S.C.R.

SUPREME COURT REPORTS

COMMISSIONER OF INCOME-TAX,

BOMBAY

ti.

THE PROVIDENT INVESTMENT CO., LTD.

'[BHAGWATI, S. K. DAs and J. L. KAPUR JJ.J

Income Tax-Capital gains-Managing agent of company holding shares therein-Agreement of sale of shares and Managing Agency-Sale of shares-Relinquishment of Managing Agency by

"'•')' of resignation-If amounts to a sale or transfer of Managing Agency-Agreed Statement of Case for reference to High Court--

Whether binding on the parties-Indian Income-tax Act, 1922 (XI of 1922), s. 128.

The respondent company was the managing agent ot two other companies holding certain shares therein.

D wrote two letters to the responJnt on September 14, 1946, offering to purchase some of those shares together with the managing agency and agreeing to pay certain sums as earnest money on the acceptance of the offer and to pay the balance after the transfer of the managing agency was sanctioned by the general body of shareholders.

By a letter dated September 30, 1946, the respondent accepted the offer on condition of a sum of Rs. I crore being paid out of the consideration as compensation for the loss of the managing agency, and on receipt of the letter, D paid the earnest money.

Subsequently, D wrote a letter on October 7, .1946, whereby, in modification of the arrangement previously made, it was agreed that instead of the managing agency being transferred by the respondent, the latter would resign the office of managing agents and certain indi\'iduals would be appointed Directors of the two companies.

Accordingly, the respondent relinquished the managing agency and thereupon the balance of consideration money was paid to it. The Income-tax Officer consi<lered that s. 12B of the Indian Inrnme-tax Act, 1922, was applicable to the transaction and on the footing that the managing agency, which was valued at Rs. I crore, was a capital asset, he computed the capital gains at Rs. 81,81,900. The Income-tax Appellate Tribunal held that the respondent, as the owner of the shares and the managing agency, sold the shares to D anJ handed back the managing agency to the managed companies, and that this handing back constituted a tr<msfer. On a reference to the High Court by the Tribunal, the agreed statement of the case proceeded on the basis that the dispute between the parties was whether the transaction with regard to the managing agency resulted in capital gains and the I iigh Court held that there was neither a sale nor a transfer of the manlging agency within the meaning of s. 12B of the Act.

On appeal to the Supreme Court by the Commissioner of Income-tax, it was contended for him (I) that there was a concluded contract

,',/"

M11115

T hr Commissioner of

Jncom~-tax,

Bombqy

, ..

Thr Provident lnriutnunt Co., Ltd.

S. K. Das].

of sale as a result of the letters of September 14, 1946, and September 30, 1946, and a sale having taken place, the letter of October 7, 1946, merely changed the mode of performance of the contract and did ot affect the true legal character of the trans.. action which was a sale of the managing agency, and (2) that as there was one indivisible consideration for the whole transaction, including the sale of the shares an<l of the mal-iaging agency, the sale of the shares having taken place and the entire consideration having been paid, there was a sale within the ineaning of s. 12B of the Act and the transaction reSulte<l in capital gains.

Held ( l} that on a true construction of the letters there was originally only an agreement to sell the shares together with the managing agency and before the sale could take place the letter of October 7, ] 946, substituted a new contract, a contract of relinquishment rather than a contract of sale, so far as. the managing agncy was concerned, and ( 2) that it was not open to the appellant to go behind the agreed statc1nent of the case and raise a question of law based on different facts and circumstances.

Accordingly, the transaction in question was a relinquishment of the 1nanaging agency and was neither a sale nor a transfer within the meaning of s. 128 of the Indian Inco1nc-tax Act.

CIVIL

APPELLATE JURISDICTION : Civil Appeal No. 179 of 1954.

Appeal from the judgment and order dated March 12, 1953, of the Bombay High Court in Income-tax Reference No. 43 of 1952.

C. K. Daphtary, Solicitor-General of India, G. N.

Joshi and R. H. Dhebar, for the appellant.

N. A. Palkhivala, D. H. Dwarkadas, /. B. Dadachanji, S. N. Andley and Rameshwar Nath, for the respondent.

1957. May 15. The Judgment of the Court was delivered by

S. K.

DAs J.-This is an appeal on a certificate granted by the High Court of Judicature at Bombay under sub-s. (2) of s. 66A of the Indian Income-tax Act (hereinafter referred to as the Act). The appellant is the Commissioner of Income-tax, Bombay, and the respondent is the Provident Investment Co., Ltd., Bombay, hereinafter referred to as the assessee company.

The short question which falls for consideration in this appeal is whether a particular transaction, details

whereof we shall presently state, entered into by the assessee .company in 1946 resulted in capital gains within the meaning of s. 12B of the Act. The question which was referred to the High Court under s. 66(1) of the Act was this : "Whether the assessee company made a capital gain amounting to Rs. 81,81,900 within the meaning of s. 12B of the Indian Income-tax Act?" The High Court answered the question in the negative.

The appellant being dissatisfied with the judgment and order of the High Court asked for and obtained a certificate from the said High Court that the case is a fit one for appeal to the Supreme Court.

The material facts may be very shortly stated. The assessee company is a private limited company, the shares of which were held by the then Maharaja Scindia of Gwalior and his nominees. At the material time, the assessee company was the managing agent of Madhowji Dharamsi Manufacturing Co., Ltd., hereinafter briefly referred to as the Dharamsi Company, and Sir Shapurji Broacha Mills Ltd., briefly referred to as ;• the Shapurji Broacha Company. The assessee company held all the "conversion" shares of the Dharamsi Company and a substantial majority • of the "conversion" shares of the Shapurji Broacha .Company. The Dalmia Investment Company Limited, which will hereinafter be briefly referred to as the Dalmia Company, wrote two letters to the assessee company on September 14, 1946.

In these two letters, the Dalmia Companyoffered to purchase 28,328 "conversion" shares of the Dharamsi Company at Rs. 500 per share together with the managing agency, and also 75,212 "conversion" shares of the Shapurji Broacha Company, together with the managing agency. We are not concerned with the other details mentioned in the two letters, except this that the Dalmia Company made it clear that it would purchase both the mills or neither, and a time limit till September 23, 1946, 3 p. m. was imposed during which the offer would remain open.

This time limit was, however, extended later up to September 30, 1946. The letter further stated :

T ht Commissioner qf

Incometax,

Bomba;1

The Provident lnvestment Co., Ltd.

S. K. Das J.

The Ccmmissioner of

Income-tax,

Bombay v.

The Provide t lnuestment Co., Ltd.

S. K. Das •

"On your accepting the offer, we will pay to you Rs. 20 lakhs in the case of the Dharamsi Company'-,--,-- Rs. 30 lakhs in the case of the Shapurji Broacha 7\ Company as and by way of earnest money. You shall have to arrange to get the transfer of the managing agency sanctioned by the general body of the shareholders within a period of 40 days from the date of acceptance.

As soon as the transfer is sanctioned, we will pay the balance of the purchase price."

On September 26, 1946, there was a meeting of the Board of Directors of the assessee company. At that meeting, the Board considered the offers made by the Dalmia Company and resolved to accept the offers. The Board further stated in its minutes that out of the total amount received from the sale of the shares, a sum of Rs. 1 crore should be paid to the assessee company as compensation for the loss of the managing agency of the two mills. On September 30, 1946, the assessee company wrote to the Dalmia Company accepting the offers made, subject to a condition which is not material for our purpose. On the same date, the Dalmia Company received the acceptance of the offers made by it and sent two drafts, one for Rs. 20 lakhs and the other for Rs. 30 lakhs. On October 7, 1946, the Dalmia Company wrote a very important letter to the assessee company. This letter said inter alia : r-, "With reference to the interview our Solicitor Mr. Tanubhai had with your Mr. Wadia, we beg to record that it is now being agreed upon as follows in modification of the arrangement previously made between yourselves and ourselves :

(1) In our letters of offer which have been accepted by you, it was arranged that the managing agency will he transferred either to us or to our nominees. Now, instead of doing so by you, you as the present managing agents will give their (sic) resig- -4 nation, so that at the time of delivery of the shares and \ payment of moneys, your managing agency will have come to an end. In view of the above, it is not necessary to obtain any sanction of general meeting.

(2) 1. Mr. Sriyans Prasad Jain

2. Mr. Jaidayal Dalmia

3. Mr. Shanti Prasad Jain and

4. Mr. Vishnu Hari Dalmia will be appointed Directors of both the Mills Companies and thereafter all the present directors will tender their resignation.

(3) Qualification shares in the names of the above proposed Directors will be transferred by you and the balance of the shares will be delivered to us along with the transfer deeds duly signed against payment.

(4) You may communicate by a circular to the shareholders that you have resigned the managing agency. You may further mention in the circular that in accordance with the offer we are prepared to take up_ the deferred shares held by the shareholders which may be offered to us at the rate of Rs. 25 and Rs. 7-8-0 of Madhowji Dharamsi Manufacturing Co. Ltd. and

Sir Shapurji Broacha Mills Ltd.

Mills respectively within two months of the date of letter of offer which we would also send."

The assessee company accepted the modified arrangement suggested by the Dalmia Company, and on October 19, 1946, the assessee company wrote to the Dharamsi Company and the Shapurji Broacha Company that it had decided to resign the office of the managing agency and accordingly tendered its resignation on that date. The balance of the consideration money was then paid to the assessee company, and it was not disputed that the value of the managing agency was computed at Rs. 1 crore, nor was there any dispute t'hat the managing agency was a capital asset. Out' of the said sum of Rs. 1 crore, the Incometax Officer computed the capital gains at Rs. 81,81,900 and asked the assessee company to pay tax thereon.

The- Appellate Assistant Commissioner held that the assessee company had sold the managing agency and therefore the profits or gains arising from that sale were capital gains within the meaning of s. 12B of the Act.

The Income-tax Appellate Tribunl, Bombay Bench 'A', held, however, that there was no sale of the managing agency, because the original contract of 7-8! S. C. India/59

The Commissionn

of Income-to:r,

Bomb41

Thi Provid•nl Inv1Stment Co., Lid.

S.K.DasJ.

Thi Commissioner of

lru:omt.frix,

Bombay

TM Pr(lvident I.vestment Co., Lid.

S. K. Das].

purchase was varied by the new contract embodied in the letter of October 7, 1946. The Tribunal, however, held as follows :

"The assessee company was the owner of the shares and the managing agencies. It sold the shares to the Dalmia Co. and handed back the managing agencies to the managed companies. This handing back, in our opinion, constitutes a transfer of the managing agencies."

On that footing the Tribunal held that s. 12B of the Act applied. On an application by the assessee company, the Tribunal on being satisfied that a question of law did arise out of its order, referred the question which we have already set out in an earlier paragraph of this judgment, to the High Court of Bombay. The High Court answered the question in the negative on the ground that there was neither a sale nor a transfer of the managing agency within the meaning of s. 12B of the Act.

The point for our consideration is whether the High Court has correctly answered the question.

We must first read sub-s. (I) of s. 12B of the Act as it stood at the material time.

The sub-section, so far as it is relevant for our purpose, was in these terms :

"The tax shall be payable by an assessee under the head 'Capital gains' in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset effected . after the 31st day of March 1946; and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange or transfer took place." , It is worthy of note that 'capital gains' were charged for the first time by the Income-tax and Excess Profits Tax (Amendment) Act, 1947, which inserted s. 12B in the Act.

It taxed 'capital gains' arising after March

31. 1946, and the levy was virtually abolished by the Indian Finance Act, 1949, which confined the operation of the section to 'capital gains' arising before April I,

1948. The Finance (No. 3) Act, 1956 (Act 77 of 1956) re-introduced the section in wider terms so as to bring within 'capital gains' 'any profits or gains :irising from the sale, exchange, relinquishment or transfer of a

capital asset effected after March 31, 1956, etc. We are not, however, concerned with the question whether the transaction under our consideration, which took place in 1946, resulted in capital gains within the meaning of s. 12B as it stands after the enactment of the Finance (No. 3) Act, 1956 (Act 77 of 1956). The question before us is whether the transaction under consideration resulted in capital gains within the meaning of s. 12B as it originally stood.

Two other points must be stated at the outset in order to clear the ground for a consideration of the relevant arguments advanced before us.

The first point is that there is no question here of the assessee company trying to circumvent the provisions of s. 12B of the Act by deliberately modifying the original agreement (by its letter dated October 7, 1946) so as to put the transaction outside the scope of that section. The agreement was modified in October, 1946, before even the insertion of s. 12B in the Act.

Therefore, no question of deliberate or fraudulent evasion arises in this case. The second point is that in construing fiscal statutes and in determining the liability of a subject to tax, one must have regard to the strict letter of the Jaw and the true legal position arising out of the transaction in question. The Bombay High Court has referred to a large number of English decisions on this point.

We consider it unnecessary to examine those decisions in the present case. The point was considered very recently by this Court in A. V. Fernandez v. The State of Kerala ( 1 ), where the following observations made are very pertinent :

"If the Revenue satisfies the Court that the case falls strictly within the provisions of the law, the subject can , be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter. We must of necessity, therefore, have regard to the actual provisions of the Act and the rules made thereunder before we can come

(1) [1957] S.C.R. 837.

The Commissioner

of /ncom1-tax1

Bmbl!JI

Tht ProvidenJ Investment Co., Ltd.

S. K. D<U].

The Commiulonn

of lncomt--taJt,

Bomb41

The Prouidttd lnwstment Co., Ltd.

S. K. Das].

to the conclusion that assessment as contended Those observations were sales tax but are equally our consideration.

the appellant was liable to by the Sales Tax authorities." made in a case dealing with applicable to the case under

Two conditions must be fulfilled before the transaction under our consideration can come within the purview of s. 12B of the Act. The first condition is that the profits or gains must arise from the sale, exchange or transfer of a capital asset ; and the second condition is that the sale, exchange or transfer must be effected after March 31, 1946. There is no doubt that the transaction before us was effected after March 31, 1946. There is also no dispute that the managing agency of the two mills which the assessee company held was a capital asset. Therefore, the question bails down to this-did the profits or gains, namely, the sum of Rs. 1 crore which was computed as the value of the managing agency, arise from the sale or transfer of the managing agency? The Income-tax authorities held that there was a sale of the managing agency ; but the Appellate Tribunal held that there was no sale in the strict sense but only a transfer of the managing agency to the managed companies, that is, the Dharamsi Company and the Shapurji Broacha Company. The High Court held that there was neither a sale nor a transfer, because the letter of October 7, 1946, substituted a different contract for the original contract entered into by the parties, and the true legal position with regard to the substituted contract was that the assessee company resigned the managing agency, or, in other words, the managing agency was relinquished by the assessee company.

The learned Solicitor-General, who has appeared for the appellant, has contested the correctness of the view of the Bombay High Court and has submitted a twofold argument before us. His first argument is that there was a concluded contract of sale as a result of the letters, dated September .14, 1946, and September 30, 1946, exchanged between the parties, and the sale having taken place, the letter of October 7, 1946, which merely changed the mode of petformance of the

...

contract, did not affect the true legal character of the transaction which was a sale of the managing agency.

We are unable to accept this argument. The true legal effect of the letters dated September 14, 1946, and September 30, 1946, which contained an offer and an acceptance, was merely this : the Dalmia Company offered to purchase ( 1) certain shares in the two mills and (2) the managing agency, on payment of a certain consideration, and the assessee company accepted that offer.

In law, this was merely an agreement to sell and purchase the shares together with the managing agency on payment of the consideration, etc. The two letters did not by themselves amount to a sale of the shares or the managing agency, in the sense of a transfer of the property in them. Before any such sale could take place, the agreement was modified by the letter of October 7, 1946, and instead of "selling" the managing agency the assessee company agreed to resign or relinquish the managing agency.

We are unable to agree with the learned Solicitor-General that the letter of October 7, 1946, merely changed the mode of performance, and did not constitute a new contract.

In our opinion, the Bombay High Court correctly held that whereas under the original contract the Dalmia_ Company wanted the managing agency to be transferred, which meant that it wanted the benefit of that contract to be vested in it and was also prepared to accept the burden of the obligations that went with that contract, under the substituted contract, the Dalmia Company did not want the managing agency to be assigned to it; on the contrary, it wanted the assessee company to relinquish its rights in the managing agency of the two mills by resigning. On a true interpretation, the letter of October 7, 1946, substituted a new contract, a contract of relinquishment rather than a contract of sale, so far as the managing agency was concerned.

 The second argument of the learned Solicitor-General is that there was one indivisible consideration for the whole transaction, including the sale of the shares and of the managing agencv.

So far as the shares were concerned, the sale did take place and the entire

TM Commissionw

of ln&0"'4-t0Jt,

Bomb41

Thi Provident Investment Co., Ltd.

S.K. Das].

The Commiuitmer

of Income-tax,

Bombay

Tht Prouident

lnV1stm~11t Co., Lt1.

S. Ir. Das].

consideration was paid; there was therefore a sale within the meaning of s. 12B of the Act, and the consideration being one and indivisible, the transaction did result in capital gains within the meaning of that section. At the first blush, the argument has an apparent merit of plausibility, though it was not urged before the Bombay High Court in the manner in which it has been urged before us.

On a closer scrutiny, however, it appears to us that this argument is not really available to the learned Solicitor-General.

The parties and the Income-tax authorities, including the Appellate Tribunal, proceeded on the footing that part of the consideration, namely, the sum of Rs. 1 crore, was the consideration for the sale or relinquishment of the managing agency, the Department contending that the transaction was a sale or transfer and the assessee company contending that it was neither a sale nor a transfer but a mere relinquishment.

In the agreed statement of the case, it was stated :

"The value of the managing agencies was computed y the assessee company at R;. 1 crore and there 1s no dispute on this point. The Income-tax Officer thereupon computed capital gain at Rs. 81,81,900 and again there is no dispute on this point.

The question which the Tribunal had to cletermine was whether the transactions between the Dalmia Company and the assessee company resulted m a capital gain of Rs. 81,81,900."

It is obvious that the entire assessment proceedings proceeded on the basis that the sum of Rs. 1 crore was the consideration for the sale or relinquishment of the managing agencies, and the dispute between the parties was whether the transaction with regard to the managing agencies, in its true legal character, was a sale or transfer or relinquishment.

That being the position, it is not now open to the learned Solicitor- General appearing for the Revenue to go behind the agreed statement of the case and to ask us to give an answer to the question of law raised in the case on different assumptions or in a different set of circumstances.

The answer must be given on the basis of

the facts and circumstances as stated in the agreed statement of the case.

We are of opinion that the answer was correctly given by the High Court of Bombay. The transaction in its true legal character was a relinquishment of the managing agency and was neither a sale nor a transfer thereof. Therefore, the High Court correctly answered the question in the negative.

In .the result, the appeal fails and is dismissed with costs.

Appeal dismissed.

F. N. ROY

'V.

COLLECTOR OF CUSTOMS, CALCUTT A.

(S. R.- DAS c. J., JAFER IMAM, s. K. DAS, GovrNDA MENON and A. K. SARKAR JJ.)

sea Customs-Import without licence-Confiscation of goods- Validity of Order-Discretion of Customs-authorities-Validity of Enactment-Sea Customs Act, 1878 (Vlll of 1878), ss. 167(8), 183- Imports and Exports (Control) Act .. 1947 (XVIII of 1947), s. 3(1) (2)-Constitution of India, Art. 14.

Section 167, item 8, of the Sea Customs Act, 1878, provides that if any goods the importation of which is for the time being prohibited or restricted by or under Ch. IV of the Act, which Chapter includes s. 19, be imported into India contrary to such prohibition or restriction, such goods shall be liable to confiscation and any person concerned in such importation shall be liable to a penalty not exceeding three times the value of the goods or not exceeding one thousand rupees.

By s. 183 of this Act . it is provided: "Whenever confiscation is authorised by this Act, the officer adjudging it shall give the owner of the goods an option to pay in lieu of confiscation such fines as the officer thinks fit". The Imports and Exports (Control) Act, 1947, by s. 3(1) empowers the Central Government by an order to make provision for prohibiting, restricting, or . otherwise controlling, the import, export, carriage coast-wise . or shipment as ships' stores of goods of any specified description.

Sub-section (2) of that section provides that all . goods to which any order under sub-s. ( 1) applies, shall be

deemed to be goods of which the import or export has been prohibited or restricted under s. 19 0£ the Sea Customs Act, 1878, and all the provisions of that Act shall have effect accordingly,

The Commissioner

of Income-tax,

Bombay v.

The Provident Investment Co., Ltd.

S. K, Das].

May 16.

COMMISSIONER OF INCOME-TAX,

BOMBAY

THE PROVIDENT INVESTMENT CO., LTD

BHAGWATI

S. K. DAs

L. KAPUR JJ

Income-tax Act

s. 128

September 14, 1946

September 30, 1946

October 7, .1946

s. 12B

Indian Inrnme-tax Act, 1922

s. 12B

Supreme Court

S. K. Das

s. 12B

October 7, ] 946

s. 128

K. Daphtary

G. N.

Joshi

R. H. Dhebar

N. A. Palkhivala

D. H. Dwarkadas

B. Dadachanji

S. N. Andley

Rameshwar Nath

S. K.

High Court of Judicature at Bombay

s. 66A

Income-tax Act

Bombay

Provident Investment Co., Ltd., Bombay

s. 12B

s. 66(1)

s. 12B

Income-tax Act

Maharaja Scindia

Gwalior

Sir Shapurji Broacha Mills Ltd.

Shapurji Broacha Company

Dharamsi Company

Shapurji Broacha .Company.

Dalmia Investment Company Limited

Dalmia Companyoffered

Dalmia Company

September 23, 1946

Provident lnvestment Co., Ltd.

S. K. Das

Provide t lnuestment Co., Ltd.

September 26, 1946

7, 1946

Tanubhai

Wadia

Sriyans Prasad Jain

Jaidayal Dalmia

Shanti Prasad Jain

Vishnu Hari Dalmia

Shapurji Broacha Mills Ltd.

October 19, 1946

s. 12B

Dalmia Co.

s. 12B

High Court of Bombay

s. 12B

s. 12B

31st day of March 1946

s. 12B

March

31. 1946

Indian Finance Act, 1949

March 31, 1956

s. 12B

s. 12B

s. 12B

s. 12B

Bombay High Court

Commiulonn

of lncomt--taJt,

Bomb41

Prouidttd lnwstment Co., Ltd.

S. K. Das

s. 12B

March 31, 1946

October 7, 1946

September .14, 1946

Dalmia_ Company

Commiuitmer

of Income-tax,

Bombay

s. 12B

F. N. ROY

S. R.- DAS

JAFER IMAM

s. K. DAS

GovrNDA MENON

A. K. SARKAR

Customs Act

ss. 167(8), 183

s. 3(1)

Constitution of India

Art. 14

Section 167

Sea Customs Act, 1878

s. 19

India

s. 183

s. 3(1)

Central Government

s. 19

Sea Customs Act, 1878


S.C.R.

SUPREME COURT REPORTS 1151

the facts and circumstances as stated in the agreed statement of the case.

We are of opinion that the answer was correctly given by the High Court of Bombay. The transaction in its true legal character was a relinquishment of the managing agency and was neither a sale nor a transfer thereof. Therefore, the High Court correctly answered the question in the negative.

In .the result, the appeal fails and is dismissed with costs.

Appeal dismissed.

F. N. ROY

'V.

COLLECTOR OF CUSTOMS, CALCUTT A.

(S. R.- DAS c. J., JAFER IMAM, s. K. DAS, GovrNDA MENON and A. K. SARKAR JJ.)

sea Customs-Import without licence-Confiscation of goods- Validity of Order-Discretion of Customs-authorities-Validity of Enactment-Sea Customs Act, 1878 (Vlll of 1878), ss. 167(8), 183- Imports and Exports (Control) Act .. 1947 (XVIII of 1947), s. 3(1) (2)-Constitution of India, Art. 14.

Section 167, item 8, of the Sea Customs Act, 1878, provides that if any goods the importation of which is for the time being prohibited or restricted by or under Ch. IV of the Act, which Chapter includes s. 19, be imported into India contrary to such prohibition or restriction, such goods shall be liable to confiscation and any person concerned in such importation shall be liable to a penalty not exceeding three times the value of the goods or not exceeding one thousand rupees.

By s. 183 of this Act . it is provided: "Whenever confiscation is authorised by this Act, the officer adjudging it shall give the owner of the goods an option to pay in lieu of confiscation such fines as the officer thinks fit". The Imports and Exports (Control) Act, 1947, by s. 3(1) empowers the Central Government by an order to make provision for prohibiting, restricting, or . otherwise controlling, the import, export, carriage coast-wise . or shipment as ships' stores of goods of any specified description.

Sub-section (2) of that section provides that all . goods to which any order under sub-s. ( 1) applies, shall be

deemed to be goods of which the import or export has been prohibited or restricted under s. 19 0£ the Sea Customs Act, 1878, and all the provisions of that Act shall have effect accordingly,

The Commissioner

of Income-tax,

Bombay v.

The Provident Investment Co., Ltd.

S. K, Das].

May 16.

F.N.Roy

Collector of Customs.

Calcutta

Sor/;,11r ].

except that s. 183 thereof shall have effect as if for the word 'shall' the word 'may' are substituted.

The petitioner imported certain goods the import of which had been prohibited by the Central Government under s. 3( I) of the Imports and Exports (Control) Act.

By an order oL the Collector of Customs, made under s. 167, item 8, of the Sea Custoins Act, these goods were confiscated and a penalty of Rs. 1,000, was imposed on the petitioner.

The petitioner challenged the validity of this order.

Held: (!) Section 3(2) of the Imports and Exports (Control) Act, 1947, docs not offend Art. 14 of the Constitution.

It does not by its own force give any discretion to the Customs-authorities at all, an<l its only effect is to apply the Sea Customs Act, 1878,

to' certain cases.

(2) Section 183 of the Sea Customs Act, 1878, does not authorise confiscation of goods.

It assun1es that a power to confiscate under other provisions of the Act exists.

It is not a statutory provision in two parts with regard to \Vhici': i.t may be

sai<l that one part offends Art. 14 while the other part does not.

1he section contains only one statutory provision.

(3) Section 167, item 8, of the Sea Customs Act, 1878, does not of1end Art. 14 of the Canstitution .

ORIGINAL JURISDICTION : Petition No. 438 of 1955.

Petition under Article 32 of the Constitution of India for enforcement of Fundamental Rights.

H. /. Umrigar and N. H. Hingorani, for the petitioner.

Porus A. Mehta, R. Ganapati Iyer and R. H. Dhebar, for the respondents.

1957. May 16. The Judgment of the Court was delivered by

SARKAR J.-By a notification dated March 16, 1953, the Government of India gave general permission to all persons to import into India from certain countries any guods of anv of the descriptions specified in the schedule annexed to the notification. Among the goods specified in the Schedule were the following :

Iron and steel chains of all sorts assessable under item 63(28) of the Indian Customs Tariff, excluding chains for automobiles and cycles whether cut to length or in rolls.

The petitioner is an importer of goods. He states that relying on the notification _mentioned above he placed an order with a company in Japan sometime in August, 1953, for the supply of certain goods called in the trade, Zip Chains. The goods arrived in the port of Calcutta in due course and the petitioner's bank paid the price of the goods amounting to Rs. 11,051-4-0.

Before the goods could be cleared from the port of Calcutta, the petitioner received a communication from the Assistant Collector of Customs for Appraisement, Calcutta, dated November 19, 1953, in which it was stated that it had been found that the petitioner did not possess valid import licence for the goods and requiring him to show cause why the goods should not be confiscated and action taken against the petitioner under s. 167, item 8, of the Sea Customs Act.

The communication also enquired if the petitioner wanted to be heard in person.

The petitioner submitted in answer a written explanation stating that the Zip Chains imported by him were chains of the kind free import of which had been permitted by the notification of March 16, 1953, and therefore no licence to import them was necessarv.

He was thereafter again asked by the Customs-authorities whether he wanted a personal hearing to which he replied that he did not.

Thereafter on December 25, 1953, the. Collector of Customs made an order confiscating the goods and imposing a penalty of Rs. 1,000 on the petitioner.

This order bore an endorsement that it had been despatched to the petitioner on February 1, 1954.

It reached him on February 3, 1954.

The order stated that an appeal would lie against it to the Central Board of Revenue, New Delhi, within three months from the date of its despatch as noted on it. The petitioner preferred an appeal and posted the memorandum of appeal on Mav 4,

1954. The memorandum reached the Central Board of Revenue on ~,, fay 6, 1954, and was dismissed on the ground that it .had been preferred after the expiry of the time limited for the purpose. The petitioner then made an application to the Government of India for revision of the order of the Central Board of Revenue but this application was

F.N. RoY

Collector of CwtomJ, Calcutta

Sarkar].

F.N. Ro7

Collector of Cu.·; toms, Calcutta

Sarkar],

rejected. The petitioner thereafter applied to the High Court of Punjab under Art. 226 of the Constitution for an appropriate writ to quash the order confiscating his goods and imposing the fine on him but this application too was dismissed.

The petitioner has now applied to this Court under Art. 32 of the Constitution challenging the validity of the order made against tiim.

Learned counsel for the petitioner did not challenge the decision of the Customs-authorities that the goods were not covered by the notification of March 16, 1953.

He conceded that he could not do so in this application. Nor did he challenge the Customs-authorities' power to confiscate the goods. Learned counsel however challenged the order of confiscation because it did not give tbe petitioner an option to pay a fine in lieu of confiscation.

This contention was based on s. 183 of the Sea Customs Act which provides as follows : Whenever confiscation is authorised by this Act, the officer adjudging it shall give the owner of the goods an option to pav in lieu of confiscation such fine as the officer thinks fit.

This section undoubtedly requires an option to pay a fine in lieu of confiscation, to be given and this was not done. A difficulty howe, cr is caused in the way of this argument by s. 3 of the Imports and Exports (Control) Act, 1947. The rebant portion of s. 3 is set out below:

3. ( 1) The Centro!

Government mav, by order published in the official Gazette, make provision for prohibiting. restricting or otherwise controlling, in all cases or in specified classes of cases. and subject ro such exceptions, if any, as may be made by or under the order,-

(a) the import, export, carriage coastwise or shipment as ship' stores of goods of any specified description ;

(b) ........ " .... " ....

(2) All goods to which any order under subsection (I) applies shall be deemed to be goods of which the import or export has been prohibited or. restricted under section 19 of the Sea Customs Act, 1878 (VIII

of 1878), and all the provisions of that Act shall have effect accordingly, except that section 183 thereof shall have effect as if for the word "shall" therein the word "may" were substituted.

It is admitted that the Imports and Exports (Control) Act applies to the goods with which we are concerned and in th, is case the action that was taken . was by virtue of this Act. That being so, s. 183 of the Sea Customs Act became applicable because of the Imports and Exports (Control) Act and it could hence be applied only as modified . by the latter Act. So applied the section did not make it obligatory on the Customsauthorities when ordering confiscation, to give an option to the o\vner to pay a fine in lieu of confiscation but gave them a discretion whether to do so or not.

The order of confiscation was not therefore bad even though it had not given the petitioner an option to pay a fine in lieu of confiscation. Learned Counsel for the

petitioer then contended that portion of s. 3(2) of the Act of 1947 which read "except that section 183 thereof shaU have effect as if for the word "shall" therein the word "may" were suhstituted'', left an uncontrolled discretion in the Customs-authorities to give or not to give an option to pay a fine in lieu of compensation and consequently offended Art. 14 of the Constitution. He therefore said that this portion of the section should be struck out of it. He said that after the offending portion was deleted from s. 3(2) of the Act . of 1947 it would require s. 183 of the Sea Customs Act to be applied without any modification at all . and therefore it would be obligatory on the Cu<toms-authorities when making an order of confiscation to gi\'.e an option to the petitioner to pay a fine in lieu of compensation e\en where the Act of 1947 applied.

Learned counsel said that as this had not been done, the order of confiscation made in this case was bad.

This argument is based on the contention that a portion of s. 3(2) of the Act of 1947 offends Art. 14 and has therefore to be deleted.

This contemion is wrong.

Bv its own force . no part of s. 3(2) purports to give any discretion to the Custom:r-authorities at all.

There ·

F.N. Roy

Collector of Customs, (!akuJI r

Sarkar J . ..

F. }f. Ro, J

Collector of Customs, Calcutta

Sarkar J.

is nothing in it therefore to offend Art. 14. The only effect of s. 3(2) is to apply the Sea Customs Act to certain cases.

It is impossible to say that a statute-~ which only makes another statute applicable to certain cases, offends Art.

14. Such a statute has obviously nothing to do with Art. 14. It is true that s. 3(2) of the Act of 1947 makes s. 183 of the Sea Customs Act applicable with a modification. It was said that s. 183 so modified offends Art. 14.

Assume that s. 183 as modified infringes Art. 14. What then?

Clearly on this assumption s. 183 as modified becomes ultra vires and illegal and it goes out of the statute book.

But that does not affect the question before us at all. It does not make the order of confiscation without an L option to pay a fine in lieu thereof bad. The confisca- T tion is not made under s.

183. It is made under another section of the Sea Customs Act, namely, s. 167, item 8, which so far as is relevant is in these terms :

167. The offences mentioned in the first column. of the following schedule shall be punishable to the extent mentioned in the third column of the same with reference to such offences respectively :

Offences Sections of the Act to which offence has reference Penalties

8. If any good~, the importation or exportation of which is for the time being prohibited or restrictd by vr under Chapter IV of this Act, be imported into or exported from India contrary to such prohrbition or restriction.

18 & 19 Such goods shall be liable to confiscation;;---. and any person con.{ cerned in anv such offence shall be lia11le to a penaltynotexce-ed .. ing thre t mes the _value of the goods, or not execeding one thousand rupees.

Chapter IV of the Sea Customs Act contains s. 19.

It has to be remembered that s. 3(2) of the Act of 1947 states that all goods to which any order under sub-s. (1) applies shall be deemed to be goods of which the import has been prohibited under s. 19 of the Sea Customs Act. Admittedly sub-s. ( 1) of s. 3 of the Act of 1947 applies to the goods with which this case is concerned.

Under s. 3(2) of the Act of 1947 the import

.. _}

of these goods is to be deemed to have been prohibited under s. 19 of the Sea Customs Act. It follows that action under s. 167, item 8, of the Sea Customs Act can be taken in respect of these goods and they can be confiscated and the person concerned in the illegal import made liable to a penalty. Resort to s. 183 of the Sea Customs Act is not necessary to justify the order of confiscation made in this case at all. Indeed s. 183 does not authorise confiscation. It assumes a confisc:ition authorised by other provisions of the Sea Customs Act and provides that on a confiscation being adjudged, an option to pay a tine in lieu of it shall be given. It cannot therefore be said, even on the assumption that learned counsel was right in his contention that s. 183 as modified offends Art. 14 that the order of confiscation is bad.

As to whether the contention of learned counsel is right or not we decide nothing as it is not necessary to do so.

It was then contended that the effect of Art. 14 of the Constitution on s. 183 of the Sea Customs Act, as rnoLlifie<l by the Act of 1947, was not to make the entire s. 183 i!legal but to invalidate the amendment in it as it was this amendment alone which offended Art. 14. so that s. 183 as' it stands in the Sea Customs Act had to be applied to this case and therefore again it was obligatory on the Customs-authorities to give an option to the petitioner to pay a fine in lieu of

confmation. To accept this argument we would have

to say that s. 3(2) of the Act of 1947 itself offends Art. 14, and it cannot modifv s. 183 of the Sea Customs Act as it purports to do.

Vole are unable to say this.

In order to say that a statutory provision offends Art. 14, we have to examine that provision. \Ve have here two statutory provisions. One is s. 3(2) of the Act of 1947 and that does not offend Art. 14.

The reasons for this view we have stated earlier. The other is s. 183 of the Sea Customs Act as modified by the Act of 1947. As so modified we have for the present purpose assumed that it offends Art. 14. If it docs it goes out as a whole. It is not really a statutory provision in two parts with regard to which it might have been possible to say that one part offends Art. 14

F. N. Ro7

Collector of Cwtoms, Calcutta

Sarkar].

F. N. Hoy

Collector of Customs, Calcutta

while the otl)er part. does not. Section 183 with or without the modification really contains one statutory provision and therefore it must go out of the statute book as a whole or not at all. This contention on behalf of the petitioner must therefore fail.

Learned counsel said that s. 183 was bad also for the reason that it left it to the uncontrolled discretion of the Customs-authorities to decide the quantum of the fine to be imposed in lieu of confiscation. On the facts of this case, it is an academic argument. Even if it was right the entire s. 183 would have to be ignored but that would not have the effect of making the order of confiscation passed in this case invalid. All that the petitioner is concerned with is to show that the order of confiscation was bad.

The present argument does not touch that point and therefore it is not necessary to consider it at all. Another similar argument was that s. 167, item 8, of the Sea Customs Act itself offended Art. 14 in that it left to . the uncontrolled discretion of the Customs-authorities to decide the amount of the penalty to he imposed. The section makes it clear that the maximum penalty that might be imposed under it is Rs. 1,000. The discretion that the section gives must be exercised within the limit so fixed.

This is not an uncontrolled or unreasonable discretion.

Furthermore, the discretion is vested in high Customs officers and there are appeals from their order.

The imposition of the fine is really a quasijuclicial act and the test of the quantum of it is in the gravity of the offence. The object of the Act is to prevent unauthorised importation of goods and the discretion has to be exercised with that object in view.

Learned counsel then contended that the order of confiscation hac! been made ma/a fide.

It was said that it had been pa<Sed ex parte. This is not correct for the petitioner had been asked before the order was made whether he wanted a personal hearing and he had stated in reply that he did not and had ample confidence in the authorities. It is not therefore open to the petitioner to contend that he had no opportunity of being heard before the order against him was

passed. He had been given an opportUnity and had not availed himself of it. It was also stated that in deciding not to give the petitioner an option to pay a fine in lieu of confiscation the Customs-authority had gone into certain other transactions without giving any notice to the petitioner that this would be done.

It., was said that the petitioner was not given an opportunity of being heard in respect of these transactions.

The notice which the Customs-authorities gave to the petitioner to show cause 'why the goods should not be confiscated also informed him necessarily that an order for confiscation might be made without an option to pay a fine in lieu of confiscation being given and therefore it was his fault if he did not appear at the hearing and showed cause why the order of confiscation should not be absolute but should give

him an option to pay a fine. It was also said tint he had been deprived of the option because of the differences that existed between him and the Public Relations Officer. of the Customs Department in Calcutta. This point of view was sought to be supported by citing the cases of two other persons who had imported similar goods at or about the same time, and who had been given the option.

The facts of these other cases were however substantially different.

There was nothing to show in these that goods had been imported in deliberate violation of the order of the Government while in the case of the petitioner there are materials on which such a view could he formed. It appe:irs th:it the petitioner as the Manager oi a firm called Federal Clearing Agency had received a communication from the Customs-authorities on July 30, 1953, th:it Zip Chains were not covered by the notification of March 16, 1953, and within a fortnight of that communication he had placed the orders for identical goods which he now claims to be within the notification. It was not unreasonable for the Customsauthorities to think that the petitioner had deliberately imported the goods in breach of the order . of the Government and without specific licence for that purpose, and on that ground to think it proper not to give him the option.

This would be so even if it was

F. N. Ruy

....

Collector of Customs, Calcutta

Sarkar j.

F. N. Ro:J

Collector of Cwtoms, Calcutta

Sarkar J.

assumed that in the dispute with the Public Relations Officer the petitioner was in the right.

. It was then stated that the petitioner had not been given personal hearing of the appeal that he preferred to the Central Board of Revenue and the application in revision to the Government. But there is no rule of natural justice that at every stage a person is entitled to a personal hearing.

Furthermore, the appeal was out of time. The memorandum of appeal to the Central Board of Revenue was posted on May 4, 1954. The time to file the appeal, however, expired on May 1, 1954, so that even if the ate of the posting is taken as the date of the appeal the petitioner was out of time.

The petitioner states that he received the order of confiscation on February 3, 1954. Even so, on May 4, 1954, he would not be within time. The memorandum of appeal however was received by the Central Board of Revenue on May 6, 1954. That must be taken to be the date when the appeal •.vas filed, and that being so the appeal must be taken to have been filed clearly out of time.

The petitioner stated that the Customsauthorities wrongfully and rnaliciously procured his arrest on May I, 1954, and he obtained his release on May 2, 1954. It was suggested that this arrest was procured in order to prevent him from filing his appeal in time. This contention is entirely idle. Admittedly, the petitioner had time from February 3, 1954, till May I, 1954, to file his appeal but he did not take advantage of this long period. He waited till the end for filing the appeal. There is nothing to show that the arrest was wrongful or that at the date of the arrest the Customs-authorities had any knowledge that the petitioner had not filed his appeal. The contentions that the order complained of was mala fide or that the appeal had not been filed out of time are entirely untenable.

The result is that this application fails and it 1s dismissed with costs.

Petition dismissed.

High Court of Bombay

F. N. ROY

COLLECTOR OF CUSTOMS, CALCUTT

S. R.- DAS

JAFER IMAM

GovrNDA MENON

A. K. SARKAR JJ.

Customs Act

ss. 167(8), 183

s. 3(1)

Constitution of India

Art. 14

Section 167

Sea Customs Act, 1878

s. 19

India

s. 183

s. 3(1)

Central Government

s. 19

Sea Customs Act, 1878

F.N.Roy

s. 183

s. 3( I)

s. 167

Section 3(2)

Art. 14

Sea Customs Act, 1878

Section 183

Sea Customs Act, 1878

Art. 14

Section 167

Sea Customs Act, 1878

Art. 14

Article 32

Constitution of India

H. /. Umrigar

N. H. Hingorani

Porus A. Mehta

R. Ganapati Iyer

R. H. Dhebar

SARKAR

Government of India

Japan

Calcutta

November 19, 1953

s. 167

Customs Act

March 16, 1953

December 25, 1953

February 1, 1954

February 3, 1954

Central Board of Revenue, New Delhi

High Court of Punjab

Art. 226

Art. 32

s. 183

Customs Act

s. 3

s. 3

Centro

section 19

Sea Customs Act, 1878

section 183

s. 183

Customs Act

s. 3(2)

section 183

Art. 14

s. 3(2)

s. 183

Customs Act

s. 3(2)

Art. 14

s. 3(2)

F.N. Roy

Sarkar

F. }f. Ro

Art. 14

s. 3(2)

Customs Act

Art.

14

Art. 14

s. 3(2)

s. 183

Customs Act

s. 183

Art. 14

s. 183

Art. 14

s. 183

s.

183

Customs Act

s. 167

Offences Sections of the Act

Chapter IV of this Act

Chapter IV of the Sea Customs Act

s. 19

s. 3(2)

s. 19

Customs Act

s. 3

s. 3(2)

s. 19

Customs Act

s. 167

Customs Act

s. 183

Customs Act

s. 183

Customs Act

s. 183

Art. 14

Art. 14

s. 183

Customs Act

s. 183

Art. 14

s. 183

Customs Act

s. 3(2)

Art. 14

s. 183

Customs Act

Art. 14

s. 3(2)

Art. 14

s. 183

Customs Act

Art. 14

Art. 14

F. N. Hoy

Section 183

s. 183

s. 183

s. 167

Customs Act

Art. 14

Federal Clearing Agency

July 30, 1953

F. N. Ruy

F. N. Ro

Central Board of Revenue

May 1, 1954

May 4, 1954

May 6, 1954

May 2, 1954

May I, 1954


• '

S.C.R.

SUPREME COURT REPORTS 1161

THE COMMISSIONER OF INCOME-TAX v.

THE PATIALA CEMENT CO. LTD.

[BHAGWATI, S. K. DAs and J .. L. KAPUR JJ.l

Income Tax~Patiala State Income-tax Law-Income-tax Officer's Orders-A ppealability-Assessmcnt years 1948-49 and 1949-50-Applicability of Indian Income-tax Act to Part R States- Patiala Income-tax Act, 2001 (VIII of 2001), s. 18(3A)(7)-Finance Act, 1950 (XXV of 1950), s. 13--lndian Income-tax Act, 1922 (XI of 1922), s. 2(14A).

The respondent was a company incorporated in the former Patiala State with its registered office in the territory of Pepsu, a Part B State.· For the assessment years 1948-49 and 1949-50 in respect of the amounts of income-tax and super-tax which it failed to deduct from out of the remuneration paid to its managing agents, the Income-tax Officer took action under the provisions of s. 18 of the Patiala Income-tax Act. The Act did not provide for an appeal against the orders of the Income-tax Oflicer under that section and the question for determination was whether an appeal lay under the provisions of the Indian Income-tax Act, 1922, which was extended to all Part 13 States with effect from April 1,

1950, by s. 13 of the Finance Act, 1950, and s. 2(14A) of the Indian Income-tax Act, 1922 :

Held, that the result of the extension of the Indian Incometax Act, 1922, to Part B States was that that Act was applicable to the assessment years 1950-51 and subsequent years and that for the assessment years 1948-49 and 1949-50 the law applicable was the Patiala Income-tax Act.

Accordingly, an appeal against the order of the Income-tax Officer in question was nt competent.

The Union of India v. Madan G.opal Kabra, (1954) S.C.R. 541 and D. R. Madhavakrishnaiah v. The Income Tax Officer, (1954) S.C.R. 537, followed.

CIVIL

APPELLATE No. 118 of 1955.

JURISDICTION : Civil Appeal

Appeal from the judgment and order dated May 26, 1954, of the P.E.P.S.U. High Court in Misc.

Case No. 31 of 1953.

G. N. f oshi and R. H. Dhebar, for the appellant.

The respondent did not appear.

1957. 'May 17. The Judgment of the Court was .,. delivered qy

B-81 S. c, India/.'iq

May 17

The Commissioner

of Income-lax

The Paliala

KAPUR, J .-This is an appeal under certificate of the Pepsu High Court and the question for decision relates to the applicability of the Indian Incometax Act, 1922, to the erstwhile Pepsu area in the years of assessment 1948-49 and 1949-50.

CemenJ Co. Ud.

The assessee company (the respondent before us), was incorporated in the Patiala State and had its regis- Kapu, J. tered office at Surajpur in Pepsu. For the year of assessment 1948-49 the company failed to deduct from out of the. remuneration paid to its managing agents, who were non-residents, the incometax and the supertax which, it, under the law, was required to do. It also paid to its auditors auditing fees and from out of this sum also it did not deduct the income-tax and super-tax under the provisions of the Patiala Incometax Act. The two sums in dispute were Rs. 59,787-1-0 and Rs. 581-4-0 respectively. For the assessment year

1949-50 also the assessee company failed to make the deduction from the remuneration paid to its managing agents and the income-tax deductible was Rs. 52,484-14-0 and super-tax Rs. 21,611-6-0.

The Income-tax Officer took action against the assessee company under ss. \8(3A) and 18(7) of the Patiala Income-tax Act and consequently issued two demand notices for the amounts above mentioned.

Against this order of the Income-tax Officer the assessee company took an appeal to the appellate Assistant Commissioner who reduced the amount demanded but did not decide the question whether the assessee company was bound to make the deductions or not. The assessee company then appealed to the Income-tax Appellate Tribunal and it held that under s. 18(7) of the Patiala Incometax- Act no order was required to be passed by the Income-tax Officer and that po appeal lay to the Appellate Assistant Commissioner against the order under s. 18(3A) as there was no provisio!l for it under the Patiala Income-tax Act.

Before the Tribunal it was contended that at the time when the appeals were decided by the Appellate Assistant Commissioner, the Patiala Income-tax Act had ceased to be in force and therefore the appeals were sustainable under the provisions of the Indian Income-tax Act which had been

extended to all Part B States by s. 13 of the Indian Finance Act of 1950 (XXV of 1950) but this contention was repelled and the Tribunal held that the only remedy for the assessee company was to take a revision under s. 33 of the Patiala Income-tax Act to the Commissioner. The Tribunal at the request of the assessee company referred the following three questions for the opinion of the High Court :

 ( 1) Whet.her the appeals before the Appellate Assistant Commissioner fell to be decided in accordance with the provisions of the Patiala Income-tax Act or the Indian Income-tax Act ?

(2) Whether the appeals before the Appellate Tribunal fell to be decided in accordance with the pro- . visions of the Patiala Income-tax Act or the Indian Income-tax Act ?

{3) Whether, on the assumption that the assessee company was not bound to deduct tax, its appeals before the Appellate Assistant Commissioner were competent in law ?

The High Court decided that in regard to the assessment year 1948-49, the law applicable was the Patiala Income-tax Act and therefore no appeal lay to the Appellate Assistant Commissioner but in regard to the assessment year 1949-50 the Indian law becarhe applicable and therefore the order of the Income-tax Officer was appealable. The Revenue have come up in appeal under a certificate of the High Court and the submission is that to the assessment year 1949-50 also the Patiala Income-tax Act applied and not the Indian Income-tax Act and therefore the order of the Incometax Officer was not appealable.

In order to resolve the controversy, reference may be made to certain provisions of the Indian Incometax Act, 1922, and the Finance Act of 1950. Section

13 of the Finance Act provides :

S. 13 "If immediately before the 1st day of April, 1950, there is in force in any Part B State other than Jammu and Kashmir or in Manipura, Tripura or Vindya Pradesh or in the merged territory of Cooch Behar any law relating to income tax or super tax or tax on profits of business, that law shall cease to have effect except

Tht Commissioner

of Income-tax

y, ThePatiala Cement Co. Ltd,

Kapur].

The Commissioflff

of lrn:rmu-tax

TMPatiala

Cement Co. Ltd.

Kapur J.

for the purpose of the levy, assessment and collection of income-tax and super tax in respect of any period not included in the previous year for the purpose of assessment under the Indian Income-tax Act, 1922, for the year ending on the 31st day of March, 1951, or for any subsequent year or, as the case may be, the levy, assessment and collection of tax on profits of business for any chargeable accounting period ending on or before the 31st day of March, 1949;" Section 13 of the Finance Act of 1950 shows that the Indian Income-tax Act became applicable to the assessees residing in any Part B State as from the assessc ment years 1950-51 or the accounting year 1949-50.

The provisions of s. 2(14A) of the Indian Income-tax Act, 1922, show that the Act became applicable to Part B States as from April 1, 1950.

The relevant provisions of this section are ;

S. 2(14A) "taxable territories" means-

( d) as respects any period after the 31st day of March, 1950, and before the 13th day of April, 1950,

the territory of India excluding .the State of Jammu and Kashmir and the Patiala and East Punjab States Union.

Provided that the "taxable territories" shall be deemed to include-

(b) the whole of the territory of India excluding the State of Jammu and Kashmir-

(i) ........................... .

(ii) as respects any period after the 31st dav of March, 1950, for any of the purposes of this Act and

(iii) as respects any period included in the previous year for the purpose of making any assessment of the year ending on the 31st day of March, 1951, or for any subsequent year;" It will be noticed that the language used in s. 2(14A) proviso (b) (iii) is the same as the language under s. 13 of the Finance Act of 1950. The effect of the Finance Act of 1950 is that as regards assessment for the year ending March 31, 1951, the Indian Income-tax Act

' .

would be applicable-accounting year being the year ending March 31, 1950, and for any assessment year previous to that the Patiala Income-tax Act would be applicable. The effect of s. 2(14A) proviso (b) (ii) &

(iii) is that taxable territories would comprise the whole of India excluding the State of Jammu and Kashmir as respects any period included in the previous year for the purpose of making an assessment for the year ending March 31, 1951, i.e., for the assessment year 1950-51 or the accounting year 1949-50.

The application of the Indian Income-tax Act as a result of s. 13 of the Finance Act of 1950 was decided in The Union of India v. Madan Gopal Kabra ( 1 ) which was a case from Rajasthan where there was no incometax in the previous year but the assessee was sought to be assessed for the year 1950-51 under the Indian Income-tax Act.

It was held that under sub-cl. (i) of cl. (b) of the proviso to s. 2(14A) the whole of the territory of India including Rajasthan would be deemed "'taxable territory" for the purpose of s. 4A of the Indian Income-tax Act "as respects any period" meaning any period before or after March 31, 1950, and the assessee was therefore liable to income-tax.

Patanjali Sastri, C.J., who delivered the judgment of the court said :

"A close reading of that provision will show that it saves the operation of the State law only in respect of 1948-49 or any earlier period which is the period not included in the previous year (1949-50) for the purposes of assessment for the year 1950-51.

In other words, there remained no State law of income-tax in operation, in any Part B State in the year 1949-50." This passage from the judgment supports the contention of the appellant that as regards income of the accounting year 1949-50 or the year of assessment 1950-51 no State law of income-tax was operative in any Part B State. It appears that the error which has crept in the judgment of the High Court has been due to misreading the year 1949-50 as being assessment year .and not accounting year. In another case D. R. Madhavakrishnaiah v. The Income Tax Officer( 2 )

(1) [1954] S. C.R. 541, 552.

(2) [1954] S.C.R. 537

T!ld Commism""'

of Income-tu ,,,,

Tiu Patiala Cement Co. Ltd.

Kapur].

The Commissioner

of I nco~tax

....

ThePatiala Cement Co. Ltd.

Kapur].

s. 13 of the Finance Act of 1950 was similarly interpreted. Therefore both for the assessment years 1948-49 and 1949-50 the law applicable would be the Patiala Income-tax law and not the Indian Income-tax Act and consequently no appeal against the order of the Income-tax Officer was competent.

The answers to the questions would be as follows:- Questions Nos. 1 & 2 : The Patiala Income-tax Act was in operation and no appeals lay.

Question No. 3 : In the negative.

The appeal is, therefore, allowed but as the respondent company has not appeared and contested the appeal, there will be no order as to costs, in this court. ·

Appeal allowed.

THE COMMISSIONER OF INCOME-TAX

THE PATIALA CEMENT CO. LTD

BHAGWATI

S. K. DAs

L. KAPUR JJ

s. 18(3A)(7)

Finance Act, 1950

s. 13

Income-tax Act, 1922

s. 2(14A)

Pepsu

s. 18

Income-tax Act

Income-tax Act

April 1,

1950

s. 13

Finance Act, 1950

s. 2(14A)

Indian Income-tax Act, 1922

Indian Incometax Act, 1922

Part B States was that that Act

Income-tax Act

G. N. f oshi

R. H. Dhebar

Income-tax Act

s. 18(7)

s. 18(3A)

Income-tax Act

Income-tax Act

Income-tax Act

s. 13

s. 33

Income-tax Act

Income-tax Act

Income-tax Act

Income-tax Act

Income-tax Act

Income-tax Act

Income-tax Act

Income-tax Act

Indian Incometax Act, 1922

Section

13

S. 13

1st day of April, 1950

Jammu and Kashmir

Manipura

Tripura

Vindya Pradesh

Indian Income-tax Act, 1922

31st day of March, 1949

Section 13

Income-tax Act

s. 2(14A)

Indian Income-tax Act, 1922

S. 2(14A)

State of Jammu and Kashmir

s. 2(14A)

s. 13

Income-tax Act

Income-tax Act

s. 2(14A)

India

March 31, 1951

Income-tax Act

s. 13

Rajasthan

Income-tax Act

s. 2(14A)

s. 4A

Income-tax Act

Patanjali Sastri

T!ld Commism

s. 13

Income-tax Act

Income-tax Act


S.C, R.

SUPREME COURT REPORTS

1J3

rejoinder, we presume that such facilities will continue to be afforded to them in the future and the inconvcmence and harassment which would otherwise be caused to them will be avoided. A humane and considerate administration of the relevant provisions of the Income-tax Act would go a long way in allaying the apprehensions of the assessees and if that is done in the true spirit, no assessee will be in a position to charge the Revenue with administering the provisions of the Act with "an evil eye and unequal hand".·

We have, therefore, come to the conclusion that there is no . substance in these petitions and. they should be dismissed with costs. There will be, however, one set of costs between respondents in each of the . petitions . and one set of costs in each group of these petitions, viz., (1) Petitions Nos. 97 & 97-A of 1956,

(2) Petitions Nos. 44/56 and 85/56, (3) Petitions Nos. 86/56, 87 /56, 88/56, 111/56, 112/56 and 158/56,

(4) Petitions Nos. 211 to 215 of 1956, and (5) Petitions Nos. 225 to 229 of 1956.

Petitions dismissed.

RATAN RAI

ti,

ST ATE OF BIHAR

[BHAGWATI, B. P. SINHA and J. K. KAPUR JJ.]

Reference-fury trial-fudge disagreeing with the verdict- Procedure-Duty of counsel-High Cou1t-lf can accept majority verdict without considering the entire evidence-Supreme Courtlf should adopt the procedure-Cude of Criminal Procedure (Act V of 1898), as amedt:d by Act XXVI of 1955, s. 307. ·

The appellal'lts were charged under ss. 435 and 436 of the Indian Penal Code and were tried by a jury, who returned a

ajority erdict ?f guil.ty.

The Assistant Sessions Judge disagreed with the said verdict and made a reference to the. High Court.

At the hearing of the reference the counsel for the appellants only contended that the charge to the jury was defective, and did not place the entire evidence before the Judges, - who only considered the objections urged, and nothing more, and held the

Pa•Mlal Bitifraj

Unum of l•di<>

Blragwali].

January 3(}.

Rotan Rai

v.

Stak -0/ Bihar

reference to be incompetent and found the appellants guilty . and convicted them. ·

Held, that in a reference under s. 307 of the Code of Criminal Procedure it \Vas the duty of counsel to place, and -it was incumbent on the High Court to consider, the entire evidence and the charge as framed and placed before the jury and to come to its own conclusion, after giving due weight to the opiniOn of the trial Judge andthe ve_rdict of the jury,- nd to acquit or convict the accused of the offences of which the jury could have conYicted or acquitted him.

It_ was wrong of the High Court to pass

judgent without cosidering the entire evidence.

It is not proper for the Supreme Court to adopt the procedure of considering the entire evidence and come to a conclusion which according to the provisions Of s. 307(3) of the Code of Criminal Procedure the High Court should have done.

Akhlakali Hayatalli v. The State of Bombay, (1954) S.C.R. 435 and Ramanugrah Singh v. The Emperor, A.l.R. 1946

P.C. 151, referred to.

CRIMINAL

APPELLATE

JURISDICTION ·: Criminal Appeal No. 104 of 1955.

Appeal by special leave . from the judgment and order dated September 9, 1953, of the Patna High Court in Jury Reference No. 1 of 1952 arising out of the Reference made on February 16, 1952, by the Assistant Sessions Judge, 2nd Court, Chapra, in connection with Sessions Trial No. 81 of 1951.

s: P. Verma, for the appellants Nos. 2 and 3.

B. K. Saran and R. C. Prasad, for the respondent.

1957. January 30. The Judgment of the Court was delivered by

BHAGWATI J.-The appellants Nos. 2 . and 3, who are the surviving appellants after the deat)i of appellant No. 1 during the pendency of this appeal, were charged with having committed offences. under ss. 435 and 436 -0£ the Indian Penal Code and were tried by the Second Assistant Sessions Judge of Saran, Chapra, with the aid of a jury. The jury returned a majority verdict that both of them were guilty of the offences under those sections. The Assistant Sessions Judge disagreed with the said verdict and made a zeference to the High Court of Judicature at Patna

under s. 307 of the Code of Criminal Procedure. The said reference was heard by a Division Bench of that High Court. The learned judges of the High Court overruled the contentions which were urged before them in regard to the charge to the jury being defective and further held that the reference was, in the circumstances, not competent. They, however, without anything more accepted the majority verdict and held the appellants guilty of the offences under ss. 435 and 436 of the Indian Penal Code and sentenced them to six months' rigorous imprisonment each. The appeltants obtained from this Court special leave to appeal under Art. 136 of the Constitution and hence this appeal.

The facts leading up to this appeal may be shortly stated as follows :-There was a dispute between the parties as to title to plot No. llOO of village Rampur, Tel}grahi. One Kailash Rai claimed to be the owner of that plot and also claimed to be in possession of a Palani standing in a portion of that plot as also of a

Punjaul, i.e., a haystack in its vicinity. There had been proceedings under s. 144 of the Code of Criminal Procedure in regard to this area leading up to a title suit being T.S. No. 58/8 of 1948/50 filed by Kailash Rai against the appellants in regard to the same. A decree had been passed on December 16, 1950, in that title suit dismissing the claim of Kailash Rai. An appeal had been filed by Kailash Rai against that decree and that appeal was pending at the date of the occurrence.

On March 4, 1951, Kailash Rai was sitting in the Palani and at about 3 to 4 p.m. a mob consisting of about 100 to 125 persons including the appellants all armed with lathis, bhallas and pharsas came to the Palani and began to demolish. the same.

Kailash Rai remonstrated and the deceased appellant No. 1 ordered that the Palani should be set on fire.

The appellant No. 2 thereupon set fire to the Palani with a match stick and the appellant No. 3 set fire to the Punjaul. The first information report of this occurrence was lodged at Gopalganj Police Station at 8 p.m. the same night. The officer in charge of Gopalganj Police Station investigated the case and

19sr

Rotan Rai v.

State of Bihar

Bhagwati J.

i9S7

Rolan Roi

v. $iott •f iluw

Bhagwati].

challaned the appellants charging them with having committed offences under ss. 435 and 436 of the Indian Penal Code.

The Committing Court found a prima facie case made out against the appellants and sent them up for trial by the Assistant Sessions Judge, Second Court, Chapra, who tried them by a jury. The jury returned a majoritv verdict of guilty against the appellants.

The Assistant Sessions Judge, however, disagreed with that verdict and made a reference to the High Court stating in the letter of reference that on the evidence recorded before him the appellants had been in possession of the Palani and the Punjaul but were dispossessed of the same some time prior to the passing of the decree in the title suit on December 16, 1950, and were therefore justified in taking steps for recovery of possession thereof from Kailash Rai on March 4, 1951, and if in that process the appellants set fire to the Palani and the Punjaul they were only destroying their own property and were not guilty of the offence of committing mischief by fire as alleged by the prosecution.

The Assistant Sessions Judge tried to analyse the working of the minds of the jury in arriving at the verdict which they did and though he agreed with the alleged finding of fact reached by the jury in regard to the possession of the Palani and the Punjaul, disagreed with the law as allegedly applied by the jury and therefore disagreed with the majority verdict.

When the reference was heard before the High Court, the counsel for the appellants only contended that the charge addressed by the Assistant Sessions Judge to the jury was defective and he did not invite the High Court, as he should have done, to consider the entire evidence and to acquit or convict the appellants of the offences of which the jury could have convicted them upon the charges framed and placed before it, after giving due weight to the opinions of the learned Sessions , Judge and the jury as required by s. 307(3) of the. Code of Criminal Procedure. The High Court, therefore, only considered the obiections which had been urged by the learned counsel for the appellants . before it in regard to the charge being defective and

overruled them, accepted the majority venlict, convicted the appellants and sentenced them as abm e.

We are of opinion that in so doing the High Court was clearly in error and acted in violation of the provisions of s. 307(3) of the Code of Criminal Procedure.

Section 307(3) provides:-

"In dealing with the case so submitted the High Court may exercise any of the powers which it may exercise on an appeal, and subject thereto it shall, after considering the entire evidence and after giving due weight to the opinions of the Sessions Judge and tlie jury, acquit or convict such accused of any offence of

wiuch the jury could have convicted him upon th~ charge framed and placed before it; and, if it convics him, may pass such sentence as might have bern passed by the Court of Sessions."

We had occasion to consider this prov!S!on in Akhlakali Hayatalli v. The State of Br>mbay (1 ) where we approved of the following observations of their Lordships of the Privy Council in Ramanugrah Singh v. The Emperor ( 2 ):

. "The powers of the High Court in dealing with the reference are contained in sub-section (3). It may exercise any of the powers which it might exercise upon an appeal, and this includes the power to call fresh evidence conferred by s. 428. The Court must consider the whole case and give due weight to the opinions of the Sessions Judge and jury, and then acquit or convict the accused. In their Lordships' view, the paramount consideration in the High Court must be whether the ends of justice require that the verdict of the jury should be set aside. In general, if the evidence is such that it can properly support a verdict either of guilty, or not guilty, according to the view taken of it by the trial Court, and if the jury take one view of• the evidence and the judge thinks that they should have taken the other, the view of the jury must prevail, since they are the judges of fact.

In such a case a reference is not justified, and it is onlv by accepting their view that the High Court can give <lue weight to the opinion of the jury. If, however.

(1) f1954] S.C.R. 435, 442.

(2) A.I.R. 1946 P.C. 151, 154.

Rolan Rai

Stal1 of Bihar

Bhagwali ].

Ralan Rai v.

Slate of Bikar

BhagwatiJ.

the High Court considers that upon the evidence no reasonable body of men could have reached the conclusion arrived at by the jury, then the reference was justified and the ends of justice required that the verdict be disregarded."

This was pronounced by us to be the correct method of approach in a reference under s. 307 of the Code of Criminal Procedure. It was incumbent on the High Court when the reference was heard by it to consider the entire evidence and come to its own conclusion whether the evidence was such that it could properly supJl9rt the verdict of guilty against the appellants.

If the High Court came to the conclusion that the evidence was such that it was possible for the jury to take the view that it did even though the judge _ thought that they should have taken another view the reference would not have been justified and the High Court should have accepted the opinion of the jury.

If the High Court was however of opinion upon the evidence that no reasonable body of men could have reached the_ conclusion arrived at by the jury the reference would have been quite justified and the ends of justice required that the verdict should be disregarded.

The High Court, however, only considered the arguments in regard to the defect in the charge to the jury addressed before it by the learned counsel for the appellants and did not consider the entire evidence which was on the record before it. In not having done so, we are clearly of opinion that it violated the provisions of s. 307(3) of the Code of Criminal Procedure.

We are accordingly of opinion that the judgment of the High Court accepting the majority verdict and convicting the appellants and sentencing them as above without considering the entire evidence was clearly wrong and the conviction of the appellants and the sentences passed upon them should be set aside.

We. •were invited by learned counsel for the parties appearing before us to consider the entire evidence for ourselves and come to the conclusion which, according to the provisions of s. 307(3) of the Code of Criminal Procedure, the High Court should have done. We do

not think that that is the proper procedure to adopt and we therefore allow the appeal, and remand this matter to the High Court to act in accord.ance with the provisions of s. 307(3) of the Code of Criminal Procedure and deal with the same in accordance with law. The appellants will continue on the same bail as before.

Appeal allowed.

THE STATE OF BIHAR

tJ.

RAM NARESH PANDEY

(With Connected Appeal)

[JAGANNADHADAS,

JAFER lMMAM and GovINDA

MENON JJ.]

c,.iminal latl'-Proseetttion-Application for withdrawal by Pubiic Prosecutor-Consent of Court-Ftmdio11 of the Court in giving such consent--Case t1iable by a Court of Session-Whether appiic111io11 for ll'ithdrawal does not lie in the committal stage- 'Tria/', 'judgment', Meaning of-Code of Criminal Procedure, 1898 (.let V of 1898), s. 494.

Hy s .. 494 of the Code of Criminal Procedure, 1898: "Any Public Prosecutor may; with the consent of the Court, in cases tried by jury before the return of the Ye1dict, and in other cases before the judgment i~ pronounced, withdraw from the prosecution o( any person either generally or in respect of any one or more of the offences for which he is tried ; and upon such withdrawal.-( a) if it is made before a charge has been framed, the accused shall be discharged in respect of such offence or offences ;

(h) if it is made after a charge h1s been framed. or when under this Code no charge is required, he shall be acquitted in respect of such offence or offences."

The prosecution of M. and others was bunched on the first information of the first respondent, and when the matter was pending before the Magistrate in the committal stage and before any evidence was actually taken, an application for the withdrawal of M. from the prosecution wa.s made by the Public Prosecutor under s. 494 of the Code of Criminal Procedure on the ground that "on the evidence aYailable it would not be just and expedient to proceed with the prosecution of M.'' The Magistrate was of the opinion tha~ there Was no reason to withhold the consent that was applied for and accordingly he discharged the accused. This order was upheld by the Sessions Judge, but on 4-100 S. C. lndia/59

1957 1-- Ratan Rai v.

State of Bihar

Bhagwatij.

January 31.

Income-tax Act

RATAN RAI

ST ATE OF BIHAR

BHAGWATI

B. P. SINHA

K. KAPUR JJ.

s. 307

ss. 435 and 436

Indian Penal Code

Pa•Mlal Bitifraj

Rotan Rai

s. 307

Code of Criminal Procedure

Supreme Court

s. 307(3)

Code of Criminal Procedure

Patna High Court

P. Verma

B. K. Saran

R. C. Prasad

ss. 435 and 436

Indian Penal Code

High Court of Judicature at Patna

s. 307

Code of Criminal Procedure

ss. 435 and 436

Indian Penal Code

Art. 136

Rampur

Tel}grahi

Kailash Rai

s. 144

Code of Criminal Procedure

December 16, 1950

March 4, 1951

Gopalganj Police Station

Rolan Roi

iott

ss. 435 and 436

Indian Penal Code

Palani

s. 307(3)

Code of Criminal Procedure

s. 307(3)

Code of Criminal Procedure

Section 307(3)

s. 428

Rolan Rai

Ralan Rai

Slate of Bikar

BhagwatiJ.

s. 307

Code of Criminal Procedure

s. 307(3)

Code of Criminal Procedure

s. 307(3)

Code of Criminal Procedure

s. 307(3)

Code of Criminal Procedure

STATE OF BIHAR

RAM NARESH PANDEY

JAGANNADHADAS

JAFER lMMAM

GovINDA

MENON

Code of Criminal Procedure, 1898

s. 494

Code of Criminal Procedure, 1898

M.

s. 494

Code of Criminal Procedure