\ t

3 S.C.R. SUPREME COURT REPORTS 857

decision is well founded. The propositions in question r96o treated an alienation made for the payment of the Luhar Amritlal father:'s antecedent debt on the same footing as an Nagji alienation made in execution of a decree passed against v. him and in both cases the principle enunciated is that Doshi Jayantilal in order to succeed in their challenge the sons must Jealal prove the immoral character of the antecedent debtcajendragadkar J. and the knowledge of the alienee. Having regard to the broad language used in stating the two propositions, we do not think that a valid distinction could be made between a mortgage and a sale particularly after the decision of the Privy Council in the case of Brij Narain (1).

That is the view taken by the Nagpur High Court in Udmiram Koroodimal and Anr. v.

Balramdas Tularam & Ors. (2 ).

In the result the appeal fails, but in the circumstances of this case there will be no order as to costs.

Appeal dismissed.

THE VANGUARD FIRE AND GENERAL

INSURANCE CO. LTD., MADRAS

M/S. FRASER AND ROSS AND ANOTHER. (P. B. GAJENDRAGADKAR, K. N. W ANCHOO and K. c. DAS GUPTA, JJ.) Ins1Jrance-Company closing insurance business-Government's order directing investigation of company's affairs-Legality- " Insurer", meaning of-Insurer's liability after closing of business --Extent-" Liabilities not satisfied and not otherwise provided for" - General Clauses Act, I897 (IO of I897), s. I3-Insurance Act, I938 (4 of I938), SS. 2(9), 2D, 7, 9, 33

The appellant company had been carrying on various classes of insurance business other than life insurance after its incorporation in 1941, but in 1956 the shareholders of the company passed a resolution by which all its insurance business was to be closed.

Accordingly, on application made by the company to the Controller of Insurance, the certificate granted to it for carrying on insurance business was cancelled with effect from July l, 1957 In the meantime, complaints against the company were being received by the Government of India, who, thereupon, passed an order on July 17, 1957, under s. 33 of the Insurance Act, 1938, directing the Controller of Insurance to investigate the affairs of the company and to submit a report. The company challenged

(1) '1923) L.R. 51 I.A. 129. \2) I.L.R. [1955] Nag. 744

May 4.

Van guard Fire

& General Insurance Co. Ltd.

Fraser & Ross

the legality of the order on the grounds, ( r) that as all its insurance business had been closed the Central Government had no jurisdiction to pass an order under s. 33 of the Act, which only enables the investigation of the affairs of an insurer who, as defined in s. 2(9), is one who is actually carrying on the business of insurance, (2) that such an order could not be sustained under s. 2D of the Act as that section was applicable only to those cases where an insurer was carrying on different classes of insurance \\ business and had closed some of them but not all of them, (3) that even if such order could be passed under s. 33 read with s. 2D it could not be done in the present case as the company's liabilities did not remain unsatisfied or not otherwise provided for, and (4) that, in any case, the order in question was invalid because it did not show on the face of it that the Central Government was prima facie satisfied that the liabilities had remained unsatisfied or not otherwise provided for : Held, (r) that the word "insurer" in s. 33 of the Insurance Act, 1938, refers not only to a person who is actually carrying on . the business of insurance but also to one who has subsequently closed it.

(2) that in s. 2D of the Act an "insurer" means a person who was carrying on the business of insurance but has closed it.

(3) that the word " class " in s. 2D though used in the singular includes the plural also and the section is applicable to the case where an insurer who was carrying on different classes of insurance business closes all of them.

(4) that the expression " not otherwise provided for" in s. 2D refers to liabilities in the nature of claims against the insurer whether the insurer admits them or not and whether a decree has been finally passed in respect of them or not.

(5) that under s. 2D the satisfaction or "provision otherwise" for the liabilities of insurance business which is closed, does not refer to the deposit made under s. 7 and has to be over and above that deposit.

(6) that though an order under s. 33 read with s. 2D of the Act should show on the face of it that the Central Government was prima facie satisfied that the liabilities had remained unsatisfied or not otherwise provided for, the fact that the order does not on the face of it show that the Central Government considered this aspect of the matter would not make it bad, if in subsequent proceedings taken to challenge it, it is shown that there were materials before the Central Government which would justify its coming to the prima jacie conclusion that the liabilities had not been satisfied or otherwise provided for, and therefore an investigation into the affairs was called for.

CIVIL APPELLATE JuRISDIOTION: Civil Appeal No. 21 of 1960.

Appeal from the judgment and order dated January 16, 1959, of the Madras High Court in Writ Appeal No. 67 of 1958, arising out of the judgment

and order dated July 15, 1958, of the said High Court r960 in Writ Petn. No. 922 of 1957. ..

Vanguard Hre

0. B. Aggarwala, S. N. Andley, J.B. DadachanJi c;. General and Rameshwar Nath, for the appellant.

Insurance Co. Ltd.

R. Ganapathy Iyer, H. J. Umrigar, R. H. Dhebar Fraser v&, Ross and T. M. Sen, for respondent No. 2.

1960. May 4.

The Judgment of the Court was delivered by

WANCHOO, J.-This is an appeal on a certificate Wanchoo ]. granted by the Madras High Court. The appellant

Company had been carrying on various classes of insurance business other than life insurance after its incorporation in September, 1941. On October 15, 1956, an extraordinary general meeting of the shareholders of the Company passed a resolution by which all its insurance business was to cease forthwith and no further policies of insurance of any kind were to be issued thereafter. It was also resolved that no appli.; cation should be made for renewal of the certificate granted under s. 3 of the Insurance Act, No. IV of 1938 (hereinafter called the Act), and that thenceforward the Company should only carry on the business of money-lending as a loan-Company and also to do investment business. In consequence of these resolutions, the Company informed the Controller of Insurence in December, 1956, that it was not applying for renewal of its registration for carrying on the business of insurance. In May, 1957, the Controller wrote to the Company that its certificates for carrying on insurance business would be deemed to be cancelled from July 1, 1957, and the cancellation was notified in the Gazette of India.

It appears that the Government of India had been receiving complaints against the Company. Consequently on July 17, 1957, the Government of India passed an order under s. 33 of the Act directing the ControUer of Insurance to investigate the affairs of the Company and to submit a report. Thereupon the Controller appointed Messrs. Fraser and Ross to act as auditors to assist him in the investigation.

The Company was informed of this order in September 1957.

Thereupon it wrote to the Controller that no order under s. 33 of the Act could be passd

Vanguard Fire

0- General Insurance Co. Ltd. v.

Fraser & Ross

Wanchoo ].

against it, as it had closed its business of insurance aud the order in question was without jurisdiction.

The Controller sent a reply to this communication and pointed to the provisions of s. 2D of the Act in justification of the order. Thereupon the Company made an application under Art. 226 of the Constitution in the Madras High Court. Two main contentions were raised by it in the petition. In the first place it was submitted that the Company having closed all its insurance business no order could be passed against it under s. 33, as that section only applied to companies actually carrying on the business ofinsurance and that in any case no such order could be passed even with the help of s. 2D of the Act. In the second place it was contended that even if such an order could be passed under s. 33 read with s. 2D of the Act, it could not be done in the present case, as the Company's liabilities in respect of its insurance business did not remain unsatisfied or not otherwise provided for.

Messrs. Fraser and Ross as well as the Controller were made parties to the petition. The petition was opposed on behalf of the Controller, and his contention was that the case was clearly covered by s. 2D of the Act and therefore the order under s. 33 was validly passed in this case and that it had not been shown that the liabilities had been satisfied or had been otherwise provided for.

The learned Single Judge held that an order under s. 33 read with s. 2D could be passed against the Company and that it had not been shown that the Company's liabilities had been satisfied or otherwise provided for.

He therefore dismissed the writ pet.ition. This was followed by an appeal by the Company, which was dismissed. The Division Bench substantially agreed with the view taken by the learned Single Judge. Thereupon the Company applied for a certificate to enable it to appeal to this Court and obta.ined it ; and that is how the matter has come up before us.

]\fr. Aggarwala appearing for the Company has urged the same two points before us.

The Act was passed in 1938 to control persons carrying on the business of insurance. Section 2(9) thereof defines an 'insurer' inter alia as meaning any body corporate

(not being a person specified in sub-cl. (c) of this I96o clause) carrying on the business of insurance, which is Vanguard Fire a body corporate incorporated under any law for the & General time being in force in India or stands to any such Insurance Co. Ltd. body corporate in the relation of a subsidiary company v.

Fraser & Ro•s within the meaning of the Indian Companies Act, 1913, as defined by sub-s. (2} of s. 2 of that Act. Section 3 wanchoo ]• provides for registration of any person carrying on the business of insurance and no such business can be carried on unless a certificate of registration for the particular class of insurance business has been obtained from the Controller. Section 3(4) gives power to the Controller to cancel the certificate for reasons specified therein and s. 3(5B) lays down that when a registration is cancelled the insurer shall not after the cancellation has taken effect, enter into new contracts of insurance, but all rights and liabilities in respect of contracts of insttran'Ce entered into by him before such cancellation takes effect shall, subject to the provisions of sub-s. (5DJ, continue as if the cancellat.ion had not taken place. In order to safeguard the interest of policy-holders, s. 7 provides for deposits by the insurer for various classes of his business.

Section 8 lays down that any deposit made under s. 7 shall be deemed to be part of the assets of the insurer but shall not be susceptible of any assignment or charge; nor shall it be available for the discharge of any liability other than liabilities arising out of policies of insurance issued by the insurer so long as any such liability remains undischarged ; nor shall it be liable to attachment in execution of any decree except a decree obtained by a policy-holder of the insurer in respect of a debt due upon a policy which debt the policy-holder has failed to realise in any other way. Section 9(1) lays down that where an insurer has ceased to carry on in India any class of insurance business in respect of which a deposit has been made under s. 7 and his liabilities in India in respect of business of that class have been satisfied or are otherwise provided for, the court may on the application of the insurer order the return to the insurer of so much of the deposit as does not relate to the classes of insurance, if any, which he continues to carry on. Under

s. IO an insurer who carries on business of more than one kind is required to keep a separate account of all VanguaYd.F.ire: . h & General receipts and payments in respect of eac such class of

Insurane Co. Ltd.· insurance business.

Section 33(1) with which we are v.

F.-raser &, R.ossc

lf'.'llnchoo J;

directly concerned, is in these terms :-

"The Central Government may at any time by order in-writing direct the controller or any other person specified in the order to investigate th0 affairs of any insurer and to report to the Central Government. on any investigation made by him : Provided that the controller or the other person , may, wherever necessary, employ an auditor or actuary or both for the purpose of assisting. him in any investigation under this section." Section 2D is in these terms:

" Every insurer shall be subject to all the provi- .. sions of this Act in relation to any class of insurance

, business so long as his liabilities in India in respect

• of business of that class remain unsatisfied and not . otherwise provided for;" ·

The contention of Mr. Aggarwala is that s. 33 and s. 2D both refer to an insurer which is defined in s. 2(9) as a person carrying on the business of insurance. He, therefore, contends that as soon as the insurer who was carrying on the business of insurance closes it down completely he no longer remains an insurer and the provisions of the Act do not apply to him. Therefore, according to him, whens. 33 provides for an order of investigation by the Central Government such an order can only be made in respect of a person who is actually carrying on the business of insurance and is thus an insurer and cannot be made against a person who was an insurer but has closed his business. Further, according to Mr. Aggarwala, s. 2D also speaks of an insurer and makes him subject to all the provisions of the Act with respect to any class of insurance business so long as his liabilities in respect of that class remain unsatisfied or not otherwise provided for and therefore s. 2D would only apply to those cases where insurance business is being carried on, though some class of insurance business might have been closed.

The contention therefore is that reading ss. 33 and 2D together, no order under.

s. 33 can be made in case of an insurer who has com- 1960 pletely closed his business of insurance.

The main basis of this cont, ention is the definition Va~'G:~~,!?" of the word "insurer" in s. 2(9) of the Act. It is Insurance Co. Ltd. pointed out that that definition begins with the words v.

Fraser 0-- Ross "insurer means" and is therefore exhaustive. It may be accepted that generally the word "insurer" has Wanehoo J. been defined for the purposes of the Act to mean a person or body corporate, etc., which is actually carry ing on the business of in8•irance, i.e., the business of effecting contracts of insuunce of whatever kind they might be. But s. 2 begins with the words "in this Act, unless there is anything repugnant in the subject or context" and then come the various definition clauses of which (9) is one. It is well settled that all statutory definitions or abbreviations must be read subject to the qualification variously expressed in the definition clauses which created them and it may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different sections of the Act depending upon the subject or the context. That is why all definitions in statutes generally begin with the qualifying words similar to the words used in the present case, namely, unless there is anything repugnant in the subject or context. Therefore in finding out the meaning of the word "insurer " in various sections of the Act, the meaning to be ordinarily given to it is that given in the definition clause. But this is not inflexible and there may be sections in the Act where the meaning may have to be departed from on account of the subject or context in which the word has been used and that will be giving effect to the opening sentence in the definition section, namely, unless there is anything repugnant in the subject or context. In view of this qualification, the court has not only to look at the words but also to look at the context, the collocation and the object of such words relating to such matter and interpret the meaning in tended to be conveyed by the use of the words under the circumstances. Therefore, though ordinarily the word "insurer" as used in the Act would mau u.

person or body corporate actually carrying on the business of insurance it may be that in certain sections Vanguard Fire h d h h d"ff . .s. Gen,,•I t e wor may ave a somew at 1 erent meanmg.

Insurance Co. Ltd.

A perusal of a few sections of the Act will illustrate v.

Fraser & Ross

Wanchoo ].

this and immediately show that the word " insurer" has been used in some sections to mean not merely a person actually carrying on the business of insurance but also a person who intends to carry on the business of insurance but has not actually started it and also a person who was carrying on the business of insurance but has ceased to do so. For example, s. 3(2) which deals with an application for registration which naturally has to be made before the business of insurance actually commences, lays down in cl. (b) that the application shall be accompanied by the name, address and the occupation, if any, of the directors where the insurer is a company incorporated under the Indian Companies Act. Here the word "insurer" has been used to indicate the company which is not actually carrying on the business of insurance but is intending to do so and is applying for registration. Further in s. 3(2) ( e) which also deals with an application for registration, it is provided that an insurer having his principal place of business or domicile outside India shall send along with the application a statement verified by an affidavit of the principal officer of the insnrer setting forth various requirements. Here again, the word "insurer " has been used for an intending insurer, for the business of insurance would only begin after the registration certificate is granted on the application made under s. 3(2). Then in s. 9 it is provided that where an insurer has ceased to carry on business, the court may on the application of the insurer order the return to him of the deposit made under s. 7. This shows that though the insurer is not actually carrying on the business of insurance he is still termed an insurer and on his application the deposit may be refunded to him.

Again s. 55 which deals with a situation arising out of the winding-up of an insurance company or the insolvency of any other insurer, provides that the value of the assets and liabilities of the insurer shall be ascertained in

such manner and upon such basis as the liquidator

or the receiver in insolvency thinks fit.

The word z960 "insurer" has thus been used in this section for a b d t h • h t t II Vanguard Fire person or o y corporate, e c., w IC IS no ac ua y & General carrying on the business of insurance and has gone Insurance Co. Ltd. into liquidation or has become insolvent. Therefore, v. h h h d• • b h Fraser & Ross t oug t e or mary meanmg to e given to t e word "insurer" is as given in the definition clause (s. 2(9)) Wanchoo J. and refers to a person or body corporate, etc., carrying on the business of insurance, the word may also refer in the context of certain provisions of the Act to any intending insurer or quondam insurer. The contention therefore that because the word " insurer" has been used in s. 33 or s. 2D those sections can only apply to insurers who are actually carrying on business cannot necessarily succeed, and we have to see whether in the context of these provisions an insurer will also include a person who was an insurer but has closed his business.

As we have said already the Act was passed to control the business of insurance in the interest of policy-holders and the general public and s. 33 is obviously a provision by which the Central Government can order investigation into the affairs of any insurer in order to carry out the policy of the Act.

Cuuld it be said 1in the circumstances that s. 33 only applies to insurers actually carrying on business and not to insurers who have closed their business? If the policy of the Act is to be carried out and the policy-holders and the general public are to be protected, the need for making investigation into the affairs of an insurer who has closed his business is greater, for he may have done so dishonestly. We are therefore of opinion that the word " insurer" as used in s. 33 not only refers to a person who is actually carrying on business but in the context of that section and taking into account the policy of the Act and the purposes for which the control envisaged by the Act was imposed on insurers also refers to insurers who were carrying on the business of insurance but have closed it. Further if there were any doubt whether the word "insurer " in s. 33 refers to those insurers also who had closed their business that doubt in our opinion is completely dispelled by s. 2D. That section

.r960

Vanguard Fire

& General I nsuranee Co. Ltd. v.

Fraser & Ross

Wanehoo }.

provides that every insurer shall be subject to all the provisions of the Act in relation to any class of insurance business so long as his liability in India in respect of business of that class remains unsatisfied or not otherwise provided for.

Obviously this section applies to those insurers who have closed their business. It was not necessary to enact this section if the word "insurer" here also meant a person actually carrying on the business of insurance, for the provisions of the Act apply to such a person proprio vigore.

Therefore, when the word "insurer" is used in s. 2D it must mean a person who was carrying on the business of insurance but has closed it. If that is so, s. 33, which provides for investigation, would apply to such an insurer who has closed his business, by virtue of s. 2D.

Mr. Aggarwala next contends thats. 2D would only apply to those cases where an insurer was carrying on different classes of insurance business and had closed some of them but not all of them. He contends that the section provides that the insurer shall remain subject to the provisions of the Act in relation to any class of insurance business so long as his liabilities with respect to that class of business remain unsatisfied or not otherwise provided for.

This, according to him, contemplates a closure of only some out of niany classes of business of insurance and not of all.

We sec no reason however to limit the words used in this section only to a case where out of many classes of business, some are closed and others are being carried on. Under s. 13 of the General Clauses Act, No. X of 1897, in all Central Acts and Regulations, unless there is anything repugnant in the subject or context, words in the singular shall include the plural and vice versa.

Though therefore s. 2D speaks of any class of insurance business in the singular it includes the plural also and would refer to all classes of insurance business.

Mr. Aggarwala does not contend that where, for example, four classes of business are being carried on and three of them are closed and one is continued, the section will not apply; but he contends that at least one mwit continue and the section will not apply if all are closed. We do not see why if the section

applies, even though the word "class" is in the z960 ;:; ingular, to a case where three out of four classes are I d d . . d . h Id I Vanguard Fire c ose an one is contmue it s ou not app y to a & General case where all four classes are closed.

We see no Insurance Co. Ltd. repugnancy in the context in holding that if all v. cla>ises of business are closed the insurer shall be sub- Fraser & Ross ject to all the provisions of the Act so long as his Wanchoo ]. liabilities in India in respect of any business of all classes remain unsatisfied or not otherwise provided for.

Therefore on a plain reading of s. 2D there can be no doubt that an insurer who has closed all classes of his insurance business remains subject to all the provisions of the Act in relation to such classes so long as his liabilities in India remain unsatisfied or not otherwise provided for.

Therefore s. 33 will certainly apply to a case where all classes of insurance business have been closed so long as the liabilities remain unsatisfied or not otherwise provided for. The first contention of the appellant therefore that no investigation can be ordered under s. 33 in its case because it has closed all classes of its insurance business fails.

Turning now to the second contention, the argument on behalf of the appellant is three-fold. In the first place it is urged that an order can only be made under s. 33 read with s. 2D when the Central Government is satisfied that the liabilities have not been satisfied or otherwise provided for, and that the order should show on the face of it that the Central Government had considered this aspect of the matter and had come to the conclusion that the liabilities remained unsatisfied or not otherwise provided for.

Further there is nothing in the present order to show that the Central Government ever considered this aspect of the matter and was satisfied that the liabilities of the appellant- Company remained unsatisfied or not otherwise pro-. vided for.

There is no doubt that the order is utterly silent on this point and it was only in his letter of October 15, 1957, that the Assistant Controller pointed out s. 2D of the Act and referred to this aspect of the matter. It seems to us only just and proper that when an order is being passed under s. 33 read withs. 2D of the Act it should show on the face of it that the

Vangua,.d Fi,.e

& Gene,.ai Insurance Co. Ltd. v.

F,.ase,. & Ross

Wanchoo }.

Central Government was prima facie satisfied that the liabilities had remained unsatisfied or not otherwise provided for, for it is only when the liabilities have not been satisfied or otherwise provided for that an order under s. 33 read with s. 2D would be justified in the case of an insurer who has closed his business. We use the word "prima f acie" advisedly, for it seems to have been suggested in the High Court that uo order could be passed under s. 33 unless it was proved to the hilt that there were liabilities which remained unsatisfied or otherwise unprovided for. It is obvious that such proof would only be available after investigation in to the affairs of the insurer. Therefore in order that s. 2D may be workable, all that is required under it is that the Central Government should be satisfied after such prima facie inquiry as it considers necessary that there are reasons to believe t.hat the liabilities of the insurer who has closed his business remain unsatisfied or not otherwise provided for and in coming to this prima facie conclusion the Central Government may make enquiry from the insurer with respect to complaints that it may have received against him. But the fact that the order does not on the face of it show that the Central Government considered this aspect of the matter would not make it bad, if in subsequent proceedings taken to challenge it, it is shown that there were materials before the Central Government which would justify its coming to the prima facie conclusion that the liabilities had not been satisfied or otherwise provided for, and therefore an investigation into the affairs was called for. In the present case we find from the materials on the record that there were complaints before the Central Government from those who had claims against the company. Those complaints were apparently referred to the Company and it does not appear that the Company satisfied the Central Government that the complaints were unjustified. It was in this situation that the order for investigation was made in July, 1957, after the Company had closed its insurance business. Further on the materials available on the record it does appear that even how there are claims pending to the tune of about one lac of rupees against the Company. So it ca.nnot

-f-

3 S.C.R. SUPREME COURT REPORT8 869

be said that there were no liabilities of the Company •96o outstanding which were not satisfied or otherwise pro- Vanguard Fire vided for when the order was made in July, 1957. In &General the circumstances the order cannot be held to be bad Insurance Co. I.td. because it does not show on the face of it that there v Fraser & Ross were liabilities which had remained unsatisfied or not otherwise provided for.

Wanchoo ].

In the second place it is urged that there can be no question of satisfying or otherwise providing for liabilities unless the liabilities are ascertained and either admitted or proved. In other words the argument is that it is only those liabilities which are admitted by the insurer or which have been decreed against him and the decrees have become final which can be taken into account in deciding whether the liabilities have remained unsatisfied or not otherwise provided for. It is urged that only those liabilities which are ascertained and either undisputed or proved can be satisfied and that the same applies to their being otherwise provided for. It is true that only those liabilities, which are ascertained and either admitted or proved, can be satisfied; but it does not follow that " provision otherwise " must also be only of liabilities which are ascertained and either admitted or proved. If that were so a dishonest insurer who closes his business could always get out of the provisions of s. 33 read withs. 2D by repudiating all claims made against him and then saying that there are no liabilities which remained unsatisfied or otherwise unprovided for.

There can be no doubt, therefore, if these provisions have to serve the purpose for which they were enacted, (namely, the protection of the interest of the policy-holders and the general public), the words " not otherwise provided for" in s. 2D must refer to liabilities in the nature of claims against the insurer whether the insurer admits them or not and whether a decree has been finally passed in respect of them or not. The intention of making this provision in s. 2D is to ensure that probable claims arising out of the insurance buRiness that is closed are provided for before the insurer who has closed his business can say that he is not governed by all the provisions of the Act. There can be no doubt, therefore,

VanguaYd Fire

& General Insurance Co. Ltd.

that when "provision otherwise" has to be made it must be with respect to probable claims also that are likely to arise out of the insurance business which has been closed. In the present case even the Company admits that there are probable claims to the tune of v.

F1'aser &- Ross

Wanchoo ]. about rupees one lac still pending and in the circumstances until they are satisfied or it is shown that they have been provided for otherwise, all the provisions of the Act, including s. 33, will apply to the Com. pany.

The last argument in support of the second contention is that the liabilities have been otherwise provided for. It is said that the Company deposited Rs. 3,94,000 as security under s. 7 of the Act, which is still available to pay off the liabilities of the Company and therefore when such liabilities do not appear to exceed that amount they have otherwise been provided for.

The question thus raised is whether the Company is entitled to take into account the security deposit under s. 7 in order to show that the liabilities have been otherwise provided for.

The contention on behalf of the Controller is that when the Act envisages " provision otherwise ", this provision has to be over and above the security deposit made by the Company under s. 7. It appears from s. 8 that this deposit is available for the discharge of liabilities arising out of policies of insurance issued by the insurer so long as any such liability remains unsatisfied. But even if a decree has been obtained by a policy-holder on the basis of a liability under the policy he is not entitled to attach any part of this deposit until he shows that he has failed to realise the decree in any other way. Further it appears thats. 8 only contemplates policy-holders holding a decree attaching part of the security deposit in case they fail to realise their debt in any other way; it does not contemplate, for example, third parties who have decrees against an insurer, like the Company (which in its motor insurance business indemnifies the policy-holders against third party risk up to a certain extent), doing so. Such third parties cannot under any circumstances attach any part of the deposit, for s. 8 only permits its v,, ttaolpne11t !11 the last resort by a policy-holder of the

insurer in respect of a debt due upon a policy. But r96o under s. 2D the decree of a third party in such a case v d p ld b h 1. b"l" f h . . f h" anguar ire wou e t e Ia I ity o t e msurer m respect o IS &- General motor insurance business which could not be realised Inmrance.Co. Ltd. by attachment of any part of the deposit under s. 7.

Fraser~ Ross Besides, even with respect to decrees of policy-holders the deposit could only be attached when all other ways Wanchoo J. ofrealising the money have failed.

In these circumstances it can hardly be said that the fact that this deposit is there is itself a " provision otherwise " to meet the liabilities of tho insurer. The policy-holder cannot attach this deposit unless he first exhausts all other means. Even if he has got a decree and even if the insurer admits his claim and wants to pay it, he cannot do so out of the money in deposit under s. 7.

As for third parties who may have decrees against the insurer, they can never attach this deposit in view of the provisions of s. 8. It could not be the intention of the legislature when it was in effect exempting the insurer from all the provisions of the Act on his liabilities being otherwise provided for that such provision should include the security deposit under s. 7, when it has made it so difficult for a policy-holder to get his debt satisfied from that deposit and when it is clear that a third party could not in any way attach the deposit. In these circumstances we are of opinion that when s. 2D provides that the insurer shall be subject to all the provisions of the Act so long as his liabilities in India in respect of the business which is closed remain unsatisfied or not otherwise provided for, the satisfaction or "provision otherwise" does not refer to the deposit under s. 7 and has to be over and above that deposit. It is true thats. 9 provides that the insurer can take back the deposit after satisfying the court that he has satisfied or otherwise provided for his liabilities. But this " provision otherwise" for the purposes of s. 9 must obviously be other than the deposit itself. Further when the insurer wants to take back his deposit on making " provision otherwise" he will have to satisfy the court that the "provision otherwise " has been fully made and the court will be in a position to investigate into the matter.

This, however, does not mean that if the insurer does

,960 not want to take advantage of s. 9 of the Act he can say without submitting to the terms of that section

Va;;_g~=~~,;, fre that he has made "provision otherwise", because the lnsu .. nce Co. Ltd. deposit which is made under s. 7 is more than all his v. liabilities of the insurance business that he has closed.

Fram & Ross It is urged that it is hard, for example, on an insurer

Wanchoo J. who has a large deposit and whose liabilities are small that he should not be able to fall back on his deposit for the purposes of s. 2D. We do not, however, see any hardship in a case of this kind, for if it is a fact that the deposit of the insurer is large and his liabilities are small he can always take advantage of s. 9 of the Act and submit to an investigation by the court and take back his deposit after depositing the small sum required to meet his liabilities. We are, therefore, of opinion that when s. 2D speaks of satisfaction or "provision otherwise" for the liabilities of insurance business which is closed it contemplates such satisfaction or " provision otherwise" over and above the deposit made under s. 7. It is not in dispute in this case that there are some liabilities still pending; it is also not in dispute that they are not satisfied and no provision has been made otherwise for them irrespective of the security deposit. This also appears to have been the position when the order was made in July,

1957. In the circumstances the order is good and cannot be called in question by the Company.

The appeal therefore fails and is hereby dismissed with costs.

.Appeal dismissed.

Luhar Amritlal

Brij Narain

Nagpur High Court

M/S. FRASER AND ROSS AND ANOTHER

K. c. DAS GUPTA, JJ.

General Clauses Act

Insurance Act

SS. 2(9), 2D, 7, 9, 33

July l, 1957

Government of India

17, 1957

s. 33

Insurance Act, 1938

L.R. 51 I.A. 129

Central Government

s. 33

s. 2(9)

s. 2D

s. 33

s. 2D

s. 33

Insurance Act, 1938

s. 2D

s. 2D

s. 2D

s. 2D

s. 7

s. 33

s. 2D

CIVIL APPELLATE JuRISDIOTION

Madras High Court

B. Aggarwala

S. N. Andley

J.B. DadachanJi

Rameshwar Nath

R. Ganapathy Iyer

H. J. Umrigar

WANCHOO

October 15, 1956

s. 3

Insurance Act

July 1, 1957

India

July 17, 1957

s. 33

Fraser

s. 33

s. 2D

Art. 226

s. 33

s. 2D

s. 33

s. 2D

Fraser

Ross

s. 2D

s. 33

s. 33

s. 2D

Aggarwala

Section 2(9)

Vanguard Fire

Indian Companies Act, 1913

s. 2

Section 3

Section 3(4)

s. 3(5B)

s. 7

Section 8

s. 7

Section 9(1)

s. 7

Insurane Co. Ltd.

Section 33(1)

Section 2D

s. 33

s. 2D

s. 2(9)

s. 2D

s. 2D

ss. 33 and 2D

s. 33

s. 2(9)

Wanehoo

s. 2

s. 3(2)

Companies Act

s. 3(2)

s. 3(2)

s. 9

s. 7

s. 55

s. 2(9)

Wanchoo

s. 33

s. 2D

s. 33

s. 33

s. 33

s. 33

s. 2D

s. 2D

s. 33

s. 2D

s. 13

General Clauses Act

s. 2D

s. 2D

s. 33

s. 33

s. 33

s. 2D

October 15, 1957

s. 2D

s. 33

s. 33

s. 2D

s. 33

s. 2D

Wanchoo

s. 33

s. 2D

s. 2D

s. 33

s. 7

s. 7

s. 7

s. 8

s. 8

s. 2D

Inmrance.Co. Ltd.

s. 7

s. 7

s. 8

s. 7

s. 2D

s. 7

s. 9

s. 9

s. 7

s. 2D

s. 9

s. 2D

s. 7


' -

3 S.O.R. SUPREME OOlJRT REPORTS 85

and in substance this claim has been rejected by the i96o appellate tribunal on the ground that sufficient

materfal has not been placed before it by the appellant T. ~0~}.1~'.pzy on which the claim could be examined and grantedi v.

In such a case we do not see how we can interfere in Its Workmen • favour of the appellant.' The present decision will . -- not preclude the appellant from making a similar Ga1endragadkar J. claim in future and justifying it by leading proper evidence.

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

Appeal dismissed.

THE BRIHAN MAHARASHTRA SUGAR

SYNDICATE LTD.

~ '

JANARDAN RAMOHANDRA KULKARNI

AND OTHERS

(S. K. DAS, A. K. SARKAR AND

M. HIDAYATULLAH, JJ.)

Company Law-Proceedings pending under the repealed Act-If and when could be continued-Indian Companies Act, I9IJ, (VII of I9I3) s. IS3-C-Companies Act, Ig56, (I of Ig56) ss. IO and 647.

The respondent had made an application under s. 153-C of the Companies Act, 19:1;3, with an alternative prayer for winding up against the appellant company, to the District Judge, Poona, who had been authorised under the Act to exercise jurisdiction.

While the application was pending the Companies Act, 1913, was repealed by the Companies Act, 1956. The appellant company thereupon applied to the District Judge to dismiss the application on the ground that he had ceased to have any jurisdiction to deal with the application on the repeal of the Companies Act or 1913.

Held, that s. 6 of the General Clauses Act preserved the jurisdiction of the District Judge to deal with the application under s. 153-C of the Indian Companies Act of 1913, notwithstanding therepeal of that Act.

Section 647 of the Companies Act, 1956 did not indicate any intention to affect the rights under the Indian Companies Act of 1913, for s. 658 of the Companies Act of 1956 made s. 6 of the General Clauses Act applicable notwithstanding anything contained in s. 647 of that Act.

r960

I960 Section 24 of the General Clauses Act does not put an end to any notification. It does not therefore cancel the notification B. M. Sugar issued under the Indian Companies Act of 1913 in so far as that Syndicate Ltd. notification empowered the District Judge to exercise jurisdiction v. under s. 153-C of the Indian Companies Act of 1913 even though ]. R. Kulkarni under s. 10 of the Companies Act of 1956, a District Judge can no longer be empowered to exercise jurisdiction under (a) sections 397 to 407 of the Companies Act, 1956, which correspond to s. 153-C of the Indian Companies Act, 1913 or (b) in respect of the winding up of a company with a paid up share capital of not less than Rs. 1,00,000/- which the appellant company was.

CIVIL

APPELLATE

JURISDICTION: Civil Appeal No. 513 of 1958.

Appeal by special leave from the judgment and order dated November 20, 1957, of the Bombay High Court in First Appeal No. 600 of 1956, arising out of the judgment and order dated October 17, 1956, of the District Judge, Poona, in Misc. Petition No. 2 of 1956.

H. D. Banaji, S. N. Arulley, J. B. Darlachanji, Hameshwar Nath and P. L. Vohra, for the.appellant.

A. V. Viswanatha Sastri, Sorab N. Vakil, B. K. B.

Naidu and I. N. Shroff~ for respondents Nos. 1 and 2.

1960. February, 22.

The Judgment of the Court was delivered by Sarkar J.

SARKAR, J.-Respondcnts Nos. 1 to 4 are shareholders in the company which is the appellant in this case. They made an application against the appellant and its directors under s. 153-C of the Companies Act, 1913 before that Act was repealed on April 1, 1956, as hereinafter mentioned, for certa.in reliefs which it is not necessary to state. This Act will be referred to as the Act of 1913.

This application had been made to the Court of the District Judge of Poona which Court had been empowered to exercise jurisdiction under the Act of 1913 by a notification issued by the Government of Bombay under s. 3(1) of that Act.

Before the application could be disposed of by the District Judge, Poona, the Act of 1913 was repealed and re-enacted on April 1, 1956, by the Companies Act of 1956, which will be referred to as the Act of 1956.

On or about June 28, 1956, the appellant made an application to the District Judge of Poona for an order dismissing the application under s. 153-C of the

' -

Act of 1913 on the ground that on the repeal of that Act the Court had ceased to have jurisdiction to deal with it. The District Judge of Poona dismissed this application. The appellant's appeal to the High Court of Bombay against this dismissal also failed. Hence the present appeal.

Section 644 of the Act of 1956 repeals the Act of 1913 and certain other legislation relating to companies. Sections 645 to 657 of the Act of 1956 contain various saving provisions. Mr. Banaji appearing for the appellant contended that the proceeding before the District Judge of Poona under s. 153-C of the Act ef 1913 had not been saved by any of these provisions.

We do not consider it necessary to pronounce on this question for it seems to us clear that that proceeding can be continued in spite of the repeal of the Act of 1913 in view of s. 6 of the General Clauses Act. -Section 658 of. the Act of 1956 expressly provides that, "The mention of particular matters in ss. 645 to 657 or in any other provision of this Act shall not prejudice the general application of s. 6 of the General Clauses Act, 1897 (X of 1897), with respect to the effect of repeals." Mr. Banaji said that s. 658 had been enacted ex abundante cautela.

Be it so. Section 6 of the General Clauses Act none the less remains applicable with respect to the effect of the repeal of the Act of 1913.

Section 6 of the General Clauses Act provides that where an Act is repealed, then, unless a different intention appears, the repeal shall not affect any right or liability acquired or incurred under the repealed enactment or any legal proceeding in respect of such right or liability and the legal proceeding may be continued as if the repealing Act had not been passed.

There is no dispute that s. 153-C of the Act of 1913 gave certain rights to the shareholders of a company and put the company as also its directors and managing agents under certain liabilities. The application under that section was for enforcement of these rights and liabilities. Section 6 of the General Clauses Act would therefore preserve the rights and liabilities created by s. 153-C of the Act of 1913 and a continuance of the proceeding in respect thereof would be

B. M. Sugar Syndicate Ltd. v. ]. R. Kulka>ni

Sarkar ].

r960

B. M. Sugay Syndicate Ltd. v. ]. R. Kulkarni

Sa,-kay ].

competent in spite of the repeal of the Act of 1913, unless of course a different intention would be gathered.

Now it has been held by this 'Court in State of Punjab v. Mohar Singh (1) thats. 6 applies even where the repealing Act contains fresh legislation on the same subject but in such a case one would have to look to the provisions of the new Act for the purposes of determining whether they indicate a different intention. The Act of 1956 not only repeals the Act of 1913 but contains other fresh legislation on the matters enacted by the Act of 1913. It was further observed in State of Punjab v. Mohar Singh (1 ) that in trying to ascertain whether there is a contrary intention in the new legislation, "the line of enquiry would be not whether the new Act expressly keeps alive old rights and liabilities but whether it manifests an intention to destroy them."

The question then is whether the Act of 1956 indicates that it was intended thereby to destroy the rights created by s. 153.C of the Act of 1913.

Mr. Banaji said that s. 64 7 of the Act of 1956 indicates an intention to destroy the rights created by s. 153-C of the Act of 1913.

We find nothing there to support this view. That section only says that where the winding up of a company commences before the commencement of the Act of 1956, the company shall be wound up as if that Act had not been passed, but s. 555(7) of the Act of 1956 will apply in respect of moneys paid into the Companies Liquidation Account.

All that this section does is to make the provisions of the repealed Act applicable to the winding up notwithstanding the repeal. The provisions of s. 555(7) need not be referred to as they do not affect the question. Section 647 of the Act of 1956 therefore indicates no intention that the rights created by s. 153-C of the Act of 1913 shall be destroyed. Nor is an argument tenable thassince bys. 647 the Act of 1956 expressly makes the repealed Act applicable to a winding up commenced under it, it impliedly indicates that in other matters the repealed Act cannot be resorted to, for, in view of s. 658 of the Act of 1956,

(i) (1955] I $.C.R. 893.

the mention of a particular matter in s. 647 would not prejudice the application of s. 6 of the General Clauses Act; in other words, nothing ins. 647 is to be understood as indicating an intention that s. 6 of the General Clauses Act is not to apply. On the other hand, the parties are agreed that the provisions of s. 153-0 of the Act of 1913 have been substantially re-enacted by the Act of 1956 and this would indicate an intention not to destroy the rights created by s. 153-C.

Mr. Banaji then drew our attention to s. 10 of the Act of 1956 and s. 24 of the General Clauses Act.

Section 10 of the Act of 1956 corresponds to s. 3 of the Act of 1913 and deals with the jurisdiction of Courts.

Under s. 10, the Central Government may empower a District Court to exercise jurisdiction under the Act, not being the jurisdiotion conferred among others by ss. 397 to 407 nor ill respect of the winding up of companies with a paid up share capital of not less than Rs. 1,00,000. Sections 397 to 407 of the Act of 1956, it is agreed, contain substantially the provissions of s. 153-0 of the Act of 1913. It has also to be stated that the paid up capital of the appellant is more than Rs. 1,00,000 and the application under s. 153-C of the Act of 1913 contained a prayer in the alternative for the winding up of the appellant.

Section 24 of the General Clauses Act provides that where .any Act is repealed and re-enacted with or without modifications, then, unless it is otherwise expressly provided, any notification issued under the repealed Act shall, so far as it is not inconsistent with the provisions re-enacted, continue in force and be deemed to have been issued under the provisions so re-enacted unless and until it is superseded by a notification issued under those provisions.

Mr. Banaji points out that in view of s. 10 of the Act of 1956 a District Court can no longer be empowered to deal with an application of the kind made to the District Judge of Poona, as that application asks for reliefs similar to those contemplated by ss. 397 to 407 of the Act of 1956 and also asks for the winding up of a company whose paid up capital

xceeds Rs. 11001000 and power to deal with such an . ._, ....

H. M. Sugar Syndicate Ltd. v. ]. R. Kulkarni

Sarl<ar ].

B. M. Sugar Syndicate Ltd. v. ]. R. Kulkarni

Sarkar].

application cannot now be given to a District Court.

He, therefore, says that the notification issued under the Act of 1913 empowering the District Judge of Poona to deal with the application would be inconsistent in this respect with the provisions of the Act of 1956 and could not in view of s. 24 of the General Clauses Act be deemed to continue in force after the repeal of the Act of 1913. Hence it is contended that the notification has ceased to have any force and t.he District Judge of Poona has no longer any jurisdiction to hear the application. It is also said that this shows that the Act of 1956 indicates that the rights acquired under the Act of 1913 would come to an end on its repeal.

We are unable to accept these contentions. Section 10 of the Act of 1956 deals only with the jurisdiction of courts. It shows that the District Courts can no longer be empowered to deal with applications under the Act of 1956 in respect of matters contemplated by s. 153-C of the Act of 1913. This does not indicate that the rights created by s. 153-C of the Act of 1913 were intended to be destroyed.

As we have earlier pointed out from State of Punjab v. Mohar Singh('), the contrary intention in the repealing Act must show that the rights under the old Act were intended to be destroyed in order to prevent the application of s. 6 of the General Clauses Act. But it is said that s. 24 of the General Clauses Act puts an end to the notification giving power to the District , T udge, Poona to hear the application under s. 153-C of the Apt of 1913 as that notification is inconsistent with s. 10 of the Act of 1956 and the District Judge cannot, therefore, continue to deal with the application. Section 24 does not however purport to put an end to any notification. It is not intended to terminate any notification; all it does is to COI(tinne a notification in force in the stated circumstances after the Act under which it was issued, is repealed.

Section 24 therefore does not cancel the notification empowering the District Judge of Poona to exercise jurisdiction under the Act of 1913. It seems to us that since under s. 6 of the General Clauses Act the proceeding in respect of the application under s. 153-C

(•l [•955] • s.c.R. 893

....

' -

...

of the Act of 1913 may be continued after the repeal of that Act, it follows that the .; District Judge of Poona continues to have jurisdiction to entertain it. If it were not so, then s. 6 would become infructuous.

For these reasons we think that the appeal J'hust fail and it is therefore dismissed with costs.

Appeal dismissed.

SHRI BALWAN SINGH v.

SHRI LAKSHMI NARAIN & OTHERS

(B. P. SINHA, O.J., JAFER IMAM, A. K. SARKAR,

K. N. WANCHOO AND J. 0. SHAH, JJ).

Election Petition-Corrupt Practice-Hiring vehicle for conveyance of electors-Pleadings-Particulars of contract of hiring, if necessary-Representation of the People Act, z95z, (43 of z95z), ss. 83(z)(b), 90(3) and z23(5).

The first respondent filed an election petition for an order that the election of the appellant be declared void on the ground that the appellant had committed the corrupt practice under s. 123(5) of the Representation of the People Act, 1951, in that he had hired a tractor for conveying women electors from their houses to places of polling and back. By an amendment application the first respondent gave particulars about the conveying of voters, but he did not give any particulars regarding the contract of hiring nor did the appellant ask for such particulars. At the trial the first respondent led evidence in respect of the contract of hiring and the appellant raised no objection to the relevance of that evidence. The Election Tribunal dismissed the petition but on appeal the High Court held the charge proved and declated the election of the appellant void.

The appellant contended that the election petition ought to have been dismissed because particulars of the contract of hiring which was an essential ingredient of the corrupt practice had not been given.

Held, (per Sinha ; c. ]., Jafer Imam, K. N. Wanchoo and J.C. Shah, JJ), that the corrupt practice under s. 123(5) was the conveying of electors to and from the polling station and not the contract of hiring. If the election petition gave particulars about the use of a vehicle for conveying of electors to; and from the polling station, the failure to give particulars of the contract of hiring, as distinguished from the fact of hiring, did not render the petition defective.

An election petition was not liable to be

B. M. Sugar Syndicate Ltd. v. ]. R. Kulkarni

Sarkar].

February, 23

JANARDAN RAMOHANDRA KULKARNI

AND OTHERS

S. K. DAS

A. K. SARKAR

M. HIDAYATULLAH, JJ.

Companies Act

Companies Act

s. 153

Companies Act

Companies Act, 1956

Companies Act

s. 6

General Clauses Act

s. 153

Companies Act

Section 647

Companies Act, 1956

Companies Act

s. 658

Companies Act

s. 6

General Clauses Act

s. 647

Section 24

General Clauses Act

s. 153

Companies Act

R. Kulkarni

s. 10

Companies Act

sections 397 to 407

Companies Act, 1956

s. 153

Indian Companies Act, 1913

Bombay High Court

H. D. Banaji

S. N. Arulley

J. B. Darlachanji

Hameshwar Nath

P. L. Vohra

A. V. Viswanatha Sastri

Sorab N. Vakil

B. K. B.

Naidu

I. N. Shroff~

Sarkar

SARKAR

s. 153

Companies Act, 1913

Government of Bombay

s. 3(1)

District Judge, Poona

April 1, 1956

Companies Act

June 28, 1956

District Judge of Poona

s. 153

High Court of Bombay

Section 644

Sections 645 to 657

Banaji

s. 153

s. 6

General Clauses Act

Section 658

ss. 645 to 657

s. 6

General Clauses Act, 1897

s. 658

Section 6

General Clauses Act

Section 6

General Clauses Act

s. 153

Section 6

General Clauses Act

s. 153

s. 153

s. 64

s. 153

s. 555(7)

s. 555(7)

Section 647

s. 153

s. 658

s. 647

s. 6

General Clauses Act

s. 6

General Clauses Act

s. 153

s. 153

s. 10

s. 24

General Clauses Act

Section 10

s. 3

s. 10

Central Government

ss. 397 to 407

Sections 397 to 407

s. 153

s. 153

Section 24

General Clauses Act

s. 10

ss. 397 to 407

s. 24

General Clauses Act

Section 10

s. 153

s. 153

s. 6

General Clauses Act

s. 24

General Clauses Act

Poona

s. 153

s. 10

Section 24

Section 24

s. 6

General Clauses Act

s. 153

s. 6

B. P. SINHA

JAFER IMAM

K. N. WANCHOO

0. SHAH

Representation of the People Act

ss. 83(z)(b), 90(3)

s. 123(5)

Representation of the People Act, 1951

Sinha

Jafer Imam

K. N. Wanchoo

J.C. Shah

s. 123(5)


-----;-

3 S.C.R. SUPREME COURT REPORTS 873

THE COMMISSIONER OF INCOME-TAX,

BOMBAY CITY

THE KHATAU MAKANJI SPINNING AND

WEAVING CO. LTD., BOMBAY. (S. K. DAS, J. L. KAPUR and M. HrnAYATULLAH, JJ.) Income-tax-Additional Income-tax-Total income-Method of computing-Indian Income-tax Act, r922 (II of r922), s. 3-The Indian Finance Act, I953 (XIV of r953).

The Income-tax Officer found that in the assessment year r953-54 the respondent assessee-company had declared excess dividends amounting to Rs. l,87,691 and he levied additional income-tax on it at 5 annas in the rupee after deducting incometax borne by the profits of the previous year at 4 annas per rupee, a surcharge of 5 per cent. less rebate of one anna in the rupee as allowed by the Finance Act, 1953 The Income-tax Tribunal held that the excess dividends were deemed to be paid out of undistributed profits of the earlier year ending June 30, 1951 on which a rebate of one anna in the rupee was given in the assessment year 1952-53. It further observed that additional income-tax was also a tax on income, and that the Finance Act could say that the tax would be payable on the income of any year preceding the previous year. The Tribunal, however, referred three questions to the High Court which the High Court compressed into one as below :-

" Whether additional income-tax has been legally charged under Clause (ii) of the proviso toparagraph B of Part I of the First Schedule :to the Indian Finance Act, 1951, as applied to the assessment year 1953-54 by the Indian Finance Act, 1953, read with s. 3 of the Indian Income-tax Act?"

The High Court held that s. 3 of the Indian Income-tax Act put the liability to tax on the total income of the previous year or what can be deemed to be income.

The Finance Act provided the rate applicable to the income so found and a method of computing the total income. The Finance Act in providing that additional income-tax should be paid upon the accumulated profits of the previous years went beyond the purpose for which the Finance Act was passed every year, and the Finance Act could not stand by itself without the support of s. 3 of the Indian Income-tax Act.

On appeal by the Commissioner of Income-tax on certificate of the High Court : Held, that the High Court was right in answering the question framed by it, in the negative. The Finance Act provided that the tax should be levied on the " total income" as defined in and determined under the Indian Income-tax Act. The Additional income-tax was not properly laid upon the total income because what was actually taxed was never a part of the total income of the previous year, nor deemed to be so.

May 4.

I960

Commissioner of

Income-tax, Bombay City v.

Khatau Makanji

Spinning& Weaving Co. Ltd.

H idayalullah j.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 303 of 1958.

Appeal from the judgment and order dated August 3, 1956, of the Bombay High Court in Incometax Reference No. 10of1956.

K. N. Rajagopal Sastri and D. Gupta, for the appellant.

N. A. Palkhivala, S. N. Andley, J. B. Dadachanji and Rameshwar Nath, for the respondents.

1960. May 4.

The Judgment of the Court was delivered by HIDAYATULLAH, J.-This is an appeal against the judgment and order of the High Court of Bombay dated August 3, 1956, in a reference under s. 66 (1) of the Indian Income-tax Act by the Appellate Tribunal, .Bombay. The Tribunal referred four questions for the decision of the High Court. The High Court did not answer the first question because it was not pressed, and answered the remaining in the negative, after modifying them. It has certified this case as fit for appeal to this Court, and hence this appeal. The Commissioner of Income-tax, Bombay City, is the appellant, and the Khatau Makanji Spinning and Weaving Co.

Ltd., Bombay, (the assessee Company), is the respondent.

The assessee Company has its year of account ending June 30 every year. At the close of the account year 1951, it carried forward profits amounting to Rs. 30,680. In that year, it appears it had earned a rebate by declaring dividends below the limit fixed by the Finance Act. For the account year 1952 its book profits were Rs. 28,67,235 less allowances for depreciation and tax. After these and other sundry adjustments, the balance available for distribution was Rs. 5,02,915. It may be pointed out that the Incometax Officer on processing the income found the total income to be Rs. 5,26,681. For the account year 1952, the assessee Company declared dividends amounting to Rs. 4, 78,950 and carried forward the balance of Rs. 23,965.

We are concerned with the assessment year 1953-54, and the Finance Act, 1953, is applicable. That Finance

3 S.C.R.

SUPREME COURT REPOHTS 875

Act applied the Finance Act, 1951, with some changes.

The Finance Act, 1953, with the modifications will be referred to briefly, hereinafter, as the Finance Act.

The Income.tax Officer found that the assessee Company had declared excess dividends amounting to R.:i. 1,87,691. He calculated additional income-tax on it at 5 annas in the rupee after deducting income-tax horne by the profits of the previous year at 4 annas per rupee, a surcharge of 5 per cent. less rebate of one anna in the rupee as allowed by the Finance Act. This additional tax amounted to Rs. 21,115-4-0.

The appeals of the assessee Company under the Income-tax Act failed.

The Tribunal held that the excess dividends were deemed to be paid out of undistributed profits of earlier year ending June 30, 1951, amounting to Rs. 6,60,720 on which a rebate of 1 anna in the rupee was given in the assessment year, 1952-53. The Tribunal observed that additional incometax was also a tax on income, and that the Fina.nee Act could say that the tax would be payable on the income of any year preceding the previous year. The Tribunal, however, referred four questions to the High Court, of which the first need not be quoted because it was abandoned before the High Court. The other questions were:

"(ii) If the answer to question No. 1 is in the negative whether the said provisions go beyond the ambit and scope of the Indian Income-tax Act?

(iii) .Whether additional income-tax can be levied, assessed and recovered under the provisions of the Indian Income-tax Act ?

(iv) Whether at any rate the additional incometax has been legally charged under the Indian Finance Act, 1953, read with the Indian Incometax Act?" The High Court compressed the three questions into one, and it reads : "Whether additional income-tax has been legally charged under clause (ii) of the proviso to paragraph B of Part I of the First Schedule to the Indian Finance Act, 1951, as applied to the assessment year 1953-54 by the Indian Finance Act, 1953, read with Section 3 of the lndia.u Inc9me.-ta.x .Act r

Commissioner of

Incometox, Bomboy Cily v.

Khatau Makanji

Spinning& Weaving Co. Ltd.

Hidayalullah ].

zy6o This question was answered by the High Court in the negative.

Commisoion" of In the opinion of the High Court, s. 3 of the Indian Ir.come-tax, Bombay City Income-tax Act lays down the liability to tax, and it v. puts the tax on the total income of the previous year.

Khatau Makanji The method of computing this total income is also to ::, pinning& . . .

Weaving Co. Ltd. be found m the Fmance Act. The Fmance Act merely provides the rate applicable to the income so found.

Hidayatullah J. According to the High Court, the Finance Act in providing that additional income-tax should be paid upon the accumulated profits of the previous years goes beyond the purpose for which the Central Act is passed ever, y year, and cannot stand by itself without the support. of s. 3 of the Indian Income-tax Act. The High Court held that the Finance Act had 'misfired', because it did not resort to legislation which would have conformed to the object for which the Finance Act w'as passed every year. The learned Chief Justice, who delivered the judgment of the High Court, stated that there were several methods open to the legislature to achieve that purpose but that it had not resorted to any of them. This is what the learned Chief Justice observed:

"The Legislature could have achieved this object by one of three methods. It could have treated the excess dividend declared by the company as a notional income and made it a part of the total income of the previous year. It could have provided for rectification of the assessment of the year in which these profits were charged at a lesser rate, and we now find that Parliament has actually provided for this in the Finance Act, 1956. Or, finally, it could have provided for a penalty imposed upon a company which transgressed the direction of Parliament that it should not pay dividend beyond a particular ceiling ... The ambit of Section 3 is clear and the ambit is that the tax to be levied must be a tax on income and the power of Parliament is equally clear and that is to fix the rate at which income-tax is to be charged upon the total income of the previous year of the assessee. In our opinion, the provision of the Finance Act travels beyond the ambit of Section 3, a, nd if Parli11ment

has done so then no effective charge can be made on the total income of the previous year of the Commissioner of assessee under the provisions of the Finance Act Income-ta:<, which deals with additional tax on excess di vi- Bombay City dend." v.

Khalau Makanji It may be pointed out that before the High Court w:f'v~~;; c~.6Lttl. it was conceded that in order that the provisions of the Finance Act might be effective, the Finance Act had to come within the scope of s. 3 of the Incometax Act. The point that was argued here was that it was not necessary to look only to s. 3 of the Indian Income-tax Act but also to the provisions of the Finance Act, through which Parliament could impose a new tax, if it so pleased. Other arguments involved modifications of language suitable to sustain the tax independently of s. 3 of the Indian Income-tax Act, a procedure which we do not think is open, for reasons which we have given in Civil Appeal No. 427 of 1957, decided today.

These modifications, which were suggested, involve a re-casting of the entire relevant paragraph of the Finance Act to make it independent of s. 3 of the Indian Income-tax Act, a course which is only open to a legislature and not to a Court. We need not give all the modifications suggested, because, in our opinion, the words of the Finance Act must be given their due meaning, and must be construed as they stand.

The learned Chief Justice, with respect, very rightly pointed out that the Income-tax Act puts the tax on income or something which it deems to be income.

In other words, the tax deals with income and income only. It further provides that this tax shall be collected at a particular rate on the total income for which provision shall be made in an yearly Central Act. The Finance Act also follows the same scheme, and lays down the rate at which the tax is to be collected. In the Finance Act, the tax is laid on the total income, but two provisos modify the rate under certain circumstances. We may at this stage read the relevant provision (Part I, First Schedule):

Hidayatullah J.

Commissioner of

lt.iecimetax, BOmbay City v.

Khatau M akanji

Spinning& Weaving Co. Ltd.

.Hidayatullah J.

" B. In the case of every company- Rate.

Surcharge. On the whole of Four annas One-twentieth of total income. in the rupee. the rate specifierl in the preceding column: Provided that in the case of a company which, in respect of its profits liable to tax under tho Income-tax Act for the year ending on the 31st day of March, 1953, has made the prescribed arrangements for the declaration and payment within the territory of India excluding the State of Jammu and Kashmir, of the dividends payable out of such . profits, and has deducted super-tax from the divi- . <lends in accordance with the provisions of subsection (3D) or (3E) of section 18 of the Act-

(i) Where the total income, as reduced by seven annas in the rupee and by the amount, if any, exempt from income-tax, exceeds the amount of any dividends (including dividends payable at a fixed rate) declared in respect of the whole or part of the previous year for the assessment for the year ending on the 31st day of March, 1953, and no order has been made under sub-section (1) of section 23A of the Income-tax Act, a rebate shall be allowed at the rate of one anna per rupee on the amount of such excess ;

(ii) Where the amount of dividends referred to in clause (i) above exceeds the total income as reduced by seven annas in the rupee and by the amount, if any, exempt from income-tax, there shall be chargeable on the total income an additional income-tax equal to the sum, if any, by which the aggregate amount of income-tax actually borne by such excess (hereinafter referred to as ' excess dividend ') falls short of the amount calculated at the rate of five annas per rupee on the excess dividend.

]'or the purpose of clause (ii) of the above proviso, the aggregate amount of income-tax actually borne by the excess dividend shall be determined as follows :-

.-.

(i) the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years immediately preceding the previous year as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover an excess dividend of a preceding year;

(ii) such portion of the excess dividend as is deemed to be out of the undistributed profits of each of the said year:.; shall be deemed to have borne tax,- ( a) if an order has been made under sub-section (1) of section 23A of the Income-tax Act, in respect of the undistributed profits of that year, at the rate of five annas in the rupee, and

(b) in respect of any other year, at the rate applicable to the total income of the company for that year reduced by the rate at which rebate, if any, was allowed on the undistributed profits." By the first Proviso, a rebate of one anna per rupee is given to a company which pays dividends less than 9 annas in the rupee out of its profits. By the second Proviso, the rebate disappears, and an additional income-tax has to be paid on dividends in excess of that limit, paid in the year. The explanation says that "the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years immediately preceding the previous year as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover an excess dividend of a preceding year". This fiction, as we have already pointed out, provides only that the dividends shall be deemed to be out of the profits not of the previous year under assessment but of some other years. What the Finance Act fails to do is to make t_hem " total income ", so as to take in the rate which is prescribed for the total income in the Proviso.

Unless the ]'inance Act stated that after the working out of the fiction the. profits of the back year or years shall be deemed to be a part of the total income of the previous year under assessment, the purpose of the Act clearly fails.

Income-tax is a tax on income

Co,;.misioner of

Income-tax, Bombay City v. .

Khatau Makanji

Spinning & . Weaving Co. Ltd.

Hidayatullah ].

Commiss1otier of

Tncome-ta:x. /Jombay City v.

Khalau Makanji

Spinning & Weaving Co. Ltd.

JI idayatullah J.

May4.

of the previous year, and it would not cover something which is not the income of the previous year, or made fictionally so.

The Finance Act could have gone further, as pointed out by the learned Chief Justice in the extract quoted, and made the profits a part of the total income of the previous year under assessment, but it did not do so.

The Finance Act could have also resorted 1; o some other fiction, which might conceivably have met the case; but it has failed to do so.

Even if one considers the dividends as having come out of the profits of preceding years, they do not become the income of the relevant previous year, and unless the :Finance Act expressly laid down that it should be taxed as part of the total income, the purpose is not achieved.

Indeed, the Finance Act continues to say that the tax shall be on the total.income, as defined in the Indian Income-tax Act and as determined under that Act. It is impossible to say that the additional income-tax was properly laid upon the total income, because what was actually taxed was never a part of the total income . of the previous year.

For these reasons, we are of opinion that the High Court was right in answering the question which it had framed, in the negative.

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

Appeal dismissed.

THE COMMISSIONER OF INCOME-TAX,

BOMBAY v.

THE JALGAON ELECTRICITY SUPPLY CO.,

LTD. (S. K. DAS, J. L. KAPUR and M. HIDAYATULLAH, JJ.) Additional Income-tax-If could be levied on excess dividends, 'When there are pro.fits in the preceding years-Manner of calculation

pf tax-Indian Finance Act, r949 and r950, Para. B, of Part I of the First Schedule.

After making all allowances and deductions, the income of the asscssee company was finally assessed for the years 1949.50

L. KAPUR

s. 3

Finance Act, 1953

First Schedule

Indian Finance Act, 1951

Indian Finance Act, 1953

s. 3

Income-tax Act

s. 3

Income-tax Act

s. 3

Income-tax Act

Income-tax Act

May 4.

I960

Commissioner of

Income-tax, Bombay City

Commissioner of

Income-tax, Bombay City

H idayalullah

K. N. Rajagopal Sastri

D. Gupta

N. A. Palkhivala

S. N. Andley

J. B. Dadachanji

Rameshwar Nath

HIDAYATULLAH

s. 66

Income-tax Act

Appellate Tribunal, .Bombay

Commissioner of Income-tax, Bombay City

Finance Act, 1953

Act applied the Finance Act, 1951

Finance Act, 1953

Income-tax Act

June 30, 1951

Income-tax Act

Income-tax Act

Indian Finance Act, 1953

Section 3

s. 3

Bombay City Income-tax Act

Hidayatullah

s. 3

Income-tax Act

Section 3

Section 3

s. 3

s. 3

Income-tax Act

s. 3

Income-tax Act

s. 3

Income-tax Act

Income-tax Act

First Schedule

.Hidayatullah

Income-tax Act

31st day of March, 1953

India

Jammu and Kashmir

section 18

section 23A

Income-tax Act

section 23A

Income-tax Act

What the Finance Act

Income-tax Act

COMMISSIONER OF INCOME-TAX

JALGAON ELECTRICITY SUPPLY CO

M. HIDAYATULLAH

pf tax-Indian Finance Act

First Schedule


Commiss1otier of

Tncome-ta:x. /Jombay City v.

Khalau Makanji

Spinning & Weaving Co. Ltd.

JI idayatullah J.

May4.

SUPREME COURT REPORTS [1960]

of the previous year, and it would not cover something which is not the income of the previous year, or made fictionally so.

The Finance Act could have gone further, as pointed out by the learned Chief Justice in the extract quoted, and made the profits a part of the total income of the previous year under assessment, but it did not do so.

The Finance Act could have also resorted 1; o some other fiction, which might conceivably have met the case; but it has failed to do so.

Even if one considers the dividends as having come out of the profits of preceding years, they do not become the income of the relevant previous year, and unless the :Finance Act expressly laid down that it should be taxed as part of the total income, the purpose is not achieved.

Indeed, the Finance Act continues to say that the tax shall be on the total.income, as defined in the Indian Income-tax Act and as determined under that Act. It is impossible to say that the additional income-tax was properly laid upon the total income, because what was actually taxed was never a part of the total income . of the previous year.

For these reasons, we are of opinion that the High Court was right in answering the question which it had framed, in the negative.

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

Appeal dismissed.

THE COMMISSIONER OF INCOME-TAX,

BOMBAY v.

THE JALGAON ELECTRICITY SUPPLY CO.,

LTD. (S. K. DAS, J. L. KAPUR and M. HIDAYATULLAH, JJ.) Additional Income-tax-If could be levied on excess dividends, 'When there are pro.fits in the preceding years-Manner of calculation

pf tax-Indian Finance Act, r949 and r950, Para. B, of Part I of the First Schedule.

After making all allowances and deductions, the income of the asscssee company was finally assessed for the years 1949.50

and 1950-51 at Rs. 3.423 and Rs. 3,312 respectively. The assessee 1960 company had declared dividends of Rs. 46,024 and Rs. 56,326 for the above two years. Though no profits were brought Commissioner of forward from the previous years, the income-tax officer applied Inom~-tax, the proviso to para. B of Part 1 of the Third and First Schedules om ay of the Finance Act, 1949 and 1950, assessed the difference in 1 vr,1 / .. 1 h dd. . l . d h d . t t J a gaon '' ec rici y eac year to a 1t10na mcome-tax an c arge mcomeax a Supply co. Ltd. the rate of annas 5 in the rupee on the amounts for the two assessment years. The High Court held that though excess dividends were, in fact, paid, the absence of profits from previous years rendered the Finance Act unworkable in this case.

The question was if the second proviso to para. B read with the explanation which sets out the manner of calculation of the tax applied and whether it was the intention of the Finance Act to levy the additional income-tax on the excess dividends even if there were no profits brought forward from preceding year or years: Held, that the second proviso to para. B of Part I of the first schedule of the Finance Act, 1950, which corresponds to the corresponding paragraph of the Finance Act, 1949, introduces a fiction which postulates that there should be undistributed profit of one or more years immediately preceding the previous year, that such undistributed profits should be sufficient to cover the amount of excess dividend actually paid out in the year under assessment, and that the undistributed profits should not have b en taken likewise to cover an excess dividend of any other previous year. The excess dividends have first to be connected with the profits of the preceding years and then the tax borne on those profits has to be found out, and tax is then payable at an enhanced rate and amounts to the difference between the tax actually borne by the profits and that demandable under the paragraph. Where there are no profits of any preceding year or years, the fiction wholly fails and the method of calculation, equally so.

Held, further, that the income-tax law seeks to put in the net certain class of income, and can only successfully do so, if it frames a provision appropriate to that end. If the law fails and the taxpayer cannot be brought within its letter, no question of unjustness as such, arises.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 477 of 1957.

Appeal from the judgment and order dated September 9, 1955, of the Bombay High Court in Income-tax Reference No. 37/x of 1954.

K. N. Rajagopal Sastri and D. Gupta, for the appellant.

N. A. Palkhivala, B. K. B. Naidu and I. N. Shroff, for the respondent.

z960

1960. May 4. The Judgment of the Court was delivered by Commissioner of HIDAYATULLAH, J.-This appeal is with a certifi' Income-tax.

Bombay cate granted by the High Court against its judgment v. . . and order dated September 9, 1955, in a reference Jalgaon Electricity d 66(1) f th I d' I t A t Th supply co. Ltd. un er s. o e n ian ncomeax c . e - Tribunal had referred the following questions for the Hidayatullah J. decision of the High Court:

"(1) Whether there was any excess dividend declared by the assessee Company?

(2) Whether the assessee Company is liable to pay additional income-tax in respect of the excess dividend paid by the assessee Company ? " The High Court answered the first question in the affirmative and the second, in the negative. The Commissioner of Income-tax, Bombay is the appellant before us, and the Jalgaon Electric Supply Co., Ltd. (the assessee Company) is the respondent.

The facts of the case are simple. For the assessment years 1949-50 and 1950.51, the book profits of the ii.ssessee Company were respectively Rs. 1,22, 469 and Rs. 76,886.

After adjustment of depreciation allowance and other deductions, the income of the assessee

Company was finally assessed at Rs. 3,423 and Rs. 3,312 respectively. The assessee Company declared a dividend of Rs. 46,024 in the first year and Rs. 56,326 in the next. The Income-tax Officer, applying the Proviso to Para. B of Part I of the Third and :First Schedules of the Finance Acts, 1949 and 1950 respectively, assessed the difference in each year to additional income-tax, and charged income-tax at the rate of 5 annas in the rupee on the amounts for the two assessment years. The assessee Company appealed first to the Appellate Assistant Commissioner and then to the Tribunal. In the Tribunal, there was a difference of opinion between the President and the Accountant Member, the former holding that the assessee Company

was not liable and the latter, that it was.

The case was then referred to a third Member, who agreed with the President. The main reason for the decision of the majority was that there were no profits in the years .preceding .the previous year, and that, therefore, the said Paragraphs could not, on their terms, operate in

t.he circumstances. The view of the minority was that I96o even if there were no profits, the intention of the Finance Act to levy the additional income-tax on the Co'f'n7~:.:!~;:;, ''f excess dividends was perfectly plain, and that the Bombay assessee Company was liable. It may be mentioned v. h. h th d • f th T, 'b 1 t d jalgaon Electricity :i.t t 1s stage t at e ecrs10n o e n una urne supply co. Ltd. entirely upon the fact that no profits were brought -- forward from the previous years, and that, therefore, Hidayatullah J. the Paragraphs could not be applied. The High Court held that though excess dividends were, in fact, paid, the absence of profits from previous years rendered the Finance Act unworkable in this case. It, therefore, accepted the reasons given by the Tribunal, and upheld its decision.

Paragraph B of Part I of the First Schedule of the Finance Act, 1950 corresponds to the corresponding Paragraph of the Finance Act, 1949. It is, therefore, not necessary to refer to them separately. We shall confine ourselves to the Finance Act, 1949. It may also be pointed out that the circumstances of the two years are also on par, except that the amounts of income and the excess dividends are different. The paragraph reads as follows:

" B. In the case of every company- Rate On the whole of total income ...... Five annas in the rupee: Provided that in the case of an Indian Company-

(i) where the total income, as reduced by seven annas in the rupee and by the amount, if any, exempt from income-tax, exceeds the amount of any dividends (including dividends payable at a fixed rate) declared in respect of the whole or part of the previous year for the assessment for the year ending on the 31st day of March, 1950, and no order has been made under sub-section (1) of section 23A of the Income-tax Act, a rebate shall be allowed at the rate of one anna per rupee on the amount of such excess;

(ii) where the amount of dividends referred to in clause (i) above exceeds.the .total inconw as reduced by seven annas in the rupee and by the amount, if .. any, exempt from income-tax, there shall be charged

Commissioner of

Income-tax, Bombay v.

J algaon Electricity

Suppl."Y Co. Ltd. ·

H idayatullah J.

'i-~ on the total income an additional income-tax equal to the sum, if any, by which the aggregate amount of income-tax actually borne by such excess (hereinafter referred to as 'the excess dividend') falls short of the amount calculated at the rate of five annas per rupee on the excess dividend.

For the purposes of the above proviso, the expression 'dividend' shall have the meaning assigned to \ it in clause (6A) of section 2 of the Income-tax Act, .l. ,- but any distribution included in that expressioi1, made during the year ending on the 31st day of March, 1950, shall be deemed to be a dividend declared in respect of the whole or part of the previous year.

For the purpose of clause (ii) of the above proviso,

the aggregate amount of income-tax actually borne r--. by the excess dividend shall be determined as follows:-

(i) the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years immediately preceding the previous year as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover an excess L..-, dividend of a preceding year; 1

(ii) such portion of the excess dividend as is . deemed to be out of the undistributed profits of each of the said years shall be deemed to have borne tax,-

(a) if an order has been made under sub-section

(1) of section 23A of the Income-tax Act, in respect of the undistributed profits of that year, at the rate of five annas in the rupee, and

(b) in respect of any other year, at the rate applicable to the total income of the company for that year reduced by the rate at which rebate, if an~-, was allowed on the undistributed profits. " The scheme of the Finance Act in relation to excess dividends and their chargeability to additional ......_. income-tax has been examined by us in Civil Appeal - No. 427 of 1957 decided today.

We are concerned in this c1,1.se with the application of the second Proviso

to the Paragraph, read with the explanations (not sor960 called), which set out the manner of calculation of Commissioner of the tax. As we have already pointed out in the other Incomet<1:r, case, the additional income-tax is payable if dividends Bumbay in excess of the limit fixed by the legislature are paid v. . . Th' dd't' l t t k Jalgaon Electricity m any year. is a I 10na mcomeax a es note supply :co. Lid. of such tax as might have been paid on the profits, - albeit at a lower rate, in any previous assessment ffidayatullah ]. year and gives dedl_lction for that amount.

The additional income-tax is payable on the excess dividends calculated at a different rate but allowing for the tax already paid. For this purpose, the aggregate amount of income-tax to be borne by the excess dividends has to be calculated in a particular manner.

This manner is indicated in the Paragraph, and it begins by providing that the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years preceding the previous year as would be just sufficient to cover the amount of the excess dividend and were not likewise taken into account to cover an excess dividend of a previous year. It is then provided that the excess dividends which are so deemed to be the undistributed profits of each of the previous years shall be deemed to have borne the tax.

The fictions which have been introduced postulate that there should be undistributed profits of one or more years immediately preceding the previous year, that such undistributed profits should be sufficient to cover the amount of excess dividend actually paid out in the previous year under assessment, and that the undistributed profits should not have been taken likewise to cover an excess dividend of any other previous year. Where there are no profits of any preceding year or years, the fiction wholly fails and the method of calculation, equally so.

We do not agree with the argument of the Commissioner that the fiction can be given effect to, even if the profits of preceding years do not exist. The argument suggests that the chargeability of excess dividends to additional income-tax can arise under the terms of the Paragraph even in such circumstances. But a plain reading of the Proviso clearly shows that the excess

IIS

z96o dividends have first to be connected with the profits of the preceding years and then the tax borne on Commissioney of h b Income-tax, t ose profits has to e found out, and the tax is pay.

Bombay able at an enhanced rate and amounts to the differv. ence between the tax actually borne by the profits J algaon lilectricitv d h d d bl d h p T supply co. ua: an t at eman a e un er t e aragraph. he -- High Court repelled the argument of the Commis- Hidayatullah J. sioner in much the same way as we have done, and we entirely agree with the reaso, ns given by it.

The Accountant Member, whose decision was in a minority, gave two reasons. The first was that "the explanation provides for the determination of the years out of the profits of which the excess dividend has come", and the second was that "in order to escape the liability imposed by Cl. (ii), the company must prove that the excess dividend has borne tax 5 annas in the rupee as it is only in that event that the additional tax payable will be nil". These reasons were also put before us for acceptance. We are, however, unable to agree. The fiction cannot be whittled down in the manner suggested in the first reason.

The fiction incorporates within itself not only what the Accountant Member says but also a mode of calculation, which is not a part of the fiction. It is the mode of calculation which cannot be given effect to, though we would go further and say that the fiction itself fails because no profits of preceding years at all existed. The second reason given by the Accountant Member assumes the liability to pay tax, and that is not permissible, because that is the fact in issue to be decided. That fact can only be decided if the Paragraph can be made applicable to the present case and not otherwise. We cannot start with the assumption that additional in.come-tax on excess dividend has got to be paid, whether the Paragraph applies or not.

That would be begging the very question to be decided.

The Commissioner also suggested numerous modifications of the language to give effect to the intention to levy additional income-tax on excess dividends, and pointed out, as did the Accountant Member, that it would be unjust to allow an escapement of tax, where there were no profits of preceding ye.ars, to set off

against the excess dividends. In our opinion, the z960 question of modification of the language cannot arise Commissioner of in the circumstances of the case. Our reasons have .Income-tax, - been given in Civil Appeal No. 427 of 1957, decided to- Bombay day, and we need not go over the ground again. v. . .

Th 1 t" f t 1 d Th Jalgaon Electricity ere is a so no ques 10n o unJUS ness invo ve . e supply co. Ltd.

Income-tax law seeks to p11t in the net certain class of income, and can only successfully do so, if it frames Hidayatullah J. a provision appropriate to that end. If the law fails and the tax-payer cannot be brought within its letter, no question of unjustness as such, arises. The answers given by the High Court to the two questions were correct in the circumstances of the case.

In the result, the appeal fails, and will be dismissed with costs.

Appeal dismissed .

KA V ALAPPARA KOTTARATHIL KOCHUNI

AND OTHERS

THE STATE OF MADRAS AND OTHERS (B. P. SINHA, c. J., JAFER IMAM, A. K. SARKAR,

K. SUBBA RAO and J. C. SHAH, JJ.)

Marumakkathayam Law-Enactment for removal of doubts- Constitutional validity-Madras Marumakkathayam (Removal of Doubts) Act, I955 (32 of r955)-Constitution of India, Arts. r9(r) (f), ]I, 3rA.

These petitions by the holder of Kavalappara Sthanam, his wife, daughters and son challenged the constitutional validity of the Madr8s Marumakkathayam (Removal of Doubts) Act, 1955,

passed by the Madras Legislature soon after the Privy Council had declared the properties in possession of the Sthanee to be Sthanam properties in which the members of the tarwad had no interest. Section 2 of the Act, which contained the substantive provision, was as follows:--

" 2. Notwithstanding any decision of Court, any sthanam in respect of which :-

a) there is or had been at any time an intermingling of the properties of the sthanam and the properties of the tarwad, or

(b) the members of the tarwad have been receiving maintenance from the properties purporting to be sthanam properties as of right, or in pursuance of a custom or otherwise, or

(c) there had at any time been a vacancy caused by there being no male member of the tarwad eligible to succeed to the Sthanam,

I960

May 4.

Income-tax Act

JALGAON ELECTRICITY SUPPLY CO

S. K. DAS

J. L. KAPUR

M. HIDAYATULLAH

pf tax-Indian Finance Act

First Schedule

Finance Act, 1949

K. N. Rajagopal Sastri

D. Gupta

N. A. Palkhivala

B. K. B. Naidu

I. N. Shroff

Hidayatullah

The Commissioner of Income-tax, Bombay

Jalgaon Electric Supply Co., Ltd.

First Schedules of the Finance Act

Paragraph of the Finance Act, 1949

31st day of March, 1950

section 23A

Income-tax Act

idayatullah

section 2

Income-tax Act

section 23A

Income-tax Act

Hidayatullah J. sioner

KA V ALAPPARA KOTTARATHIL KOCHUNI

STATE OF MADRAS

B. P. SINHA

JAFER IMAM

A. K. SARKAR

K. SUBBA RAO

J. C. SHAH

Constitution of India

Kavalappara Sthanam

Section 2