March 13

SUPREME COURT REPORTS [1956]

BIMBADHAR PRADHAN v.

THE STATE OF ORISSA.

[B. P. SINHA, JAFER IMAM and CHANDRASE!l:HARA

AIYAR, JJ.)

lndianPsnalCods.1860 (Act XLV of 1860), s. J!JOB-Crimi!ial conspiracy-Case where the only persons alleged to have been guilty of the o.D'ence of conspiracy were the persons placed on trial and only one person was concerned with the crinie after the acquittal of the rest of the accused and the case where on the findings apart front the persons placed on the trial there was the approver who irnplicated himself and a number of other prosecution witnesses as having been privy to the conspiracy-Distinction between-Crirninal Procedttre Code, 1898 (Act V of 1898), ss. 225 and 637-0mission to mention the name of approver in the charge-Whether occasioned failu, re of justice-Repu, gnancy on the face of record in convicting only one person for conspiracy-English and Indian Law-Difference between.

The appellant and f0ur others were placed on their trial before the Assistant Sessions Judge of Sambalpur for offences under ss. 120B, 409, 477-A and 109, !.P.O. with having committed the offences of criminal conspiracy, criminal breach of trust in respect , of Government property and falsification of accounts with a. view to defraud the Government. The appellant was the District Food Production Officer a.nd the other four accused persons were a.gri cultural sub-overseers under the appellant and another agricultural sub-overseer namely P. was examined at the trial as an approver.

The Assistant Sessions Judge convicted the appellant under all the three charges but acquitted the lour suboverseers giving them the benefit of doubt.

The High Court in appeal allowed the appeal of the appellant in respect of charges under ss. 409 and 477-A, I.P.O. but upheld his conviction and sentence in respect of the charge of conspiracy under s.120B, I.P.0. observing that in respect of that charge the evidence given by the approver got corroboration from other independent evidence. On appeal by special leave to the Supreme Court the main question for consideration wa.s whether the ruling of the Supreme Court in the case of Topan Das v. The State of Bombay ([1955] 2 S.O.R. 881), governed the present case in view of the fact that the appellant was the only person out of the accused persons on trial who had been convicted of the offence of conspiracy under s. 120-B, !.P.O.

Held (i) that the case of Topa1' Daa v. State of Bombay was clearly distinguishable from the present case as in that case the only persons alleged to have been guilty of the offence of conspiracy were the persons placed on trial. Thora was no allegation nor any

evidence forthcoming that any other persons though not placed on trial, were concerned with the crime. On the findings in that case, only one person, after the acquittal of the rest of the accused, was concerned with the crime and stood convicted of the charge of con

Bimbadhar

Pradhan spiracy.

As a person cannot be convicted of conspiring with him v. . self to commit an offence, the Supreme Court gave effect to the; con Th~ State 01 Orissa tention that on the findings and on the evidence, as also on the charge in that case, the conviction could not be sustained. But in the instant case on the findings of the courts below, apart from the persons placed on the trial, there was the approver who implicated himself equally with the other accused persons and a number of other prosecution witnesses as having been privy to the conspiracy.

And tlforefore the present case was not on all fours with the case of Topan Das v. State of Bombay.

(ii) The provisions of s. 225, Cr. P.O. were clearly applicable to the facts and circumstances of the present case. It had not been shown how the omission to mention the name of the approver in the charge under s. 120-B, I.P.C. had misled the e, ppellant or had occasioned a failure of justice.

(iii) The provisions of s. 537 of the Code of Criminal Procedure were equally applicable to the facts of the case.

As the appellant did not raisa the point with reference to the alleged illegality or irregularity in the charge before the High Court it must be held, ap plying the Explanation to that section, that the omission in the charge had not occasioned a failure of justice.

The contention that with the acquittal of the alleged conspira tors no verdict of guilty against the appellant could be given, because the verdict would be regarded as repugnant in so far as it would amount to saying that there was a criminal agreement between the appellant and the others and none between them and him, the con viction of the appellant would amount to a similar repugnancy was without substance because the rule of English law as to the acquittal of an alleged conspirator when the conspiracy was said to be only between the two is based upon a rule of practice and procedure, namely that repugnancy or contradiction on the face of the record is a ground for annulling a conviction. But such a repugnancy is not by itself a sufficient ground for quashing a conviction in India where the matter is gdverned by statutory law both as to the offence and the procedurefor bringing the offender to justice. In India there is no provision in the statutory law justifying an interference with a conviction on the ground of repugnancy in the record.

Topan Das v. State of Bombay ([1955] 2 S.C.R. 881), The Queen v. Manning ([1883] 12 Q:B.D. 241), The Queen v. Thompson ([1851] 16 Q.B. 832), The King v. Plummer ([1902] 2 K.B. 339), Kannangara Aratchige Dharmasena v. The King ([1951] A.O. 1), I.

G. Singleton v. The King Emperor ([1924] 29 C.W.N. 260), Dalip Singh v. State of Pimjab ([1954] S.C.R. 145) and Kapildeo Singh v.

Th~ King ([1949·50] F.C.R. 834), referred to.

Bimbadhar

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 49of1954.

Pradhan Appeal by special leave from the judgment and

Tl st /"'/ 0 . order dated the 7th October, 1953 of the Orissa High " aeo msa Court at Cuttackin Criminal Appeal No. 108of1952 arising out of the judgment and order dated the 14th November 1952 of the Court of Assistant Sessions Judge at Sambalpur Sundergarh in Sessions Trial No. 7 /4 (5) of 1922.

S. 0. Isaacs, R. Patnaik and R. 0. Prasad, for the appellant.

 Porus A. Mehta and P. G. Gokhale, for the respondent.

1956.

March 13. The Judgment of the Court was delivered by

SINHA J.-The main question canvassed in this appeal by special leave is whether the ruling of this Court iu the case of Topan Das v. The State of Bombay(') governs this case also, in view of the fact that the appellant is the only person out of the accused persons placed on trial, who has been convicted for the offence of conspiracy under section 120-B, Indian Penal Code.

The point arises in the following way: '['he appellant and four others were placed on their trial before the Assistant Sessions Judge ofSall!balpur for offences under sections 120-B, 409, 477-A and 109, Indian Penal Code with having committed the offences of criminal conspiracy, criminal breach of trust in respect of Government property, and falsification of accounts with a view to defraud the Government.

The appellant wa.s the District Food Production Officer in Sambalpur and the other four accused persons were agricultural sub-overseers in charge of their respective areas under the appellant. Another such agricultural sub-overseer was Pitabas Sahu at Bargarh centre. He was examined at the trial as P.W. 25 and

(I) [1955] 2 S, C.R. 881.

shall hereinafter be referred to as the approver. The 1956 prosecution case is that in furtherance of the Grow Bimbadhar More Food Scheme initiated by Government it was Pradhan decided to subsidize the supply of oil cake to agriculv. turists with a view to augmenting the production of The State o/Ori"'6 food crops. Cultivators were to be supplied this variety of manure at Rs. 4-4-0 per maund, though the Government had to spend Rs. 7-12-0 per maund.

The appellant entered into a conspiracy with his subordinate staff including the agricultural sub-overseers aforesaid to misappropriate the funds thus placed at their disposal for the procurement and supply of oil cake to cultivators. To bolster up the quantity of oil cakes to be procured, they showed false transactions of purchase and distribution thereof and falsified accounts, vouchers, etc. Thus they were alleged to have misappropriated the sum of Rs. 4,943-4-0 of Government money.

A large volume of oral and documentary evidence was adduced on behalf of the prosecution. The three assessors who assisted at the trial were of the opinion that none of the accused was guilty. The learned Assistant Sessions Judge in agreement with the assessors acquitted the four agricultural sub-overseers aforesaid of all charges, giving them the benefit of the doubt. But in disagreement with the assessors he convicted the appellant under all the charges and sentenced him to rigorous imprisonment for four and a half years and a fine of Rs. 2,000 under section 409, Indian Penal Code, and to rigorous imprisonment for two years each under sections 120-B and 477-A of the Code, the sentences of imprisonment to run concurrently. The learned trial Judge observed in the course of his judgment as follows:-

"Hence on a consideration of all the evidence as discussed above, I find that the prosecution have fully proved their case that the accused Bimbadhar Pradhan, the D.F.P.O. has conspired to embezzle the Government money. They have also proved that he has got an active hand and in assistance of Pitabas

Sinha/.

19S6 Sahu has embezzled Government money amounting

Bimbadhar to Ra. 4,943-4-0 and in that act he has also actively Pradhan helped Pitabaa Sahu in falsifying the Government ... records by making false entries. Hence all these The State of Oris1ta three charges have been conclusively proved against - him. So far as regards the other accused persona, I Sinha/. have already stated that they are ccmsiderably inexperienced and the doubtful nature of evidence against these accused persons and considering the position bet.ween the first.accused and the other accused persons, I give these four accused persons the benefit of doubt though I do not approve their conduct in this affair.

As per my findings given above, I may state here that this is a case in which we find a person in charge of the entire administration of agricultural and G.M.F. development of a district has not only soiled his own hands by embezzling Government money by corrupt means but has also introduced corruption

ito the entire administration of that department by spoiling the career of young men who are entrusted with this work and employed under him".

The appellant went up in appeal to the High Court of Orissa. A Division Bench of that Court allowed his appeal and set aside his convictions and sentences uhder sections 409 and 477-A, Indian Penal Code, but upheld his conviction and sentence in respect of the charge of conspiracy under section 120-B of the Code.

We need not enter into the correctness of the findings of the trial court in respect of the acquittal of the other four accused, or of the High Court with regard to the acquittal of the appellant in respect of the charges under sections 409 and 477-A, Indian Penal Code. The High Court held that though the appellant had withdrawn the sum of Rs. 27,000 from the Government treasury with a view to subsidizing the procurement_of oil cake, it had not been proved that there was an entrustment to the appellant. Hence the charge against him under section 409 failed. As

- regards the charge under section 477-A, the High

Court acquitted him on the ground that the docu- 1956 ments said to have been falsified, which were large in Bimbadhar number, had not been mentioned in the charge and a Pradhan vague statement that "accounts, cash books, stock v. books, petty cash sale register, cash memos, applica- The State o/Orissa tions from cultivators, receipts, bills, vouchers, SinliaJ. papers, documents, letters, correspondencei etc. had been falsified" was made.

As regards the charge of conspiracy under section 120-B, the High Court observed that the most important witness to prove the charge was the approver aforesaid (P.W. 25) who had given a full description of the conspiracy on the 23rd or 25th September 1947 between the appellant and other sub-overseers including himself for the purpose of showin'g bogus purchases and bogus distribution of large quantities of oil cake. It also observed that "Most of the witnesses examined by the prosecution to corroborate the evidence of Pitabas are themselves accomplices in the conspiracy". The High Court found that in respect of that conspiracy the evidence given by the approver got adequate corroboration from other independent witnesses. After setting out the evidence the High Court recorded the following finding:-

"This would he strongest corroboration of the evidence of the approver about the appellant being the prime mover and the brain behind the entire fraud.

It was he who wanted to misuse his official position and persuade his subordinates to join with him in showing false procurement and distribution figures of oilcakes".

And finally the High Court came to the following conclusion:-

. "I am therefore of the opinion that the approver's version about the leading part in the conspiracy played by the appellant in persuading all his subordi• . nates to join with him for the purpose of committing criminal breach of trust of the sums withdrawn from the treasury by showing false procurement and distribution of oilcake is true. There is independent corro-

1956 boration of his evidence which is inconsistent with the appellant being a mere negligent superior officer Bimbadltar

Pradilan who was deceived and defrauded by his dishonest sub- •· ordinates. It was then urged that in the charge under Tile State o/ o,;,.. section 120-B of the Indian Penal Code, the date of the commission of the offence was stated to be the SinilaJ. month of October 1947, whereas according to the evidence of P.W. 5, the conspiracy took place at Bargarh between the 23rd and 25th September 1947.

This discrepancy in the date is immaterial and has not prejudiced the appellant in any way''.

From the concurrent orders of conviction and sentence of the appellant under section 120-B, Indian Penal Code, he was granted special leave to appeal to this Court. The learned counsel for the appellant has raised the following points in support of the appeal:- 1. 'l'ha t all the persons charged with the offence of conspiracy except the appellant having been acquitted, his conviction and sentence in respect of that charge could not in law be maintained;

2. That the appellant himself having been acquitted of the substantive charges under sections 409 and 477-A of the Code, he could not be convicted for conspiracy to commit those very offences;

3. That the evidence of the prosecution witnesses having been disbelieved as against the other accused, the same evidence should not have been relied upon for convicting the appellant of the charge of conspiracy;

4. That the provisions of section 342, Code of Criminal Procedure, had not been fully complied with in so far as important circumstances in the prosecution evidence had not been put to the appellant in his examination by the court under that section.

In our opinion, there is no substance in any one of these contentions and we proceed to give our reasons for our conclusions.

In support of the first contention raised on behalf of the appellant strong reliance was placed on the

recent decision of this Court in Topan Das v. State of 1956 Bombay(1) and the rulings relied upon in that case.

Bimbadhar The cases, The Queen v. Manning(9), The Queen v.

Pradhan Thompson(8) and The King v. Plummer(') were cited v. in support of the contention that where all the The State of Ori&sa

accused persons except one are acquitted on a charge of conspiracy, the conviction of one only on that Sinha J. charge cannot be sustained. / In this connection the recent decision of the Judicial Committee of the Privy Council in the case of Kannangara Aratchige Dharmasena v. The King(5) may also be referred to, though it was not cited at the Bar. In that case the Judicial

Committee held that where only two persons are involved in a charge of conspiracy, if a new trial has to be directed in respect of one it should be ordered in respect of both, because the only possible conclusion in such a case was either that both were guilty or that neither was guilty of the offence. The recent decision of this Court so strongly relied upon by the appellant lays down a. similar rule, but is clearly distinguishable from the case in hand inasmuch as in that case the only persons alleged to have been guilty of the offence of conspiracy were the persons placed on trial. There was no allegation nor any evidence forthcoming that any other persons were, though not placed on trial, concerned with the crime.

In those circumstances this Court la.id jt down that it was essential to bring the charge of conspiracy home to the accused person or persons to prove that there was an agreement to commit an offence between two or more persons. On the findings in that case only one person, after the acquittal of the rest of the accused was concerned with the crime and stood convicted of the charge of conspiracy. As a person cannot be convicted of conspiring with himself to commit an offence, this Court gave effect to the contention that on the findings and on the evidence,

11) [1966) 2 s.c.R. 881.

(2) (1883] 12 Q.B.D 241.

(SJ (1861] 16 Q.B. 882: 117 E.R. 1100.

(4) (1902) 2 K. B. 889.

(5) (1951) A.O. l,

as also on the charge in that case the conviction could not be sustained. But in the instant case, as Blmbadhar

Pradhan already indicated, on the findings of the courts be-

19$6

v. low, apart from the persons placed on trial, there The State o/Orissa was the approver who implicated himself equally

Sinha]. with the other accused persons and a number of other prosecution witnesses as having been privy to the conspiracy. The evidence of the approver has been found by the courts below to have been materially corroborated both as to the unlawful agreement and as to the persons concerned with the conspiracy.

In the first information report lodged on the 28th June 1948 the approver Pitabas Sahu, one of the agricultural sub-overseers, was named along with the other five accused as the persons concerned with the conspiracy. Subsequently Pitabas Sahu aforesaid was granted pardon on condition of his making a full and true statement of the facts of the case and was examined as an approver, on whose evidence mainly rested the case against the accused. His evidence. as indicated above, was supported by the dealers in oilcake who supplied the commodity which was the subject matter. of the conspiracy. It cannot therefore be said that this case is on all fours with the recent decision of this Court referred to above.

But it was argued on behalf of the appellant that he was charged only with a conspiracy with the other accused persons and not with any conspiracy with the approver along with those others. The charge under section 120-B is in these terms:

"First, that you, on or about the month of October, 1947 in the district of Sambalpur agreed with Hemchandra Acharya and other accused persons to do or caused to be done an illegal act by illegal means and that you did some acts in pursuance of the said agreement to wit, the offence of criminal breach of trust under s. 409, I.P.C. and falsification of accounts under s. 477-A punishable with R. I. for more than two years and thereby committed an offence punishable under s. 120-B, I.P.C., and within the cognizance of court of Sessions".

Bimbadhat' It will thus appear from the words of the charge that Pradhan the approver was not specifically named as having . v, . been one of the conspirators, unless he could be The State 01 Orissa brought within the category of "other accused persons". Something will have to be said as to what those words denote, whether the approver was also included within that description. Counsel for the appellant contended that they did not. Counsel for the State Government contended to the contrary. In England an indictment consists of three parts: (1) the commencement, (2) the statement of the offence, and (3) the particulars of the offence. The English law of indictment from very early times has been based on very technical rules. Those rules have now been codified by the Indictments Act, 1915 (5 & 6 George 5, Chapter 90). In Rule 2 (Schedule I) of the Act as amended by the Administration of Justice (Miscellaneous Provisions) Act of 1933, the form of "the commencement of the indictment" has been prescribed. The form of "Statement of the offence"

has been prescribed by Rule 4 of the Act and below that has to follow "Particulars of offence" as required by Rule 5.

Those rules more or less correspond to the rules laid down in Chapter XIX of the Code of Criminal Procedure. Section 221, Code of Criminal Procedure, requires that the charge shall state the offence with which the accused is charged, giving the specific name of the offence, if such a name has been given by the law which creates the offence, which in this case means the offence of criminal conspiracy, defined by section 120-A, Indian Penal Code. The naming of the section is, under sub-section (5) of section 221, Code of Criminal Procedure, equivalent to a st.atement that every legal condition required by law to constitute the offence of criminal conspiracy charged against the appellant was fulfilled.

Section 222 of the Code requires that the particulars as to the time and place of the alleged offence, and

Sinha J.

1956 the person (if any) against whom, or the thing (if Bimbadhar any) in respect of which, the offence was committed, Pradhan shall be stated.

It is noteworthy that that section v. wh!Ch requires the particulars of the offence to be Th< Stat• o/Orissa stated does not in terms further require that in an

Sinha J. offence like conspiracy the names of the co-conspirators should also be mentioned. Hence in England it is enough if the indictment states that the accused along with other persons unknown had committed the offence of criminal conspiracy.

Though the statute law in India does not make it obligatory that the persons concerned in the crime of criminal conspiracy should be specifically named along with the person or persons charged in a particular trial, it is always advisable to give those particulars also in order to give a reasonable notice to the accused that he has been charged with having conspired with so and so (persons named), as also persons unnamed, to commit a certain offence.

In this case the charge against the five accused persons with reference to section 120-B, Indian Penal Code, named only those five persons as the conspirators and omitted to name the approver also as having been privy to the conspiracy. This is clearly brought out with reference to the charge framed against the other four accused (who have been acquitted by the trial court as aforesaid). It states:-

"That you, on or about the month of October 1947 in the district of Sambalpur, agreed with Bimbadhar Pradhan to do or caused to be done an illegal act by illegal means .................... ".

We find with reference to the records of the trial court that the trial has not been characterised by thoroughness or circumspection.

The date of the offence as given in the charge is different from the date as disclosed in the evidence, as pointed out by the High Court, which found that that mistake had not caused any prejudice to the accused.

Similarly, the charge under section 477-A had not, as held by the High Court, been framed with sufficient particularity as a result of which the appellant had to be 7956 acquitted of that charge on appeal.

If the charge Bimbadhar under section 120-B had added the words "and other Pradhan persons, known or unknown", there would have been v. no ground for a grievance on the part of the appel- The State of Orissa lant.

But eve11 so, in our opinion, the provisions of sec- SinhaJ. tion 225, Code of Criminal Procedure, are clearly applicable to the facts and circumstances of the present case. It has not been shown to us how the omission to mention the name or'the approver in the charge under section 120-B, Indian Penal Code, has misled the appellant or has occasioned a failure of justice.

The prosecution case throughout has been, as is clear with reference to the petition of complaint, that the appellant with his subordinates in the Food Department had conspired to misappropriate the funds allocated to the procurement of oil-cake with a view to helping agriculturists with manure to raise more food crops.

The approver has been very much in the picture all the time and, as a matter of fact, as found by the courts below, his evidence is the main plank in the prosecution case. Of course, there is the other corroborative evidence, as pointed out in the judgments of the courts below. The provisions of section 537 are equally attracted to this case. With reference to the provisions of that section it is pertinent to note that though the other accused had been acquitted by the trial court and though he was the only appellant in the High Court, he did not raise the points with reference to the alleged illegality or irregularity in the charge, before that court. Hence applying the Explanation to that section to this case, it cannot be urged that the omission in the charge has occasioned a failure of justice.

But the learned counsel for the appellant has invited our pointed attention to the observations of Mr. Justice Mathew at p. 243 of Queen v. Manning(1) that it is "an imperative rule of law" that "in a

(1) [1883) 12 Q.B.D. 241.

1956 charge for conspiracy in a case like this where there are two defendants, the issue raised is whether or not Bimbadhar

Pradha,. both the men are guilty, and if the jury are not satisv. fied as to the guilt of either, then both must be ac- The State ofOrissa quitted". But Lord Coleridge, C. J., whose direction

Sinha}. to the jury in that case was the subject matter of the judgment does not put it as high as Mr. Justice Mathew, but understood it "to be the established rule of practice".

Reliance was placed by the learned counsel for the appellant on the case of The King v. Plummer(1), in which it has been observed that with the acquittal of the only alleged conspirators no verdict of guilty against the appellant could be passed because the verdict would be regarded as repugnant,, in so far as it would amount to saying that there was a criminal agreement between the appellant and the others and none between them and him. Hence it was contended that in a situation such as the present case presents, the conviction of the appellant would amount to a similar repugnancy. This aspect of the matter has been well discussed in a judgment of the Calcutta High Court delivered by Mr. Justice Mukerji in the case of I. G. Singleton v. The King-Emperor(').

Thi. learned Judge has there pointed out the difference between the position as it obtains in India and that in England. The rule of English law as to the acquittal of an alleged conspirator following from the acquittal of the other when the conspiracy was said to be only between the two and in a joint trial of both is based upon a rule of practice and procedure, namely' that repugnancy or contradiction on the face of the record is a ground for annulling a conviction. But such a repugnancy is not by itself a sufficient ground for quashing a conviction in India where the matter is governed by statutory law both as to the offence and the procedure for bringing the offender to justiee.

In India there is no provision in the statutory law justifying an interference with a conviction on the

(ll [1902] 2 K.B. 33~.

(,2) (1924] 29 C.W N. 260.

ground of repugnancy in the record. That is not to 19$6 say that the court is to shut its eyes to the inconsist- Bimbadhar ency in convicting one person of the offence of con- Pradhan spiracy on the same evidence on which the other v. alleged conspirator had been acquitted. If the matter The State o/Orissa is as simple as that, ordinarily the courts will have no difficulty in setting aside the conviction, when there was absolutely nothing on the record to distinguish the case against the one from that against the other.

Such was the case which was decided by this Court

in Topan Das v. State of Bombay(1).

Learned couqsel for the appellant pressed upon us the consideration that notwithstanding the state of affairs as disclosed in the evidence, the appellant was entitled to an acquittal because in the charge. as framed against him there was no reference to the approver. He contended that the rule upon which the accused was entitled to an acquittal was not a matter of practice but of principle. In the instant case we a.re not sure that the acquittal of the co-accused by the trial court was well founded in law or justified by the evidence in the case. The trial court has not disbelieved the evidence led on behalf of the prosecution.

It has only given the benefit of the doubt to the accused whom it acquitted on grounds which ma:y not bear scrutiny. But as the case against those acquitted persons is not before us, we need not go any further into the matter.

It has further been contended by the learned

cmnsel for the appellant that the High Court having acquitted him in respect of the two substantive charges of criminal breach of trust and of falsification of documents he should not have been convicted of the offence of criminal conspiracy because the conspiracy was alleged to have been for those very purposes. It is a sufficient answer to this contention to say that the offence of criminal conspiracy consists in the very agreement between two or more persons to commit a criminal offence irrespective of the

(1) [1955] S.O.R. 881.

.Sinha].

7956 further consideration whether or not those offences

Bimbadhar have actually been committed. The very fact of the Pradhan conspiracy constitutes the offence and it is immaterial v. whether anything has been done in pursuance of the The State of Orissa unlawful agreement. But in this case the finding is

Sinha]. not that Government money had not been misappro-. priated or that the accounts had not been falsified.

The charge under section 477-A relating to the falsification of the documents has failed because the High Court found that that particular charge was wanting in sufficient particulars, thus causing prejudice to the accused. The charge under section 409, Indian Penal Code, was set aside by the High Court on the ground that there was "practically no evidence of entrustment with the appellant of the price of 1500 maunds of oil-cakes, a substantial portion of which he was said to have misappropriated". How far this observation of the High Court is well founded in law with reference to the official position of .the appellant who had the spending of the Government money in his hands is not a matter on which we need pronounce.

It is enough to point out that it has not been found by the courts below that the object of the criminal conspiracy had not been achieved.

On the other hand, there is enough indication in those judgments thl!>t the object of the conspiracy had been to a large extent fulfilled. Hence it must be held that there is no substance in this contention also.

Another contention raised on behalf of the appellant was that the other accused having been acquitted by the trial court, the appellant should not have been convicted because the evidence against all of them was the same. There would have been a great deal of force in this argument, not as a question of principle but as a matter of prudence, if we were satiRfied that the acquittal of the other four accused persons was entirely correct. In this connection the observations of this Court in the case of Dalip Singh

v. State of Punjab('), and of the Federal Court in

(1) [196~) S.C.R. U6, 166.

Kapildeo Singh v. The King(1) are relevant. It is not 1956 essential that more than one person should be con- Bimbadhar victed of the offence of criminal conspiracy. It is Pradhan enough if the court is in a position to find that two v. or more persons were actually concerned in the crimi- The state of Oriua nal conspiracy. If the courts below bad come to the distinct finding that the evidence led on behalf of SinhaJ. the prosecution was unreliable, then certainly no conviction could have been bali!ed on such evidence and all the accused would have been equally entitled to acquittal. But that is not the position in this case as we read the judgments of the courts below.

Lastly, it was contended that the examination of the appellant by the learned trial Judge was not in full compliance with the requirements of section 342, Code of Criminal Procedure. Two points have been sought to be made in this connection. Firstly, it bas been contended that though the other accused who have been acquitted by the trial court were questioned with. reference to the conspiracy with the approver Pitabas Sahu, no such question was put to the appellant. It is true that the court questioned him about his "conspiracy with the other accused persons". Counsel for the parties before us did not agree as to the significance of the words "in conspiracy with the other accused persons". The contention on behalf of the appellant was that they referred only to the persons actually standing trial before the court, whereas counsel for the State contended that they had reference to all the accused persons named in the petition of complaint including the approver. A number of rulings of the different'High Courts as to what is the position of an approver, whether he continues to be an accused person even after the grant of pardon or whether he is only in the position of a witness on behalf of the prosecution, were cited before us. But we do not think it necessary in this case to pronounce upon that because we have, as already indicated, come to our conclusions

(1) (1949-50] F.C.R. 834, 837, 838.

1956 on the assumption that there is an omission in the charge in so far as the approver has not been specifi- Blmbadhar Pradhan cally named in the charge under section 120-B, Indian v.

Penal Code. Secondly, it was contended that the Th• Slat• o/Ori .. a evidence of P.W. 27 who had been chiefly relied upon - in the courts below as corroborating the approver had Sinha/. not been specifically put to the appellant though the evidence of the approver Pitabas Sahu was pointedly put to him. In our opinion, it is not ordinarily necessary to put the evidence of each individual witness to the accused in his examination under section 342, Code of Criminal Procedure. The appellant was put the question "Have you got anything to .say on the evidence of the witnesses?" That, in our opinion, is sufficient in the circumstances of this case to show that the attention of the accused was called to the prosecution evidence. As to what is or is not a run compliance with the provisions of that section of the Code must depend upon the facts and circumstances of each case. In our opinion, it cannot be said that the accused has been in any way prejudiced by the way he has been questioned under that section.

..--- \

As all the contentions raised on behalf of the appellant fail, the appeal must stand dismissed .

BIMBADHAR PRADHAN

THE STATE OF ORISSA

B. P. SINHA

JAFER IMAM

AIYAR, JJ.

ss. 225 and 637

Assistant Sessions Judge of Sambalpur

ss. 120B, 409, 477

ss. 409 and 477

Supreme Court

s. 120

s. 225

s. 120

I.P.C

s. 537

Code of Criminal Procedure

India

[1955] 2 S.C.R. 881

Bimbadhar

S. 0

R. Patnaik

R. 0. Prasad

Porus A. Mehta

P. G. Gokhale

SINHA

section 120

Indian Penal Code

sections 120

Indian Penal Code

Sambalpur

Bargarh

section 409

Indian Penal Code

sections 120

Bimbadhar Pradhan

Pitabas

Sinha/.

Sahu

Pitabaa Sahu

High Court of Orissa

sections 409 and 477

Indian Penal Code

section 120

sections 409 and 477

Indian Penal Code

section 409

section 477

section 120

23rd or 25th September 1947

Pitabas

Bimbadltar

Pradilan

section 120

Indian Penal Code

23rd and 25th September 1947

section 120

Indian Penal Code

sections 409 and 477

section 342

Code of Criminal Procedure

Sinha

Blmbadhar

Pradhan

28th June 1948

Pitabas Sahu

Pitabas Sahu

section 120

Hemchandra Acharya

s. 409

I.P.C

s. 477

s. 120

I.P.C

Pradhan

England

Schedule I

Section 221

Code of Criminal Procedure

section 120

Indian Penal Code

section 221

Code of Criminal Procedure

Section 222

Bimbadhar

section 120

Indian Penal Code

Bimbadhar Pradhan

section 477

section 120

State of Orissa

Code of Criminal Procedure

section 120

Indian Penal Code

section 537

Mathew

Bimbadhar

Pradha

Coleridge

Calcutta High Court

Mukerji

.Sinha

section 477

section 409

Indian Penal Code

Kapildeo Singh

section 342

Code of Criminal Procedure

Blmbadhar Pradhan

section 120

Penal Code

Sinha/.

Pitabas Sahu

section 342

Code of Criminal Procedure


S.C.R.

SUPREME COURT REPORTS 223

THE COMMISSIONER OF INCOME TAX AND

EXCESS PROFITS TAX, MADRAS v.

THE SOUTH INDIA PICTURES LTD.,

KARAIKUDI.

[S. R. DAS, c. J., BHAGWATI and

VENKATARAMA AYYAR, JJ.]

Indian Income Tax Act, 1922 .(XI of 1922), s. 10-Whethsr money received by the Assessee in the accounting period-As a revenue receipt or capital receipt-On the facts and in the circumstances of the instant case.

The assessee-a. private limited company-carried on the busi ness of distribution of films. In some instances the assessee used to produce or purchase films and then distribute the same for exhibi tion in different cinema halls and in other cases the assessee used to advance monies to producers of films and secure the right of distri bution of the films produced with the help of the monies so advanced by the assessee.

In the course of such business it advanced monies to Jupiter Pictures for the production of three films and acquired the right of distribution of these three films under three agreements in writing dated the September 1941, July 1942 and May 1945.

The said agreements expressed in similar language contained similar pro visions.

In the accounting year ending 31st March 1946 and in the pre vious years the assessee had exploited its rights of distribution of the three pictures.

On 31st October 1945 the assessee and Jupiter Pictures entered into an agreement cancelling the three agreements relating to the distribution rights in respect of the three films and in consideration of such cancellation the assessee was paid Rs. 26,000, in all by the Jupiter Pictures during the accounting period as compensation. The question for determination was whether on the facts and in the circumstances of the case the sum of Rs. 26,000, received by the assessee from the Jupiter Pictures was a revenue receipt assessable under the Indian Income Tax Act.

Held, per S. R. DAS C. J. and VENKATARAMA AYYAR J., (BHAGWATI J. dissenting) that the sum received by the assessee was a revenue receipt (and not a capital receipt) assessable under the Indian Income Tax Act inasmuch as:-

(i) the sum paid to the assessee was not truly compensation for not carrying on its business but was a sum paid in ordinary course of business to adjust the relation between the assessee and the pro ducers of the films;

March 14

(ii) the agreements which were cancelled were by no means agreements on which the whole trade of the assessee bad for all The Commissioner practical purposes been built and the payment received by the a.sessoj Income Tax and see was not for the loss of such a fundamental asset a.s was the ship Excess Profits Tax, managership of the aesessee in Barr Crombie cf Oo. Ltd. v. Oommis-

Madras sioners of Inland Revenue ([1945] 26 T.O. 406); and v.

The South India

Pictures Ud.,

Karaikudi

(iii) one cannot say that the cancelled agreements constituted the framework or whole structure of the assessee's profit making apparatus in the sense the agreement between the two mar13arine dealers concerned in Van Den Berghs Ltd. v. Clark (L.R. [1935] A.O.

431) was.

It is not ~!ways easy to aecide whether a particular payment received by a person is his income or whether it is to be regarded as his capital receipt.

Income is a Word of the broadest connotation and difficult and perhaps impossible to define in any precise general formula.

Though in general the distinction between an income and .a capital receipt was well recognised and easily applied, cases did arise where the item lay on the border line and the problem bad to be solved on the particular facts of each case. No infallible criterion or test can be or has been laid down and the decided cases are only helpful in that they indicate the kind of consideration which may relevantly be borne in mind in approaching the problem.

The character of the payment received may vary according to the cir cumstances.

BHAGWATI J. (dissenting): that in the instant case, the pictures, if produced by the assessee itself would have been capital assets of the assessee. What the assessee did was that instead of producing the pictures itself it advanced monies to the producers for the purpose of producing the pictures which it acquired for the purpose of distribution and exploitation. Nonetheless, the pictures thus acquired were capital assets of the assessee which it worked upon in carrying on its business of distribution and exploitation1 the monies it spent on the acquisition of the pictures were thus capital expenditure and whatever monies were realised by it by working these capital assets were its capital receipts except of course the commission which it earned by distribution and exploitation of the pictures which certainly would be its trading receipts. Having regard to the terms of these agreements it could certainly not be predicated of these pictures that they were its stock-intrade so as to constitute the payment in question a trading receipt of the assessee.

Commissioner of Income-tax v. Shaw, Wallace & Co. ([1932] L.R. 59 I.A. 206; A.LR. 1932 P.O. 138; 6 I.T.O. 178), Roja Bahadur Kmnakshya Narain Singh of Ramgarh v. Commissioner of Income tax, Bihar and Orissa ([1943] 11 I.T.R. 513, 521; L.R. 70 I.A. 180), Short Brothers, Ltd. v. The Commissioners of Inland Revenue ([1927] 12 T. 0. 955), K.Zsall Parsons & Co. v. Commissioners of Inland Revenue ((1938] 21 T. C. 608), Glenboig Union Fireclay Co. Ltd. v.

The Commissioners a/Inland Revenue ((1922] 12 T.O. 427), Shadbolt

(H. M. Inspector of Taxes) v. Salmon Estate ((1943) 25 T.C. 52), 1956 Johnson (H.M. Inspector of Taxes) v. W.S. Try, Ltd. ([1945) 27

T.C. 167), Commissioner of Income Tax, Bengal v. Shaw Wallace The Commissionef' and Company (A.I.R. 1932 P.C. 138), Van Den Berghs, Ltd. v. Clark of Income Tax and (Inspector of Taus) (L.B. [1935) A.C. 431; 19 'l'. C. 390; 3 I.T.R. Excess Profits Tax, (Suppl.) 17) and Barr Crombie it Go.' Ltd. v. Commissioners of Inland Madras Revenue'([l945] 26 T.C. 406), referred to. v.

The South India The facts of the case as t11<ken from the judgment Pictures Ud., of the Hon'ble The Chief Justice are shortly as Karaikudi follows:- The assesses is a private limited company. It carried on the business of distribution of films. In some instances the assessee used to produce or purchase films and then distribute the same for exhibition in different cinema halls and in other cases the assessee used to advance monies to producers of films and secure the right of distribution of the films produced with the help of the monies so advanced by the assessee. In the course of such business it advanced monies to Jupiter Pictures for the production of three films and acquired the right of distribution of these three films under three agreements in writing dated the 17th September 1941, 16th July

1942 and 5th 'May 1945.

The said several agreements were expressed in similar language and. contained similar provisions. The assessee bound itself to advance a certain sum in instalments specified therein and retain the ha.lance to be utilised for the purpose of press publicity in such way as it thought fit and proper and at its sole discretion. Jupiter Pictures in its turn bound itself to arrange for the delivery to the e.ssessee of twelve copies of the film to be produced after it would be passed by the Board of Censors {clause 1). The territories within which the assessee was to have the right of distribution and exploitation of the film was specified in clause 2 and such right was to enure for a period of five years from the date of the release of the film. The assesses was given the right, at its sole discretion, to distribute the films at such rates and on such terms and condi tions and in such manner a.s it might deem fit (clause 2).

The amounts realised by the distribution of the films was to be utilised by the assessee in the following way: namely, in paying itself its distribution commission and in retaining the available balance until the entire amount of advance would be discharged (clause 3) and after the entire amount of the advance would be discharged, in paying to Jupiter Pictures the net realisations from the film after deducting its commission (clause 4). In case the full amount of ad vance could not be recouped from the realisations of the film on or before the expiry of one and half yea.rs from the date of the first release of the film Jupiter Pictures would be liable to pay to the a.ssessee whatever balance would remain due with compound inte rest at twelve per cent. per annum calculated in the manner men tioned in clause 6.

The a.ssessee' s commission for distribution and

1956 exploitation of the film through its organisation was, by clause 8, fixed at 15 per cent. of the net realisations. In case of sale of dis- The Commissioner trict or territorial rights of the film made by consent of both parties of Income Tax and the assesses a.lone would be entitled to put through such sales and Excess Profi'ts Tax, receive the proceeds and would be entitled to a commission of ten

Madras per cent. thereon and to appropriate the balance towards the payv. ment and discharge of the advance made by it (clause 9).

The Th• South India assessee was to submit to Jupiter Pictures a monthly statement

Piclures Ltd., of e.ccountand show all books of account to Jupiter Pictures Karaikudi (clauses 11 and 12). The assessee was given liberty to appoint sub-agents and sub-distributors at its sole discretion (clause 13).

The amount advanced by the assessee was made immediately repayable in the event of the film being banned or not passed by the Board of Censors (clause 14). Clause lti gave the assessee a charge by way of security on the negative and positive copies of the film for whatever amount might be due to the assessee on account of the advance made and in case the negative and positive copies were in possession of Jupiter Pictures the same were to be held by the latter as trustee of the assessee. The burden of insuring the negative copies of the film was placed on Jupiter Pictures at its own cost (clause 16).

Jupiter Pictures agreed to indemnify the &ssessee against all claims or demands' of any nature whatsoever by any person or agency in or upon the film and against all claims of an7 person or agency on account of any infringement of copyright (clause 17). If Jupiter Pictures failed to deliver the film within the time specified therein, the asseswas given the right, at its option, to complete the picture at its own cost and in such event, Jupiter Pictures was to be liable to the assesfor all such expenses with compound interest thereon at 12, per cent. per annum and the assessee would have all the rights of distribution, sale, etc. as aforesaid (clause 19). The last clause provided that on the expiry of the period of 5 years the assessee would return to Jupiter Pictul'l!!I &II copies of the film and balance stock of Joan and saleable pqblicity materials subject to wear and tear.

In the accounting year ending 31st March 1946 and in t!Ul previous years the assessee had exploited its right of distribution of the three pictures. On 31st October 1945 the assessee and Jupiter Pictures entered into an agreement cancelling the three several agreements relating to the distribution rights in respect of the three films and in consideration of such cancellation Jupiter Pictures

agreed to pay to the assessee towards commission the sum of Rs. 8,666-10-8 (rupees eight thousand six hundred and sixtysix annas ten and pies eight) for each of the three pictures aggregating in all to Rs. 26,000 (rupees twentysix thousand).

It is this sum of Rs. 26,000 (rupeee twentysix thousand) which was paid during the accounting year which forms the subject matter of the question that has arisen between the assessee and the department.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 32 of 1954.

1956 On appeal froI, D the judgment and order dated the 26th September 1951 of the Madras High Court The Commissioner in Case Referred No. 18 of 1949. of Income Tax and , . . . l ,/ I d. (G N Excess Profits Tax,

0. K. Daphtary, Solicitor-Genera oJ n ia .

Madras Joshi and R.H. Dhebar, with him) for the appellant. v R. Ganapathy Iyer, for the respondent.

The South India Pictures Ud.,

956 M h Karaikudi l .. a.re 14.

DAS C.J.-In the year 1945 the respondent company (hereinafter called the "assessee") received a payment of a sum of Rs. 26,000 (rupees twentysix thousand) from Jupiter Pictures Ltd. of Madras (hereinafter referred to as Jupiter Pictures) pursuant to the ternis of an agreement between the assessee and Jupiter Pictures dated the 31st October 1945. In the course of the proceedings for the assessment of the assessee's income-tax for the year 1946-47 and the excess profits tax for the chargeable accounting period from 1st April 1945 to 31st March 1946, the followiJJ.g question arose:-

" Whether on the facts and in the circumstances of the case, the sum of Rs. 26,000 received by the aseessee from Jupiter Pictures Ltd., is a revenue receipt assessable under the Indian Income-Tax

Act?" The Income-Tax Officer took .. the view that the sum was in the nature of a revenue receipt and was liable to be brought to account for purposes ot: calculating the tax. The Appellate Assistant Commissioner upheld this decision. On further appeal by the assessee the Income-Tax Appeflate Tribunal held that the case was governed. by the decision of the Judicial Committee in Commissioner of Income-Tax

v. Shaw Wallace and Company(') and that the sum received by the assessee was a capital receipt. Accordingly on 26th August 1948 the Tribunal reversed the decision of the Appellate Assistant Commissioner. At the instance of the Commissioner of Income-Tax and

(1) !1932] L.R. 69 I.A. 206; A.LR. 1932 P.C. 138; 6 I.T.C. 178.

1956 Excess Profits Tax, Madras the Tribunal under sec-

Th C I . tion 66(1) of the Indian Income-Tax Act, 1922 e omm sssoner

J'.' • of Inco.,,. Tax and re1erred to the High Court of Madras the question of Excess Profits Tax, law quoted above. The High Court agreed with the

Madras Income-Tax Appellate Tribunal and answered the v. question in the negative. The present appeal is The South India d d h Pictures Ud., irecte against t is decision of the High Court.

Karaikudi [After stating the facts of the case which gave rise ·- Das C.]. to the present point in controversy and which have been stated above His Lordship proceeded as follows:] As already indicated the question for consideration is whether this payment constituted a capital receipt or a revenue receipt. It may be mentioned here that the answer to this question will be relevant and helpful only in respect of assessments of other assessees for assessment years prior to the date when the new sub-section (5-A) was, by the Finance Act of 1955, added to section 10 of the Indian Income Tax Act, 1922.

It is not always easy to decide whether a particular payment received by a person is his income or whether it is to be regarded as his capital receipt.

Income, said Lord Wright in Raja Bahadur Kamakshya Narain Singh of Ramgarh v. Commissioner of Income- Tax, Bihar and Orissa('),· is a word of the broadest connotation and difficult and perhaps impossible to define in any precise general formula.

Lord Macmillan said in Van DenBerghs, Ltd. v. Clark (Inspector of Taxes)(') that though in general the distinction between an income and a capital receipt was well recognized and easily applied, cases did arise where the item lay on the border line and the problem had to be solved on the particular facts of each case. No infallible criterion or test can be or has been laid down and the decided cases are only helpful in that they indicate the kind of consideration which may relevantly be borne in mind in approaching the problem. The character of the payment received may vary according to the circumstances.

Thus the amount received as consideration for the sale of a

(1) [1943) 11 I.'l'.R. 513, 521; L.R. 70 I.A. ISO, 192.

(2) L.R. (1935) A.O. 431: 19 T.C. 390; 3 I.T.R. (Suppl.) 17.

plot of land may ordinarily be a capital receipt but 1956 if the business of the recipient is to buy and sell h bl h The Comtuissioncr lands, it may well be his income.

T e pro em t at ,, 1 T , h d k . . . d o1 ncome ax an" confronts us has to be approac e eepmg m mm Excess Profits Tax, the different kinds of consideration taken into account Madras in the different cases. v.

The assessee before us is a company carrying on a The Sot1th bidia business and it received the sum in question in con- Pictttres Ltd., Karaikudi nection with that business. We have, therefore, to ask ourselves as tow hat is the substance of the matter Das c.J. from the point of view of a businessman. The assessee contends that in receiving this sum it was not carrying on its business, which was to distribute films, but that it received this amount as and by way of compensation for not distributing those films, that is to say for not carrying on its business. 'I'he sum was, according to the assessee, received by it in return for its ceasing to engage in the business of distributing those three films.

We do not think that is the intrinsic business of the matter. Here was the assessee whose business was to distribute films, purchased or produced by itself or in respect of which it secured the distribution rights under agreements with the producers. For the purpose of this distribution business the assessee obviously had arrangements with the proprietors of different cinema halls. If any producer failed to deliver any film as agreed then the exigencies of the assessee's business would certainly have required the assessee to treat that agreement as terminated by breach and to enter into another agreement for securing the distribution right in some other film so as to enable it to fulfil its engagement with the proprietors of the cinema halls by distributing the new film in the place of the one that had not been supplied. Likewise if a particular film secured by the assessee failed to attract public enthusiasm, business exigencies might well have required the assessee to enter into an arrangement with the producers concerned to cancel the agreement for distribution of that film and to enter into another agreement with the same or other producers for acquiring the distribution right in another film likely to bring a better

1956 box-office collection. The termination of the agreement in each of the circumstances hereinbefore men- Th e Commissioner of lttcome Tax and tioned could well be said to have been brought about Excess Profits Tax, in the ordinary course of business and money paid Madras or received by the assessee as a result of or in conv. nection with such termination of agreements would The 80"'" India certainly be regarded as having been so paid or

P~:;;; k~~·· received in the ordinary course of its business and

Das C.J.

therefore a trading disbursement or trading receipt.

There was no covenant made by the assessee with Jupiter Pictures not to enter into agreements with other producers or not to distribute films secured from other producers. In fact in the accounting year the assessee had distribution rights in respect of eleven films including these three.

These three agreements would have come to an end on the expiration of the period of five years from the respective dates of release of the films and had only a part of the period to run, a fact which may also be relevantly borne in mind.

The cancellation of these agreements must have left the assessee free, if it so chose to secure other films which could be distributed in the place of these films and which might have brought in better box-office collections.

In the language of Lord Han worth, M. R. in Short Bros., Ltd. v. The Commissioners of Inland Revenue(') the sum paid to the assessee was not truly compensation for not carrying on its business but was a sum paid in ordinary course of business to adjust the relation between the assessee and the producers of the films.

The agreements which were cancelled were by no means agreements on which the whole trade of the assessee had for all practical purposes been built and the payment received by the assessee was not for the loss of such a fundamental asset as was the ship managership of the assessee in Barr, Crombie & Go., Ltd. v. Commissioners of Inland Revenue("). Nor can one say that the cancelled agreements constituted the framework or whole structure of the assessee's profit making apparatus in the sense the agreement between the two margarine dealers concerned in Van Den Berghs

{1) [1927) 12 T.C. 955, 973

(2) [1945] 26 T.C. 406.

Ltd. v. Clark (Inspector of Taxes) (supra) was. Here 1956 were three agreements entered into by the assessee in Th c .. th d. f h' b . l 'th l e omm1sswner e or inary course o IS us1ness a ong WI severa of Income Tax and similar agreements. These three agreements were by Excess Profits Tax, mutual consent put an end to. The termination of Madras these three agreements did not radically, or at all v. affect or alter the structure of the assessee's business.

The South India Pictures Ltd., Indeed the assessee's business of distribution of films Karaikudi proceeded apace notwithstanding the cancellation of these three agreements.

Das C.J.

Learned counsel for the assessee has, as did the High Court, strongly relied on the decision of the Privy Council in Shaw Wallace's case (supra). In that case there was no fixed period within which the distributing agency was to continue, whereas in the case before us the agreement was only for a fixed period of five years out of which a considerable part had already expired. In Shaw Wallace's case the entire distributing agency work was completely closed, whereas the termination of the agreements in question did not have that drastic effect on the assessee's business at all. His business of distribution of films continued notwithstanding the cancellation of these three agreements. In Shaw Wallace's case, therefore, it could possibly be said that the amount paid there represented a capital receipt. It is pointed out that in Shaw Wallace's case there were other agencies also which were continuing. A reference to that case reported sub-nom Shaw Wallace & Go. v.

Commissioner of Income Tax, Bengal(1) will show that Shaw Wallace and EJo. carried on business as merchants and managing agents of various companies and that they were also the distributing agents of the two oil companies as well. The business of managing agency of a company is quite different from the business of distributing agency of the products of oil companies. The different managing agencies in that case were entirely different from and independent of the distributing agency of the two oil companies and this aspect of the matter was emphasised

(1) [1931] 5 I.T.C. 211. 31

1956 by Sir George Lowndes towards the end of his judg-

Th Com • . ment where he said:- o/ rome ".;.':,."':,.'; ,','It is contended for te appellant that the "busi- Excess Profits Tax, ness of the respondents did m fact go OII through-

Maaras out the year, and this is no doubt true in a sense. •· They had other independent commercial interests The SouthlKd; a which they continued to pursue, and the profits of

Pictures Ud., h h b h Karaikudi w ich ave een taxed int e ordinary course without objection on their part. B\lt it is clear that the Das c.J. sum in question in this appeal had no connection with the continuance of the respondent's other business.

The profits earned by them in 1928 were the fruit of a different tree, the crop of a different field".

If Shaw Wallace and Co. had other distributing agencies similar to those of the two oil companies then it would be difficult to reconcile the decision in that case with the later decisions in Kelsall Parsons & Go.

v. Commissioners of Inland Revenue(') and other cases.

It has been urged that the agreements did not create merely an agency for the distribution of the films but were composite agreements consisting partly of a financing agreement creating a security on the films for the monies to be advanced and conferring the right even to complete the films in case the producers failed to do so and partly of a distributing agency agreement giving the assessee the utmost latitude in the matter of the terms and conditions on which it could exploit and distribute the films. It was argued that the rights acquired by the assessee under the agreements were in the nature of capital assets of the assessee's business and the amounts received by the assessee were the prices or considerations for the sale or surrender of such capital assets or were received by way of compensation for the sterilization or destruction of those capital assets. Kelsall Parsons & Go.' s case and Short Bros.' case referred to above were sought to be distinguished on the ground that there the payments were made in respect of the cancellation of contracts directed to result in the making of the trading profits, whereas in the present case the cancelledagreements were directed to the acquisition

(I) [1938} 21 T.C. 608.

of rights in the films which when wor~ were to '956 yield profits. The terms of the agree:rfietlts sum- The Commissionc,. marised above clearly show that they constitute of Income Tax and a financing agreement and a distributing agency Excess Profits Tax, agreement. In so far as they were only financ- Madras ing agreements they gave the assessee a charge v.

The South India on the films to be produced with moneys advanc- Pictures ua .. ed by it but gave it no right to distribute the films Karaikudi or otherwise work them for making income, profits or gains. Therefore, it can hardly be said that Das C.J. by the financing agreements the assessee acquired capital assets for carrying on its distributing agency business.

In this respect the case differs from the case of Glenboig Union Fireclay Go. Ltd. v.

Commissioners of Inland Revenue(1), for in that case the lease of the fire clay fields authorised the assessee who was a manufacturer of fire clay goods to extract fire clay and manufacture fire clay goods and consequently was a capital asset of the assessee's business. Further, in the present case there is no suggestion that any part of the moneys advanced by the assessee for the production of the films was outstanding. Assuming that to start with the films constituted capital assets, the entire capital outlay had been recovered and the security had been extinguished and that part of the agreements which constituted financing agreements had been fully worked out and had come to an end and the three films ceased to be capital assets and the assessee was holding the films only under that part of the agreements which constituted the distributing agency agreements which only were subsisting. In the premises the amount received by the assessee was only so received "towards commission", that is to say, as compensation for the loss of the commission which it would have earned had the agreements not been terminated. In our opinion, in the events that had happened, the amount was not received by the assessee as the price of any capital assets sold or surrendered or destroyed or sterilized but in the language of Rowlatt J. in Short Bros.' case (supra) the amount was simply received

(1) (1922] 12 T.C. 427,

1956 by the a!lllssee in the course of its going distributing

The Commi•sioner gency lWsiness from that .going b?siness. In our of Income Ta• and Judgment, on the facts and m the circumstances of E<eessPro/itsTt1x, the present case, it falls within the principles laid

Madrt1s down in Short Bros.' and Kelsall Parsons & Go.' s cases v. rather than within those laid dbwn in Shaw Wallace's The Soulh India TT D B Pictures Ud., case or ran en ergh's case or Barr Grombie's case.

Karaikudi Reference was made to section 10 (5"A)" of the Indian Income Tax Act, 1922, and it was urged that the language of that sub-section impliedly indicated that the sum of Rs. 26,000 (rupees twentysix thousand) was a capital receipt. We are unable to accept this suggestion. That sub-section was obviously introduced to prevent the abuse of managing agency agreements being terminated on payment of huge compensation and to nullify the application of the decision in Shaw Wallace's case to such cases.

But that sub-section does not necessariiy imply that if that sub-section were not there the kind of payment referred to therein would have been treated as capital receipt in all cases.

For the reasons stated above the referred question should in our opinion have been answered in the affirmative and we answer it accordingly. The appeal is, therefore, allowed with costs throughout.

BHAGWATI J.-I had the privilege of reading the judgment just delivered by my Lord the Chief Justice but I regret I cannot agree with the same.

The facts leading up to the present appeal have been fully set out in that judgment anditisnotnecessary to repeat the same.

The relevant portions of the agreement dated the 17th September 1941 which is the sample of the three agreements entered into between the Jupiter Pictures and the assessee may be, however, set out herein:

"Whereas the producer has taken on hand the production of a Tamil talkie picture 'Kannagi' hereinafter called the said picture ........ and whereas forthe purpose of the said production the producer has approached the distributors for financial assistance and

for the distribution and exploitation of the said pie- 7956 ture by the distributors through their organization Th c . . . . e om11uss1oner and the distributors have agreed to render such finano/ Income Tax and cial assistance by advancing to the producer altoge- Excess Profits Tax, ther a sum of Rs. 57 ,000 on the terms and in the Madras manner hereinafter appearing and to distribute and v. 1 • h 'd · h h h • The South India exp 01t t e sai picture t roug t eir orgamzation Pictures Ud., as requested by the producer ................ :- Karaikudi.

Ol. 1. The distributors shall advance to the producer a sum of Rs. 57,000 only altogether in the BhagwatiJ • . manner hereinafter set out:

(a) a sum of Rs. 7,000 only should be advanced on the executiou of these presents;

(b) a further sum of Rs. 5,000 should be advanced as soon as 5,000 feet of film shall have been completed and roughly edited, rushprint thereof shown;

(c) a further sum of Rs. 10,000 should be ad• vanced as soon as a further 10,000 feet o'f film shall have been completed;

(d) a further sum of Rs. 10,000 should be advanced as soon as a further 15,000 feet of film shall have been completed;

(e) a further sum of Rs. 12,000 should be advanced on the last shooting day of the picture;

(f) a further sum of Rs. 10,000 should be advanced as soon as the picture is passed by the Board of Censors and 12 copies Qf the film delivered to the distributors; and the balance of Rs. 3,000 to be retained by the distl"ibutors to be utilised for the purpose of Press Publicity in regard to the said picture to be made by the distributors on behalf of the producer from time to time. The distributors may utilise the said sum for publicity as they think fit and pro~ per and at their sole discretion.

Ol. 3.

The distributors shall from the realisations of the i:Jaid picture made by them:

(a) pay themselves all amounts spent by them for publicity in respect of the said picture such an expenditure having been incurred only after obtaining the consent of the producer;

(b) pay themselves their distribution commie-

1956 sion in respect of the said picture as hereinafter pro-

The Commissioner vided; (an) d h 1 h 1 bl b 1 . of Income T x d c pay t emse ves t e ava1 a e a ance until Excess Profs ~:x, the entire advance of Rs. 57 ,000 should be completely Madras discharged and satisfied. v.

Ol. 6. If the distributors should fail to realise The south India the full amount due to them as aforesaid from the

Rictures Ud., realisation of the said picture in the manner herein- Karaikudi before set out on or before the expiry of one and a half Bhagwati J. years from the date of the first release of the said picture, the producer shall be liable to pay to the distributors whatever balance may be then due by them with compound interest at 12 per cent. per annum the said interest to be calculated on the said balance amount from the date of expiry of the said one and a half years and the said payment to be made before the expiry of one month therefrom.

Ol. 15. And it is hereby expressly agreed by and between the distributors and the producer that until the entire amount of Rs. 57,000 to be advanced by the distributors should be repaid and discharged in full and all other claims of the distributors arising hereunder completely satisfied the negative and positive copies of the said picture shall constitute the security for whatever amount may be due to tpe distributors and shall, if in the possession of the producer or any one on his behalf, be held by them only as trustees for the distributors.

Ol. 19. In the event of the producer failing to deliver the said copies of the said picture duly passed by the Board of Censors as herein before provided before the said period, namely 1-5-1942, the producer shall become liable to pay to the distributors at the latters's option such amount as has been advanced by the distributors to the producer including monies spent by the distributors in respect of publicity with interest thereon at 12 per cent. per annum. But if the said picture be not delivered within two months thereafter, viz., on or before 1-7-1942 the distributors may at their option complete the picture at their own cost and in such oase the producer shall be liable to the distributors for all the expenses with compound

interest thereon at 12 per cent. per annum and the 7956 distributors shall have all rights as to the distribu- Th c . . . e ommtsseoner tion, sale, etc., as aforesaid. of Income Tax and Ol. 20. On the expiry of the period of five years Excess Profits Tax, mentioned in this agreement, the distributors shall Madras return to the producer all copies of films and balance v. f h The South India stock of loan and saleable publicity materials o t e Pictures Ud., said picture, subject to usu, al wear and tear and Karaikudi subject to the distributors receiving back from the producer such unrealised amount, if any, as mentioned Bhagwati J. in clause (6) above".

The said three agreements were dated 17th September 1941, 16th July 1942 and 10th May 1945, each having a period of five years to run ending with 16th September 1946, 15th July 1947 and 9th May 1950 respectively.

The only question which falls to be determined by us herein is whether the payment of Rs. 26,000 received by the assessee from the Jupiter Pictures on the cancellation of the said three agreements on the 31st October 1945 is a capital receipt or income, profits or gains liable to tax in the assessment year 1946-47.

The assessee was no doubt carrying on the business of distributors which involved as a necessary corollary the acquisition of films for the purpose of distribution. Those films could either be produced by it or could be acquired by it from the producers who hired them out to it for the purpose of distribution. There was, however, an activity in this business of distributors which consisted of advancing monies to the producers to enable the producers to produce the films and the agreements which were entered into between the producers and the assessee as distributors were composite agreements incorporating therein the terms in regard to the financial assistance as also the distribution and exploitation of the films thus produce by the producers with the financial assistance rendered to them by the assessee. They were not mere agreements for distribution and exploitation of the pictures which by themselves would not require any investment of capital but would

1956 merely involve the work of distribution and exploitation of the pictures. The terms above set out were

~:1 • CammTissionerd designed for the purpose of protectin-g the interests o, ncomo ax an f h . s: • d d 'd bJ Excess Profits Tax o t e assessee in so iar as it a vance cons1 era e Madras ' sums to the producers for the purpose of producing v. the films. Apart from the commission which the The Soi.th India assessee derived from the distribution and exploita-

Pictures Ud., ti on of the pictures which would certainly be its reve- Karaikudi nue receipt in the course of the carrying on of its Bhagwati J. business as distributors, it was entitled under the terms of the agreements to repay itself the amounts of the advances which it made for the production of the pictures as also the interest thereon and the agreements also provided that the negative and positive copies of the pictures should constitute the security for whatever amount might be due to the assessee not only in respect of the amounts advanced by it to the producers but also in respect of a.II other claims arising under the agreements. The negative and positive copies of the pictures if in possession of the producers or any one on their behalf would only be held by them as trustees of the assessee and the assessee was invested with a species of proprietary rights over the same. If the pictures were not delivered within the specified period the assessee was at liberty to complete the same and in such a case the producers were liable to it for all the expenses with compound interest at 12 per cent. per annum and a.II the rights as distributors were to fasten upon the same. The copies of the films and all the other publicity materials were to be returned by the a.ssessee to the producers after tbe expiry of the period of five yea.rs mentioned in the agreements subject to its receiving from the producers a.II unrealised a.mounts under the a.greemen ts.

What is it that the a.ssessee was acquiring from the producers under the terms of these agreeJl).ents? Was it acquiring capita.I assets which it would work upon by way of distribution and exploitation in order to earn its income, profits or gains or was it acquiring stock-in-trade of its business as distributors? If it was capital assets which it thus acquired the monies

which it advanced to the producers for acquiring the 1956 same would necessarily be capital expenditure and Th Com .. ld b d b. db . . "t t t d" • m•ss1ontr wou not e e Ite y It ID I s accoun s as ra Ing of Income Tax nd expenses which would be the position if what it Excess Profits ; ax,

acquired under the terms of the agreements was Madras mere stock-in-trade of its business. The realisations v. which it made by distribution and exploitation of the The South India

d d d . d Pictur•s Ltd., pictures woul be undoubte tra e receipts an , Karaikudi therefore, income, profits or gains and no part of the same would go to its capital account. The monies BhagwatiJ, which it had advanced for the production of the pictures would, however, as and when realised, be credited by it in its accounts as capital receipts and they would certainly not be liable to be treated as trading receipts. There was thus a sharp distinction between the capital account and the trading account, the amounts advanced towards the production of the pictures being capital expenditure and the repayments of these advances as and when made being capital receipts, as distinct from the monies spent by it in the distribution and exploitation of the pictures b"eing trading expenses and the commission realised by it from such distribution and exploitation being trading receipts. As in the cases of mining leases and other species of proprietary rights obtained by an assessee being capital assets available to the assessee for working upon the same and earning income, profits or gains, so in the case of these pictures which it acquired by advancing monies to the producers to be available to it for distributing and exploiting the same, what it would be acquiring under the terms of the agreements would be capital assets and if an agreement was subsequently entered into by it either transferring these capital assets or surrendering them for value, whatever payment would be realised out of the same would be capital receipts and not trading receipts. The nomenclature of that receipt as commission for distribution and exploitation under the agreements would not make any difference to the position nor would the fact that, at the time when the said three agreements were cancelled, no part of the monies which had been advanced at the commence~

1956 ment remained outstanding and the only activity . . of the assessee qua these pictures was then confined The CommJSsooner to the distribution and exploitation of the same. The of lncotne Tax and • d h Excess Profits Tax agreements were composite agreements an w at we

Madras ' have got to look to is what were the rights in these v. pictures which the assessee had acquired under the The South India terms of the agreements. It had a species of pro-

Pictures Ud., prietary rights in these pictures all throughout the Karaikudi h period of t e agreements not only in respect of BhagwatiJ. advances which it had made for producing the same but also in respect of all other claims under the terms of the agreements and the nature of those rights would not be changed by the accident of the full amount of the advances being repaid to it at a particular period of time during the currency of the agreements. If it acquired capital assets those assets continued in its possession as such a.II throughout the period of the agreements and it would not be legitimate at any intermedite period of time to see what was the position obtaining at that time for the purpose of converting what were acquired as capital assets at the dates of the agreements into stock-intra.de of its business of distribution and exploitation of the pictures.

If this be the true position on the construction of the agreements it follows that what was done by the assessee on the 31st October 1945 was to surrender these capital assets to the producers for a consideration. These capital assets qua the agreemen.ts of the 17th September 1941, 16th July 1942 and 10th May 1945 were to endure up to 16th September, 1946, 15th July 1947 and 9th May 1950 respectively. A sum of Rs. 8,666-10-8 was fixed as the consideration for the surrender of each and the capital assets which had been acquired were all of them surrendered by the assessee to the producers with effect from the 31st October 1945. The payment thus received by the assessee could only be a capital receipt being the price of the surrender of the capital assets and could not be considered a trading receipt at all.

It is well recognised that the problem of discriminating between an income recAipt and a capital receipt

and between an income disbursement and a capt- 1956 tal disbursement is not always easy to solve. Even The Cossoner though the distinction is well recognised and easily of lncom:'; a; and applied in general, cases do arise from time to time Excess Profits Tax, where the item lies on the border line and the task of Madras assigning it to income or capital becomes one of much v. h The South India refinement. "While eac case is found to turn upon Pictures Ud., its own fac~, and no infallible criterion emerges, Karaikudi nevertheless the decisions are useful as illustrations and as affording indications of the kind of considera- BhagwatiJ. tions which may relevantly be borne in mind in approaching the problem ............................................ The nature of a receipt may vary according to the nature of the trade in connection with which it arises. The price of the sale of a factory is ordinarily a capital receipt, but it may be an income receipt in the case of a person whose business it is to buy and sell factories'~ (Per Lord Macmillan in Van Den Berghs, Ltd. v.

Clark (H. M. Inspector of Taxes)(1) ). It may also be borne in mind that the provisions of the Indian Income-tax Act are not in pari materia with those of the English Income-tax Statutes so that the decisions on the English Acts are in general of no assistance in construing the Indian Acts (Vide the observations of the Privy Council in Commissioner of Income-tax

v. Shaw Wallace & Co.(2) and in Raja Bahadur Kamakshya Narain Singh of Ramgarh v. Commissioner of Income tax, Bihar & Orissa(3)).

The authorities which were cited at the Bar may, however, be shortly referred to..

Counsel for the appellant particularly relied upon the decisions in Short Brothers, Ltd. v. The Commissioners of Inland

Revenue(!) and Kelsall Parsons & Co. v. Commissioners of Inland Revenue(5) in support of the position that the cancellation of the agreements in the present case and the receipt of Rs. 26,000 by the assessee was in the ordinary course of business in order to adjust the relations between the producers and the assessee and was simply a receipt in the course of a

(1) [1985) 19 T.C. 890, 428, 481.

(2) (1982] L.R. 59 I.A. 206, 212.

(8) [1948] L.R. 70 I.A. 180, 188.

(4) [1927] 12 T.C. 955.

(5) [1988) 21 T.C. 608.

1956 going business from that going business and nothing

Th Com . . else. It was submitted that it was an essential part • m"s"""'r f h ' b t of Income Tax and o t e assessee s usmess o enter mto agreements of Excess Profits Tax, the nature in question and that it was an ordinary

Madras incident of its business that such agreements may be v. altered or terminated from time to time.

It was The South India therefore a normal incident of the business such as Pict1wes Ud.,

Karaikudi that of the assessee that the agreementl!il might be modified and in parting with the benefits of the Bhagwati J. agreements the assessee could not be said to be parting with something which could be described as an enduring asset of its business.

This position would have been tenable if the agreements in question were merely distributing agreements without anything more. It would then have been an essential part of the assessee's business to enter into such agreements and also it would have been a normal incident of its business to modify or terminate the same and to adjust the relations between the parties. In neither of these cases was there any question of any capital asset having depreciated in value or become of less use for the purpose of the assessee's business. Rowlatt, J. observed in Short Brothers, Ltd. v. The Commissioners of Inland Revenue

(supra) at page 968 that the money was not received in respect of the termination of any part of the assessee's business nor was it received in respect of any capital asset as was the sum in the Glenboig's case('). Lord Fleming also emphasized this aspect of the matter in Kelsall Parsons and Go. v. Commissioners of Inland Revenue (supra) at page 622 that there was no finding that in consequence of the termination, any capital asset was depreciated in value or became of less use for the purpose of the assessee's business.

If the assessees in those cases had by virtue of the agreements in question acquired capital assets which they could work in order to earn income, profits or gains, the payments received on termination of the said agreements would certainly not have been held to be trading receipts but capital receipts and as such not liable to tax.

(1) [1922] 12 T.C. 427.

Reliance was placed on behalf of the assessee on 7956 the decisions in Glenboig Union Fireclay Go. Ltd. v. Th c - .. l

.. :J R (l) d TT D e ommi£sioner Commissioners of In arm evenue an ran en of Income Tax a11d Berghs Ltd. v. Clark (H.M. Inspector of Taxes) (supra), Excess Profits Tax, for showing that, if the capital asset of the assessee Madras was sterilized or destroyed, the payment would be a v L d B k Gl b • U • The South fodia capital receipt. or uc master, in en oig nion Pictures Ltd., Fireclay Go. Ltd. v. The Commissioners of Inland Ka•aikudi Revenue (supra) at page 463, expressed the opinion that "it made no difference whether it be regarded as BhagwatiJ. the sale of the asset out and out, or whether it be treated as a means of preventing the acquisition of profit that would otherwise be gained. In either case, the capital asset of the company was to that extent sterilized and destroyed and it was in respect of that action that the sum had been paid". Lord Wrenbury also, at page 464 stated that "the mining leases were capital assets of the company, the company's objects were to acquire profits by working the mines under and by virtue of the titles and rights which they hold under the leases and the payment was made to the assessee for abstaining from seeking to make a profit". Put it in another way: "The right to work the area in which the working was to be abandoned was part of the capital asset consisting of the right to work the whole area demised. Had the abandonment extended to the whole area all subsequent profit by working would, of course, have been impossible but it would be impossible to contend that the compensation would be other than capital. It was the price paid for sterilising the asset from which otherwise profit might have been obtained.

What is true of the whole must be equally true of the part" (Page 465). In Van Den Berghs Ltd. v. Clark (H. M.

Inspector of Taxes) (supra) it was held that the payment in question was the payment for the cancellation of the assessee's future rights under the agreements which constituted a capital asset of the assessee and that it was accordingly a capital receipt.

Justice Finlay, whose judgment was ultimately restored by the House. of Lords, observed at page 413:

(1) [1922J 12 T.C. 427.

1956 "The ground is not very easy to express, but the

C . . ground upon which I desire to put this part of the The omm•ss1011er • h" th t th t h th h of Income Tax and Case IS t IS, a e rue :VIeW ere IS at t e agree- Excess Profits Tax; ment which was cancelled was just a capital asset of Madras the Company and, if that is right, it seems to me to v. follow that, distinguishing such cases as Short Bro- Th• South India thers('), one ought to hold that the sum received was Pictures Ud., JI" L d M f Karaikudi not an income receipt at a . or acmillan, a for discussing the various authorities which according to Bhagwati J. him were useful as illustrations and as affording indications of the kind of considerations which may be relevantly borne in mind in approaching the problem, construed. the agreements in question as not ordinary commercial contracts made in the course of the carrying on of the assessee's trade. The agreements in the facts and circumstances of the case before him related to the whole structure of the assessee's profit-making apparatus, they regulated the assessee's activities, defined what they might and might not do and affected the conduct of their business and he had difficulty in seeing how money laid out to secure, or . money received for the cancellation of, so fundamental

an organization of a trader's activities could be regarded as an income disbursement or an income receipt. He expressed he opinion that the asset, the congeries of rights which the appellants enjoyed under the agreements and which for a price they surrendered, was a capital asset. They provided a means of making profits but they themselves did not yield profits. .

Applying the same ratio here, could it not be said that the pictures which were acquired by the assessee from the producers were capital assets of the assessee, the object of the assessee being to acquire profits by distributing and exploiting the pictures under and by virtue of the titles and rights which the assessee acquired under the agreements or that they provided the means of making profits though they themselves did not yield profits? That being the true position on the construction of the agreements, the only result would be that the pictures constituted capital assets

(1\ [19m 12 T.C. 966.

of the company and the payment in question was one 1956 for the cancellation of the assessee's rights under the T c . . • • • he ommissioner agreements and was accordmgly a capital receipt. of Income Tax and The distinction between capital assets on the one Excess Profits Tax, hand and the stock-in-trade on the other was sought Madras to be supported by reference to the decisions in Shadv. =- bolt (H. M. Inspector of Taxes) v. Salmon Estate(1) and The South India

) Pictures Ltd., Johnson ( H. JJtl. lnspectorof Taxes) v. W. S. Try Ltd.(2 • Karaikudi These were cases of assessees which carried on the business of building and selling houses or building Bhagwati J. and development business and in the course of their business acquired plots of land which they utilised for the purpose of constructing buildings thereupon, which buildings together with the plots of land on which they stood were sold by them for a consideration. The question which arose was whether the acquisition of the plots of land on which the buildings were thusconstructed was the acquisition of a capital asset or a trading asset by the assessees.

Justice Macnaghten, whose judgment in the King's Bench Division was the final judgment in Shadbolt (H. M.

Inspector of Taxes) v. Salmon Estate (supra) remarked at page 57 that "it was not disputed that in the course of such a trade as this, the trade of building houses for sale, the land on which the houses were built was part of the stock-in-trade of the business and was not a capital asset.

The land being thus a part of their stock-in-trade, the payment in question for the bit sold by the assesses would have been a trading receipt and the right to build on the plots

was likewise a trading asset".

In Johnson (H. M.

Inspector of Taxes) v. W. S. Try Ltd. (supra), also, the judgment of the same learned Judge was the final judgment on the point in issue.

The following observations of the learned Judge at page 172 are very instructive: "Although in most cases land belonging to a trading company was part of its capital assets, in the case of a company engaged in ribbon development the land which is acquired for the purposes of such development is not part of its capital. In such a case the land forms part of its stock-in-trade, just

(1) [1043] 25 T.C. 52.

(2) [1946] 27 T.C. 167.

1956 as much as the materials which it buys for the purpose of erecting the buildings on it. The cost of the The Commissioner of Income Tax and land must come into its trading account as a trading Excess Profits Tax, expense. If it sells the land the price must come into Madras its trading account as a trading receipt.

And, likev. , wise, compensation for injurious affection must also, Th• South India in my opinion, be regarded as a trading receipt".

Pictures Ltd.,

Karaikudi In the instant case also, the pictures, if produced by the assessee itself would have been capital assets BhagwatiJ. of the assessee. What the assessee did was that instead of producing the pictures itself it advanced monies to the producers for the purpose of producing the pictures which it acquired for the purpose of distribution and exploitation. Nonetheless, the pictures thus acquired were capital assets of the assessee'IWhich it worked upon in carrying on its business of distribution and exploitation, the monies it spent on the acquisition of the pictures were thus capital expenditure and whatever monies were realised by it by working these capital assets were its capital receipts except of course the commission which it earned by distribution and exploitation of the pictures which certainly would be its trading receipts. Having regard to the terms of these agreements it could certainly not be predicated of these pictures that they were its stock-in-trade so as to constitute the payment in question a trading receipt of the assessee.

Both the Income-tax Appellate Tribunal and the High Court relied upon the decision of the Privy Council in Commissioner of Income-tax, Bengal v. Shaw

Wallace & Go. (supra), and were of the opinion that the present case was covered by that decision. On the facts of the case as set out in the above a.ppeal it does not appear to be clear whether the t.wo selling agencies there were the only selling agencies which had been acquired and worked by Shaw Wallace & Co., and it is debatable under the circumstances whether the authority of that decision is not shaken by the decisions in Short Brothers' case (supra) and Kelsall Parsons & Go.'s case (supra). It is sufficient to observe that the agreements in the case of Shaw

Wallace & Co. were not deemed to constitute capital

assets of the assessee and that aspect of the question 1956 was not at all considered by the Privy Council. It Th c .. • . • e otn11usstone,. is not, therefore, necessary t? express any ?J.:>lllln of Income Tax and on the correctness or otherwise of that dec1s10n m Excess Profits Tax, this case. , Madras Having regard to all the circumstances adverted to v. h h f The South India above, it is, therefore, clear t at t e payment o Pictures Ud., Rs. 26,000 received by the assessee from the producers Karaikudi was in consideration of the surrender by the assessee of the capital assets which it had acquired from the Bhagu•atiJ. producers under the three agreements in question and constituted a capital receipt not liable to tax for the assessment year 1946-47. The answer given by the High Court to the referred question was, therefore, correct and I would dismiss the appeal with costs.

ORDER.

BY THE CouRT:-In accordance with the Judgment of the majority, the appeal is allowed wjth costs throughout.

VEMIREDDY SATYANARAYAN REDDY AND

THREE OTHERS

THE STATE OF HYDERABAD.

[VIVIAN BOSE and CHANDRASEKHARA AIYAR JJ.]

Crime, perpetration of-A person present but not aiding or abetting-Whether principal or accessory-Corroboration of the statement of a single witness against accused-What the law requires.

There is no warrant for the extreme proposition that if a man sees the perpetration of a crime and does not give information of it to anyone else, he might well be regarded in law as an accomplice and that he could be put in the dock with the actual criminals.

A person may be present, and, if not aiding and abetting, be neither principal nor accessory; as, if A, happens to be present at a murder and takes no part in it, nor endeavours to prevent it, or to apprehend the murderer, this course of conduct will not of Itself ren der him either principal or accessory.

Russell on Crime, 10th Edition, p. 1846, referred to.

March 14

S. R. DAS

BHAGWATI

Indian Income Tax Act, 1922

s. 10

Jupiter Pictures

31st March 1946

31st October 1945

South India

Karaikudi

L.R. 59 I.A. 206

L.R. 70 I.A. 180

Karaikudi

17th September 1941

16th July

1942

5th 'May 1945

clause 1

clause 2

clause 2

clause 3

clause 4

clause 6

clause 8

clause 9

Jupiter Pictures Karaikudi

clause 13

clause 14

clause 16

clause 17

clause 19

K. Daphtary

Madras Joshi

R.H. Dhebar

Jupiter Pictures Ltd. of Madras

1st April 1945

Jupiter Pictures Ltd.

26th August 1948

L.R. 69 I.A. 206

1956 Excess Profits Tax, Madras

Indian Income-Tax Act, 1922

Karaikudi

section 10

Indian Income Tax Act, 1922

Wright

Macmillan

Madras

Karaikudi

Van Den Berghs

South India Pictures Ltd.

Das

Shaw Wallace

EJo

George Lowndes

Shaw Wallace and Co.

Kelsall Parsons & Go

Rowlatt

Barr Grombie

section 10

Indian Income Tax Act, 1922

Karaikudi

Bhagwati

16th July 1942

10th May 1945

16th September 1946

15th July 1947

9th May 1950

17th September 1941, 16th July 1942

16th September, 1946

Income-tax Act

L.R. 59 I.A. 206

L.R. 70 I.A. 180

Pict1wes Ud

Glenboig

Fleming

Wrenbury

Finlay

Macnaghten

South India

Shaw Wallace & Co.

Short Brothers

Shaw

Wallace & Co.

VEMIREDDY SATYANARAYAN REDDY

VIVIAN BOSE

CHANDRASEKHARA AIYAR