...

S.C.R.

SUPREME COURT REPORTS. 885

or the lawyer we are not directly concerned in the 1,60 present appeal.

We have, however, referred to this decision because, in the course of discussion, the State of llombay learned judge has expressed his dissent from the view.

The ;; spital taken by the Bombay High Court in regard to Mazdoor Sabha

hospitalE<, and we wish to make it clear that, in ou.r ... - opinion, the criticiEm made by the learned judgeGayendragadkar J . against the inclusion of hospitals within s. 2(j) is not well-founded.

Dealing with a similar case of an attorney, the Bombay High Court ha.s taken the same view in National Union of Commercial Employees & Anr. And Meher (M.R.) & Ors. (Pereira Fazalbhoy & Co.)(1).

We would accordingly hold that the High Court was right in holding t.hat the dispute between the appellant and the respondents was an industrial dispute to which s. 25F of the Act applied. The order passed by the High Court on the writ petition filed by the respondents is confirmed and the appea.l is dismissed with costs.

Appeal dismissed.

S. N. NAMASIVAYAM CHETTIAR

THE COMMISSIONER OF INCOME-TAX, .

MADRAS (With connected appeals)

(J. L. KAPUR AND M. HIDAYATULLAH, JJ.) ..

Income Tax-Assessment-Rejection of accounts and estimate of profits-C amputation of profits supported by cases of other assessees- Stock register-Effect of non-production-In'dian Income-tax Act;. r922 (XI of r922) s. I] proviso.

The appellant, a resident and ordinarily resident in India, carried on trade in Colombo in grains and foodstuffs for cattle.

For the relevant assessment years the Income-tax Officer rejected the acr.ounts produred by the appellant on the grounds inter alia that there was absence of vouchers and that the stock account and the manufacturing account had not been kept or produced ·

and he then made an estimate of the profits.

The Appellat~ Tribunal also agreed with the Income-tax Officer and held that the correci: profits could not be deduced from the books produced by the assessee and that therefore the proviso to s. 13 of the

(r) \19~9} II L.L.J. 38.

1960 February, 3

Indian Income-tax Act, 1922 applied. I-faving taken into consi- -. deration all the relevant factors it computed the profits at 15 % S.N. Namsivayam on grains imported from India and 12!% on grains purchased in

Chetttar Ceylon, and, in support of its computation, it pointed out that in v. certain cases which had come to its notice the rates of profits The Commissioner went up to zo%.

0! Income-Tax, The appellant challenged the validity of the assessment on Madras. the ground that the principle of natural justice had been violated in that the Tribunal had taken into consideration the rate of profit in other cases without giving an opportunity to the appellant to explain those cases, and relied upon Dhakeshwari Cotton Mills Ltd. v. The Commissioner of Income-tax, West Bengal. [1955] r S.C.R. 94r. He also urged that the non-production of stock account was not such a defect as to entitle the Taxing Authorities to reject the books and apply the proviso to s. 13 of the Act.

Held: (r) that the percentage of profits made by traders in other cases was not the basis made by the Tribunal for arriving at any conclusion as to the percentage at which income should be computed in the present case, but was merely an ancillary support to that conclusion and that Dhakeshwari Cotton Mills Ltd. v. The Commissioner of Income-tax, West Bengal, was not applicable to the case.

(2) that the keeping of a stock register is of great importance because that is a means of verifying the assessee's accounts by having a quantitative tally; that if, after taking into account all the materials including the want of a stock register, it is found that from the method of accounting correct profits of the business are not deducible, the operation of the proviso to s. 13 of the Act would be attracted.

Ghansyam Das Permanand v. Comniissioner of Income-tax C.P. & Berar (1952) 21 I.T.R. 79, Bombay Cycle Stores Company Ltd. v. Commissioner of Income-tax.

(r958) 33 I.T.R. 13 and Commissioner of Income-tax v. McMillan and Co. [1958] S.C.R. 689, relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeals No. 218 of 1955 and 219 to 223 of 1955.

Appeal by special leave from the judgment and . Order dated September 14, 1951, of the Income-tax Appellate Tribunal, Madras, in LT.A. No. 3158 of

1949-50.

and

Appeals by special leave from the judgment and order dated September, 30, 1953, of the Income-tax Appellate Tribunal, Madras, in LT.A. Nos. 7840 of 1952-53 and E.P.T.A. Nos. 300, 301 and302of1952-53.

S. Chowdhuri, N. A. Palkhivala and Naunit Lal, for the appellant,

.. -

H. N. Sanyal, Additional Solicitor.General of India, r960 R. Ganapathi Iyer and D. Gupta for the respondent. 5 " N . . 1v. an1-asivayam 1960 February 3.

The Judgment of the Court was Chettiar delivered by v. • Commissioner of KAPUR J. - In these SIX appeals the common ques- Income-Tax, tion raised is whether the proviso to s. 13 of the Madras.

Income-tax Act is applicable to the facts and circumstances of these cases. They are therefore disposed Kapur J. of by one judgment. Civil Appeal No. 218 of 1955 arises out of the assessment for the year 1943-1944.

Civil Appeals Nos. 219 to 223 relate to the assessment years 1944-1945, 1946-1947 and for the chargPahle accounting periods from January 1943 to February 1944, and from February 1945 to February 1946.

The appellant in each of the appeals is the assessee and the respondent is the Commissioner of Income-tax and Excess Profits Tax, Madras.

The appellant is a 'resident and ordinarily resident' in India and carried on extensive trade in Colombo in grains, folder, gram and other food-stuffs for cattle and poultry. For the assessment year 1943-1944 the appellant showed a turnover of Rs. 17,74,825 and a gross profit of Rs. 63,217 which is about 3·5 per cent.

:E'or the two previous assessment years the appellant's gross profits were 9 per cent and 8 per cent respectively. The Income-tax Officer, by his order dated March 20, 1948, rejected the accounts and estimated the gross -profit by adding back Rs. 2,38,831 to the returned income. Thus he raised the turnover to Rs. 20,00,000 and the gross income to Rs. 3,00,000 giving a profit of 15 per cent on the estimated turnover. On appeal to the Appellate Assistant Commissioner, the order of the Income-tax Officer was confirmed. The Income-tax Appellate Tribunal on appeal by its order dated September 14, 1951, after pointing out various defects, rejected the account books but accepted the appellant's turnover and computed the profits at 15 per cent on grains imported from India and 12! per cent on grains purchased in Ceylon. It held that correct profit for the year under assessment could not be deduced from the books produced by the appellant. The Excess Profits tax

r96o for the chargeable accounting period from February 10, - . 1942 to January 16, 1943, was decided on the basis of S.N. Namaswayam h I .c h 3 O Chettiar t e ncome-tax assessment J.Or t e year 194 -44. n v.

November 21, 1951, the appellant applied to the Commissioner of Tribunal for stating a case under s. 66(1) on the

Income-Tax, following four questions :

Mad.as.

(1) Whether under the circumstances of the case

Kapur]. the Tribunal was justified in holding that Section 13 of the Indian Income-tax Act applies to the case.

(2) Whether the reasons set out by the Appellate Tribunal in paragraph 2 of its judgment are sufficient to invoke Section 13 of the Act.

(3) Whether the Tribunal, having disagreed with the department on the basis of the assessment, had jurisdiction to apply Section 13 and make an assessment on an alleged estimate. ( 4) Whether the Tribunal was justified in making an assessment on the basis of Section 13 without giving an adequate opportunity to the assessee to meet the materials upon which eventually the assessment was rested.

But the Tribunal, by its order dated February 12, 1950, held that no question of law arose and therefore declined to state a case and thus rejected the application. The appellant then applied to the High Court of Madras under s. 66(2) of the Act on the same four questions of law.

This application was dismissed by the High Court on February 26, 1953.

Against this order of the appellant applied for special leave to appeal and, by leave of this Court, amended the petition so as to make it an appeal against the order of the High Court as well as the order of the Tribunal dated September 14, 1951.

In the other appeals also the course of proceedings before the Income-tax Officer, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal was the same. For the assessment years 1944-1945 aud 1946-47 the appellant disclosed a turnover of Rs. 10,35,748 and Rs. 5,98,728 respectively and the gross profits rates were 10·7 per cent and 8·7 per cent respectively.

As the hooks of accounts in regard to these years also were rejected, the Income-tax Appellate Tribunal applied s. 13 and estimated the gross

. ' -

• -

' . -

profit rates at 12! per cent and 10 per cent for the r960 respective years.

The appellant applied to the - .

T "b l d 66(1) f h A t .c • S.N. Namasivayam n una _un er s. t e .. c .1.or statmg a case Chettiar to the High Court for its dec1s10n on the following v. two points: Commissioner of

(1) Whether on the facts and in the circumstances Income-Tax, of the case, the Department was right in acting A!adras. under the proviso to section 13 of the Act in the Kapur J. absence of a finding that income, profits and gains cannot properly be deduced from the books produced or that. no method of accounting has been regularly employed.

(2) Whether on the facts and in the circumstances of the case, the Department hatl sufficient materials before it to justify the rates of 12! per cent and 10 per cent gross profits on the total turnover on the ground that the rates worked out by the figures submitted by the assessee work out at a

lesser figure.

The Tribunal dismissed the application on January 15,

1954. The appellant did not apply to the High Court under s. 66(2) of the Income Tax Act but obtained special leave from this Court against the order of the Tribunal by which it applied the proviso to s. 13 of the Income Tax Act. All the six appeals were heard together and a common question arises whether the Income tax Appellate Tribunal was justified in applying the proviso to s. 13 of the Income Tax Act. .

It was contended by the appellant in Civil Appeals Nos. 218, 219 and 221 of 1955 that the Income-tax Appellate Tribunal was not justified in applying the proviso to s. 13 and assuming that the proviso did apply then the percentage worked out was unjustified and had been arrived at by relying upon material which the appellant had no opportunity to meet and therefore the case fell within the rule in Dhakeshwari Cotton Mills Ltd. v. The Commissioner of Income-tax, West Bengal (1 ) where a similar violation of the fundamental rule of natural'justice-i.e., the information upon which the Tribunal relied was not disclosed .to the assessee and no opportunity was gjven_ to. him

(I) (1955] I S.C.R. 941, '

I960 to rebut 8uch material-was held to be a ground for intArference with the order of the Tribunal.

S.N. J\Tamasivayam

CJ"ttiar It was rightly argued that the power to compute

v. profits under the proviso to s. 13 arises only where no Commission" of method of accounting bas been regularly employed

Income.Tax, J d • h b d ] d Madrns. by t rn assessee an wnere t e met o emp oye IS such that the income, profits and gain cannot properly Kapur J. be deduced therefrom. It means that the method adopted by the assessee must prima facie prevail where it is regularly employed, though the Income. tax Officer can resort to the proviso if the method is such that true profits cannot be correctly determined therefrom. In other words, even if the assessee has regularly employed a method of accounting it can be discarded under the proviso if the method does not show correct profits of the year.

The Appellate Tribunal, by its order dated September 14, 1951, held that correct profits could not be deduced from the hooks produced by the assessee and therefore the proviso to s. 13 of the Income Tax Act applied. The reasons it gave were (1) that vouchers for several purchases made in Colombo had not been produced and for purchases of over Rs. 3,00,000 no vouchers were forthcoming and without the vouchers the entries in the account books could not be verified; (2) there was no quantitative tally for the grains and for other materials purchased by the appellant, which were ground into powder, turned into fodder, packed in different sizes and then sold. It was not possible, according to the Tribunal, t.o accept the books of account, where the turnover was as large as about seventeen lacs of rupees, without a quantitative tally ; (3) a fairly big sum of money was alleged to have been paid towards purchasing of licenseR for export from India; and Rs. 19,000 worth of purchases were made in Tuticorin when only a small sum of money in cash was shown in the assessee's accounts; (4) several outsiders' cheques had been entered in the accounts of the assessee without any proof as to why those cheques were paid to the assessee; and (5) a fairly big sum of money bad been invested in India in the purchase of property without

.. -

money being received from Colombo. On these facts z96o the Tribunl said : S.N. Namasivayam ' In view of these defects, we are clearly of Chettiar opinion that the correct profit could not be deduced v. from the . .books produced by the assessee, and Commissioner of accordingly hold that proviso to Section U of the Income-tax, h ,, Madras.

Act applies in this case. The question, t ereiore, is regarding the estimate.' Kapur J.

After giving this finding the Tribunal accepted the turnover as shown in the appellant's books. In making the computation of profits the Tribunal took into consideration the following matters: that the export of food grains from India was prohibited except under a license, that there was an acute shortage of cattle fodder in Ceylon and the appellant had to resort to dubious means. in order to obtain grains, that during a substantial portion of the year of accounting there was no price control in Colombo, that as the appellant was a manufacturer of forage by mixing several kinds of grains and powdering them and sold them in packets of various weights, the appellant must have made higher profits than persons who deal in grain only. Keeping all this in view the Tribunal was of the opinion that the rate of 15 per cent adopted in regard to imported grains was not too high but in the case of local purchases it was,

and therefore reduced the rate of profit in the latter case t'o 12i per cent. It was on this material that the Tribunal adopted the figure of profit as estimated by the Income-tax Officer, and in order to support this opinion further, the Tribunal remarked that in certain cases which had come to its notice the rate of profits 'went up to 20 per cent.'

On the basis of this remark it was argued that the principle of natural justice had been violated in that the Tribunal had taken into consideration the rate of profit in other cases without giving an opportunity to the appellant to explain those cases and relied upon Dhakeshwari Cotton Mills Ltd. v. The Oomff!issioner of Income-tax, West Bengal (1) where a violation of the fundamental rule of justice, i.e., where the information was not disclosed to the assessee and no opportunity was given to rebut that material, waa

(I) (l955l I. s.c.R, 94l .

z960 held to be a ground for interference with the order of

SN N --. the Tribunal. In our opinion, no such case arises in • . amasivayamth t 1

1'T • £ t• .

Dh k h Chettiar e presen appea . L, o m orma 10n, as m a es - v. wari's Case was supplied to the Tribunal by any one Commissioner of and taken into consideration by it, and therefore it Income-Tax, was not necessary to give any such opportunity as Madras. the appellant contends for. In the present case the

Kapur J.

Tribunal has held that from the method of accounting adopted by the appellant correct profits could not be deduced because of the various reasons which have been set out above and the reference to profits made in other cases was only by way of supporting that conclusion. It was not the basis on which the conclusion was formed nor the basis on which the percentage was arrived at.

As a matter of fact, the Income-tax Officer who also rejected the accounts of the appellant had also given similar reasons. He had held that there was absence of vouchers, that the stock account and the manufacturing account had not been kept or produced, that the cheques of other parties had been credited in the accounts of the appellant which had not been explained and that there was purchase of goods and property by the appellant without there being sufficient cash in hand. The Income-tax Officer also said that in other cases where grains were purchased in India and sold in Colombo the rates of profit were higher, ranging between 20 per cenb and 39 per cent. He then Worked out profits in respect of various grains in the case of the appellant and found that the average rate of gross profit worked out to 15·8 per cent., and in his opinion the gross profit in fodder should have been higher. He further took into consideration the fact that Colombo was bombed in April 1942, resulting in panic in that town and therefore during a portion of the accounting year the appellant might not have made the same margin of profit. He estimated the sales at twenty lacs and the gross profit at three lacs, thus arriving at a figure of 15 per cent on the turnover. It appears to us that neither the Income.tax Officer nor the Appellate Tribunal relied upon the profits made by traders in other cases as a basis for arriving at any conclusion

as to the percentage at which the income should be z96o computed and that they used that material for a 5 N I\' -- . d cc It . t 1 d b f 1 "f th . . amas1vayam iuerent purpose. is ex reme y ou t u 1 e Chettiar order of the Income-tax Officer or the Tribunal would v. have been different if no reference had been made to Commissioner of the rate of profits in other cases. In other words, Income-Tax,

~· the profits in other cases were not the reason for Madras. holding that 15 per cent. profit was a proper rate but Hapur 1. merely an ancillary support to that conclusion.

It may be mentioned that throughout in his grounds of appeal the appellant has emphasised the inapplicability of s. 13 of the Income Tax Act and the proviso thereto, but not to this particular violation of principles of natural justice which was emphasised and particularised before us. In his appeal to the appellate Assistant Commissioner no objection was taken to the reference by the Income-tax Officer to the rate of profits made by other dealers in grains. In the grounds of appeal t.o the Tribunal also there was no such objection. In the application under s. 66(1) there was no specific ground taken and in the application under s. 66(2) the matter does not seem to have been raised. The order of the High Court, dated February 26, 1953, does not show that any such question was raised before it ; all it shows is that the appellant's books of account were found to be defective and afforded no data for arriving at correct profits of the business. The order also refers to the non-production of invoices, the unexplained steep fall in profits made during the year when compared with the previous .years. The High Court could not find any legal flaw in the order of the Appellate Tribunal to justify an order for directing the case to be stated. -In the grounds of special leave to this Court no pointed reference was made to the n; iaterial which is now alleged to have been used by the Tribunal without giving an opportunity to the appellant to explain that material. An amended petition by leave of this Court was filed on April 28, 1954, and there also no such pointed reference was made to the material to which objection is now being taken before us. Dhakeshwari's Gase (i) cannot, in our opinion, apply to the facts of this case.

(rl [19~l I, s.c;.R. ~4l

SUPREME COUHT REPORTS (1960(2))

r960 It was then urged that the four reasons given, -- which we have set out above, could not make s. 13 S.N. Namasfoayam

1. bl u th • t• f 1 Chettia' app rna e. 1' or e reJeC ton o accounts severa v. reasons were given by the Appellate Tribunal; one of Commi"ione.of these reasons was the non-production of stock registers Income-Tax, and manufacturing accounts. This reason was given Madras. by the Income-tax Officer and adopted by the Appel-

Kaput]. late Tribunal. It was submitted that the non-production of stock account was not such a defect as to entitle the Taxing Authorities to reject tbe books and apply the proviso to s. 13. Reliance was placed on the judgment of the Punjab High Court in Pandit Brothers

v. The Commissioner of Income-tax, Delhi (1 ).

The facts in that case were very different. The Income-tax Officer there added a certain sum to the assessee's profits on the ground that the expense ratio was too high and the profits disclosed were too low and there was no stock register. The finding in that case was that the assessee maintained regular accounts of his purchases and sales and there was no finding by the Income-tax Officer that in his opinion the income could not properly be deduced therefrom. Khosla, J. (as he then was) there said : 'There is no finding that there was material before the Income-tax Officer to lead him to the conclusion that a proper statement ofincome, profits and gains could not be deduced from the material placed before him. All he said was that the profits appeared to be somewhat low and there was no stock register.'.

The want of a stock register was, in that particular case, not a very serious defect because the account books had been found and accepted as correct and disclosed a true state of affairs. It cannot therefore be said that that case laid down as a proposition oflaw that the want of a stock register by which a proper check could be made was not such a serious defect as to make the proviso to s. 13 inapplicable.

The importance of such register was pointed out by the Nagpur High Court in Ghanshyam Das Permanand

v. Commissioner of Income-tax, C.P. & Berar (2).

In cases such as the instant case, the keeping of a

(I) [I954) 26 l.T.R. I59•

(2) [r952) 21 I.T.R. 79, Sr.

- '

. stock register is of great importance because that is a r91io means of verifying the assessee's accounts by having a S.N. Namasivayam ' quantitative tally'. If, after taking into account all Chettiar the materials including the want of a stock register, it v. is found that from the method of accounting correct Commissioner of

Profits of the business are not deducible, the operation Income-Tax, Madras. of proviso to s. 13 of the Income-tax Act would be attracted, Bombay Cycle Stores Company Ltd. v.

Kapur].

Commissioner of Income-tax (1). It may also be added, as was he1d by this Court in Commissioner of Incometax Y. MacMillan & Co. e), that the Income-tax Officer, even if he accepts the assessee's method of accounting, is not bound by the figure of profits shown in the accounts. It is for the Income-tax Authorities to consider the material which is placed btlfore them and, if, after taking intg account in any case the absence of a stock register coupled with other materials they are of the opinion that correct profits and gains cannot be deduced, then they would be justified in applying the proviso to s. 13. In our opinion therefore when the Tribunal applied the proviso to s. 13 because of the various blemishes which were pointed out by the Income-tax Officer and accepted by the Appellate Tribunal, it cannot be said that there. was any error in the order of the Appellate Tribunal justifying the interference of this Court under Art. 136.

In regard to the Appeal No. 220 of 1955 for the assessment year 1946.-1947 the objection raised was that the Tribunal had committed the same error in that it took into consideration the earlier decision of the Tribunal 'in an identical situation ' i.e., in the case of the same assessee in regard to previous years.

As we have held that there was no error in the order of the Tribunal in regard to the previous years, it cannot be said that this observation of the Tribunal was in any manner erroneous. This appeal should therefore be dismissed.

The other appeals which arise under the Excess Profits Tax Act for the various chargeable accounting periods depend upon the result of the Income-tax

(1) [1958] 33 I.T.R. 13.

(2) [1958] 33 I.T.R. 182, 197.

II4

I960 aSSeSSment appeals and, aS We have dismissed those - appeals, these appeals also must be dismissed.

S.N. Namasfoayam I th lt !] t] . ] d" . d "th Chettiar n e resu a ie six a ppea s are 1sm1sse w1 v. costs.

As the appeals were consolidated there will be Commissioner of one set of costs.

Inconie~Tax,

Madras.

February 3

Appeals dismissed.

MOTI RAM v.

SURAJ BHAN & OTHERS. (P. B. GAJENDRAGADKAR, K. SuBBA RAo AND K. c. DAS GUPTA, JJ.) Rent Control-Ejectment--Statute permitting ejcctment for reconstruction of building~Subscquent atnendment making of provision more stingent--Whcther retrospective-Statute making appellate order final-Before making of order statute amended by providing revision to High Court-If amendment applies to pending appeal- East Punjah Urban Rent Restriction Act, r949 (E.P. 3 of r949, ss. r3(3)(a)(iii) and r4(4)-East Punjab Urban Rent Restriction (Amendment) Act, r956. (Punj. 29 of r956). ss. 2 and 3.

On August 28, 1956 the respondent l applied to the Rent Controller for the eviction of the appellant from a shop under s. 13 of the East Punjab Urban Rent Restriction Act, 1949, inter alia on the ground that he wanted to reconstruct the shop.

On the date, s. 13(3) (a)(iii) of the Act provided that a landlord may apply for the eviction of his tenant if he required the building for reconstruction or for its replacement by another building or for the erection of other , building.

Section 15 provided for an appeal from the order of the Rent Controller and sub-s. (4) of s. 15 provided that the decision of the appellate authority, and subject only to such decision, the order of the Controller shall be final.

By Amending Act 29 of r956, which came into force on September 24, 1956, ss. l3(3)(a)(iii) and r5 were amended; amended s. l3(3)(a)(iii) permitted ejectment if the landlord required it to carry out any building \Vork at the instance of the Government or Local Authority or any Improvement Trust under some improvement or development scheme or if it had become unsafe or unfit for human habitation; and new s. 15(5) introduced by the amending Act, gave to the High Court power to call for and examine the records relating to any order passed under the Act for satisfying itself as to the legality or propriety of such order. The application for eviction was dismissed by the Rent Contrpller and an appeal to the appellate .authority also failed.

Respondent l went to the High Court in revision and the High Court decreed eviction holding that the shop was required for

Bombay High Court

s. 2(j)

s. 25F

S. N. NAMASIVAYAM CHETTIAR

L. KAPUR

M. HIDAYATULLAH, JJ.

Income-tax Act

Colombo

s. 13

Indian Income-tax Act, 1922

India

Madras

s. 13

s. 13

S. Chowdhuri

N. A. Palkhivala

Naunit Lal

H. N. Sanyal

D. Gupta

Commissioner of KAPUR

s. 13

Income-tax Act

Kapur

March 20, 1948

September 14, 1951

Ceylon

February 10, - . 1942

January 16, 1943

S.N. Namaswayam

s. 66(1)

Section 13

Income-tax Act

Section 13

Section 13

Section 13

February 12, 1950

High Court of Madras

s. 66(2)

February 26, 1953

s. 13

S.N. Namasivayam

section 13

January 15,

1954

s. 66(2)

s. 13

s. 13

s. 13

S.N. J\Tamasivayam

s. 13

s. 13

Tuticorin

s. 13

s. 66(1)

s. 66(2)

April 28, 1954

Dhakeshwari

s. 13

S.N. Namasfoayam

s. 13

Punjab High Court

Khosla

s. 13

Nagpur High Court

s. 13

Income-tax Act

s. 13

s. 13

Art. 136

S.N. Namasfoayam

SURAJ BHAN

P. B. GAJENDRAGADKAR

K. SuBBA RAo

K. c. DAS GUPTA

ss. 2 and 3

s. 13

s. 13(3)

Section 15

s. 15

September 24, 1956

s. 15(5)


896.

SUPREME COURT REPORTS [1960 (2)]

I960 aSSeSSment appeals and, aS We have dismissed those - appeals, these appeals also must be dismissed.

S.N. Namasfoayam I th lt !] t] . ] d" . d "th Chettiar n e resu a ie six a ppea s are 1sm1sse w1 v. costs.

As the appeals were consolidated there will be Commissioner of one set of costs.

Inconie~Tax,

Madras.

February 3

Appeals dismissed.

MOTI RAM v.

SURAJ BHAN & OTHERS. (P. B. GAJENDRAGADKAR, K. SuBBA RAo AND K. c. DAS GUPTA, JJ.) Rent Control-Ejectment--Statute permitting ejcctment for reconstruction of building~Subscquent atnendment making of provision more stingent--Whcther retrospective-Statute making appellate order final-Before making of order statute amended by providing revision to High Court-If amendment applies to pending appeal- East Punjah Urban Rent Restriction Act, r949 (E.P. 3 of r949, ss. r3(3)(a)(iii) and r4(4)-East Punjab Urban Rent Restriction (Amendment) Act, r956. (Punj. 29 of r956). ss. 2 and 3.

On August 28, 1956 the respondent l applied to the Rent Controller for the eviction of the appellant from a shop under s. 13 of the East Punjab Urban Rent Restriction Act, 1949, inter alia on the ground that he wanted to reconstruct the shop.

On the date, s. 13(3) (a)(iii) of the Act provided that a landlord may apply for the eviction of his tenant if he required the building for reconstruction or for its replacement by another building or for the erection of other , building.

Section 15 provided for an appeal from the order of the Rent Controller and sub-s. (4) of s. 15 provided that the decision of the appellate authority, and subject only to such decision, the order of the Controller shall be final.

By Amending Act 29 of r956, which came into force on September 24, 1956, ss. l3(3)(a)(iii) and r5 were amended; amended s. l3(3)(a)(iii) permitted ejectment if the landlord required it to carry out any building \Vork at the instance of the Government or Local Authority or any Improvement Trust under some improvement or development scheme or if it had become unsafe or unfit for human habitation; and new s. 15(5) introduced by the amending Act, gave to the High Court power to call for and examine the records relating to any order passed under the Act for satisfying itself as to the legality or propriety of such order. The application for eviction was dismissed by the Rent Contrpller and an appeal to the appellate .authority also failed.

Respondent l went to the High Court in revision and the High Court decreed eviction holding that the shop was required for

reconstruction within the meaning of the unamended s. l3(3)(a) rg6o (iii).

The appellant contended that the amended provisions of s. 15 which permitted a revision to be filed before the High Court Moti Ram were inapplicable as the case was governed by the law as it stood v. on the date when the application for ejectment was made and Suraj Bhan that Respondent l was not entitled to the decree as the case did not fall within the provisions of. amended s. l3(3)(a)(iii) G . d-dk ] h. h t' d l' bl t h a; en raga ar • w rc were retrospec ive an were app rca e o t e case.

Held, that the revision application before the High Court was competent and the High Court had jurisdiction to interfere.

Finality could be attached to the decision of the appellate authority only after the decision was made and not before. But at the time when the appellate authority decided the matter in the present case the amending\ section had come into force and the appellate order could not claim finality under the earlier provision.

Indira Sohanlal v. Custodian of Evacuee Property, Delhi. [1955] 2 S.C.R. n17, followed.

Delhi Cloth and General Mills Co. Ltd. v. Income-tax Commissioner, (1924) L.L.R. 9 Lah. 284; Colonial Sugar Refining Co.

Ltd. v. Irving, (1905) A.C. 369, and Garikapatti Veeraya v.

N. Subbiah Choudhury, [1957] S.C.R. 488, referred to.

Held, further that the provisions of amended s. l3(3)(a)(iii) were not retrospective and did not apply to the present case, The amendment was in regard to a matter of substantive law as it affected the substantive. rights of the landlord.

An amendment which affected vested rights operated prospectively unless it was made retrospective expressly or by n_ecessary implication.

Ram Parshad Hatwai, Ludhiana v. Mukhtiar Chand, l.L.R. 1958 Pun. l553; approved. Oivil Appellate Jurisdiction: Civil Appeal No. 524 of 1959.

Appeal by special leave from the judgment and order dated August 7, 1959 of the Punjab High Court

in Civil Revision No. 613 of 1958, arising out of the Judgment and order dated the August 19, 1958 of the District Judge, Gurgaon, in Civil Appeal No. 14/14 of 1958.

N. S. Bindra and P. 0. Aggarwala, for the appellant. ' Achhru Ram and• K. P. Gupta, for respondent No. I. 1960 February 3.

The Judgment of the Court was delivered by

GAJ'1NDRAGADKAR, J.-This appeal by special leave arises from ejectment proceedings taken by Suraj

Bhan (respondent 1) against the appellant Moti Ram iri respect of a shop sitU.Med in the urban ·area o'f

r960 Gurgaon which has been in the occupation of the appellant as a tenant for more than twenty years on ]\1 oti Ra1n d v. a monthly rental of Rs. 20.

Respon ent 1 purchased suraj Bhan the shop on June 15, 1956, and soon thereafter he applied to the Rent Controller for the eviction of the Gajendragadkar /. appellant under s. 13 of the East Punjab Urban Rent

Hestriction Act, 1949 (3 of 1949) (hereinafter called the Act). This application was based on four grounds.

It was urged that the appellant was a habitual defaulter and was in arrears of rent, that the return of the money invested by respondent 1 in the purchase of the shop was not adequate, that respondent 1 apprehended that the godown and the shop of which he was in possession as a tenant would be sold off and he may be dispossessed therefrom, that is why he would require the shop in the present proceedings for his personal use and that respondent 1 wanted to reconstruct the shop for which necessary sanction had been obtained by him from the Municipal Committee

of Gurgaon and the plan prepared in that behalf had been duly approved. This claim was resisted by the appellant who disputed the correctness and the validity of all the pleas taken by respondent 1. The Rent Controller upheld the contentions of the appellant and rejected all the pleas made by respondent 1.

In regard to the plea that the respondent wanted to reconstruct the shop the Rent Controller found that the evidence adduced by respondent 1 in support of the s:iid plea "had been created as a camouflage and that the said plea was a false pretext to obtain the eviction of the appellant. On these findings the application made by respondent 1 for evicting the appellant was dismissed.

Hespondent 1 then appealed to the District Court against the said decision. His appeal, however, failed since the appellate eourt confirmed all the findings made by the Hent Controller. In respect of the last plea raised by respondent 1 about the rebuilding of the shop the appellate court observed that rispondent 1 had got the plan approved and had also got the sanction from the Municipal Committee to reconstruct the building so as to be able to make a

ground for getting the appellant ejected from the z96o shop.

Moti Ram This appellate decision was challenged by responv. dent 1 by his revisional application in the High Court suraj Bhan of Punjab at Chandigarh. The High Court confirmed _. the findings of the courts below on the first three pleas Gajendragadkar J. raised by respondent 1.

The last plea raised by respondent 1, however, was upheld by the High Court with the result that the revisional application preferred by respondent 1 was allowed and his claim for evicting the appellant was decreed. It is this decree which is challenged before us by the appellant in the present appeal.

Before dealing with the contentions raised by . Mr. Bindra on behalf of the appellant it is necessary to mention one material fact. The application for ejectment was made on August 28, 1956. Before the written statement was filed by the appellant on November 14, 1956, the Act was amended by amending Act 29 of 1956 on September 24, 1956. In the present appeal we are concerned with amendments made in ss. 13 and 15 of the Act. Section 13(1) provides inter alia that a tenant in possession of a building shall not be evicted therefrom except in accordance with~ the provisions of this section, or in pursuance of an order made under s. 13 of the Punjab

Urban Rent Restriction Act, 1947 as subsequently amended. Section 13, sub-s. (2) provides for an application to be made by a landlord who seeks to evict his tenant for a direction in that behalf. It then proceeds to prescribe conditions on the satisfaction of which a decree for ejectment can be passed in favour of the landlord. We are not concerned with these conditions in the present appeal. Section 13(3)(a)(iii) as it stood at the date of the application made by respondent 1 provided that a landlord may apply to the Controller for an order directing the tenant to put the landlord in possession in the case of any building if he requires it for the reconstruction of that building or for its replacement by another building or for the erection of other buildings. By the amending Act this provision has been substantially modified. Section 13(3){a)

(iii) as amended reads thus: "In the case of any

 r96o building or rented land, if he requires it to carry out any building work at the instance of the Government Moti Ram v. or Local Authority or any Improvement Trust under suraj Bhan some improvement or development scheme or it has become unsafe or unfit for human habitation." One Gajendragadkar J. of the questions which we have to consider in this appeal is whether this amended provision applies to the present proceedings.

The other relevant section is s. 15, sub-s. (4). Under s. 15, subs. (4) as it stood on the date when the application was filed provided that the decision of the appellate authority, and subject only to such decision, an order of the Controller shall be final and shall not be liable to be called in question in any court of law whether in a suit or any other proceeding by way of appeal or revision. This has been subsequently amended by deleting the last clause in sub-s. (4) and substituting in its place the words "except as provided in sub-s. (5) of this section." Sub-s. (5) which has been added reads thus :

"The High Court may, at any time, on the application of any aggrieved party or on its own motion, call for and examine the records relating to any order passed or proceedings taken under this Act for the purpose of satisfying itself as to the legality or propriety of such order or proceedings and may pass such order in relation thereto as it may deem fit." On behalf of the appellant it is urged before us that this amended provision which permits a revisional application to be filed before the High Court is inapplicable to the present proceedings.

Let us first deal with the point about the competence of the revisional application. The appellant's case is that under s. 15, sub-s. (4) as it stood at the time when the present proceeding commenced, the decision of the appellate authority was final, and it could not be questioned in suit or other proceedings by way of appeal or revision. In other words, a revisional application against the appellate decision was expressly excluded. If at the time when the present proceedings commenced the decision of the appellate authority was fin'aJin the eyes oflaw the

- <

subsequent amendment by which a revisional appliz96o cation has been allowed cannot affect that position.

It was the appellant's right as a party to the procee- Moti Ram dings to claim the benefit of the finality of the Sura; Bhan appellate order so far as the present proceedings are concerned. Put in a different form the contention is Gaje",, dragadkar f that the provision for a revisional application which has now been made by the amending Act .cannot retrospectively affect the proceedings which were pending at the time when the amending Act was passed.

Unfortunately for the appellant this point is concluded by the decision of this Court in the case of Indira Sohanlal v. Custodian of Evacuee Property, Delhi (1). In that case the appellant who was a displaced person from Lahore was the owner of a house there and had arranged to have it exchanged with certain lands in a village in the St'ate of Delhi belonging to an evacuee' M '. On February 23, 1948, the said owner made an application to the Additional Custodian of Evacuee Property (Rural) Delhi for the confirmation of the transaction of exchange under s. 5-A of the East Punjab Evi!-cuees' (Administration of Property) Act, 1947 as amended in 1948 and applied to the State of Delhi. Under s. 5 of the said Act an order if passed by the Custodian or Additional Custodian was not subject to appeal or revision and was to become final and conclusive. However, the application in question was not disposed of until March 20, 1952, on which date the Additional Custodian passed an order confirming the exchange.

Meanwhile the relevant provisions of the law had been amended and ultimately Central Act XXXI of 1950 was passed which, among other things, conferred revisional powers on the Custodian-General by s. 27.

In exercise of these revisional powers the Custodian.

General after hearing the parties set aside the order of confirmation and directed that the matter should be reconsidered by the Custodian. The appellant urged before this Court that the order of confirmation originally. passed was not open to revision on the ground that at the date when she filed the application in 1948 she got a vested right to have it deter.

(1) r9~;; J 2 s.c.:a. u17,

SUPREME OOURT REPORTS [1960 (2)J

mind under s. 5-A with the attribute of finality and conclusiveness under s. 5-B attaching such determina- Moti Ram tion. Her argument was that the subsequent repeal v. and re-enactment of the said provisions cannot affect

z960

Suraj Bhan such a :right in view of s. 6 of the General Clauses

Gajendragadkar ]. Act and s. 58(3) of Act XXXI of 1950. This contention was rejected and the revisional order impugned by the appellant was confirmed. It is true that the decision of this court was founded on two grounds.

The first of these related to the effect of the provisions of s. 6 of the General Clauses Act read in the light of s. 58(3) of Act XXXI of 1950. The other ground, however, was one of general importance and it is clear that it is on this latter ground that this Court based its decision.

According to this decision then the finality prescribed by s. 5-B came into operation after the order in question was made and not before. "Even if there be in law any such right at all'', observed Jagannadhadas J., who delivered the unanimous opinion of the Court, " it can in no sense be a vested or accrued right. It does not accrue until the determination is in fact made when alone the right to finality becomes an existing right as in Delhi Cloth and General Mills Go. Ltd. v. Income tax Commissioner (1 ). \Ve are, therefore, of the opinion that the principle of Colonial Sugar Refining Go. Ltd. v. Irving (2)

cannot be invoked in support of the case of the kind we are dealing with". Having regard to this decision it is impossible to accede to Mr. Bindra's argument that the finality of the appellate decision could be invoked by the appellant before the said appellate decision was actually recorded. If no finality could be claimed at an earlier stage it is clear that at the time when the appellate authority decided the matter the amending section had come into force and when the appellate order was actually passed it could not claim the finality under the earlier provision. We may incidentally point out that the said principle laid down in the case of Indira Sohanlal (') has been cited by this Court in Garikapatti Veeraya v. N. Subbiah Choudhury ('), and it has been observed that the question which was left open by the court on the earlier occasion fell to be considered in the case of

(1) (1927) I.L.R. 9 Lah 284.

(2) (1905) A.C. 369

(4) (1957 J S.C.R. 488

S.C.R.

SUPREME COURT REJ;>ORTS 903

Garikapatti V eeraya (1) and was in fact considered and r960 decided. Mr. Achru Ram, for the respondent, has h f I

; i• Moti Rain suggested that the very passage in t e case o nu, ira v.

Sohanlal (2) which enunciated the principle appears to Suraj Bhan have been cited with approval. However that may _ be, we are bound by the decision of this Court in the Gajendra •adkar J. case of Indira Sohanlal (2) and that decision is clearly b against the contention of the appellant that the amended provision in respect of revisional jurisdiction of the High Court was inapplicable.

That takes us to the other contention that the amended provision of s. 13(3) (a) (iii) applies. There is no doubt that if this amended provision applied to the present case respondent l would not be entitled to obtain an order of ejectment. It is plain that by the amendment Legislature has imposed rigorous limitations on a landlord's right to recover possession in the . case of any building or rented land. The question is whether this amendment can be said to be retrospective in operation. It is clear that the amendment made is not in relation to any procedure and cannot be characterised as procedural. It is in regard to a matter of substantive law since it affects the substantive rights of the landlord. It may be conceded that the Act is intended to provide relief to the tenants and in that sense is a beneficial measure and as such its provision should be liberally construed; but this principle would not be material or even relevant in deciding the question as to whether the new provision is retrospective or not.

It is wellsettled that where an amendment affeets vested rights the amendment would operate prospectively unless it is expressly made retrospective or its retrospective operation follows as a matter of necessary implication.

The amending Act obviously does not make the relevant provision retrospective in terms and we see no reason to accept the suggestion that the retrospective operation of the relevant provision can be spelt out as a matter of necessary implication. We ought to add that Mr. Bindra has not argud that the initial provision in s. 13(1) which is retrospective is

(r) [1957] S.C.R. 448.

(2) (1955] S, C.R. I n7.

II5

I96o attracted in interpreting the amended provision in s. 13(3) (a) (iii).

Such a contention would of course be Moti Ram v. wholly untenable.

Sum} JI hon There is another consideration to which reference may be made. If the new provision is held to be

Gojendragadkar J. retrospective in its operation what would be the consequence? Inevitably all pending actions in which landlords may have applied for possession of their buildings let out to the tenants under the provisions of s. 13(3) (a) (iii) as it stood before the amendment would automatically fail because they would not satisfy the tests imposed by the amended provision.

If such a drastic consequence was really intended by the Legislature it would certainly have made appropriate provisions in express terms in that behalf.

Where the Legislature intends to make substantive provisions of law retrospective in operation it generally makes its intention clear by express, provisions in that behalf. We are, therefore, satisfied that s. 13(3) (a) (iii) as amended cannot apply to proceedings which were pending either before the Controller or before the appellate authority at the time when the amendment was made. In this connection we ought to add that when the revisional application was argued before the High Court it was admitted by the appellant that it was the old law which was in force before the date of the amendment that applied to the case. Even so we have allowed Mr. Bindra to raise the point before us but we see no substance in it~ This point has been considered by the Punjab High Court in Ram Parshad Halwai, Ludhiana v. Mukhtiar Chand (1 ) and it appears that the Punjab High Court has taken the same view about the effect of the amendment made m s. 13(3) (a) (iii).

There is one more point which remains to be considered.

Mr. Uindra has argued that the High Court was in error in coming to its own conclusion as to whether the requirement of s. 13(3) (a) (iii) has been satisfied .. As we have already pointed out the finding of the Rent Controller and the appellate authority was that the claim made by respondent 1 that he

\I) I.l,.R. \r958) Punjab r5~3

- '

required the shop for the purpose of reconstuction r95o was not bona fide.

The High Court has reversed this Moti Ram conclusion and Mr. Bindra challenges the correctness v. or the propriety oJ the said conclusion. The revisional Suraj Bhan power conferred upon the High Court under s. 15(5) is wider than that conferred by s. 115 of the Code of Gajendragadkar .T Civil Procedure. Under s. 15(5) the High Court has

jurisdiction to examine the legality or propriety of the order under revision and that would clearly justify the examination of the propriety or the legality of the finding made by the authorities in the present case about the requirement of the landlord under s. 13(3)(a) (iii).

The High Court no doubt has accepted the appellant's argument that the requirement in question must be bona fide but it has observed that there was no legal evidence on which it could be said that the landlord's requirement was not bona fide.

Indeed it is obvious that the tests applied both by the Rent Controller and the appellate authority in dealing with the question were based on the assumption that the amended provision of s. 13(3)(a) (iii) applied to the present proceedings. Otherwise it was irrelevant to enquire whether the property in question had become unsafe or unfit for human habitation as they have done. All the relevant evidence available on the record on this point clearly sustains the view taken by the High Court that the case made by the landlord under s. 13(3) (a) (iii) was bona fide.

Soon after he purchased the house he decided to reconstruct the building, moved the Municipality with his plan and obtained its sanction. It is difficult to understand how on these facts it would be permissible to hold that the landlord is acting mala fide. That is the view which the High Court took and we see no substance in the argument that in taking the said view the High Court has acted either irregularly or improperly.

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

Appeal dismissed.

S.N. Namasfoayam

MOTI RAM

OTHERS. (P. B. GAJENDRAGADKAR

K. SuBBA RAo

K. c. DAS GUPTA, JJ.

ss. 2 and 3

s. 13

s. 13(3)

Section 15

s. 15

September 24, 1956

s. 15(5)

s. 15

Moti Ram

Suraj Bhan

N. S. Bindra

P. 0. Aggarwala

Achhru Ram

K. P. Gupta

Suraj

Bhan

Moti Ram

Gajendragadkar

s. 13

Hestriction Act, 1949

Municipal Committee

of Gurgaon

suraj Bhan of Punjab at Chandigarh

Gajendragadkar

Bindra

August 28, 1956

ss. 13 and 15

Section 13(1)

s. 13

Urban Rent Restriction Act, 1947

Section 13

Section 13(3)(a)(iii)

Section 13(3)

s. 15

s. 15

s. 15

Lahore

Delhi

February 23, 1948

s. 5

s. 5

March 20, 1952

s. 27

s. 5

s. 5

s. 6

s. 58(3)

s. 6

General Clauses Act

s. 58(3)

s. 5

Jagannadhadas

Indira Sohanlal

Garikapatti V eeraya

Achru Ram

Sohanlal

Gajendra •adkar

s. 13(3)

s. 13(1)

s. 13(3)

Gojendragadkar

s. 13(3)

s. 13(3)

Punjab High Court

s. 13(3)

Uindra

s. 13(3)

s. 15(5)

s. 115

s. 15(5)

s. 13(3)(a)

s. 13(3)(a)

s. 13(3)


February, 3

SUPREME COURT REPORTS [1960 (2))

PETLAD TURKEY RED DYE WORKS LTD. v.

DYES & CHEMICAL WORKERS' UNION,

PETLAD & AK:R.

(P. B. GAJENDRAGADKAR, K. SUBBA RAO AND

K.C. DAS GUPTA, JJ.)

Working capital-Reserve fund utilised as such-Return, if atty available-Balance sheet, if proof of reserve actually used as working capital.

The Industrial Tribunal, in the process of ascertaining the available surplus, disalJowed a claim of the appelJant employer for interest on a certain sum of money standing in the depreciation fund and alleged to have been used as working capital. If this claim was alJowed and the amount claimed deducted as a prior charge, the employees would not be entitled to any bonus as there would be no surplus. The Industrial Tribunal was of opinion that even if the depreciation reserve was utilised as \vorking capital no return thereon was allo\vable in deciding what amount was to , be deducted as prior charge. On appeal the appellant contended, inter alia, that the balance sheet of the employer company placed before the Industrial Tribunal itself showed thatthe entire sum of depreciation fund was used as working capital.

Held, that any portion of the reserve fund actualJy utilised as working capital in the year under consideration should be treated as entitled to a reasonable rate of return and the amount thus ascertained deducted as a prior charge in ascertaining the available surplus.

The balance sheet did not by itself prove the fact of utilisation of any reserve as working capital and the law required that such an important fact as the utilisation of the reserve as working capital had to be proved by the employer by evidence on affidavit or otherwise after giving opportunity to the workmen to contest the correctness of such evidence by cross-examination.

Management of Trichinopoly Mills Ltd. v. National Cotton Textile Mills Workers Union, C.A. No. 309 of 1957. and Khandesh Spg. & Weaving Mills Co. Ltd. v. The Rashtriya Girni Kamgar Sangh, J algaon, C.A. No. 257 of 1958, folJowed.

Indian Hume Pipe Co. Ltd. v. Their Workmen. (1959) II L.L.J. 357, explained.

CrvrL

APPELLATE JURISDICTION: Civil Appeal No. 258 of 1958.

Appeal by special leave from the Award dated August 17, 1957, of the Industrial Tribunal, Bombay, in Keference (IT) No. 15 of 1957.

I.M. N anavati, S. N. Andley, J.B. Dadachanji and Rameshwar Nath, for the appellant,

....

B.K.B. Naidu and I. N. Shroff, for respondent

N 0. 1.

P. T. Red Dye I. N. Shroff, for interveners Nos. 1 and 2. works Ltd. 1960, February 3.

The Judgment of the Court was v. delivered by Dyes & Chemical D.As GUPTA, J.-The only point raised in this Workers' Union appeal by the employer, Petlad Turkey Red Dye Works Ltd., Petlad, against the award of an Industrial Tribunal of a sum of Rs. 9,839 equivalent to one month's basic wages is as regards the correctness of the disallowance, in the process of ascertaining the available surplus, of a claim of 4% interest on Rs. 2,27,000 standing in the depreciation fund said to have been used as working capital. If this claim was allowed and the amount claimed deducted as a prior charge no surplus would remain so that the employees would not be entitled to any bonus. The Industrial Tribunal was of opinion that even if the depreciation reserve was utilized as working capital no return thereon was allowable for the purposes of deciding on the amount to be deducted as prior eharges in applying the Full Bench Formula. In this view it was clearly wrong.

Numerous decisions of this Court make it abundantly clear that any portion of the reserve actually utilized as working capital in the year under consideration should be treated as entitled to a reasonable rate of return and the amount thus ascertained deducted as a prior charge in ascertaining the available surplus. There is no reason whatsoever for making an exception in this respect as regards depreciation reserves.

The question remains, however, whether this amount of Rs. 2,27,000 in the depreciation fund was actually used as working capital. The Tribunal did not think it necessary to consider this question, as in its view even if this entire amount has been utilised as working capital no return was allowable. If on the materials on.the record it was possible to reach a conclusion that any reserve or any portion of it was used as working capital during the period under CQnsideration we would have thought fit to calculate the amount allowable as return thereupon and deducted it from the amount ascertained as surplus

Das Gupta].

• z96o by the Industrial Tribunal. On an examination of P. T. Red Dye the record, however, we cannot discover any such works Ltd. material. All that we have is that the employer v.

Company in its written statement claimed interest on Dyes & Chemfral reserves as working capital at Rs. 32,000 the rate of

Workers' Union return being mentioned as 4%. It was not men-

Das Gupta f tioned therein in so many words that the depreciation fund was part of the reserves employed as working capital. It is claimed however that such an averment was implicit in the claim of Rs. 32,000 as the amount allowable as return on reserves employed as working capital. Assuming that this is so it still remained the duty -of the Company to prove that any portion of the depreciation fund was actually utilised as working capital. It was suggested before us that this averment by implication that the depreciation fund was also used as working capital was not challenged by the workers. This suggestion is obviously incorrect.

We find that in Exhibit U/l a statement submitted on behalf of the workers containing calculations for the available surplus Rs. 3,000 was shown as the amount deductible on working capital at 2%. That is, a sum of Rs. 1,50,000 out of the reserves was stated to have been used as working capital. The employer's statement in Exhibit C/3 dated July 12, 1957, shows a deduction of"Interest at 4% ou Reserves employed as working capital-Rs. 32,000". A similar claim is made in Ex. C/4, an alternative statement filed on behalf of the employer on July, 12, 1957. The workmen also filed a statement showing calculations of bonus made by them on the same date i.e., July, 12,

1957. This is marked as Ex. U/3. According to this, return at the rate of 4% on working capital of Rs. 1,66,000 was allowable as deduction. Thus, according to workmen, the reserves used as working capital was stated to be Rs. 1,66,000 while according to the employer this amount was no less than 8 lakhs.

It is quite clear therefore that the workmen had at no stage admitted either expressly or by implication the employer's claim that any portion of the depreciation fund was utilized as working reserve.

On behalf of the appellant it was strenuously contended, however, that the balance.sheet of the

• -

Company which was placed before the Industrial

P. T. Red Dye Works Ltd.

Tribunal will itself show that the entire sum of depreciation fund of Rs. 2,27,000 was used as working capital. The balance-sheet does show a sum of v.

Rs. 2,27 ,000 as the depreciation fund.

Assuming for Dyes &- Chemical the purposes of the present case that this was the Workers' Union actual sum standing in the depreciation reserve the . further question is whether the balance-sheet proves that this sum was utilized as working capital. Assuming further for the purposes of this case that the analysis of the statement made in the balance-sheet might indicate that this sum could not but have been utilised as working capital, it has to be remembered that no such conclusion is possible unless it is known as a fact that the statements made in the balancesheets under the different heads are correct statements.

On that there is absolutely no evidence. All that the balance-sheet, as submitted, shows is that certain statements were made. The mere fact that the statements were made can never be taken as proving that the statements were correct.

That is a distinction which the courts of law have always been careful to make. Thus, if a person is to prove that he was ill on a particular date, the mere filing of a certificate of a medical man that he was ill on that date is not accepted as evidence to show that he was ill. The correctness of the statement made in the certificate has to be proved by an affidavit or oral testimony in court by the Doctor concerned or by some other evidence. There is no reason why an exception should be made in the case of balance sheets prepared by Companies for themselves. It has to be borne in mind that in m::i.ny cases the Directors of the Companies may feel inclined to make incorrect statements in these balance-sheets for ulterior purposes.

While that is no reason to suspect every statement made in these balance-sheets, the position is clear that we cannot presume the statements made therein to be always correct. The burden is on the party who asserts a statement to be correct to prove the same by relevant and acceptable evidence. The

mere 1;1ta, tement of the b1J.>lance-ebeet ie of no assistance

Das Gupta] .

to show therefore that any portion of the reserve was actually utilized as working capital.

P:O,:,'~ye The question whether a balance-sheet can be taken

v. as proof of a claim of what portion of reserve has Dyes & Chemical actually been used as working capital was very

Workers Union recently considered by us in Kha.ndesh Spg. & Weaving Mill Go., Ltd. v. The Rashtriya Girni Kamgar Sangh, Jalgaon (Civil Appeal No. 257 of 1958).

As was Das Gupta j.

pointed out by Subba Rao, J. in that case the balancesheet of a Company is prepared by the Company's own officers and when so much depends on the ascertainment of what portion of the reserve was utilized as working capital, the principles of equity and justice demand that an Industrial Court should insist upon a clear proof of the same and also give a real and adequate opportunity to the labour to canvass the correctness of the particulars furnished by the employer. In that case we also considered an observation in Indian Hume Pipe Company Ltd. v.

Their Workmen (1 ) which was relied upon for an argument that the balance-sheet was good evidence to prove that amounts were actually used as working capital. As was pointed out in Khandesh Spg. & Weaving Mills Gase (Supra) this observation was not intended to lay down the law that a balance-sheet by itself was good evidence to prove any fact as regards the actual utilisation of reserves as working capital.

The observation relied on was a sentence at page 362 :-"Moreover, no objection was urged in this behalf, nor was any finding to the contrary recorded by the Tribunal." If it had been intended to state as a matter of law that the balance-sheet itself was good evidence to prove the fact of utilisation of a portion of the reserve as working capital it would have been unnecessary to add such a sentence.

This question as regards the sufficiency of the balance-sheet itself to prove the fact of utilization of any reserve as working capital was also considered by us in Management of Trichinopoly Mills Ltd. v.

National Cotton Textile Mills Workers Union (Civil Appeal No. 309 of 1957) and it was held that the balance-sheet does not by itself prove any 'such fact and that the law requires that such an important

(1) (1959) II L.L.J. 357

......

fact as the utilisation of a portion of the reserve as working capital has to be proved by the employer by evidence given on affidavit or otherwise and after giving an opportunity to the workmen to contest the correctness of such evidence by cross-examination.

We must therefore reject the contention urged on behalf of the employer-appellant that the balancesheet that has been filed is sufficient to prove that Rs. 2,27,000 of the depreciation fund was actually used as working capital. There is, as we have already stated, no material on the record from which any conclusion can be reached as regards the utilisation of the whole or any portion of this sum lying in depreciation fund as working capital.

The appellant's counsel finally asked that the matter may be sent back to the Industrial Tribunal and an opportunity given to him to adduce proper evidence on this point.

We do not see any circumstance that will justify us in making an order of remand in a case of this nature.

The appeal is accordingly dismissed with costs.

Appeal dismissed.

THE STATE OF UTTAR PRADESH

HAFIZ MOHAMMAD ISMAIL AND

HAFIZ JAWED ALI

(JAFER IMAM, K. N. WANCHOO AND J. c. SHAH, JJ.)

Criminal Trial-Counterfeit trade mark-Wrappers and labels of soap made to resemble those of another soap-If Counterfeit- Indian Penal Code, I86o (XLV of I86o). ss. 28 and 486.

The respondents were found selling counterfeit Sunlight and Lifebuoy soaps and were prosecuted under s. 486 of the Indian Penal Code.

The Magistrate found that the resemblance between the wrappers and labels in which the soaps were being sold and those of the genuine soaps was such that a person may be deceived by it and convicted the respondents. An appeal to the Sessions Judge was dismissed. On revisl.on the High Court held that the wrappers and labels were mere colourable imitations of the genuine trade mark, but were not counterfeit and acquitted the respondents.

II6

P. T. Red Dye

Wo?hs Ltd. v.

Dyes &- Chemical

Workers' Union

Das Gupta].

February, 9

PETLAD TURKEY RED DYE WORKS LTD

DYES & CHEMICAL WORKERS UNION, PETLAD & ANR

P. B. GAJENDRAGADKAR

K. SUBBA RAO

K.C. DAS GUPTA, JJ.

I.M. N anavati

S. N. Andley

J.B. Dadachanji

Rameshwar Nath

B.K.B. Naidu

I. N. Shroff

P. T. Red Dye I. N. Shroff

Dyes & Chemical D.As GUPTA

Petlad Turkey Red Dye Works Ltd.

Das Gupta

P. T. Red Dye

July 12, 1957

July, 12, 1957

July, 12,

1957

Industrial

P. T. Red Dye Works Ltd.

Das Gupta

Subba Rao

Khandesh Spg. & Weaving Mills Gase

STATE OF UTTAR PRADESH

HAFIZ MOHAMMAD ISMAIL

HAFIZ JAWED ALI

JAFER IMAM

K. N. WANCHOO

c. SHAH

Indian Penal Code

ss. 28 and 486

s. 486

Indian Penal Code


......

S.C .. R.

SUPREME COURT REPORTS 911

fact as the utilisation of a portion of the reserve as working capital has to be proved by the employer by evidence given on affidavit or otherwise and after giving an opportunity to the workmen to contest the correctness of such evidence by cross-examination.

We must therefore reject the contention urged on behalf of the employer-appellant that the balancesheet that has been filed is sufficient to prove that Rs. 2,27,000 of the depreciation fund was actually used as working capital. There is, as we have already stated, no material on the record from which any conclusion can be reached as regards the utilisation of the whole or any portion of this sum lying in depreciation fund as working capital.

The appellant's counsel finally asked that the matter may be sent back to the Industrial Tribunal and an opportunity given to him to adduce proper evidence on this point.

We do not see any circumstance that will justify us in making an order of remand in a case of this nature.

The appeal is accordingly dismissed with costs.

Appeal dismissed.

THE STATE OF UTTAR PRADESH

HAFIZ MOHAMMAD ISMAIL AND

HAFIZ JAWED ALI

(JAFER IMAM, K. N. WANCHOO AND J. c. SHAH, JJ.)

Criminal Trial-Counterfeit trade mark-Wrappers and labels of soap made to resemble those of another soap-If Counterfeit- Indian Penal Code, I86o (XLV of I86o). ss. 28 and 486.

The respondents were found selling counterfeit Sunlight and Lifebuoy soaps and were prosecuted under s. 486 of the Indian Penal Code.

The Magistrate found that the resemblance between the wrappers and labels in which the soaps were being sold and those of the genuine soaps was such that a person may be deceived by it and convicted the respondents. An appeal to the Sessions Judge was dismissed. On revisl.on the High Court held that the wrappers and labels were mere colourable imitations of the genuine trade mark, but were not counterfeit and acquitted the respondents.

II6

P. T. Red Dye

Wo?hs Ltd. v.

Dyes &- Chemical

Workers' Union

Das Gupta].

February, 9

r960

State of U. P,

H ufiz ~VJ ohnnirned

Ismail & Hafiz jawed Ali

Held, that the wrappers and labels were counterfeit of the genuine wrappers and labels of Sunlight and Lifebuoy soaps. In order to prove that the v.rrappers and labels were counterfeit within the meaning of s. 28 of the Indian Penal Code rear! with Explanation z thereof the Court had to decide (i) whether the \vrappers and labels on the soaps sold by the respondents were made to resemble the \vrappers and l:J.bls of the genuine Sunlight and Lifebuoy soaps, and (ii) if they were so made to resemble, whether the resemblance \Vas such as might deceiyea pcr':'..on.

It \\-'as not necessary to import \Yards like "coluurablc imitation " ins. 28. Explanation I of s. 28 provided that it \Vas not essential to counterfeiting that the imirntion should be exact and the High Court had erred in not considering \vhether tl1e resemblance was such as might deceive a person, inspite of the difference in detail between the two sets of wrappers and labels.

Criminal Appellate Jurisdiction : Criminal Appeals Nos. 129-130 of 57. ' Appeals by special leave from the judgment and order dated July 13, 1956 of the Allahabad High Court (Lucknow Bench) at Lucknow in Criminal Revisions Nos. 118 and 119 of 1955, arising out of the judgment and order dated March 31, 1959 of the Second Civil and Sessions Judge, Lucknow in Criminal

Appeals Nos. 511 and 512 of 1954.

H. N. Sanyal, Additional Solicitor-General of India, G. C. Mathur, and 0. P. Lal, for the appellant.

N uruddin Ahmad and N aunit Lal, for the respon dents. 1960 February, 9. The Judgment of the Court

was delivered by ,..

Wanchoo J.

W ANCHOO, J.-These are two connected appeals by special leave againt the judgment of the Allahabad c High Court. The brief fa<>ts necessary for their disposal are these.

Oue Bhagwan Swarup Saxena, the Trade Marks Investigator, Lever Brothers Limited

India (hereinafter called the company) was working in Lucknow on behalf of the company. He came to know that counterfeit Sunlight and Lifebuoy soaps were being manufactured and sold on a large scale in Y ahiaganj and other places in Lucknow. This was investigated on behalf of the company which manufactured genuine Sunlight and Lifebuoy soaps. It was found that two soap factories in Lucknow were manufacturing , counterfeit Sunlight and Lifebuoy

soaps. It was also found that l!a.fiz Mohammad •

Ismail and Hafiz Jawed Ali who are the respondents r96o in the two appeals before us were selling these counterfeit soaps in Yahiaganj where they have shops.

StateofU.P.

Consequently a raid was made on the two shops with H ifi r..; h a. the help of the police on May 19, 1953. A large ;,,; ail:;:,;;

number of soaps were recovered from the two shops Jawed Ali which were wrapped in labels said to be counterfeits of those in which the genuine Sunlight and Lifebuoy Wanchoo .f. soaps of the company are sold. Consequently the two respondents were prosecuted under ss. 482 and 486 of the Indian Penal Code.

The Magistrate found the case proved and held that the labels in which the respondents were selling soaps were counterfeit of the labels of genuine Sunlight and Lifebuoy soaps. He, therefore, convicted the respond.ents under ss. 482 and 486 of the Code. The respondents went in appeal to the Sessiom; Judge but their appeals were dismissed. They then went in revision to the High Court. The High Court held that the cases did not fall within s. 482 of the Indian Penal Code and therefore acquitted them of the charge under that section. It further held that the labels or wrappers used on the soaps sold by he respondents could not be regarded as counterfeit of the genuine wrappers and labels of Sunlight and Lifebuoy soaps though they were colourable imitations of the same; it therefore acquitted them under s 486 also, without going into the other points raised on behalf of the respondents. The applications of the State of Uttar

Pradesh for a certificate to appeal to this Court having been rejected, the State applied for leave to appeal to this Court which was granted; and that is how the matter has come up before us.

The learned Additional Solicitor General appearing for the State has not pressed the appeals so far as the acquittal under s. 482 of the Code is concerned. The

acquitt.al therefore under that section will stand. He has, however, strenuously urged that the view of t.he High Court that the wrappers and labels are not counterfeit but are mere colourable imitations of the genuine trade marks of the company is incorrect inasmqch as the High Court has not given full effect to the

r960

State of U. P.

Hafiz .11.f ohamnied

Ismail & fl afi z

Jawed Ali

Wanchoo ].

914 SUPREME COURT REPOl'tTS [l!l60 (2)]

words of s. 486 in that behalf and the definition of ' counterfeit' in s. 28 of the Indian Penal Code.

Section 28 is in these terms-

" A person is said to 'counterfeit ' who causes one thing to resemble another thing, intending by means of that resemblance to practise deception or knowing it to be likely that deception will thereby be practised. . Explanation 1.-It is not essential to counterfeiting that the imitation should he exact.

Explanation 2.-When a person causes one thing to resemble another thing, and the resemblance is such that a person might be deceived thereby, it shall be presumed, until the contrary is proved, that the person so causing the one thing to resemble the other thing intended by means of that resemblance to practise deception or knew it to be likely that deception would thereby be practised." The relevant part of s. 486 is in these terms-

" Whoever sells, or exposes, or has in possession for sale or any purpose of trade or manufacture any goods or things with a counterfeit trade mark or property mark affixed to or impressed upon the same or to or upon any case, package or other receptacle in which such goods are contained, shall, unless he proves- ( a) ....... ········································ ............... .

(b) .................•....•........................•..........•......

(c) .............................................................. . be punished with imprisonment of either description for a term which may extend to one year or with fine or with both." The contention on behalf of the appellants is that the High Court in holding that the labels and wrappers in this case were only coloura hie imitations of the genuine trade mark labels and wrappers of the company and were not counterfeit has not taken into account the words of s. 28 and particularly of the two Explanations thereof. It is pointed out that the words "colourable imitation" do not appear ins. 28 which defines the word "counterfeit " and t)J.e High Court seems to have misdirected itself by treating the wrappers and labels in this case as colourable

imitations and not counterfeit within the meaning of s. 28.

The main ingredients of counterfeiting as laid down in s. 28 are (i) causing one thing to resemble another thing, and (ii) intending by means of that r:esemblance to practise deception or (iii) knowing it to be likely that deception will thereby be practised. Thus if one thing is made to resemble another thing and the intention is that by such resemblance deception would be practised or even if there is no intention but it is known to be likely that the resemblance is such that deception will thereby be practised there is counterfeiting. Then comes Explanation 1 to s. 28 which lays down that it is not essential to counterfeiting that the imitation should be exact.

Ordinarily counterfeiting implies the idea of an exact imitation; but for the purpose of the Indian P'enal Code there can be counterfeiting even though the imitation is not exact and there are differences in detail between the original and the imitation so long as the resemblance is so close that deception may thereby be practised.

Then comes the second Explanation which lays down that where the resemblance is such that a person might be deceived thereby it shall be presumed until the contrary is proved that the person causing one thing to resemble another thing was intending by means of that resemblance to practise deception or knew it to be likely that deception would thereby be practised. This Jl}.rplanation lays down a rebuttable presumption where the resemblance is such that .a person might be deceived thereby.

In such a case the intention or the knowledge is presumed unless the contrary is proved.

This analysis of s. 28 shows that there is no necessity of. importing words like ' colourable imitation ' therein. In order to apply it, what the Court bas to see is whether one thing is made to resemble another thing, and if that is so and if the resemblance is such that a person might be deceived by it there will be a presumption of the necessary intention or knowledge to make the thing counterfeit, unless the contrary is 11roved.

What the court therefore has to see is whether one thing has been made to resemble another

State of U. P.

Hafiz Mohamed Ismail & H afii

jawed Ali

Wanchoo .f.

1960 thing. If it finds that in fact one thing has been

ma.de to resemble another it has further to decide State of u. P. whether the resemblance is such that a person might

Hafiz !>; hammed be deceived. If it comes to the conclusion that the

fonail &- HafiZ resemblance is such that a person might be deceived Jawed Ati by it, it can presume the necessary intenion or knowledge (until the contrary is proved) and counterfeiting Wanchoo J. would then be complete. Therefore the two things that were necessary to decide in this case were (i) whether the labels or wrappers on the soaps sold by the respondents were made to resemble the labels and wrappers of the genuine Sunlight and Lifebuoy soaps, and (ii) if they were so made to resemble, whether resemblance was such as might deceive a person. If both these things were found the labels and wrappers in this case would be counterfeit and the necessary intention or knowledge would be presumed unless the contrary was proved.

Now the Magistrate as well as the Sessions Judge examined the wrappers and labels in this case and compared them with the genuine labels and wrappers of the Sunlight and Lifebuoy soaps of the company and came to the conclusion that there was resemblance between the two sets of wrappers and labels and that that resemblance was so close that a person might be deceived. On that finding, they held that these wrappers and labels were counterfeit because the contrary was not proved before them. The High Court does not say that there is no resemblance between the two sets of wrappers and labels. The very fact that the High Court says that the wrappers and labels found in this case were colourable imitations of the genuine wrappers and labels shows that there was resemblance. The High Court however has stressed the difference in detail between the two sets of wrappers and labels but seems to have overlooked Explanation 1 of s. 28 which says that it is not essential to counterfeiting that the imitation should be exact, even though the Explanation is quoted in the judgment of the High Court. What the High Court had to decide was whether oven with these differences in detail which had also. been noticed by the Magistrate and the Sessions Judge a person might

be deceived by these wrappers and labels recoverd from the respondents' shops. This aspect of the matter has not been considered by the High Court at all and it has contented itself by saying that the wrappers and labels recovered in this case were colourable imitations of the genuine trade marks. That in our opinion does not dispose of the matter so far as s. 28 is ·

concerned.

The High Court should have found whether the resemblance in this case was such as might deceive a person. The High Court had before it the opinions of the Magistrate and the Sessions Judge. Their opinion was to the effect that the resemblance was such as might deceive a person and that the differences in detail did not affect that resemblance. It was this aspect of the matter which the High Court failed to consider when it went on to hold that the labels and wrappers recovered along with the soaps from the shops of the respondents were not counterfeit.

We have looked at the labels and wrappers on the soaps recovered from the shops of the respondents ourselves and compared them with the labels and wrappers of the genuine Sunlight and Lifebuoy soaps and we agree with the opinions of the Magistrate and the. Sessions Judge that the resemblance is such that a person may be deceived by it.

In the circumstances, Explanation 2 to s. 28 will apply and as the contrary was not proved it must be hPld that the necessary intention or knowledge was there and these wrappers and labels arc counterfeit of the genuine wrappers and labels of the Sunlight and Lifebuoy soaps of the company.

The appeals must therefore be allowed; but as the High Court did not consider the points relating to jurisdiction and limitation and whether the respondents were protected under cl. (a) and cl. (b) or (c) of s. 486, they will have to be remanded to the High Court for disposal ac0ording to law on these points.

We therefore allow the appeals and setting aside the acquittal Of the respondents under s. 486 of the Indian Penal Code only send the cases back to the High Court

0for disposal on the lines indicated above.

Appeals allowed.

Oases remanded,

I960

State of U. P.

Hafiz Mohamed Ismail &- H aftz

Jawed Alt

Wanchoo ].

THE STATE OF UTTAR PRADESH

JAFER IMAM

K. N. WANCHOO

c. SHAH, JJ.

Indian Penal Code

ss. 28 and 486

s. 486

Indian Penal Code

State of U. P

s. 28

Indian Penal Code

s. 28

H. N. Sanyal

0. P. Lal

N uruddin Ahmad

N aunit Lal

Wanchoo

W ANCHOO

Oue Bhagwan Swarup Saxena

Lucknow

Ismail

Hafiz Jawed Ali

Yahiaganj

May 19, 1953

Jawed Ali

ss. 482 and 486

Indian Penal Code

ss. 482 and 486

s. 482

Indian Penal Code

s 486

State of Uttar

Pradesh

s. 482

State of U. P.

s. 486

s. 28

Indian Penal Code

Section 28

s. 486

s. 28

s. 28

s. 28

s. 28

s. 28

State of U. P.

Hafiz Mohamed Ismail

H afii

jawed Ali

Wanchoo

Jawed Ati

s. 28

s. 28

s. 28

s. 486

s. 486

Indian Penal Code

State of U. P.

Hafiz Mohamed Ismail