of any other activity for profiit", therby creating all this legal conundrum. In England, the 0 Radcliffe Commission on Taxation gf Profits and lncome(1) recommended in 1955 that for purposes of taxation, charity should be restricted t0 relief of poverty, advancement of education and advancement of religion and that the fourth category mentioned in the dictum of Lord Macnaghten, namely, "trusts for other purposes 'beneficial to the community ' should be cut out entirely.

The majorty in the Surat Art Silk's case (supra) has evolved the doctrine of dominant or primary object and there is little that we can do about it.

Faced with this difficulty, learned counsel for the Revenue advanced no submissions with regard to the questions referred and indeed, in view of the majority decision in the Surat Art Silk's case (supra) the answers to the questions are self-evident. The. d.octrine of dominant or primary object must, as laid down in the Surat Art Silk's case, holds the field till there is a change i11 the law.

Undoubtedly, the activities of the assessee in regard to holding of the Indian Trade Fair and sponsoring of the Conference of the Afro-

Asian Organisation . in the relevant accounting year were for the advancement of the dominant object and purpose of the trust, viz.,

(I) Royal Commission on the Taxation of Profits and Income (Cmd 9474,

1955) Part I, Chap. 7.

An earlier commission on income tax, the

Colwyn Commission, had similarly sough to narrow down the concept H of 'charitable' within the context of taxation (Cmd 615, 1920, Part III,

Sec. XIV).

promotion, protection and development ,.of trade, commerce and industry in India.

Learned Counsel for revenue with his usual fairness, conceded that the income derived by the assessee from such activities was exempt under s.ll(J)(a) read with s.2(15) of the Act.

It was, however, urged that the objects set out in sub-els. (v),

(zl) and (z2) of cl.3 of the Memorandum of Association of the Federation were not incidental or ancillary to the ,,; nain object of the trust. The relevant sub-clauses are set out below :

(v) To establish and support or aid the establishment and support of associations, institutions, funds, trusts and convenience, calculated to benefit employees of the Federation or the dependents or connections of such persons, and grant pension and_ allowances, and to make payments:towards insurance, and to subscribe or guarantee money for charitable or benevolent objects or for any exhibition for any public, general, useful object.

(zl) To establish a Trust or Trusts and/or appoint Trustees thereof from time to time and vest the funds,, or the surplus income or any property of the Federatio11 in the Trustees who shall hold and deal with the funds, 'surplus income or property in such manner as the committee may decide.

(z2) To undertake and execute any Trusts the undertaking of which may seem to the Federation desirable either gratuitously or otherwise.

The contention advanced cannot be accepted, for the reason that no such point was ever raised at any stage of. the proceedins,

much less before the Appellate Tribunal. Even otherwise, there appears to be no substance in the contention. There is a distinction between the _"purpose" of a trust and the "powers" conferred upon the trustees as incidental to the carrying out of purpose. For instance cl.3(v) enables the establishment and support of associations, institutions, funds," trusts and convenience calculated to benefit the employees and their dependents, for nuking provisions for grant of pension and allowances etc. The framing of such employee benefit schemes is essential and necessary for the proper functioning of the organisation and is incidental to the carrying out of the purpose for

C.l.T. v. FEDERATION OF INDIAN CHAMBERS (Venkataramiah, J.) 499

which it is constituted, I refrain from expressing any opinion whether or not the employees constitute a "section of the public".

For, if the primary or dominant purpose of a trust or institution is charitable, any other objct which is merely ancillary or incidental to the primary or dominant purpose, would not prevent the trust or institution from being a valid !charity. Likewise, cls.3(zl) and (z2) which permit the establishment of a trust or trusts, appointment of trustees thereof from time to time and the vesting of funds or surplus income or any property of the assessee in the trustees, are nothing but powers conferred on them for the proper financial management of the affairs of the trust which are incidental or ancillary to the main purpose of the trust. The contention must, therefore, fail.

In the result, the reference under s.257 of the Income Tax Act, 1961 made by the Income Tax Appellate Tribunal, Delhi-B, New Delhi, must be answered against the Revenue and in favour of the assessee. There shall be no order as to costs.

VENKATARAMIAH, J. I have had the advantage of reading the judgment prepared by my learned brother A.P. Sen, J. and I respectfully agree with. his reasoning and conclusion. I share with him my doubts about the correctness of the decision in Additional Commissioner of Income tax, Gujarat v. Surat Art Silk Cloth Manufacturers' Association.(') I would like to say a few words of my own on the subject.

There can be no objection to a person spending his money on charity.

But can he be charitable at the expense of others? This is a question which necessarily arises when we read section 11 of the Income-tax Act, 1961. Section 11 as it stands now grants exemption from payment of tax on any income, which would have otherwise been taxable, provided ( 1) the property yielding income is held under trust or such other legal obligation which is brought into existence by an act of party and not by an act of law, (2) the purpose of the trust is charitable which may enure to the benefit of the public or a section of the public and (3) the other conditions prescribed by the Act are satisfied. It means that if there is a diversion of property or income earning apparatus by an act of party into a charitable trust and the prescribed conditions are satisfied, the income derived from it (including the portion which would have gone t<J the public exchequer but for the trust) may be spent by a person in charge of the

affairs of the trust on objects indicated in the trust which is a creature of its author. In effect what does it mean? It means that the author of the trust is able to divert by his own will to a purpose of his own choice, though charitable, a large part of the income which would have been, but for the trust, at the disposal of the Legislature which alone has the power over the national exchequer.

Whatever may have been the position in those days when the State was just a police State performing minimum functions of Government, today when the State is a welfare State would it be right either morally or constitutionally to allow amounts which should legitimately form part of the revenue of the State to be dealt with by non-Governmental agencies administering trusts is a question which requires examination in an appropriate case.

This, however, is a larger question which, if logically pursued, may justify total deletion of the exemption accorded in the case of charitable and religious trustee.

But even as the provisions now stand, I feel that while construing them, this Court has enlarged the meaning of "charitable purpose" in section 2 (15) beyond what it legitimately should mean in the Surat Art Silk Cloth Manufacturers' Associations' case (supra).

I would like to adopt the words in the dissenting judgment of my learned brother A.P. Sen J. in the S!i!'at Art Silk Cloth Manufacturers' Association's case (supra) :

. "The judicial attitudes cannot be formed in isolation from legislative processes, particularly, in connection with tax avoidance provisions."

It is true that it is open to the Legislature to give encourage ment to objects which it considers to be laudable by means of fiscal exemptions. At the same time it takes care to enact fresh provisions from time to time to suppress any mischief which may have resulted from the misuse of existing law. Parliament deliberately stepped in by adding the words "not involving the carrying on of any activity for profit" in the definition of charitable purpose in section 2 (15) of the Act, when the tax exemptions available to charitable and religious trusts came to be misused by some for the unworthy purposes of tax avoidance. The law had been so re-structured to p'revent allergy to taxation masquerading as charity.

The law was thus designed by Parliament to prevent this misuse of tax exemption in the name of charity. The majority decision in the Surat Art Silk Cloth Manu- . facturers' Association's case (supra), if I may say so without meaning

C.I.T. 1'. FEDERATION OF INDIAN CHAMBERS (Venkatc1ramiah, J.) 501.

any disrespect, has virtually wiped off the restrictive. words "not

involving the carrying on of any activity for profit" occurring in section 2(15), thereby defeating the very object and purpose of the legislation. It is not the function of a court of law to give the words a strained and unnatural meaning.

When the Government had not accepted the recommendation of the Direct Taxes Laws Committee in Chapter 2 (Interim Report, December, J 977) for the deletion of the words "not involving the carrying on of any activity for profit", by suitable legislation, it was impermissible for this Court by a process of judicial construction to achieve the same result. If I may adopt the words of Lord Reid in Greenberg v. /RC(1) quoted in the minority decision in Surat Art Silk Cloth Manufacturers' Association's case (supra) displaying the court's concern about the prevailing attitude of tax statutes :

" " "Parliament is very properly determined to prevent this kind of tax evasion and, if the courts find it impossible to give very wide meanings to general phrases, the only alternative may be for Parliament to do as some other countries have done, and introduce legislation of a more sweeping character ... ''

Modern legislation has changed in pattern towards re-casting provisions of taxation with very wide language, while at the same time dealing in much more detail with some areas of law. Judges, while responding to general trends of law, but also reacting to the form of modern tax legislation, must be prepared to take account of the _context and purposes of the change brought about.

It is relevant to refer to one other aspect arising out of an observation made in the course of the majority judgment in the Surat Art Silk Cloth Manufacture1 s' Association's case (supra) suggesting that the area of exemption under Indian law is much wider than what is available under English law.

The relevant part of the majority judgment reads :

"The definition of "charitable purpse" in Indian Law thus goes much further than the definition of charity to be derived from the English cases, because it specifically includes medical relief and embraces all objects of general public utility. In English Law it is not enough that

(I\ (1972] A.C. l09(H.L.)

a purpose falls within one of the four divisions of charity set out in Lord Macnaghten's classification. It must also be within the spirit and intendment of the Preamble to the Statute of Elizabeth if it is to be regarded as charitable.

There is no such limitation so far as Indian Law is concerned even if a purpose is not within the spirit and intendment of the Preamble to the Statute of Elizabeth, it would be charitable if it falls within the definition of "charitable purpose" given in the Statute.

Every object of general public utility would, therefore, be charitable under the Indian Law, subject only to the condition imposed by the restrictive words "not involving the carrying on of any activity for profit" added in the present Act. It is on account of this basic difference between the Indian and English Law of charity that Lord Wright uttered a word of caution in All India Spinners' Association v. Commissioner of Income-tax (12 I.T.R. 482) against blind adherence to English decisions on the subject. The definition of "charitable purpose" in the Indian Statute must be construed according to the language used there and against the background of Indian life."

If Indian life should be a true guide for the determination of questions arising in court, then we should go back to our ancient treatises to find out the true meaning of charity which may be either dana or utsarga.

In the case of dana the donor gives up his ownership over a thing, makes another the owner of it and cannot thereafter use it nor has he any control over it.

When a man makes an utsarga, he no doubt gives up his ownership but gives up the thing for the benefit of all. Opinion is, however, divided whether as a member of the public he can also use a thing thus dedicated for the public. But in any event, he would no longer have any control over the thing dedicated.

How many of the so called charitable trusts satisfy the rigours of the Indian concept of charity? Are there any measures by which misuse of funds belonging to charities can be effectively checked?

It is wrong to think that all springs of charity in India will dry up if true effect is given to section 2 (15) of the Act in accordance with the minority judgment in the Surat Art Silk Cloth Manufacturers' Association's case (supra). People who are truly charitable do not think of the tax benefits while making charities. One must realise

C.I.T. v FEDERATION OF INDIAN CHAMBERS (Venkataramiah, J.) 503

that even the poor who do not pay income tax can be charitable and their charities made at great personal inconvenience are commendable indeed. One need not go in search of charitable persons amongst the tax payers only. Still the majority view has got to be followed now.

N.V.K.

COMMISSIONER OF INCOME TAX, NEW DELHI

April 15, 1981

R.S. PATHAK

A.P. SEN

E.S. VENKATARAMIAH, JJ.

Income Tax Act 1961

S. 52(15)

Section 2(15)

New Delhi

India

Andhra Chamber of Commerce

[1965] 1 S.C.R. 565

Section 2(15)

Commissioner of Income-Tax

section 256

section 2(15)

Section 257

section 2(15)

[1980) 1 S.C.R. 77

A .P. Sen

Parliament

Section 2(15)

S. 2(15)

Venkataramiah

section 2(15)

Section 2(15)

S. 2(15)

CIVIL APPELLATE JuRJSOICTJON

section 257

Income Tax Act, 1961

B.B. Ahuja

A. Subhashini

A.K. Sanghi

Narayan Netter

PATHAK

Surat Art Silk Cloth Manufactures,(1

SEN

s. 257

Income tax Act, 1961

[1980] 1 S C.R. 77

Companies Act, 1956

s. 26

cl. 3

s. 11

s. 4(3)

Income Tax Act, 1922

s. 2(15)

Commissioner of Income-tax

[1965] 1 SCR 565

s. 2( 15)

s. 257

Section 2( 15)

Sections 11

Section 2(15)

Section 11

Income-Tax Act, 1961

Loka Shikshan Trust

Indian Chambers of Commerce's

Beg

Surat Art SJk

s. 2( 15)

s. 2(15)

Surat Art Silk

s. 2(15)

England

Macnaghten

Income Tax Act, 1961

VENKATARAMIAH

A.P. Sen

section 11

Income-tax Act, 1961

Section 11

section 2

section 2

FEDERATION OF INDIAN CHAMBERS

section 2(15)

Elizabeth

Wright

section 2