,%1dlu,. BeaiwllJ' ..

PriNJI L1d.

U11Um o/ lntlia

K•pur .J.

J!u;; t

5!16 SUPREME COURT REPORTS [1002) SUPP.

which owna a. fleet of buses a.nd lorries and carriell on the business of transport In res1wot of !IBRl'R~· ment year I !!60-61 it cla.imoo a. development rPbate

on all its plants and machiner.v including buPines.q.

The Income tax Officer diHallowed tho olnim of rebate on transport vehicles under the proviso above quoted and computed the tax payable without such rebatfl. ft was contonderl on behalf of the petitioner that the proviso oft'cnrls Art. 14 in that it discriminates betweon machinery which is office appliance or road transport vehicl<'s and other kind of machinery. It is difficult to accept such a contention because there is nothing in the Constitution which prevents the legislBture from r:hoosing thp, object of taxation from 11mongt various classes of machinery for the purpose of giving d<'vefopment rebate. Tho Constitution rloes not prohibit any sueh cla.ssifica.tion which has l>l'en ma.de in the present case.

The petition is wholly without merit and is thcr1Jforc dismiHSed a.nd the rule is discharged. The

p••titioncr will pny tho costi! of the respondent.

P1iifi(Jn d1'.'IT11i ... 'll'd.

P. V. RAGHAVA REDDI AND AXOTHER

v. ('0lJUIS810XER OF INCOME-TAX ( ll. P. S1~HA, C .. J., , J. L. KAPt:a, M. HrnAYA1..-1.1 .. w,

J. C. S11.\11 nncl .r. R. Mn.>1101.KAH, J.T.)

Nou-n ... i1/1111" f"IH1i/"111.1f. ro111111i"si()11 d1tf' /u-ff1-rr:1•1-1! l1.11 /11rliut, fl1m 11111l 7r-tirl dir1cl/.11 ur tl1rfJu~1/I oll1P.1'-" "' th· 11011.-1,,,.;_ ,/1 111 r'''"J"""!I --1/ lrtlflf(jr!J fllj,..1i, l-/1t1r1111r, ; J 1'tr."i1.'r,/ in t,1.1•111/1' ,,.,.,-itJJry--/111/ian /11rf1111•--fo.r:A.ct, 1922 (ll 11/ JC122),,.,.. 4(1J(t,), I! f)(r), 43.

Theappellant i\ a firn1 '"°hich \\'as oin~ huincss ~11 mica.

To negotiate for ordrrs and I•• hancllc lt-s other affar" th<- appell..ant engaged a company in Japan , vliich 1~ adn111tcdly a "non .. rtllii<lcnt" c<1mpany.

By agTr.c1ncnt l)ClWcr.n tl1c

t\vo fir1ns, <luring the yrars of account the amount of con1mission payable to the Japanese company was received by the appellant. But this amount could not be sent, due to the exchange control restrictions, to the Japanese company.

The amount was kept under the instructions of the Japanese company in a separate account to be held on its behalf to be applied as instructed. Some of the amount was later paid to the Japanese company either directly or through others.

Treating the appellant as 'statutory agent' of the J apanesc company the Income-tax authoriti.s assessed the appellant on the amount received for the two account years.

The appeal to the Commissioner failed. But on further appeal the Tribunal ordered the cancellation of the assessment. The Commissioner of Income-tax obtained a reference to the High Court and the High Court answered the question "whether the aforesaid sum of Rs. 26,255-0,0 and Rs. I 1,272-0-0 being selling commission credited to the aforesaid non-resident company's account in t!ie books of the assessee are chargeable in the hands of the assessee under s. 4(1) (a) for the assessment years 1949-50 and 1950-51 ?"in favour of the Department.

The assessee thereupon filed an appeal before the Supreme

Court on a certificate granted by the High Court.

1'hc two main questio11s before the Supreme Court were whether the appellant was a •statutory agent' for purposes of s. 43 and whether the income was received by Japanese company in 'the taxable territory'.

Held, thai there was a business connection between the assessee and the Japanese company sufficient in law for treating the assessee as an agent for purposes of s. 43 and the appellant was rightly treated as a 'statutory agent•: Before the money was entered into the account in the name of the Japanese company and held on its behalf there might be a relation of debtor and creditor between the-assessee and the Japanese Company; but after the money was credited in the books of account in the name of the Japanese company it belonged to it because it was held for and on behalf of that company and was at its disposal. Therefore the income was received in the taxable territory within the meaning of s. 4(1) (a) of the Indian Income Tax Act, 1922.

Held, further, that els. (a) and (c) of s. 4(1) can be read disjunctively and that it is not necessary that the income must not only he received in the taxable territoric-s but also must accrue or arise in the taxable tenitories.

1.'urner Morrison & Oo. Ltd. v. Oom1nis8ionet of Jnconie-. tax (1953] 23 I.T.R. 152, followed.

P. V. /luthava lledi..•

v, Comtnfasion1r of

lncomafax

J!J(j2

P. Y. Batlaav" Rtd•li

Comnti; Jioner of

/&OMtta.x

lliatullah J.

CIVIL APn:LLATE JURISDICTION : Civil Appeals Nos. 325 and 326 of 1960.

Appeals from the judgment and order dated Febrnary 21. 1956, of tho former Andnra High

Court in case Referred No. 50 of 1954.

R. GunaprUhy Iyer, R. Thiagurajun and G.Gopal.a !.:rishnan, for the appellants.

H. N. Srmyul. Additional SoUcitor General of India, K. N. Rajagopala Sastri and P. D. Mtnon, for the respondent.

1962. January 16. -Tho Judgment of the Court was delivered by

HlDAYATl:LLAH J.-The appellant is a firm at Gudur (Andhra Pradesh), which was doing business in Mica under the name and style of tho Continental Export and Import Company.

During the yea.rs of account, 1948-49 and 1949-50 (corrlll!ponding to the assPssment years, 19'19-50 and

1050-51 ), the aBl!Ot'BCC firm exported Mica to Japan.

Mica was not directly exportable to Japanese huyers during these years, as Japan was under military occupation, but to a State Organisation called

fukiCho (Board of Trade). To negotiate for order and to handle its other affairs in Japan in connection therewith, the aesesseo firm engaged San- Ei Trading Co. Ltd., Tokyo, as its agents.

The Japanese Company was dmittedly a 'nonresident' Company. Two agreements were entered into by the assessee firm and the Japanese Company, the first for the quarter, July to September 1948, during which period a commis.ion of 4 per cent on the gross

sale proceeds was payable to the Japanese Company, and tho second, for an indefinite period, with the commission reduced to 2 per cent.

During the years of account the amount com mission Jue to thl' Japanese Company 11us respec-

. J n "' ''"' Ii ) I J.>o 11 •)-.)_8 ° Tl1c 0 n tive y 1"8. _h,-..,.,.:· - a11~ \i" • • ,-'- -o. .::n. amounts(i.ucluJcJ Ill the prwc of .\Ilea expurtoJ)wcro

received by tho a8sessoe firm iu Imliu, but due to

the restrictions imposed by the Exchange Control

laws, they oould not be sent to the Japanese Company. The agreements between the assessee firm and the Japanese Company, therefore, provided for this contingency by the inclusion of the following term:

"In view of the difficulties in this oountry it is requested that the first party credits all these amounts to the account of the second party with them without remitting the same until definite instructions are received by the

first party." During the two account years, a total amount of Ra.13,319-12-4 was paid to the Japanese Company either directly or through others, to whom the assessee firm was instructed by the Japanese Company to pay the amount. The Income-tax authorities treated the aasessee firm as the 'statutory agent' of the Japanese Company, and as868sed tax on the two amounts in the respective years of assessment.

The order of the Income-tax Officer was oonfirmed on appeal; but the Tribunal set aside the order on the ground that the income to the Japanese Company had accrued or arisen in Japan and could not be said to have been received by the Japanese Company in the taxable territories, since a. 4(l)(a) was subordinate to s. 4(l}(c). The Tribunal thus concluded :

"The referrence in section 4( 1 )(a) to income 'received in India' can, in our opinion, refer only to the situation more specifically provided for in section 4(l)(b) as 11ubsection(a) provides a genera.I cover for both the immediately following eub-l!OOtions (b) and (c).

Section 4( I)( a) cannot therefore by it.self add

a new liability to non-residents the extent of which is clearly delimited under section 4(1) ( o) of the Act "to only incomes that accrue to them within the taxable territories. To read

J961 -- P. V. Bah•• R.afl

Oommiasiunerof

lncomr~

Hidtualullalo J.

P. Y. Rqliara R1dJ i

v. c ..... tuio111r of

/~-lo

Hid .,.iull ah J.

Goo

SUPREME OOURT REPORTS [1002) SUPP.

any further in section 4(l)(a) will totally nullify the effects of section 4 (I ) ( (·).

Income that has accrued 011(·!' abroad cannot by any means accrue again in fndia.

If euch income iB later rl'mitt.-d to In1lia and receiv<'d by or on bclialf of :<tuh 11ouresidents in India suoh sub.icq1H11t. recei1•t cannot be chargeable under tlw Act." The &l!lleSllmont was. theroforo, or<1"rnd to lw eant,>elled. The CommisRioner of Incomrdax, It •wev•:r, obtained a reference to tho High Court (lf fadra.8 on tho question :

"Whether tho afuresaid sum of H~. :!(),:!i);°).l).fl and Rs. ll,::!72-0-0 being selling commio sic; n credited to tho aforlsaid 11011-rc:<iuent company's account in the Books of the aesessee are chargeable in the hands of tho asaeseee under s. 4 (l)(a) for the asscssmc11t years 1949-50 and 1950-51 ?" The High Court answtired the question , i., a.i11>t the aslle88ee firm. The High Court observed tht 1 hl: learned Advocate for the assesseo firm "conft•sscd his inability to support the decision of the tribunal on the grounds on which it rests". The High Court further obtrerved that the answer to the qul"8tio11 did nut "admit of any doubt or difficulty". The High Court, however, granted n elrtifirute, uud these appeals have bticn filed.

In our opinion, the High court was right in the auswer it gave tu the question, for reasons which we sh1ill persently indicate.

Under s. 42, all income, profits 01 gains accruing or a.rising, whether directly, or indirectly through or from any business connection in the taxable territories are deemed to be income accruing or arising within tho taxable territories, nm! if the person entitled to the income, profit<! or gain8 is nut resident in the taxable territorie~, it io charg1able tn

income-tax either in his namo ur in the name ol his

2 s.C.R.

SUPREME COURT HEPORTS 601

agent, and in the latter case, such ag<'nt is deemed to be; for all the pnrposos of the Act, the asscssoc> in respect of such income-tax. Tho provisos to the ection enable tho application of s. 18, and t.he tax may be recovered by deduction under tint section and the agent or any person who apprehends that he may be asses8ed as sud1 an agent is also enab!t•d to retain out of the money payable to tho 11011-residont person u. sum equal to his estimated liability. The section thu~ creates

a vicarious liability, in so for as th" rig< 0nt is concerned, for the tax which the non-resident hris to pay : but as a safeguard for him, he is <nabletl to retain from tho money ho has to pay, a sum cquril to his own liability in the event of his being treated as tho assessee.

Section 43 lays down who can be deemed to be an ag(\nt, and it is provided that any person having any business conmction with a nonresident person or through whom the non-resident is in receipt of any income, profits or gains id to b<' deemed to be such an agent, if lho Income-tax Officer has caused a notice to be served of his intention of treating him as the agent of the nonresident person.

Such persons are conveniently described as "statutory agents."

In the present case, there is no doubt that the asscssee firm must be treated as a statutory agent.

In Turner 1lforrison &: Co. Ltd. v. Com1nissirmer of lncome-t<iX ('), this Court held that a person who is not an agent of the non-resident person can be appointed an agent for the purposes of s. 43, pro vided there subsists a 'business connection' between him and the non-resident person. It was also held that such agent was vicariously liable for-the tax on income described in ss.40 and 4:.l. There can be no question in this ca.so that a 'business connection' subsisted during the yea.rs in question, and the appalla.nt firm could be treated as an assessee for purposes of s. 42. What was contended was that

(1) [1953] 23 l, T.R. 152.

196'!,

L"' V. llaghal'a /lP1l•i

•• Co1nmisirm<r of

/ncomtiav

l/ida; atu/l11h .J.

196!

B, V. B., A ... &dii

v. c.-iuio7111' q/

lflCOJJk'(QX

H~/aJiJ.

the view of the Tribunal of s. 4( I) is the right view of the la.w. Section 4(1), prior to its amendment in 1950 by the Adaptation ef La.we Order, 1950, rea.d : ''4. (I) Subject to the provisions of this Act, the tots.I income of &ny previous year of any pel'l!On includes a.I! income, profits a.nd gs.ins from w.ba.tever source derived which- ( a.) a.re received or are deen:ed to be reoei ved in Britiah India. in such year by or on behalf of such person, or

(b) if such person, is resident in British

India. during sur.h year,- ( i) a.cc rue or a.rise or are deemed to

11.ccrue arise to him in British India. during such yea.r, or

(ii) a.corue or a.rise to him without British India. during such year, or

(iii) ha. ving accrued or a.risen to him without British India. before the beginning of such.year a.nd after the let day of Ailril, 1933, are brought into or received in British India. by him during euch yea.r, or

(c) if such person is not resident in British India. during such yea.r, aocrue or a.rise or a.re deemed to a.ooure or arise to him in British India. duriIJ!( such year:" The oontention ii that this income cannot be deemed to be received in the taxable. territoriea

(then British India.) in the years of account. It is urged tha.t the. Japanese Company did not ac:tua.l

ly re-0eive it in British India., a.nd that there was only a. relation of debtor and creditor between the a.seessce firm a.nd the Ja.pa.nese Company. Till the money was actually paid over to the Japanese

Company, a mere entry in the account books of the firm was not a receipt by the Japanese Company, and a mere l'lntry of an item in the account books has not been deemed to be a receipt by any provision of the Act, which, it is said, always states clearly when a fiction is to be applied. It is also argued that cl. (a) of s. 4(1) is delimited by ol.(c).

Clauses (a) and (cl of s.4(1) are not interdependent. In Turner MorriB<Yn'B case ('), it was observed by this Court that,

"the whole object of that section (s.42) is to make certain income, profits and gains to be deemed to arise in India. so as to bring them to charge.

The receipt of income, proJits and gains being one of the tests of liability, where the income, profits and gains are actually received in India it is no longer necessary for the revenue authorities to have recourse to the fiction;" After referring to certain authorities in which this was so held, this Court pointed out :

"Section 4( 1 )(a) in terms is, unlike Section 4(l)(b) or 4 (l)(c), not confined in its application, to any particular category of a.ssessees.

Section 4 ( l )(a) is general and applies to a resident or a non-resident person." It was rightly pointed out by the High Court in judgment under appeal that ;

"Actual or deemed receipt, of income in the taxable territories by or on behalf of nonresidents attracts tax under section 4(1) (a) even though the income may not be chargeable under section 4(l)(c) by reason of its having aoorued or arisen outaide. Receipt of income within the taxable territories by itslf attracts tax whether the recipient is a resident or non-resident and whether the income

\II [1953] '3 I.T.R. 152.

P. V. Rag/ma RedJ/J

• Commissiontr of

lncomt•tax

Hid41atollah J,

'"' l'. JI. R•tMflO lit"1;

V,· Co.w;"io11er d

1 .... 1,,\

accrued or a.rose within tho taxable territoric~ or outside. So much is plain on the language of section 4(1)(a.) and (c)." In our opinion, clauses (a) and (c) of s.4( I) can bo road diejunctivcly, and cl.(a), which provides for receipt of income, profits and gains in the taxable territories cannot ho subjected to the limitation that tho income must also accrue or arise iu the taxable territories.

To make cl.(<L) depend on cl. c is to make the "accrual" the test, while cl. (a) only considereceipt in the taxable territories sufficient. The .clauses are capable of being road independcnt'fj', though, sometimes, they may operate together.

Thie leaves over the question which wa.q car uetltly argued, namely, whether the amounts in the two account years can be said to be reooi vccl by the Japanese Company in the taxable territoriC's. 'Die argument is that the money was not act.ually received, but the a.sseaseo firm was a debtor in respect of that amount and unless the entry can be deemed to be a payment or reooipt cl. (a) cannot apply. We need not consider the fiction, for it is not neoell88.ry to go to the fiction at all.

The agreement, from which we have quoted the relevant term, provided that the Japanese Company desired that thl' &111e88Ce firm should open an account in the name of the Japanese Company in iheir books of account, credit the amounts in that account, and deal with those amounts according to the instructions of the Japanese Company.

Till the money was so credited, there might be a. relation of debtor and creditor ; but after the a.mounts were credited, the money was held by the &e!le88ee firm

as a. depositee.

The money then belonged to the Ja.pn.neee Company and was held for and on beht\lf

of the Company and was at its <lisposa.l. The char acter of the money ch1mged from a debt to a

deposit in such the samo wa.y as if it was credited

J9t2 in a Bank to the account of the Company. Thus, the amount mnst he held, on the terms of the aO'reement, to have been received by the Japanese C; mpany, and this attrncts the application of s.(4)(l)(a).

Indeed, the Japanese Company did <li; poses of a part of those arnrmnts by instructing the assessee firm that they be applied in a particular way. Jn our opinion, the High Court was right in answering the question against the assessee.

P. V. Rathava Rttldi

The appeals fail, an<l 11.re dismissed with costs, one hearing foe.

Appeal dismi88ed.

COMMTSSIO'; ER OF INCOME.TAX KER.ALA

'TELEN RUBBER INDUSTRIES LTD .

. srxHA, c .. r., J. L. KAruR, M. HmAvATULLAH,

.J.C. SHAH and J. R. MunHOLKAR, JJ.)

Incon1e Tax-Lo.<J~ incurred in Travancore Stat£ in 1946- if!JJlication of India la•o,9 to tl1f' /.._'Jtate-Asse-9.r; ee, if entitled to rarry Joruard the fnss to six ~1ears once the rigf,, t lapsed under 1'; fafe lau)~~-'l'ravanrore l11cnrne-tax .. Act, I 121 M.FJ. (Travancore

XX!lf of 1121 M. fi:.) .<. 32-India1' lnrome-tax Act, 1922

(11 of 1922), s. 21-ludinn Finance Art, J.?50 (2•j of 1950), •· 12-Taxntion lntr-< (Part B St,.le-<) (RemomI nf D(fjicultie") Ord<>r, 1950, para 3.

The respondent company was incorporated in the former State of Travancore.

The dispute was ahout the right of the respondent assessee company to c3rry for\vard the loss of the years 1946 under the provisions of the Travancore Act read with s. 24 (2) of the Indian Income-tax Act and the Taxation laws (Part B States)(Rcmoval of Difficulties) Order,

19:10, to the assessment year 1951-52 in the assessme"nt of the company for its year of account. The Income-tax Officer

held that the loss of the year 1946 could not be carried for- \vard to that year, since it had lapsed after two years under s. 32 of the Travancore Act ands. 24 (2) was not applicable, in dew 6f para 3 of the order.

Held, that the Taxation laws (Part B State) (Removal of Difficulties) Order, 1950, passed under s. 12 of the Indian

Commissioner of

lruome-tax

Hid ryatuilah J.

J anum:Y Ili.

Art. 14

P. V. RAGHAVA REDDI AND AXOTHER

s. 4(1)

s. 43

s. 43

s. 4(1)

Indian Income Tax Act, 1922

s. 4(1)

s. 4(l}(c)

section 4( 1 )(a)

section 4(l)(b)

Section 4( I)( a)

section 4(1)

section 4(l)(a)

section 4

s. 4

s. 42

s. 18

Section 43

s. 43

ss.40 and 4

s. 42

s. 4( I)

Section 4(1)

s. 4(1)

Section 4( 1 )(a)

Section 4(l)(b)

Section 4

section 4(1)

section 4(l)(c)

section 4(1)(a.)

s.4( I)

s. 21

s. 24

Income-tax Act

s. 32

s. 12


2 s.c.R.

SUPREME COURT REPORTS 605

J9t2 in a Bank to the account of the Company. Thus, the amount mnst he held, on the terms of the aO'reement, to have been received by the Japanese C; mpany, and this attrncts the application of s.(4)(l)(a).

Indeed, the Japanese Company did <li; poses of a part of those arnrmnts by instructing the assessee firm that they be applied in a particular way. Jn our opinion, the High Court was right in answering the question against the assessee.

P. V. Rathava Rttldi

The appeals fail, an<l 11.re dismissed with costs, one hearing foe.

Appeal dismi88ed.

COMMTSSIO'; ER OF INCOME.TAX KER.ALA

'TELEN RUBBER INDUSTRIES LTD .

. srxHA, c .. r., J. L. KAruR, M. HmAvATULLAH,

.J.C. SHAH and J. R. MunHOLKAR, JJ.)

Incon1e Tax-Lo.<J~ incurred in Travancore Stat£ in 1946- if!JJlication of India la•o,9 to tl1f' /.._'Jtate-Asse-9.r; ee, if entitled to rarry Joruard the fnss to six ~1ears once the rigf,, t lapsed under 1'; fafe lau)~~-'l'ravanrore l11cnrne-tax .. Act, I 121 M.FJ. (Travancore

XX!lf of 1121 M. fi:.) .<. 32-India1' lnrome-tax Act, 1922

(11 of 1922), s. 21-ludinn Finance Art, J.?50 (2•j of 1950), •· 12-Taxntion lntr-< (Part B St,.le-<) (RemomI nf D(fjicultie") Ord<>r, 1950, para 3.

The respondent company was incorporated in the former State of Travancore.

The dispute was ahout the right of the respondent assessee company to c3rry for\vard the loss of the years 1946 under the provisions of the Travancore Act read with s. 24 (2) of the Indian Income-tax Act and the Taxation laws (Part B States)(Rcmoval of Difficulties) Order,

19:10, to the assessment year 1951-52 in the assessme"nt of the company for its year of account. The Income-tax Officer

held that the loss of the year 1946 could not be carried for- \vard to that year, since it had lapsed after two years under s. 32 of the Travancore Act ands. 24 (2) was not applicable, in dew 6f para 3 of the order.

Held, that the Taxation laws (Part B State) (Removal of Difficulties) Order, 1950, passed under s. 12 of the Indian

Commissioner of

lruome-tax

Hid ryatuilah J.

J anum:Y Ili.

]If~

c.-t•siowr oJ lftell,.,. Tax Kerala

H•U. Rutba J"""'1riu w.

Hid•,10tu/lo/I J,

606 SUPREME COURT REPORTS [1962] SUPP.

F'mance Act, 1950, was not intended to make a dividing line bcccn those pnovious ycan to which the provisions of the earlier law would apply, and those ptcvious years to which the providons of the Income-tax Act would apply. The rights were neither enlarged or curtailed by para 3 of the order.

That paragraph said that the right was available in the aame 'lnanner, to the same extent and upto the same year of assessment as laid down in the State law. The law to apply was thu• the State law and the carry forward could only be for two years.

Indore Malwa United Mills Ltd. v. Commiaaioner of Income-tax, (1959) 35 I. T. R. 271, approved.

Cxv1i, APPELLATE JURISDICTION: Civil Appeal No. 466 of 1960.

Appeal from the judgment and order dad October 31, 1958 of the Kera.la. High Court in I. T. R. No. 2 of 1956 (K).

K. N. Rajag<rpal Sastri and P. D. Menon, for appellant. The respondent did not appear.

1962. January 16.-The Judgment of the Court was delivered by

HrnAYATULLAII, J.-The Commissioner of Inoome Tax, Kerala and Coimbatore, ha9 filed thi8 appeal against the judgment and order of the High Co111't of Kera.la dated October 31, 1958, by which th11 High Court answered in favour of the respon dent (Helen Rubber Industrie1, Ltd., Kottayam) t.he following question :

"Whether under the prov is ions of the Indian Inoometax Aot the petitioner is entitled to carry forward the loBB for a period of six years notwithstanding the faot that during the period when the 1088 had occurred, the law applicable w&& the Travancore Income-tRx Act ?"

The High Court h&& granted a certificate under \I e. 66A(2) of the Income-tax Act. Two questions were referred to tho High Court in compliance with an earlier order of the High Court under s. 66(2) ;

but with the other question, we are not concerned in this appeal.

Messrs. Helen Rubber Industries,. Ltd. is a Company, which was incorporated in the former State of Travancore with its registered office at Kottayam. In the year 1941, the assessee Company granted a lease of the fao1 ory to certain persons for

a period of 15 years. . From that year, the rent and royalty received from the lelisees were the only souroo of income. Disputes having .arisen, the lessees suspended payment Crom June 1946, Litigation followed ; but the dispute was settled by the assessee Company reOf'iving Rs. 23,000/- odd in full satisfaction. With the details of these disputes and their settlement, we are not concerned. The year of account of the assessee Company is the

Calendar year. Before the extension of the Indian Income-tax Act, there was in force in Travancore

State, thfl Travancore Income-tax Act, 1121 M. E. (Act XXIII of I 121 M. E.), which came into force on the first day of Ghingom 1122, M. E. (Augu, st 17, 1946). The assessment vear um1er t.he'\rravl\ncore Act . ' end('d on the le.st day of Karkadalcom, which corresponds to August 16, 1947. Thus for the account year, 1-1-1946 to 31-12-1946 of the firm the assessment year was 1123 M. E. (17-8-1947 to 16-8-1948).

The asseasee Company deC!ared losses in the account years, 1946, I 9!7 and 1948. These losses, together with the dates of the account years and the assessment years are tabulated below :- Year of account Year of assessment.

Loss

l946(i~IW6~-1123}il7-~~47s.~031-10-0

31-12-1946) to 16·8-1948) l947(1-l-l947to llUM.E.(17-8-19±8 Rs.!6606.1- ()

31-12-1947) to 16-8-1949) . ' 1948 (1-1·1948to Jl25ltf.E. (17-8-1949 Rs. 2604-13-9

31-12-1948) to 16-8-1950) ------ Total Rs. 13241-9-3

196Z

Commissioner o_f lnconu'l'aJC Kerala

Helen Rublnr Industriea Ltd.

HiJv'Jiull11h I.

Jg/;2

Co,,,,,.U1ion1r •f 1"""'11tlax !\train

Htltn Ruhbr.• lnrl11.1'1it' Lid.

HiJa.ralullah J.

608 SUPREME COPRT REPORTS (1962] SUPP.

The dispute in this case is about the right of the a!l., essee Companv to rarry forward ihP loss of the y .. ar 19~6 under the prcrvisions of the Trava11eorc Act read with s. 2-l(2) of the Indian

Incom•·tax Act and th<' Taxation Laws (Part B States) (Hemoval of Difficulties) Ord(•r, 1950 to the assessment. year, 19.il-52, in the ass"ssmnnt of the Compnnv for its year o( aecount, the C1tlendar Year,

J!l:iO.

ThP Incomr.tax Offic{:r hrld that the loss of the vear ]f)~6 ooulcl not bP carried forward to that

ye~;, sinct> it had lapsed after two years under s. 32 of the Travancore Art, and R. :?-~(:?) was not applicable, in view of paragraph 3 of the Orcler, mentioned above. The onkr of the Incomt1-tax Officer wa~ ronfirm,, d in appeal hy the A ppPllato AHsistant Commi•sioner and the Appellate Trihnnal.

Tht' Trih•mal was mov••d for a case, but declirn•rl to state one; but tlrn Hig; h Court c1Lllnd for a statement of the ca•o umle.r s. lifl(2) :mrl the ahovcmentionccl question w:is dMiried in favour of the

aseeoSC<' Company.

The only qn .. stinn argurd in this appeal is wheth1•r the High Court was right in the answer it gii.vc.

Tho asscsseo Company W<L8 not rcpresc'lted at the hearing before this Court.

The Indian Income-tax Act w11s extended to Trav&ncorc-Cochin hy s. 3 of the Indian Finance Act, lflpO.

By s. 13(1) of the same Act, it wa8 prnvidrt} :

"If immediately before the 1st 1lay (If A pri)j I!l50, there is i~ form; in any part B Statd: ..... an.v law rl'ljting to mcom•'-tnx ..... . that law shall' cease/to havt> efTcc~ except for the pnrpoos of t)ie levy, ass"ssmont and collection of income.t:ix ...... in r<'s1wct of any p<'riod not included in tho prcviouH year for the purposcs of a.ssessmPnt un<lf'r the Indian Income.tax Act, J!):!:! (Xf ,, f Ifl!:!), for the year ending on tho 31st day of fareh, l fl:il,

f ' . t ,, or or nny suJsrq11('n )'<'Ill ..... .

.. '

• I

• r

By this section a clear division was made between the operation of the prior law and the Indian Incometax Act. The a•sessment for the year, 1951-52, was thus mij, de on the assesiee Company under the Indian Income-tax Act.

Under s. 24(2) of the Indian Income-tax Act, as it existed prior to its amendment by the Finance Act, 1955, it was provided:

"Where any assesse& sustains a loss of profits or gains in any year, being a previous year not ear lier than the previous year for the assessment for the year ending on the 31st day of March l\140, under the head 'Profits ana gains of business, profession or vocation1 and the loss cannot be wholly set off under sub-section(!), the portion not so set off shall be carried forward to the following year, and so on, but no loss sha 11 be o carried forward for more than six years, and a loss arising in the previous yers fur the assessment. for "I he year• ending on th~ 31st day C>f March, 1040, the 31st day of March, 1941, the 31st day of J\firch, 19+2, the 31st day of March. l!l43, and the 31st dav of March. 1944 respectively shall be carried forward only for one, two, three, four and five years respectively." Since we are concerned with the loss for the year, which does not correspond to the years named in the latter part of the section above-quoted, that part of the section does not apply to the assessee Company'.s case. What was thus claimed was the benefit of the earlier part., where the loss was allowed to be carried forward for six years.

This position taken by the assessee Company can hardly be considered in view of the provisions of s. 32 of the Travancore Act, read with the Removal of Difficulties Order passed in 1950.

Section 32 uf the Tm van core Act was a reproduction of the Indians. 24(2) except for a change of the

Commis.dont• •f lncometax Ke, aa

Hellen Rubbtr Industries Ltd.

Hida;•atu/lali J.

IHI

C-..W-o, f t_.ia lfrr"'4

•• H.ill""brr

1"""11"1 LU.

HllqolWlu J.

610 SUPREME COURT REPORTS [19f2) SUPI

dates mentioned therein, due obviouslv to the fact that the Travanoc>ro Act came into

0forcl' 0n the firstda.y of Chingam, 1122 M.E. (August, Ii, 1946).

It is enough to point out that instead of "31st

March", whe1evcr th"Y occurrecl, the wnrcls "the

lat day of Kv.rkoo.alrom" (August, 161 were substituted, and instead of the yrars, HJ.to, 1941, 1942, 1943 and l!J44, were substituted th1> llfalnvalnm years, 1122(17·8-1946to16-8-1947), 1123 (17-S-1947 to 16-8-1948), II24 (17-8-1948 to 16-8-1949), 1125 (17-8-1949 to 16-8-1950), and 1126 (17-8-1950 to 16-8-1951).

These were the only diff'erenres betv.een the two eectionP, 81"d P. 24(2) of the frdi8n Income-tax Act, so modified, can be read as s. 32 of the Trava.noore Act.

The existance of these two sections in the two Acts was likely to lead to somP clifficulty, and a question was likely to arise whhh law w11s to prevail. Section 12 of the Indian Fin11nN> Act.

I 95\J, therefore, enabled the Central GovPmmPnt. to pasa a.n Order removiniz any sueh diffimlty. The

Txation Laws (Part B States) (Removal of Difficulties) Order, rneo was thus passrd. Paragraph 3 of that order provided :

"3. Carry forward and set off of previous loascs.-wherc in any previous year prior to tho previous year for "the asesment for the yea.r ending on the 31st d11y of March

19;;0, an assessee bas sustainecl a loss CJf profits or gains in any business, profession or V()('ation carried on by him. and surh lc:ss would, bad tho State law continued to hi' in force, have brt'n set off against the profits and gainP,

if any, from the same business chargeable tu tax in the said yea.r of aasespment or in any yca.r subaequent thereto, such loF.s wcu !cl be

bO set off in the same manner, to the same extent, and up to the same year of assesPment tu1 it would have been set off hud the State law continued to be in foroe."

The critical words are those contained in the 1982 later part. namely, "in the same manner, to the same Commis<ioner ef extent, and up to the same year of assessment, as it Income-tax Kirola would have bcrn set off bad the State law continu- H,/en !lubber ed to be in force".

They show that the law to Industries Ltd. apply to the loss of "any previous year prior to the Hida_, atullah J, previous year for the assessment for the year ending on the 31st day of March, 1950" was the law in force in a Part B State here, the Travancore Act.

Now, taking the case of the assessee Company, we shall indicate which previous year or years would be governed by the Travancore Act. The previous year of the assessee Qompany for the assessment year ending 3ls't day of March, 1950 would be the Ca!er.dar year, 1-1-1949 to 31-12-1949. To that, the Indian Incom., tax Act would apply. The application of the Travancore Act by para 3 of the order was limited to the previous year before 1-1-1949 and other earlier previous years. The prev'ioue year, with which we are concerned, 1-\-19!6 to 31-12-1946, is so clearly a previous year, to whih the Travancore Act applies. that it does not admit of any doubt or difference.

The matter is thus governed by the Travancore Act. .

The Travnncore Act laid down, inter aUa, that a loss arising in the previous year . for the assessment for the year ending on the laPt day of Karkadak1YJn, 1123, could be <'arried forward for two years. The assessment year for 1123, M.E. covered the period, 17-8-1947 to 16-8-1948, and the previous year of the assessee Company relative to that assessment year was 1-1-1916 to 31-12-1946. The loss of the Calendar year, 1946 could be carried forward to the Calendar yea.rs, 1947 and 1948 and given effect to, till the assessment year, 1125 (17-8-1949 to 16·8-1950). The assessment year, 1-4-1951 to 31-3-1952, c'.lrresponded to the account year of the assessee Company, l-l-1950to 31-12-1950, and that is beyond two years, whether on~ takes

IHI c-..;.,,. •f 1-Kn.Ja ...

HM R"66n

1 ... trialld.

Hr4.pt"'/all J.

612 SUPRElIE OOURT REPORTS [IH•2] SUPP.

the account year or the assessment y<iar as th· hRBis

of tho calculation of two years.

The High Court, with all due resptct. waA not. right in thinking thllt the Rem•wal of Diffil'ultii>s Order, 1950 was meant to enlarge the right• 0f t.l e new assessees lirought within the rearh of the Indian Income-t.Bx law.

The intention of the law was to make a dividing linJJ between thoRe prrvintrn years to which tho provisions of tho rarlier law would apply, and those nrevious years to which the prov1s1onA of the Indian Income-tax Act woulrl apply. Tho rights were noith<>r <>nlarged nor curtailed. As pointe<l out by Chagla, C. J. in the lndort Afal1m United Mills,

Ltd. v. Cammiasioner of l'TIAXJ'TM fax (1 '.

"tho onlv right integrntion hns gin-n to an assP~ReP is t hP. right rontn int>d in chmsrs

(sir) 3 of the I Removal nf Difficulties) Onln,

1950. and that right is that if th" law of J\is own State permitti>d him to carry forward th<' los.qes, then that right is preee1 ..-cd under the Indian Income-tax Aet." paragraph 3 of the Order clearly said that the right was available in the same manner, to thi> •amc extent and up to tho year of aesessm 0 nt., aA laid 1lown

in the State law (hert>, the Trav1mcnre Act). i'iincP, in this case, the carrvforward of the loss was for only two years, and those years wern he fore the previous yflar from whirh the Inrlia.n Income-tax Act began to apply, thrre is no question of 1h•• application of the Indian Income-tax Act.

The appeal thus sneccetl8, a.wi is allow<•<!. 'fhe a.ssessee Company shall pay the costs of the appt>al in the Hi1rh Court, bot there shall be no ordnr auout costa in this Court.

A ppe.al allowed.

(I) [1959)'51 T. R. 271.

TELEN RUBBER INDUSTRIES LTD

C. SHAH

s. 21

s. 24

Income-tax Act

s. 32

s. 12

Income-tax Act

Income-tax Act

s. 66(2)

Travancore Income-tax Act, 1121

s. 2

s. 32

Income-tax Act

s. 3

s. 13(1)

Company under the Indian Income-tax Act

s. 24(2)

Income-tax Act

Finance Act, 1955

s. 32

Section 32

Income-tax Act

s. 32

Section 12

Income-tax Act

Income-tax Act

Income-tax Act


2 S.C.R.

SUPREME COURT REFORTS

THE INCOME-TAX OFFICER CIRCLE II

MADU!{A, AND ANOTHER

M. R. VIDYASAGAR

(B. P. SINHA, c. J., J.L. KAPUR. M. H!DAYATULLAJI,

J.C. ~HAH and J. H.. MunHOLKAR, JJ. )

Income Tax-Payment of advance tax-Assessed income exceeded the estimate-Levy of interest-Power to reduce or waive- -When cc, uld be exercised-- Indian Income-tax Act, 1922 (11 of 1922), s. 18A (6) fifth proviso-Indian Income•tax (Amendment) Act, 1953 (22j of 1953), s. 13-Income-tax Ruks r.48.

The Income-tax Officer, Madura, issue 1 notice under s. 18A (I) of the Indian Income-Tax Act, 1922, for payment of advance tax. R, the then manager of the Hindu Undivided family availed of the option to submit a l'evised estimate for the years 1946-47 and 1948-49. The assessment ofthese two years were completed respectively in November, 19)0 and February, 1951, as the total incom~ a:; je; sed far exceeded the estimate submitted by R, th: Ino Hll!ti< Officer ordered the respondent, the legal representative of R, ti; l P"Y the interest under s. IBA (6) of the •Act. On appeal, the Income-tax Appellate Tribunal reduced the income and. the Income-tax Officer in giving effect to the said order reduced the interest and c.<llect upon the respondent to make payment.

The respondent asked the Income-tax Officer not to levy inter e, t under s. ISA 16), submitting that the levy was illegal and unju'1ified, alternatively he requested that the interest be waived by virtue of the powers vested on the Income-tax Officer under proviso 5 to•· 18'\ (6) which was added by s. 13 of Act 25 of l9j3, with retrospective effect from April

1952. The Income-taJ< Officer and the Inspection Assistant Commi,, ioner declined t~ accede to the request. The respondent then moved the High Court at Madras for a writ under Art. 226 cancelling the levy of interest on the ground among ochers that refusal by the Revenue authorities to cancel the levy was arbitrary and not based on any judicial exercise of the discretion vested by the Act.

The High Court upheld the plea, ordered the Income tax Officer to decide whether the respondent had made out a case for the exercise of the discretion. The only question in the appeal before the Supreme Court was whether benefit of the said 5th proviso to s. I SA (6) may be granted in respect of asse•smcnts of income which were . completed by the Income-tax Officer before Ap.ril 1952.

lS62 n.n.-"""' 0 .Jur Cfrtj< II

Madut~

JI. B. V~, aMl.far

SWJ.

SUPREME OOURT REPORTS [1962] SUPP.

Htld, that the jurisdiction under 5th proviso of s. IBA

(6) of the Income-tax Act may be exercised by the incometax Officer in all cases which wrre pending on April I, 1952 before him or any superior authority having under the Act power to modify the assessment of income.

C!v:IL APPELLATE JURISDICTION : Civil Appeal Nos. 545 and 546 of 1900.

Appeals from the judgment and order dated Augmt 13, 1954, of the Madras High Court in Writ Petitions Noe. 743 and 7-!S of J 95!.

K. N. Rajagopal Sastri and P. D. Menon, for the appellants.

The respondent did not appear.

19.62. January 17.-The Judgment of the coun was delivered by

SHAH, J.-'Ihcse are two appeals with certificates of fitness granted by the High Court of Judicature at Ma.drae against certain orders passed

in Writ Petitions uu<ler Art. 226 of the Colllltitution.

One Ram1111wami Iyer-father of the respondent-Wiil' aeeCBl!ed to incomP-tax in the status of a Hindu Undivided Family. Ramaswami Iyer died in 1949 and the respondent M.R. Vidyasagar became the manager of the family.

The family W&8 a partner through its maner in a firm styled "The Madura Knitting Compauy", and the share in the profits of the partnership which wae registered under the Indian Income tax Act W&B th\l principal source of its aaseseable income.

Under s. ISA of the Indian Inoome-tax Act, the Hindu undivided family was liable to pay advance tax for each of the &BBCBSment years HJ46-4 7, I 94 7-4S and l!J4S-49.

The Income-tax (Jffice1, Madura, fseued notices under s. UiA (1) of the Indian Income.tax Act for payment of &dvanoe tax on the basis of the preceding year's income. It wus open to the a.i; sessee to snbmit a revised estimate of hie inoomo under s. ISA

(2) in respect of the year in question and Rama- 1wami Iyer-who w&B at the material time the

2 S.C.R.

SUPREME COURT REPORTS 615

manager-availed himself of the option to submit a revised <'Stimate and estimated the income for each of th9 a.ssesment yea.rs 1946·47 and 1948-49 a.t Rs. 45,000/-. The assessments of these two years were completed respectively on November

28, 1950 and February 2J, 195l, and the income recPived from tht> Madura Knitting Company was included in the. assessments under s. 23 (5). The Income Tax Officer assessed the total income of the Hindu undivided family for the year 19~6-47 a.t l'l.s. l,01,335/- and for the year 1948-49 at Rs. 3, L0,697 /-. As the total income assessed far exceeded the estimat~ of Rs. 45,000/-, submitted by the manager of the a.ssessee family, the Income 'fax Officer in making the assPssment ordered the respondent to pay Ks. 6,999/12/- and Hs. 36',687/- respectively for the assessment years 1946-47 and 1948-<l9 as interest. In appeals against the orders of assessment by the Matlurn Knitting Company, by order dated March 12, I954 the Income-tax Appellate Tribunal reduced the income of the firm, and on that hasis reduced tho share ofthe family in the income of the firm for the vear I946-47 to Rs. 8:l,3; l5/ and for the yea~ I948-49 to Rs. 2,8:3,868/-.

Tho Income-tax Officer, Madura, in gi., ing effect to the orders passed by the Appellate Tribunal under the 3rd proviso to s. ISA (6) reduced the interest to Rs. 4,:CSS/- for the year

19464 7 and to Us. 32, 714/H'/· for the year 1948-49, and called upon the respondent to pay the arrears of tax inclusive of interest. so adjusted. The respondent then called upon the Income Ta:x: Officet not to levy interest under s. , ISA (6) submitting that the levy was illegal and unjustified, and in the alternative requested that the interest be waived under the powers vested under the 5th proviso to s. ISA (6) which was added by s. I3 of the Indian Income-ta.:x: (Amendment) Act (25 of 1953). The Income-tax Officer declined to accede to th11 request and the respondent's a.pplioation to the

Tiu lnc.,,,,_laJ< 0 ff1<<' Circl1 11

Madu<a

M. R. V1dyasag.,

Shah J.

195Z

616 SUPREME COJJRT RE; PORTS [196~]" SUPP.

~ Inspecting Assistant Commissioner for canc1lling the-leyy of interest was also rejectE; d. .The :respondeµ't then moved two, petitions (Nos. 743 and

748) 'mder Art. ~26 of' the. Con8titution in the M, !\· Vq;··""B"' :ijigh poµrt, 'of,_Judicature at Maras for writs cancelling the orders imposiiig1ia; l:iillty for paymtnt of int!"r!'!st, \)Ontending that thi: levy of penal interest was opposed t9.law , ind was prima jacie, unjustified Oil. the facts .and circumstances of , the

case. l 'i'he respondent submitted that the levy of intere!l"t under s. 18A(6) was penal in c, harac:ter and could not be imposed upon the legal represeptative o.f the deceased manager wbo was not in any manni:r responsible for the original reurn filed by

hjl fir}ll of which the manager was a partner. He ajso co'ntendd that the levy was notwarranted. by

Shah J.

, the provjsions of the Indian Income.-tax. ''Act inasml, lch as in respect of the assessment years in q11estiun 't4e responqent was not the (tssessee, that the delay in comphitipg the assessment was not attribl, ltablii il.1\er ito the then .manager of the , family,1 Bamaswl}; m~ Iyer or to himself and therefqr~ .no liabi}il.y {o:r11payment of interest could. be imposed\ ai; id ti1at i~ any even, t refusal to cancel th!3 levy of interest 1 >fRS arbitrary and not baed on any judicial exercise <; if discretion vested in the Income, tax Officer,

A/Division Bem; h of .the hJadras High Court held tht the pto, ision imposing liability to pay i.Ilteres.t under_suli-, il.~.(6) of s. 18A was not opposed tQ law and could .be. enforced against the legal re presentative 0f, the'<iece.ased manager, who was a. partner of the assssee firm.

The High Court, however~ was of tlie'view that as the inct>me-tax. .Officer and the Inspecting Assistant Commissioner had failed'to considerwhether in. the oircumstances of the case,. the reduction or waiver of the interest ; was justified,, it be.ordered that the Income-tax Officer to deoide-whethe!:__the petitioner had made out, a case for th"6' f!Xe'.rcise of the discretion veste.d in .the

2 S.C.R.

SUPREME COURT REPORTS 617 "i Income-tax t>fficer to waive or reduce the interest under the powers conferred on him by the 5th proviso of cl. \!of s. lKA. Against that order with certificates, fitneiS these appeals are preferred by the Commi~ foner of Income Tax.

Section 18A which imposes iiability upon the tax payer to make advance payment of tax was incorporatod into the Indian Income-tax Act by Act 11 of 1944. That section enitbles the Inoometax Officer on or after the 1st day of April in any financial year, by order in writing, to require an assessee to pay to the Central Government in specified instalments income-tax and super-tax payable on Ro much of such income as is included in the assessee's total income of the previous year in respect of which he had been assesstd. Undtr sub-s. (2), if the assessee who is required to pay tax by an order under sub-s. ( l) estimates at any time bfore the last instalment is d110 that the part of his' income to which tho sub-section.applies fpr the period which would be the previous year for an assessment for the year next following is less than the income on which he is required to pay tax: and accordingly wishes to pay tax which is less than amount he is required to pay, he may send to the Income Tax Officer an estimate of the tiix payable by him, and pay tax as accords with his statement.

It ig, however, providacl by sub-s. (6) inter-alia that where in any year the as, iessee had paid tax: under &ub-s. (2) on the basis of his own estimate and the tax: paid is less than 80% of the tax detern1ined on the basis of his"' r_egular assessment (so far as such tax relates to income to which the' provisions of s. 18 do not apply) simple intere; st at the . rate of 6% per annum from the 1st day of January in the finaa.- cial year in which the tax was paid upto the date of the said regular assessment shall be payable by the assessee upon the amount by which the tax so paid falls short of the said 80%.

As originally enacted the liability to pay interest upon

The Income-tax Offictr Ci1cle fl

Madura

M. R. V1dyosaza1

ShahJ.

1116J

T/f1 /rtctnfllla Of/iw C frt/1 II

M..iu.a ..

Al. R. yid_, asa,"'

BJ.Al.

618 SUPREME COURT REPORTS [1962) SUPP.

the &mount by which the ta.x pa.id fell short of 80% of tax: wa.s a.bdolur.e. The lncometa.x Officer had no d1eoretfon in the ma.tter, and W38 bound to impose

lia.bility for pa) m•mt of interedt, But by s. 13 of the Indian lucome.tax (Ameudmtnt) Act, l95J (25 of

lli53), an additional proviso was tni.cted ... o sub.a.

(6) ill the following form:

"'Provided further that in such ca.sea and under such circumstances a.s may be prescribed, tho Inoometa.x Offioer may reduce or wa.ive the interest pa.yable by the 8.880ssoo".

Thie proviso was given retrospective effect as from April I, 19.52. Thereafter in exercise of powers con ferred bv s. 59 the Central Board of Revenue a.dded Rule 43.to the following effeot:-

"48. Tho Iri.cometax Officer ma.y reduce or waive the interest pa.yable under section

ISA in the ca.sos and under the circumsta.noes mentioned below, namely:-

( I) Where the relevant a.saessmcnt is completed moro tha.n one yea.r a.fter the submisliion of the return, the dela.y in

aasessment not being a.ttributable to the alll!ell866.

(2) Wbero a. pel'80n is under section 43 deemed to be a.n agent of another person and is 8811ell8ed upon tho latter's income.

(3) Where the asse&1ee ha.s income from an unregistered firm to which the provisions of clause (b) of sub-section (5) of section 23 a.re applied.

(4} Where the "previous yea.r" is the financial year or a.ny yea.r ending near about the close of the financial year a.nd large profits are ma.de after the llith of Ma.rch in circumsta.noes which could not be foreseen.

-··--ir

2 S.C.R.

SUPREME COliRT REPORTS 619

(5) Anyoase in which the Ixispecting Assistant Commissioner oonsidefs th<Lt the circumstances are such that a reduction or waiver of the interest pay able under section ISA (6) is justified.

The effect of the incorporation of the 5th proviso in s. ISA ( 6) and of Rule 4S was manifestly to authorise the Income Tax Officer in exercise. of his discretion to relieve against the rigour of the inflexible rule originally enacted in cl. (6) about pay

ment of interest by the assessee when .the tax paid by him on his estimate fell below SO% of the tax payable on regular assessment.

The only question which falls to be determined in these appeals is whether the benefit of the fifth proviso to s. lSA (6) could be claimed in respect of the assessments of the income of the respondent's family which were completed by the Income-tax Officer before April l, 1952. The High Court was of the view that even if the assessment by the Income Tax Officer was completed before April 1, 1952, if the final adjustment pursuant to the order of the Appellate Tribunal was made after that date the Income T11.x Officer was competent, in exercise of the powers with which he was invested by .the fifth proviso to ol. (6) of s. ISA to reduce or waive the interest payable by the assessee and the Income-tax officer having failed to exercise his discretion a case was made out for the issue of a writ under Art. 226 of the Constitution directing that officer to consider whether iJ:l the circumstances of the case relief may be granted to the respondent.

On behalf of the Commissioner of Income-tax it is urged that the power conferred by the fifth proviso may undoubtedly be exercised in those oases where assessment is completed on or after April 1, 1952, but where the assessment was complettjd and liability to pay interest had crystallized under

Tlae lntome•tax Off'"' Cir<l• II

Madu' II

"· M. R. Vi<fyalogtlr

Shah J.

7lt Jn~-t1x 0 ffiut Circlt I I

Madura

Y, M. H. V1Jyasagar

Bitah J.

f.\20 tl BE.tE COl'BT BEFORTS [1962) SUPP.

sub s.(6) as it originally stood, the Ir>eome-tax Officer has no power under the amen<ld substction to reduce or waive the interest ordered to be pa.id by the assesee even if the procf'edings m asseBBment are pending in appeal before the Appt>llate ASBista.nt

Commissioner or .the Appt-llate Tribunal. It wa.s urged that the interebt under s. l8A(6l is payable up to the date of the regular asscBRmfnt and if in the contingencies prescribed by s. l 8A(6), as originally enacted liability to pay interest crystallized, the lncometaX Officer could not, in exercise of the power invested by the amending Act reopen the order, because the legislature had given to the a.mending statute only a partial retroactive operation, anJ its retroactivity IJOUld not be enlarged; to do so, would be plainly to defeat the plain intendment of the Legislature. It is unnecessary for the purpose of these appeals to consider whether an assessment whioh has become final before the date on which the fifth proviso came into operation, and whioh is not subject to any pending appeal, can be reopened and tho benefit of the power conferred by the fifth proviso be afforded to an assessee. The question which fallll to be determined is whether in a.n assessment subject to an appeal which is pending. or which may be lawfully filed, the power to reduce or waive the interest can be exercised. ThP.re is, in our judgment, inherent evidenoe in tho rule indicating that such a power can be exercised evt-n if the regular &88e88ment is oompleted by the

Income-tax Offioer before April l, 1952. The power vested in th&Inoome-tax Officer to reduce or waive interest payable by a.n a.sse88eo is exoroisable "in such ca.t<es or such circumstances as may be prescribed" by the Rules. By Rule 48 the Income-tax Olficflr is given the power to reduce or waive interest payable under s. I 8A(6) in the events specified therein. By the first clause of Rule 48 where the assessment is completed more than one year after the submission of the return the delay in lll!llessment

2 s:c.R.

SUPRE~E COURT RE.PORTS 621

not being attributable to the assf'ssee-the power c; f the Income-tax Officer may be exercised There is nothing in . the Rule which indicatc>s that the power to grant relief may be exercised only before the regular asessment iR completed by the Income tax Officer. The terms of clauses (1) and (5) of the Ru le clear Iv support the vie'" that the order reducing or waiving interest may be passed even after the order of assessment is made, and interest is included. Again, by makin~ Act 25 of 1953 operative retrospectively from April I, 1952, the Legislature ha~ evinced an intention that to regular assessments made between April I. 1952, and the date on which the Act was enacted, the fifth proviso to s. 18A(6) may apply. The arrument tJiat liability to pay interest crystallizes when the Incometax Officer incorporates the direction for payment of interest, because the OJ der is not mAdA nnnPnlable has no force. The order forpa; ymrnt of interest was liable to be modified if the assessment of income was \'1tried by the Appellate Assistant Commissioner, or by the Tribunal. It is true that interest could be eharged npto to the date ofregular asses8ment bv the Income-tax Officer but that does not support the thcor, Y of cr, Ystallization of liability.

If therefore the quantum of liability waR capable of

being altered even after the date of the regular

assesment, the assumption that the power to give relief against a rigid statutory provision should be restricted to cases which are decided by the Incometax Officer onl_v after April J, 195i is not warranted.

The power of the Income-tax Officer arose only after April I, 1952, but there is nothing in the act to how that it was to be exercised onl.Y in respect of assessments made by the In0ome-tax Officer after that date. In our judgment, the jurisdiction under the fifth proviso may be exercised by the Incom!ltax Officer in all oases which are pending on April l, 1952, before the Income-tax Officer or any superior authority having under the Income-tax Act power

19 2

The /ncnm,.tax Offlce1 Circle If Madura •.

M fl.· VidJas , gflr

.h1li J.

Th• /nrorn,-tnx Off1u1 Ciul1 If

A:adt1.1a

Id R. V1dyrsaar

Shalz .I,

622 SUPREME COVRT REPORTS [1962) SUPP.

to modify tho assessment of income, or are commene<'d after that date.

In the present case, the original assesments made b~· the Income-t>LX Officer in both the years in question were modified in view of tho or1fors pll.l!sed

by tho A rip,, Jlato Tribunal in the assessment of the i\fa<l11ra Knitting Co.

The order of tho Appellate

Tibunal was passed on April 12, 1953, i.e. after the d11tc on which Act 25 of 1953 came into operation.

After that date the Inoome-tax Officer was bound to give !'!'feet to the orders of the Appellate Tribunal a1HI to acljust liauility in computing tho assessable iiwomP nnd th~ tax pa yo blo thereon. Tho Incometax Uffirn being bound to adjust liability to pay inkr .. st nnder cl. I 61 of s. I SA we S('C no reason why in adjuoting that liability ho may not exercise the powers with which he has be11 inv<'sted si:we April.

l!l52, if the circumstancos of the case warrant such cxerciRl'.

In •ur view the High Court was ri.r:ht in holding that the inc"nwtax Offi<'l'I' had tlH' power in the case "ft he nsspssment• in question to exercise thn 1rnthori1y conf(•rrer! by the fifth proviso tQ s. I 8A(fll and he h:wm!J' fail"d to <X<'rrie the discretion, a 1vrit. re'luirin~ him to cn:isi<ler whether a case is m'\dP out for the exercise of his di8crction

was prop1rly issuf'CI.

Thi se appeals therefore fail a1<d arf' dismised.

App1ni8 dismissed.

THE INCOME-TAX OFFICER CIRCLE II MADURA, AND ANOTHER

M. R. VIDYASAGAR

B. P. SINHA

L. KAPUR

Indian Income-tax Act, 1922

s. 18A

s. 13

s. 18A

Indian Income-Tax Act, 1922

s. 13

Art. 226

Income-tax Act

Art. 226

ISA of the Indian Inoome-tax Act

s. 23

s. 18A(6)

s. 18A

Section 18A

Income-tax Act

s. 18

s. 13

s. 59

section 43

section 23

Art. 226

s. 18A(6)

Income-tax Act


2 S.C.R.

SUPREME COURT REPORTS 623

NETA RAM v.

JIWAN LAL (S. K. DASS, M. HIDAYATULLAH and J. C. SHAH, JJ.)

Reni Control-Re-building of prem.ise8-Rona .fide8 and means of the landlord-East Punjab L rban Rent Restriction Act, /!14.? (East Punj. 3 ':! 1949), "· J.5(5)~Potiala and .East Puf\jab States Union Urban Rent Restrirtion Ordinance, 2006 B. K. (8 of 2006 BK), ss. 13, 16(4), 19.

The appJication for eviction against the appellant was based inter alia on the ground tha.t the premises in suit were dilapidated and the landlord wished to rebuild them after dismantling the struc; ture. l'he Rent Controller dismissed the application observing that there was hardly any proof that the bu,[ding was in a dilapidated condiri9n and that the landlord had no means to rebuild the premises. The appellate authority conirined the finding l:olding that the premises w{re in good condition and that 1be l<indlord was not, in good faith, wanting to replace. lite building. An applica!ion pur:or~ ting to be under s. 15(5) of 1he Fait Punjab Urban Rent Restriction A ct, 1949, was made before the High Court. The High Court following an earliCr decision of the sa1ne Court all Jwed the revision peti1ion holdini.!: that in determining the question of f'jectment, \vhat needs alone to be considert:d is whether the landlord genuinely wants to rebuild the per1nises and that the condition of the premises is 'a wholJy irrelevant factor'.

Held, that the investigation by the Rent Controller cannot be confined only to the txistfnce of an intentinn in the mind of the landlord to reconstruct. This intf'ntion must be honetJy leld in relation to the surroundingcircumstances, otherwise the very purpoe of tlie Rent Restriction Act would be defeated. ff the landlords wt:re to come forward and to get tenants turnt"d out, on the bare nlea that they want to recon'ltfLICt the .house witho,1t first establishing, that the pla is bona fide with reard to all circurnst;:ince~, viz. that the h,"luSes need rtconstruct.ion or that they have the meari.s to reconstruct them.

Held, further, that wheo the Tribunals have examined the facts after instructing them!lelves correctly about law, a C:turt of Revision should be slow to interf("'re \Vith rhe decisioh, thus reached, unle9'.i it demonstrates by its own decision the impropriely of the order which it seeks to revise.

Under s 15(5) of the East Punjab Urban Rent Restriction Act, 19t9, the powers of the High Court do not include

January 1'1.

Nda Ram

Jiw.n1 Lt.I

624 SUPREME COURT REPORnl [1962) SUPP.

power!\ to pt"rverse a conrurrrnt finding witliout showinsr h.ow

thoe finrfin_~" arl"' l"'rroneous and without giving any substantial reason(. for its findin~.

H2lfl, also, that a case cannot ht! an authoritv on a pair.t of fart an cl rach c•;• has to he examintd in the light of the circufTlstanct-s t-xisting.

Moti 11a'11 v. Suroj Bhan, (1960] 2 S. C. R,. 896, r.frrred to.

Civrr. APPELLATE JURISDICTION : Civil appeal No, 646 of i 961.

Appeal by enPcial lPBve from the judent and dPere11 dMPd A nril 7, 1961. of thn Punj!lb

Hih C'llut in Clivil Revision No. 31'>4 of 1959.

Go'f!Gl Singh, for the appPlla.tes.

Rishan Narain and Naunit lal, for the respondrnt No. I.

Hlfl2 .. fammrv, 17.-The Judgment of the Court was dPlivered bv

lliJayat•lfoh J.

HmAYA'l'TTT.LAH, J.-Thi~ is nn appral by special loav<' ag:ainat. an orrl<>r of tho High Court of Punj'lb at Cha.nrlhra.rh, rlBt<'d April 7, 1961.

The apnellant.s a.ro five tenants, who have been evictecl from certain shops and chobaras in the town of Patia.fa, on t hA a11plication of the first rt'sponrlcnt, thti landlord. The application by the landlord was made in , Jnne, 1957, under s. 13 of the P11.ti:da and E'l.st. Punjab StatAs Union Urban R<'nt lfostri1tion Ordinance, 20(}6 BK (No. VIII of :?OOfi BK).

The grounds urgt•rl by the landlord wcrr (•\) nen.pavment of rent b.v the tC'nants, (b) non pnym••nt of houeo tax by tho t<>nants and (cl that the shops WC're in a state of g-ri-a.t disrepair iincl W<>re clilapidatcd, and the landlord wished to rebuild tlwrn aftn dismantling the structun•s. The lanrllorrl :l\orr<'rl that he had obtained sanction of the i\lnnicipal Committ<'e to a propo; rd plan of con- Rtrnction, awl nc1•um11lat<'<I somo huilrling material before making the application.

The tl'nants rc>'istrd the application.

The Rc>nt C•.mtrollcr fram<q i's111s 1elating to the three

grounds; bnt the first two have ceased to be material now. On the issue relating to the third ground, the Rent Controller held that in deciding whether the tenants should be ordered to hand over possession to the landlord, the Courts must have regard to the bona .fiiles of the the request of the landlord, which meant that the desire to rebuild the premises should be honPstlv held by the landlord, but that the conrlition of the building also played an important part in determining whether the landlord had the intPntion genuinelv and was not using this excuse as a device to get rid of the tenants. In this connection, thA Rent Controller observed that the state of the buildin!!', the mPaos of the landlord, and the possibility of a better yield by way of rPnt, all entered into the appraisal of the landlord's state of mind.

Examining the case from this angle, the Rent controller held that there was hardly any proof that the building was in a dilapidated conrlition. One solitary witness who testified to this, admitted that he had not seen the building from the inside. The landlord himself did not give evidence. On the other hand, there was ample evidence that the huildin!( was good. As regards the financial status of the landlord, the witnfBea who stated on his behalf that he could spend Rs. 5,000 to Rs. 10,000 knew nothing abol't his means. Even the landlord's brother. who conducted this case on behi.lf of the landlord, could not give any details. The plan showed a building requiring about Rs. 20,000 to build. The landlord had an income of Rs. 200/- per month. and hs family consisted of his wife and five chiJrlren. 'J'he Rent Contro!IPr, therefore, h1>ld that he had no means to rebuild the prPmises. The Rent Controller did not feel impressed by. the alleged purcha •c of 40 bags of cement, because a. greater part of the cement was used up already in building two or three latrines, and the quantity left was whrJlly insufficient for the proposed building. He, therefore, decided the issue against the landlord.

Jveta Rom v, Jiwan Lal

Hidq.vatuituh J.

IM!

On appeal, these findinp:R w<'ro !'Onfirmed by the appellate aut.hority, who ht•ld that th" •hop~

and chobaraa were in good condition, and that the landlord was not, in good faith, w.,.ntiug to replace the buildin)!, wh1n ho ha'! 110 mea11s to build it. Again't the order of the "pp<llat" authority, an application for revisi"n ru1 p"rting t•> be under s. 15(15) of the E•st Punjab C'rlm11 Rent Restriction Act, 1949 (:l of 1949), was fif,., J in tt." High Court.

Thie application was 11]J., w, d.

The learned single J udg<' J'OSed the question thus:

" The question in the pr<>sent case is whether there is a bona fide desire to rebuild the pro>miseo?". He referred to an earlier deciRion of a Diviinnal Bench of that Court (<'ivil Re\•ision No. 22~ of

l!l60), in which GnRain, J., laid down the law in the following worrlR:

" It iR pMtincnt to note that tho wur<I 'huilding' in th<' aforesaid clause is not rpwfi. fkd by the words 'requiring reconRtruction'

or 'requiring rebuilding'. Tho landlord can, in thofe circumstances, require any building for the re-erection of thfl ea.me, and when in any case a claim to that effect is made hy him the only point that has to be determined i•

whethtr on the facts 11.nd cirCUll!Mtsnces of that case his requirement is bona fide.

A buildin2, for in8tance-, may not be immediately unsafe, but its condition may be such that unlN•B it is reconRtructed it mav involve the landlord at a later date very heavy expenditnre. All rounrl a particular buildin ( different types of buildings may have ben constructed of an entirely d1ffnent dsign and •, be particular building in question may then ho looking very ugly and the landlord may want to bring the same In conformity with the struotures a.round it.''

After quoting this passage, the learned Judge observed that the consideration which must weigh in determining the question of ejectment is whether the landlord genuinely wants to rebuild the premises, and further, that the actual condition of the premises is "a wholly irrelevant factor". In dealing with th" merits of the case, the learned Judge refernd to the offer of the landlord to put back the tf.'nants in possession, if the premises were not demolished within a month of his obtaining possession thereof, and concluded, without discussing the evidence, as follows :

"Upon the evidence on record it seems to me established beyond all doubt that the landlord genuinely and bona fide requires these premises for re building." He, therefore, sPt aside the concurrent orders of the two Tribunals, and ordered the eviction of the tenants, giving them two month's time in which to vacate the premises.

Two questions . have been argued in this appeal. The first is that the revision application is incompetent, because under s.10 (4) of the Patiala and East Punjab States Union rrban Rent Restriction Ordinan<ie, 'the decision of the appellate authority and subject only to such decision, an order of the Uontroller shall be final and shall not be liable to be called in question in any Court of law whether in a suit or other proceeding by way of appeal or revision". It is contended that s.15(5) of the E, ist Punjab Urban Rent Restriction Act, which conferred a powt'r of revision on the High Court does not apply to the present case, because this case did not arise in proceedings taken under the Act. The n<· 'l:t contention is that the int9rpretation placed by the learne.d Judge upon s. 13(3) (a) (iii) read withs. 13 (3) (b) is erroneous, and that the High Court had no power to reverse a concurrent findiug of fact without itself re-appraising the evidence, if at all.

N1t.J Uam

Jiwan Lal

Hidayatu!lah J.

196t

[NM Rom

JU-Ram

H i"'rl<Jlu/h J.

On the first point, the learned counsPI for the respondent.s relies upon a deoifion of this Court re ported in Moti Ram v. Suraj Bhan('), where it was held that a revision application in analogous cir cumstanoee was maintainable. In our opinion, even if a revision application lay, the learned single Judge was in error in his interpretation of the rf'levant sections of the Ordinance, and in reversing a concurrent finding of fact, without giving any s1bstantia.I reasons.

Section 13 of the Ordinance, omitting portions which are irrelevant here, reads as follow~:

"13. (I) Notwithstanding anything contained in any other law for the time being in force, a tenant in posseesion of a building or rented land shall not be evicted tber, from in f'Xecution of 11 decree paesed bef0rc or afwr the commencement of this Ordinance or other- "ise and whether before or after the te1mination of the tenancy, except in accordance with the provisions of this section.

x x x

(3) (a.) A landlord may apply to the Controller for an order directing the tenant to put the hmdlorcl in poeseseion.

x x x

(iii) in the case of any building, if be requires it for the re .erect ion of that building or for its replacement by another building, or for the erection of other building ; x x x

(b) The Controller shall, if he i• sntiofo'd

that the claim of the landlord is bona.- fide, make an order directing the tf nant to put the landlord in posseBSion of the building or rented land on such date as

1 I ) t1960J 2 S.C.R. S96.

may be specified by the Controller, .and if the Controller is not so satisfied, he shall make an order rejecting the application; :x x x

(4) whece a landlord who has obtained possession of building or rented land in pursuance of an order under ... sub-paragraph (iii) of the aforesaid paragraph (a) put that building to any use or lets it out to any tenant other then the tenant evicted from it, the tenant who has been evicted may apply to the Controller for an order directing that he shall be restored to possession of such building or rented land and the Controller shall make an order accordingly ...... " Reading these provisions as a whole, it is obvious that if the landlo"'1's need be genuiP.e and he satisfies the Controller, he can obtain possession of the building or the land, as the case may be.

If, however, he does not reerect the building and puts it to a:1y other use or lets it out to another tenant, the former tenant can apply to be put back in possession. Clause (b) clearly dhows both affirmatively and negatively that the landlord must satisfy the Uontrolln about his claim, before he can obtain an order in his favour.

The Controller has to be satisfied about the genuineness of the claim. To reach this conclusion, obviously the Controller must be satisfied about the reality of the claim made by the landlord, and this can only be established by looking at all the surrounding circumstances, such as the condition of the building, its situation, the possibility of its being put to a more profitable use after construction, the means of the landlord and so on. It is not enough that the landlord comes forward, and says that he entertains a particular intention, however strongly,

Nila Ram ..

Jiwan Lal

HJ.d1yatul/ah 1.

Jiroan Loi

H"4;1auJlaA J.

said to be entertained by him. Tho clause speaks not of the bona fide& of the landlord, hut says, on the other hand, that the claim of the la11dlord that he requires the building fur reconstruction and re-erection must be booo fide, that is to say. honest in the oircumstanoes. It is impossible, therefore, to hold that the investigation by the Controller should be confined only to the l'Xist11nce of an intention to reconstruct, in the mind oi the landlord. This intention must be honestly held in rolat.ion to the surrounding circumstance~.

In our opinion, the interpretation placed by the l'unjab High Court (in the dcoi.llion of Gosain, J.) puts too narrow a construction, and leaves very little for the Controller to decide. It is well-known that Rent Restric. tion Acts were passed in view of the shortage of houses and the High rents which were Leing demanded by landlords.

The very pu1 pose of the Rent Hestrictlon Acts would be defrated, if the landlords were to co forward and to get tenants turned out, on the bare plea. that they want to reconstruct the houses, without first establishing that the plea is bona fide with regard to all the circumstances, viz., that the houses need reconstruction or that they have the means to reconstruct them, etc. The two Tribunals below had gone into the matter thoroughly, and had agreed that the landlord had neither the means to reconstruct the builrlin~ nor had he made any attempt to face croBB-examination at1 a party. They were also of the opinion that the building was in a good state and did not need to be pulled down or reconstructed.

With such clear findings, one would expect that a revising Court, however vide ita powers may be, would, at least, go into tho 'th;:tion over again, if it was going to depart from

unanimous conclusion. It is hardly neoe888.ry to go into the question of the exknt of the powers of the High Court under s. 15 (5) of the Rent Restriction Act. They have been adverted to in the ruling of tbfa Court. above mentioned. 'J Lt

do not, however, include the power to reverse concurrent findings, without showing how those findings are erroneous. In the present case, the learned Judge has 'given his ooncluaion without adverting to single piece of evidence, from which his conclusion was drawn. In these ciruumstances it cannot be said that he had examined the propriety o( the order sought to be revised, even under the provisions of the law be was administering.

Learned counsel relying upon the case to which we have already referred, said that there the s11nction by the Municipal Comnittee was taken into consideration in deciding thn need of the landlord. The facts in that ruse are not fully stated, and from the observations, it would appear that there was other evidence besides the sanction by the l\lunicipal Committee, on which the conclusion of the High Court was supported. In any event, a case cannot be an authority on a point of fact, and each ca°'e will have tu be examined in the light of the circumstances existing in it. In the present case, the two Tribunals specially appointed t > consid .. r these matters, went, thoroughly into the question, and discused it from a correct angle.

If th''Y h>id examined the facts aftei: instructing

themslves correctly about the law, a Court of revision should be slow to interfere with the decision thus reached, unless it demonstrates by its own decision, the impropriety of the order, which it seeks to revise.

No attempt of this kind has been mad!l in this case, and in our opinion, the High Court was not justified in reversing the clear fiuding.

In the result, this appeal must be allowed.

The order of the High Court is set aside, and that of the appellate authority is restored. The landlord shall py the costs here and in the High Court.

Appeal allowed.

Neta Ram

•• Jiwan Lal

Hidoyalul/a!i J.

623

NETA RAM

JIWAN LAL

M. HIDAYATULLAH

C. SHAH, JJ.

East Punjab L rban Rent Restriction Act

ss. 13, 16(4), 19

s. 15(5)

Rent Restriction Act

s 15(5)

s. 13

s. 15(15)

Rent Restriction Act, 1949

Punjab Urban Rent Restriction Act

s. 13(3)

Section 13

s. 15


632 SUPREME COt.:RT liEfORTS (!~(,~] Stf P.

,!62

KAMALABAI JETHAMAL

]C?t;,.iry 18. v.

THE STATE u.b' .MAHARASHTRA

(J. L. KAPUR and RAGUUBAR DAYAL, JJ.)

Imnwral TralJic-Suppre., ion rf prostitution-Employ- monl of youngmen by the po/ice for JJe1rr1;, n of n!Jence-lf proper-Validity of C<mt'ictionlli~J. Court's P""" <f ri:ictionuppr ... <ion of lmnwral Traffic ;,. Wom, n and (; iris Ad, 1956 (104 of 1946), of as. 3(2j, 4(1), JU.

On learning that tt1c appcHant \\as using her prcmhcs a! a broihcl aud was supplyu11, gi1ls for the purpo>e ul prosti tution, the poJtLC arranged to lay a trap.

With two ouc hundred rupees mJ.rked cur1c11cy nutcs given Liy tlJe police two per:-.•n1s, M anU L, \Vent to the prcml!, cs cxcupicd by the appellant ; M was lo a•k for a girl for the purpose of pros

tnution aud L wa" to Uc a witness ol the fact.

M selected a girl and gave the oue uundrcd rupees uote to the appellant who put u under her l>luus_c. \\.hen Mand the irJ were in the roon1, on signal Oe1ug giver1, the pvlicc entered the room and found then1 in a r;1t11cr cumpromrsing po.sition. A v-oman Panch v.: ho had .1ccoH1pan1cJ rhc Police party searched the appelJanr and recovt(cd the one hundred rupees cur1 ency note frorn under tl1e liJousc.

The appellant was tried tor ottcnces under ss.3(2) and 4(1) of the SuppresSlc>n of Immoral Tratic in Women and

Girl.i Act, l~.(>6, !Jy th~ !\.Iag1srrat~ who, however, acquitted her.

Ou appeal, the High Court ac.; ccpte<l 1he prosecution case an<l conv1cle<l the appellant and, hu ther ordered her eviction. The High Court accepted the le>umoney of L in regard to the J.iaymtllt of the htJnd1t<1 rupce.s currency note to the appcilant a11tl also the evidence 1n the case to show that the amount was ued lor t11c pwpoc of pro:ititution.

The appellant contended (I) that tt.c convic1ion was bad because it was based only on the evidence o! the police and its agents, and the search was not onductcd in accordance with the provisions of the Code ot Crunmal ProceJure, and ( 2) that, in any case, only the Magi:.trate was given the power of eviction under s. 18 of the Act.

Held, that on 1he evidence accepted by the High Court, the conviction of the appellant wa:i valid.

The practice of the Governmental authomy, like the police employing young men, particularly studenlS studying at th~ educational insututions, as in the picacnt caK, m

order to suppress immoral traffic in women and to stop prostitution, cohdemned.

Held, further, that the High Court having ordered the conviction of the appellant, had the power to evict her under

' 18 of the Act.

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. lti74of 1901.

Appeal by special leave from the judgment and order dated September 29, and October 11,

ll!61, of the .Bombay ,_High. _Court in Criminal Appeal No. 906 of 1961.

G. Patwardhan, J. B. Dadachanji, O. C.

Mathur and Ravinder Narain for the appellant.

H. R. Khanna and P. D. Me'fl(ll'I for the respondent.

1962. January 18.-The Judgment of the Court was delivered by

KAPUR J.-This is an appeal against the judgment and order of the High Court of Bombay set

ting a.side the order of acquittal of the appellant and sentencing her to one year's rigorous imprison ment and evicting her from the premises which she

wa.s occupying as a tenant.

The appellant was tried by the Additional Chief Presidency Magistrate, Esplanade, Bombay, for offences under ss, 3(2) and 4(1) of the Suppression of Immoral Traffic in Women and Girls Aot (Act 104 of 1956) hereinafter called the' Act'. The charge against the appellant was that she supplied a girl to Mall!Ilohan Anandji Mehta who is a witness and she kept or managed a brothel at block No. 6, plot No. 144, Shivaji Park, Bombay;- that she knowingly lived on the earnings of prostitution and that she procured women for the purpose of prostitution.

The story of the prosecution was that information was received by Police Superin tendent Kanga that the premises were being used as a brothel and that the appellant was supplying

lu6Z

Kamalahai J11hamal

The Slate of Maharrrshlra.

Knpur J.

19tS

Earr.alabrii Jethamal

Th, Stale of M aharalhtra

Kapt1r.J.

634 SUPREME COURT REFORTS [1962) SUPP.

girls for the purpose of prostitution. He thereupon

laid a trap and sent two persons, Manmohan Anandji Mehta and Prabhak11r K. Loke, the former was to a8k for a. girl for thti purpose of prostitution and the

lattnr was to be a panch i. e. a. witness of that fact.

S11ldnspector Purohit, it is stated, gave two one hundred rupees marked currency notes to Manmohan Ammdji Mehta with the instruction that he was to pay out of th11t to the appellant and thus to obtain a. gil I from her for the purpose of prostitution.

He a.long with Loke went to the house of the appellant, rang the bell and was admitted by her.

Ho then asked the appellant to arrange a girl for him and both Manmohan Ana.ndji Mehta. and Loke are alleged to have said that they wanted two girls for enjoyment.

Two girls were shown, one Kamal Govind and the other lndu Bapurao Salunke both of whom are witnesses. The amount quoted by the appellant in the case of the former was Rs. 100/· aurl fc,?· the lattc-r Rs. 50/-. Manmohan Anandji Mehtb. selected Kamal and handed over heroine one hu.idred rupees currency note to tho appellant which she put under her blouse. Manmi; han Anandji Mehta and the girl then went into the kitchen a.nd there they undressed and were later found naked on the floor and in a rather compromisinp: position.

On a signal being given the police i.o. Superintendent Kanga and Sub-Inspector Purobit entered the

premises and were told by Loke that Ma.nmoha.n Ana.ndji Mehta and the girl were in the kitrhen.

The police officers opened the door of the kitchen and found both Manmohan Anandji Mehta. and Kamal as stated above.

Th<'v then were asked to dre88 and come out. Manmohan Anandji Mehta then returned the other one hundred rupees currency note to .:::iuperintendent Kanga. A woman Panch who had accompanied the police party searched the appellant and recovered the one hundred rupees currency note from under the

blouee. It is stated that the male members of the party were at tha\ time in a pwage adjoining the

2 S.C.R.

SUPREME COURT R.I<.; PORTS 635

hall where the appellant was searched.

The appellant was tried for the offences above mentioned but was acquitted by the Additional Chief Presidency Magistrate. On appeal the High Court set aside the order of acquittal and sentenced her to a year's rigorous imprisonment and also ordered her eviction from the premises she was occupying as a tenant.

The evidence mainly consists of Manrnohan Anandji Mehta and Loke and the two police oilieern. 'fbe testimony of Manmohan .Anandj1 Mehta and Loke by itself may not, in the circumstances of the case, be of much value but their testimony receives corroboration and thus gives credence to the prosecution case. The evidence of Police Superintendent Kanga shows that when the door of the kitchen was pushed open both Kamal and Manmohan Anandji Mehta were naked and were in a compromising position ; their clothes were lying by the side of the mattress. The testimony of Sub-Inspector Purohit is also to the same effect. The other circumstance which is very much against the appellant is that there is evidence to show that when the woman panch accompanied the police party. and searched the appellant a hundred rupees currency note was found from her person under her blouse. The fact is deposed to by Sub-Inspector Purohit and by Police Superintendent Kanga. Loke has also deposed to the same effect.

But it was submitted on behalf of the appellant that this evidence should not be accepted as, according to law, no woman can be searched except by , another woman and having regard to the emphasis on decency under ss. 52 and 103 of the Criminal Procedure Code that cannot be done in the presence of men. There iS no evirlence to show except that of Manmohan Anandji Mehta that the men were asked to move a.way from the hall or had actually left the hall during the search. But al!Buming they were not in the hall even the}\.it will not be an extraordinary oircum.;

1JI02

Kamalabai Jeth1Jtnal

The State of

Maha,.i.hlra

Kapur J.

; a,11alobai J, thJmal

Tli1 SUJ•1 of M ailarorli.tru

Irop.4 J.

636 SUPREME COCRT REPORTS [19E2] SUPP.

stnnce that one or all of them should have seen the handred rupees note being taken out from under tho ulouse of the appellant. The High Court has acceptl'd the te.itimony of Loke and wo find no

re'\son tu <l•part from the u; ual practice of this Court of acenpting such findings.

Besides ths High Court has also accepted the testimony of Loke in regard to tho payment of a hundred rupees currency note to the appellant "hich pruves that money was paid before the >iirl, Kamal Govind, was a8ked to go with jfanmoha.n Anaudji ,\fohta for the purpose of pro.titution.

Counsel for the appellant emphasised two points : t I) that the woman, who was brought by the police to sea.rob tho appellant and is alleged to have recovered the hundred rupees note from her

porson, he.a not been produced and (2) that considering that the person to be searched was a woman it muot be prcsum~J that in accoruance with the requirements of law and of decency no man could have been prscnt when tho search of the appellant took place. In support of tho first contention reference is made to a judgment of this Court in Puivez Art:Ushir Pooruiu-alla v. The State of Bombay('),

where the nectBBity of producing the search witneBB

was emphasised and it was observed :-

"This is one of those cases where the rule in rogard to search witnll&leS becomes applicable and impor ta.nee must be attached to the

la.ck of that class of search wituedses which a.re enviHaged by the Criminal Procedurn Code

in s. 103." The Privy Couneil also in ltlal.ak Khan v. Emperor(') emphasised the necessity of the presence of search witnesses. Lord Portr there said :

'In their Lordship's opinion the presence of witneBBes at a search is always desirable and their absence will weaken and may sometimes destroy the a.cceptanoe of the evidence as to the fiuding of the articles ............ " (lj Cr. A. No. 122 of 19;+ decided NI 211-1~-57, (2 (l!lt!i) L, R. 72 l, A. 311.5.

The observations in Poonawalla' s case e) and Lord Porter in Malikkhan v. Emperor (')are not directly applicable in the present case. As we have said above there is evidence ; n this case which has been accepted by the High Court that a hundred rupees note was given to the appellant by Manmohan Anandji Mehtar There is also evidence that as a consequence of the payment of money Manmohan Anandji Mehta did hire Kamal Govind for prostitution and it is regrettable to say that with the money given to him by the police he acted not merely as a 'bogus customer', as he has been described, but his participation was more active, reprehensible, immodest, indecent and indecorous. If in any case the following observations of Lord Goddard, Chief Justice, in Brannan v. Pe, ek (') are apposite it is this case : "The court observes with concern and disapproval the fact that the polico au th 1rity

as Derby thought it right to send a police officer into a public house to commit an offence. It cannot be too strongly emphasisPd that, ........ .it is wholly wrong for a police officer or anv other person to be sent to commit an offence in order that an offence by another person may be detected." We have only to substitute the words "aid an act of prostitution" for "to commit an offence" and the analogy is complete. In this case two youngmen were given mJney to go to the house of the appellant and also to use that money in rather an improper manner. Manmohan Anandji Mehta seems to be a person of rather doubtful character and the employment of this class of persons for detection of offences is hardly a credit to any one. What is more reprehensible &nd a matter of greater concern i1 the sending with him a young student who was reading for his Matriculation. To use students in

(11 Cr. A. No. 122of1914 decided on 20-12-1957. (2: (lq};) L. R. 7l I.-\. 30>. 131 [lqH] 2 AU. E. R. 573·1.

196f

Kam'llabai Jerhamal

The Stale of 11-f aharasluJ

Kopur .'.

K-loboij<IA•nl

•• 7 II. Stoteof Jloltartuhlra

K..p...f.

638 SUPREME COURT REPORTS [1962] SUPP.

this manner should not be allowed by any governm<'nh1l authoritv in a <'nuntry like oul'I!. It. is no justification to say that in order to suppr08B immoral traffic in women and to stop prostitution somebody has to be u1ed and the only class of people that can be emploved are persons lik11 Manmohan Anandji Mehta who is confessedly a polioe agent and Loke who is a youngman willing to be employed by the police. After saying this we have still to see "hat is the consequence of the testimonv of these witnessess produced in thiR case. The High Court has believed the testimony of Loke in regard to the payment of one hunitred rupees and th11re is evidenP, e to Rhow that t.bat amount was used for fhe purpose of proC'uring Kam la for prostitution.

The payment must therefore be held to be proved.

It may b11 that the search was contrary to the spirit or even the lrtfor of the Criminal Procedure Code but tho fact remains that the High C0urt has accepted that there was a search and a hundred rupc' s currency note was recovered and even if the recovery of a hundred rupees curr<>ncy note were held not proved, the payment of fhat amount will not th!'rebv become unproved if there is t>videnco which the High Court has accepted.

On the findings of the High Court we are unable to come to any other conclusion but the one to which the High Court came that the appellant is guilty of the offences of which she was accW1cd.

The next submission of Counsel for the apve- Jlant was that the High Court in appeal could not order the appellant's eviction because t1'at power only a Magistrate hae unrler s. J 8 of the Act. The argumiint raised was that tht> powers of the appeal court under A. 423, Criminal Procedure Code are to

rl'vere th11 order of acquittal or to order a fresh enquiry or a retrial eto. but not to order eviotion.

But this argument is untenable in view of the fa.ct that in the Act there is a specifio provision in s. 18

of the Aot authorising the making of such an order by a court convicting a person of offences under s. 3 or s. 7 of the Act. The relevant portion of s. 18 is as follows :-

S. 18 "Closure of brothels anrl eviction of offenders from the premises.-

(I) ......... , and if after hearing the person concerned, the magistrate is satisfied that the house ...... or portion is being used as a brothel or for carrying on prostitution then the magistrate may pass orders~-

(a) directing eviction of the occupier within seven days of the passing of the order from the house .........

(2) A court convicting a person of any offence under section 3 or section 7 may pass orders under subsection (I) without further notice to such person to show cause as required in that sub-section." The High Court ordered the conviction of the appellant under s. 3 of the Act and therefore it had the power to order her eviction. The second contention is also without substance.

The appeal is therefore dismissed; Appeal dismissed.

.Kaulabai .ldhlm•l

The State 1

M aharash It

Ira/JU' J,

62

KAMALABAI JETHAMAL

THE STATE u.b' .MAHARASHTRA

L. KAPUR

RAGUUBAR DAYAL, JJ.

ss.3(2) and 4(1)

s. 18

ss. 52 and 103

Haged by the Criminal Procedurn Code

s. 103

Criminal Procedure Code

s. 18

s. 3

s. 7

s. 18

S. 18

section 3

section 7

s. 3