2 9.C.R.

SUPREME COURT REPORTS

THE COMMISSIONER OF INCOME TAX, DELHI Al\fD RAJASTHAN v.

M/S. NATIONAL FH{ANCE LTD.

(S.K. DAs, M. HIDAYATULLAH and J.C. SHAH, JJ.)

Income Taa:-OapUal WBB or trading /, ass-Dealer in sparea-Acquisition . of shares tc get agency of company -Sublequent sale of share& incurring loas-Whetlier trading loss -Application to Tribunal dismissed as ba"ed by limitati01&- Reference to High Court dismissed-Appeal by Special Leave

against Trtbunal's decision-Maintainability.

The respondent was a company dealing in . shares and securities and belonged to a group of companies all controlled by the same persons. In the year of account, corresponding to the assessment year 1951-52, the respondent sold the shares relating to Madhusudan Mills Ltd., which it had acquired sometime earlier, suffering a loss for which it claimed a set-off against the profits in that year.

The Income-tax Officer found that the shares in question had been purchased by J, a company belonging to the group, at a price which wa1 almost double the current market price, that it was so done with a view to removing the sellers from their managing agency and to securing for the respondent the purchasing and selling agency of the Mills, and that after the purchase J achieved the purpose in view of its controlling interest and the purchasing and selling agency of the Milla was given to the respondent, though the latter had done no more than give a loan to J. It was aim found that soon after the plll'Chasc the shares in question came into the possession of the respondent and that when the shares were sold it not in the market but at a loss to another company belonging to the same group.

The Income tax Officer came to the conclusion that in getting the shares the respondent did not deal with them as stock-intrade but was acquiring a capital asset of an enduiing nature.

Accordingly, he disallowed the claim holding the loss to be a a capital loss. The Appellate Tribunal, however, held in favour of the respondent on the view that a distinction must be made between the respondent company and J.

The Commissioner of Incometax moved the Tribunal for a reference to the High Court, but it was dismissed on the ground that though it was barred only by one day and there was no negligence on the part of the Commissioner, the Tribunal had no power to extend time. An application to the High Court was also dismissed. The Commissioner of Incomctax then applied for and got special leave to appeal against

J.....,, 29

Ja n, C-iJsU... of

lltl#trla, Dtllti

ad Rajaslhan

M/1. ati.ruJl

FiJUllfci Ltd.

861) SUPREME COURT REPORTS (1962] SUPP.

the order passed by the Tribunal.

When the appeal came on for hearing in due coune the respondent raised an objection that the appeal was not maintainable bec.ause no appeal was filed against the order of the High Court, and relied on the decision in Chandi PrMad Chokani v. State of Hihar, ( 1962)

2 S.C.R. 276.

Held, that the appeal was maintainable because there was no question of bypassing the order of the High Court which only related to the correctness of the decision of the Tribunal on the question of limitation which was not the

subj.ct of the prrsent appeal.

Held, further, that there were special circumstances which justified the grant of special leave.

RalJ.v Si7111h v. Commissioner of Income-tax ( 1960), 4-0 I.T.R. 605, applied.

Chan di Prasad ChoH111ni

v. State of Bihar ( 1962), 2 S.C.R. 276, distinguished.

l/elrl, aln. that, on the facts, the object was tn purchase a largr block rof shares at a much larecr price than the market value to acquire certain agenries of a profitable character, that the purchase of the shares by J was mf'rely a device but the controllinl( interest wa• acquirerl by the respondent, and that the tranc; action must be regarded as one on the capital side.

Rmnarain Sons (P.)l.td v. Commi•sioner of Tnwme-taz,

(1961) 2 S.C:.R. 904and Oriental lnvutment Co. lid. v. Commi•.<ioner nf Income-taz, (1958) S.C.R. 49, applied.

Salomon v. Salomon & Co. Ltd. (lll97) A.C. 22, distin. guished.

C1v1L APPELLATE Jr.RISDICTION : Civil Appeal No. 559 of 1960.

Appeal by special leave from the judgment and ord1>•dated May 1/14, 1957, of the Income Tax A ppella•c Tribunal of India (Delhi Bench) in I.T.A.

o. 2070 of 1956-57.

K.S. Ra, ia.gopal Saslri and D. Gupta, for the appellant.

Rodhey J, al Aaarwal and P.C. Aaanml. for the respourleuts.

2 s.c.R.

SUPREME COURT REPOHTS 867

1962. January 29. The Judgment of the Court was delivered by

HrnAYATULLAH. J.-This is an appeal against the order of the Income-tax Appellate Tribunal, Delhi Bench, dated May I/ 14, 1957, by which the tribunal, reversing the order of the A pvellate Assistant Commissioner, held that a loss arising from the sale of certain shares by the respondent Company was a capital loss. Subsequent to the order of the Tribunal impugned here, the Commissioner of Income-tax, New Delhi, who is the appellant before us, had moved the Tribunal for a reference to the High Court on certain questions of law said to arise out of the order of the Appellate Tribunal.

That application was found to be barred by one day, and since, under the law, the Tribunal had no jurisdiction to extend the time, the application was dismissed. Against the decision of the Tribunal, an application was filed in the High Court under s. 66(3) of the Income. tax Act; but the High Court dismissed the application, agreeing with the Tribunal that the application to the Tribunal for a reference was barred bv time. The Commissioner of Income-tax then applied for special leave against the order passed by the Tribunal in he appeal

before it, and the present appeal, with special leave, has been filed.

Before we examine the merits of the case, we shall deal with a preliminary objection raised on behalf of the respondent that the appeal is income

petent, in view of the decision of this Court in Ohandi Prasad Chokhani v. State of Bihar (') where it was held that this Court would not entertain an appeal directly from an order of the Tribunal bypassing the decision of the High Court, except in very exceptional circumstances. The appellant relies upon th~ decision of this Court in Baldev Singh v. Commissiunrrof Inrome tax (2 ', and contends (I) [1962] 2 S.C.R. 2iG.

(2) [1960] 40 l.T.R. 605.

The Co111mi.uianer of

Jmome-tlx, Dtlhi

and RcjOJth!ln

•• Mfr. Notional

Finance :.td.

Hida-vatttUah J.

TAIO-UriMdof r--.IHllli ""' a.;.,,,_

JIA~:.tt

Bilo!lo"""'""' J.

868 SUPREME COURT REPORTS [1962] SUPP.

that the exooptional circumstances existing in the latter case and adverted to in the former, govern the present oaae.

The fsoti:i relating to the filing of the a.pplioa.tion for reference together with the relevant dates are these: The Tribunal's order was pa.seed by two learned Members, who signed their respective orders on different dates. The Aooountant Member signed his order on May 1, 1957, and the

Judioia.I Member, on May 14,1957. The notice of the order was sent to the CommiBBioner of Incometax, Now Delhi, and reached his office by registered post on July '15, 1957. It was received by one Motilal Pathak, a clerk in the office of the Commissioner. Motilal's affidavit shows that he suddenly fell ill, and had to take casual ieave for the day.

He returned to the offioe the next day, and dealt with tho notice received from the Tribunal. By a mischanoe, which is easy to appreciate, the date

stamp of the receipt of the papers was affixed on the 16th, and bore that date instead of the real

date, viz., the 15th, on which the papers had actually been received. Relying upon the date stamp, everybody took it for granted that limitation would expire on the 60th day, counting time from July 16, 1957. The application was filed on the last day of limitation on that supposition. Actually. the application was barred by a day. The Inoometax Tribunal, therefore, dismissed the application on Deoomber 4, 1957. The decision of the Tribunal waa unsuooessfully challenged before the High Court. It is evident that the decision of the Tribunal was quite correct, and the Tribunal had no option but to diamiss the application, since the law gives no jurisdiction to the Tribunal to extend limitation, as is done under s. 5 of the Indian Limitation Act.

This Court then granted special leave against the order of the Tribunal passed in the appeal

before it, and the question is whether the appeal should be heard or the leave revoked, in view of the decision in Clwkhani's case (1). In Chokha.ni's case (I), the attempt was to bypass the decision of the High Court on a question referred to the High Court for decision and also another decision of the High Court that no other point of law arose from the order of the Tribunal. It was held that this Court would not allow the High Court to be bypassed, and that an appeal from the decision of the Tribunal in the circumstances was incompetent. A similar view was again expressed in two other cases, viz., ln®an Aluminium Co. Ltd. v.

Commissioner of Income-tn.x ('}and Kanhaiyalal Lohia

v. The Commissioner of Income-W.x (').

In all the three cases, reliance was placed by the appellants therein upon the decisions of this Court in Dha.kes wari Cotton Mills, Ltd. v, Commissioner of Incometn.x (4) and BaUlev Singh v. Commissioner of Incometax (') It was pointed out in the judgments of this Court that the two cases relied upon were decided on t.he special circumstances existing there. In the first, there was a question of breach of the principles of natural justice, which could not be raised otherwise than by an appeal with the special leave of this Court. In the second case, it was pointed out that limitation was lost by the party hrough no fault of his, inasmuch as a letter was unduly de'.J.yed in post. In our opinion, in the present case also, special circumstances which justified the grant of special leave in Balde'V Singh's case ('), exist.

There was a combination of cireumsances which Jed to the filing of the application a day late, but in circumstances showing that the default was not due to any negligence on the part of the Commissioner of Income-tax. The receipt of the notice on July 15 is admitted; but the affixing of the date stamp on the 16th was due to the failure of the

(2) C.A. No. 176of1959, decided on April 24, 1961.

(5) (1960] 4-0 l.T.R. 605.

1116S

TM C....issiolur •/ 1neo..,.tax, D.W

and Rajtu'h°"

MJs. NatNruil

Finone1 Ltd •.

Hidoyotulloh J.

1!132 n. c....,;,,;.,.., of 1 M11111-l4c, D1l.Ai ai Rajoslh .. v.

M/1. Notidcl i'u-u LJd,

HrJ.IJll J.

870 SUPREME OOURT REPORTS [1962) SUPP.

clerk to dea.I with the notice on the 15th because be fell ill and ba.d to lea.ve the office. It is com

mon knowledge tba.t da.te stamps a.re altered every da.y in the offrne, and this is done mostly by a very junior employee. The affixing of the date stamp

on Ute Jtith a.nd tho notice consequently bearing tha.t dte went uunoticed, a.nd relying upon the date starnp, the appeal was filed, though on the

la.st day of limitation but within time. In these circumstances, it is difficult to say that the Commi ssioaer of Income-tax was negligent. and the negl!- gence, 1f any, on the part of the clerk in affixing a wrong date st11.mp is oxousa.ble, if one considers his illness and bis absence from the office on the 15th. In our opinion, this ca.se comes within the rule of llaldev Singh's case (1) and an appeal direct to this Court from the Tribunal's order is justified by the special circumta.nces. By this appeal, no decision of the High Court can be said to be bypa.ssed, because the decision of the High Court rela.ted to the correctnesa of the decision of the Tribunal on the question of limitation, which is not a question which is sought to be raised in an indirect

way by the pre&lnt appeal. We, therefore, overrule the preliminary objection.

The tMllleesee Company is the National Finance Ltd., New Delhi. It is a public limited Company

which was incorporated in 1943. It deals in shares and securities and also u financiers. The preaent oase a.rises from a. deal in 3,000 aha.res of the Ma.dhusuda.n Mills Ltd., Bombay, by the 8.88essee Company. In the year of a.ooount, May I, 1949, to April 30, 1950, corresponding to the a.ssessmen•year,

1951-52 the 8.88eBBee Company sold these shares uffering a 1088 of Rs. 5,48, 712 8-0, whioh it claimed as one on the ea.le of it.I stock'intrade. The Inoometax OffitJer and the Appellate Allllistant Commissioner held it to be a capital losa. The

(I} [l!HiOJ 40 l.T.R. 605.

Appellate Tribunal, Delhi Dench, reversed the decision, and held iu favour of the a.ssessee Company.

The only question in this appeal is whether the decision of the Tri buna.l is right.

The assessee Company belongR to a group of Companies controlled by m, e Lala Y odh Raj Bhalla. and certain perso11s associated with him. It is convenient to describe these persons as the 'Yodh Raj Bhalla group'. These Companies are (I) Jaswant Sugar Mills Ltd., (2) Jaswant Straw Boards Ltd., (3) National Finance .i., td., ( 4) National Con struction and Development Corporation Ltd., ( 5) G.>nesh Finance Corporation Ltd., and

(6) Raghunath Investment Trust Ltd. The interrelation .of these Companies is very intimate, and they are practically owned by the 'Yodh Raj Bhalla group ' To understand this, the following analysis of the shareholdings of these Companie!; must be sufficient :

(1) Jaswant Sugar Mills Ltd.

2,00,000 shares

(i) Jaswant Straw Board Ltd.

(ii) NationalFinance Ltd.

(iii) National Construction and Development Corporation Ltd.

44,845

67,390

47,800

l,60,035

(i.e. over 80 per cent)

(2) Jaswant Straw Board Ltd.

 6,176 shares;

( i) National Finance Ltd. 4, 783

(ii) Na.tional Construction and

Development.Corporation Ltd. iiOO

5,:!00 odd (or nearly 84 per cent)

Tltt CommissioMr of

Income .. tax, Dtlln

and Rajasthan

Mis . .Na1icmal

Finance Ltd.

Hia.atrdl . .n J,

.1161

n.r-o/ 1-T•, DtlAt

.WR,,.,,,._

•• Jl/1. Nttlw-l

,-., JM,

H~IMJ.

872 SUPREllIE COURT REPORTS [1962) SUPP.

(3) National Finance Ltd. (aeaeesee

Company) 50,000 sha.res.

Ganesh Finance Corporation Ltd. 48,000 (or over 96 per oent)

(4) National Construction and Development Corporation Ltd. 1,30,504 shares.

Ganesh Finance Corporation Ltd. 1,30.l>OO (abn011t all) ( 5) Ganesh Finance Corporation Ltd. 00,000 shares.

Raghunath Investment Tl'Wlt Ltd. 49,795 (99.6 per cent of the capital)

(6) Raghunath Investment Trust Ltd.

10,000 shares.

(i) Mr. Yodh Raj Bhalla 1,500

(ii) Mrs. Bhalla 1,000

(iii) Mr. N. C. Malhotra (brotherin-Ja.w) 1,000

(iv) Mr. Ra.m Prasad (father-in-law) 1,000

(v) Mr. Dina.Nath (Secretary) 1,000

(vi) National Finanoe Ltd. 3,499

(vii) Mr. Piyare Lal Saha l --- 9,000 (90 per cent).

The resulting pOBition may be etated thus : Ganesh Finace Corporation Ltd. pr&etioally owne the we•ee

Company and National Uonatruotion and Development Corporation Ltd., Raghunath Investment

Trust Lt<l. praotioall.} owns the Ganeeh Finance Corporation Ltd., and •Yodh Raj Bhalla group' practically owns Raghunath Investment Truet Ltd.

Ja.swant Sugar Mills Ltd. is practically owned by Ja.swant Straw Board Ltd., National Finance Ltd., and N tion"l Construction and Development Corporation Ltd., and Ja.swa.nt Straw Board Ltd. is pra.otically owned by National Finance Ltd., and National Construotion and Davelopment Corporation Ltd. Thus, the entire group is owned by a consortium, and there is no doubt a.bout it.

The shares of Madhueudan Mills Ltd. were acquired in the following circumstances : In July

1948, Mr. Yodh Raj Bhalla, who was in a position by re&aon of his holdings in these six Companies to influence decisions of the Board of Direo tors, arranged to purohase 26,54 7 shares of the }:tills from Messrs. .Bhada.ni Brothers, Ltd., who were the managing agents of the Mills. This block of shares represented about 80 per cent of the total issued capital of the Mills. The purchase was made at Rs. 400 per share, when the price in the market, was a.bout Rs. 250 per share, Out of the remaining shares which were on the market 200 shares were purchased at Rs. 252-8-0 per share, which was then the quoted price. Now, these shares were purchased by Jaswant Sugar Mills Ltd., but the money for the purchase of the shares was obtained by borrowing it from some of the other concerns. These Companies, as has been shown above, were completely under the control of 'Yodh Raj Bhalla group'. The arrangement for the money was as follows : Re. 14, 75,000 - borrowed from the a.ssesee Company.

Rs. 5,00,000 - from National Construction and Development Corporation Ltd.

Rs. 55,00,000 - from the assessee Company but advanced by Ganesh Finance Corporation Ltd.

Thi Com?1ission1, of

lncam1 Tax, Delhi

and Rajutlwi

Mjs. National

Finanet LtrJ. ·

HidllJalu/lah J.

J9G2

TJt1 Commi; ntmr of

ltccomtlax, D1l.U

tvJtl Raj•sth.an

•• M /s. J'ratiOMl

Fin4t1&1 Ltd.

B i41ctwllali J.

8i4 SVPREME COCRT REPORTS [1962] SUPP.

The bhares "ere registered as follows :

I 0,500 shares registered in the name of the

aEsessee Company. 5,400 shares in tho n"1Ile of the National

Construction and Development Corporation Ltd., and the balance in the names of the nominees of Jaswant

Sugar Mills Ltd., which meant, largely, persons belonging to the 'Yodh Raj Bhalla.group'.

On October 9, 1949, the assessee Company purchased 15,54 7 sha.rs at Ra. 400 per share from Jaswant Sugar Mills Ltd., and the amount paid by the a.ssessee Company was adjusted tow>\rds the purchase pric{> and the balance was paid. On the same day, the remaining 11,000 shares were sold by Jaswa.nt Sugar Mills Ltd. to National Construction and Development Corporation Ltd., at Rs. 400 per share. Thus, on that date Jaswant Sugar Mills Ltd. ceased to have any connection with the present matter. It may be pointed out that on the date on which the two transactions took place, the price ruling in the market was about Rs. 217-8-0. Before Jaswant Sugar Mills Ltd. parted with the shares, they had appointed a new Board of Directors of tho Madhusudan Mills Ltd., and these new Directors also belonged to the same group. The managing agency of Messrs. Bha.dani Brothers Ltd. was terminated, and on the same day on which the aha.res were purchased from these managing agents, the asseBBee Company was appointed as the purchasing and selling agent of the Mills.

Tho a.sseBBce Company ma.de enormous profit from the acquisition of thesP shares by way of dividend and commiBBion as the purchasing and selling a.gent.

Jn October and November, 1948 they, however, sold 6,525 shares to Da.lmia Cement and Marketing Company Ltd. at Rs. 400 per share. These shares subsequently oame back to the same group ; but

that is not a matter with which we are immediately concerned.

On April 7, 1949, 4,500 shares were sold by the assessee Company to the National Investment Trust Ltd. at Rs. 181 per share resulting in a loss of Rs. 8,80,000, and on June 1, 1949, another block of 3,000 shares was sold to the National Investment Trust Ltd., at Rs. 180 per share, resulting in a loss of Rs. 5,86,312. We are not concerned with the loss arising from the first sale which was considered in the assessment year, 1950-51, and in respect of which a reference is pending in the High Court of Punjab. We are concerned with the loss in thesecond year relating to the assessment year, 1951-52.

In that year, the loss on the sale of the shares was sought to be set off against the profits made, and the loss practically cancelled the profits. The shares which were sold by the assessee Company on the two occasions were sold to one Ail).rit Bhushan (a relative of Mr. Yodh Raj Bhalla) who sold then the same day to Messrs. National Investment Trust Ltd., at tjie slender profits of 8 aunas per share, which was brokerage. Thus, at the beginning and at the end, though numerous transactions had taken place, the shares continued to be the property of the 'Yodh Raj Bhalla group'. The question is whether the loss on the sale of the shares be set off' against the profits in the year in which the sales and profits were respectively made.

The assessee Company was assessed for the assessment year, 1950-51, by the Income-tax Officer, Meerut.

In that year, the loss of Rs. 8, 78,062-8-0 arising from the sale of Rs. 4,520 shares of Madhusuda1i Mills Ltd.

was set off against the profits of the assessee Company. .The case of the assessee Company for the a.ssessment year, 1951-52, was considered by the Income-tax Officer, Central Circle V, New Delhi, to whom the cases of the other Companies abovenamed were also transferred. By looking into the

rne Cornmission1r of

Income-tax, Dtlhi

and Rajasthan

•' M /s. National

Finaru1 Ltd.

Hidayotullah J;

196Z

n1 C1m11ttJlio1llr of

lnc011ttl4x, Ddlli

ad Raja.Iilwl

M {s. Notional

1'1-Lld.

876 SUPREME COl:RT REPORTS [1962] St:PP.

affairs of these Companies, he ca.me to learn, that the share11 of the M!idhusuda.n Mills Ltd. were purchased at a price, which was almost double the current market price, by the 'Yodh Raj Bhalla group,' and were transferred at the same price to the &BSe ssce Company. He found that this was done with a view to removing Jlessrs.

Bhadani Brothers, Ltd. from their managing agency and to securing for the a.88e88Ce Company the purchasing and selling agency of the Mills. On the date of the purchase from Me88rs.

Bhadani Brothers, Ltd., Ja.swant Sugar Mills Ltd. achieved this purpose in view of their controlling interest. Bhadani Brothers, Ltd. ceased to be the managing agents from that date, and the purchasing and selling agency of tho Ma.dhusudan Mills, Ltd. was given to the asscBSee Company, though it had, on that day, done no more than give a loan to Jaswant Sugar Mills Ltd. In the &88easment year, 1951-52, the loss of Rs.5,86,312-8-0 on the sale of 3,000 shares was, then.fore, disallowed holding it to be a capital 1088.

The order of tho Income-tax Officer, Central Circle V, New Delhi was confirmed on appeal by the Appellate Assistant CommiRSioner. On further appeal by tho &88essee Company, the Inoome-tax Appellate Tribunal, Delhi, reversed the order of the Appellate Assistant Co=i88ioner, and h11ld that the 1088 wo.s

a trading loss.

Whether a particular loss is a trading loss or a loss on the capita.I side undoubtedly depends upon the fa.ots of ea.ch case. But it has been held, over and over again, that the question is not one of pure fa.ct, and _that a mixed question of fa.ct and law is always mvolved. The cases to which we shall make a reference presently, have la.id down this proposition, and those oa.808 have also indicated how the matter is to be viewed in the context of facts.

In Gomrnissioner of lncome-f, ax v. Ramnarain Sons Ltd. (1), the Company was a dealer in shares

(1)

[1957J 31, !.T.R. 17.

and also carried on the business of acquiring managing agencies of other Companies.

The Company acquired the managing agency of a. Textile Mill from Messrs. Sassoon J. David and Co. Ltd., and also agreed as part of the same transaction to buy 2,507 shares of the Mills. 1.507 shares were purchased at Rs. 2,321-8-0 per share, and the remam1ng 1,000 shares were purchased at Rs. 1,500 per share. These shares were quoted on the market at Rs. 1,610. Later,4,000 shares were sold at a loss of Rs. 1, 78,000. This was shown in the books of the Company as a business loss, but was disallowed, as the shares were not held to be the stock-in-trade of the business of the Company as share dealers. On a reference to the High Court

of Bombay, a. Divisional Bench upheld the view of the Tribuna]; Chagla, C. J., in delivering the judgment of the Court, observed that a managing agency being an asset of an enduring nature, the way to look at the matter was to enquire what wa• the primary intention in acquiring the Hhares. The learned Chief Justice then referred to a judgment of this Court

reported in KishanPrasad & Co. Ltd. v. Cmnmissioner of Income-tax (1), where it was observed:

"It seems that the object of the assessee Company in buying shares was purely to obtain the managing agency of the third mill which no doubt would have been an asset of an enduring nature and would have brought them profits but there was from the inception no intention whatever on the pa.rt of the a.ssessee Company to re-sell the shares either at a profit or otherwise deal in them." The learned Chief Justice then considered the argument that a block of shares might have to be bought, if at all, t a higher price, and observed as

follows:

"A dealer in shares may succeed in getting a large number of shares at a prim~ less than 'l) (1955] 27 I.T.R. 49.53.

Tht Commisdorier of

lnt0me Tax, D1lhi

and Rajasthan v.

M/s. National

Finance Ltd.

Hidayatulloh J.

Thi Commi.J•iontr of

l11&omt Tax, Delhi

1nd Rajusthun

Alts. JVatnal

F1ltd.

HidayaJullah J,

8i8 SUPREME COURT REPORTS [1962] StJPP.

the market price if the seller is in diffioultiee and wants to jl'et rid of his shares and to get liquid assets, Ent we have not heard of a. dealt>r in shares purchSBing a. large num her of shares at a hi1Zher value than the market value.

The other circumstance which is equally strong in this caile is that the she.res were purchased for the acquisition of the managing agency. Therefore the real object of thE' asseBSee company W88 not to do business in these shares, not to make profit out of these shares, but to acquire a capita.I asset out of which it would earn managing agency commission and make profit."

ME'BBre. Ramnarain and Sons. Ltd. then appealed to this Court, and the decision of the Bombay High Court was upheld. The , Judgment of this Court is rP-portPd in Ramnarain Smis (Pr.) Ltd. v. Commi.ssiomr

of lncomela.T ('). It waR laid down by this Court that in considering whether a transaction .was or was

not an adventure in the nature of trade, the problem must be app1ochcd in the light of the intention of the assessee, ha vine regard to the "legal requirements which a.re. a11soci11ted with the concept of trade or business"· Dealing with the price a.hove the market price which was pa.id in that case, it was observed:

"Even assuming that the appellants acquired the entire block of 2,507 shares from M/e. SB.1<Soon J. David & Co. Ltd.-the shares transferred to the names of the directors being held by them merely 88 nominees of the appellants-the price per she.re was considerably in exceSB of the prevailing market rate. The only reason for entering into the tramacticn, which could not otherwise be regarded as a prudent busine81'

transaction, was the acquisition of the

\I) [1%1I2 S.C.R.9(H.

managing agency.

If the purpoe of the acquisition of a large block of shares at a price which eicceeded the current market price by a million rupees was the acquisition of the managing agency, the inference is inevitable that the intention in purchasing the shares was not to acquire them as part of the trade of the appellants in shares." The above two decisions are merely the application of a principle of long standing, which has been stated over and over again in the past. In Orie:ntal Inve, stment Co. Ltd. v. Commi.sioner of Income-tax (1),

that principle was reiterati'ld, and it was that the object for which a company was formed did not invest the deal with the characteristics of a trade in shares, but that other circumstances along with that fact must be considered to find out the real object of a particular venture.

Before we dflal with the present case, one other case of this Court may be noticed. In Rajputana Textile, s v. Commissioner of Income-tax (2), the converse conclusion was rPached.

There, on the facts and circumstances of the case, it was held that a particular deal in shares was a commercial venture

and had all the attributes of an adventure in the nature of trade. In that case, the transaction was r: .>t a single or an undivided one with a slump p:wment,,

because for the managing "gency, RH. 12;.50,000 were paid separately and for the sh:i, re~, .:. mm of Rs. 83,98,000 was paid. The two acquisitions being different, the profit 011 the sale of SOllit3 of the shares was considered to be a gain on the revenue side.

There is no doubt, whatever, that the shares of the Madhusudan Mills Ltd. were acquired at a price considerably higher than the market price. In fact, that the price paid was almost double. Such a deal, from the business point of view, was not prudent, unless the purchaser stood t.o gain in some

(I) [l<i5UJ S.C.iU9.

(2) [1961] 42 !.T.R .743.

The Commissioner o J

Incame-tnx, Delhi

and Rajasth-1n

M {•. N'ational

Finance Ltd.

Hidayatullah J.

TA, Commiuimi<r of

!tttOfltl-tu, D1lA>i w Rajasth ..

v, M /s. Jv•tional Finame Lld.

HidayaJul/ah J.

880 SUPREME COURT REPORTS [1962] SUPP.

other wa.y. It was contended before us that this was a speculative deal in the hope that the price of the Rharcs would firm up, when the textile indua tries would revive. rr thi1 was the intention, then it might possibly be argued that the purchasers miscarried in their calculations, and euffered a 1088 in a business transaction. But, was this the inten tion of the Directors of Jaswant Sugar Mills Ltd. T Those who sold the shares were not only in posaes sion of the shares but also of the managing agency of the Madhusudan Mills Ltd., and the intention of the Directors of Jaswant Sugar Mille Ltd. was to removo tho eellors from their po1ition as managing a.gents and to get the entire benefit of euoh or other agencies for themselves. The assessee Company has urged that that might have been the intention of tho , Jaswa.nt Snga.r Mills Ltd. but not of the aseesseo Co, npany which had, on that day, merely given a loan to Ja.swa.nt Sugar Mills Ltd. Curiously enough, however, the immediate benefit of the deal was the acquisition of the selling and purchasing agency of tho Mills, and that was obtained not in favour of Jaswant Su11:ar Mille Ltd. but of the aeaeseoo Company, even though on July 15, 1948 (the date of purchaoi the aeeeseee Company had obta.inod registration of ; 0 , mo shares by way of security in its own name. Why the &118eSsee Company was favoured in this way ia not far to seek.

It mattered not whether Ja.swa.nt Sugar Mills Ltd. acquired ti.tat agency or the assePsee Company; the benefit thereof went to the same group of persone.

The transaction of sale of the shares was also made within three months of their purchase, and the assessee Company not only bought the 10,500 sharN1 which stood in its name but 15,547 shares, whioh gave the a'!llessee Company a controlling voioe in the affairs of the Mills. The a.sseBBCe Company continued to retain the selling and purchasing agency, whioh was very profitable. Indeed, on its investment in the first year of Rs. 14 lakhe odd, it

ma.de a profit of about Rs. 7 lakhs. The question, therefore, would be whether the a.ssessee Company in purchasing the shares merely wished to deal in shares as stock-in-trade, or was acquiring a capital asset of an enduring nature. This question is not one of fact, pure and simple, but one of an inference in law from the proved circumstances of the case.

The Income-tax Officer, in deciding this question against the assessee Company, pointed out numerous circumstances, which showed clearly that thia was not a mere purchase of shares as shares by a speculator, who, buying a big block, 11omet, imes

pays slightly more than the market rate. Bhadani Brothers Ltd., owned not only the shares but also the managing agency, apd it is obvious that they would not part with the shares without charging for the managing agency. The price of Rs. 400 per iihare was eo out of proportion to the market price that it indicated, by itself, the acquisition of something more than the mere shares. According to the Income-tax Officer, the real intention was to acquire lucrative agencies of the Mills, and this intention, whether it was held by Ja.swant Sugar Mills Ltd. or the a.sse11ed Company or both, was of the same body of persons. The Appellate Assistant Commissioner endorsed the view of the Income-tax Officer; but the Tribunal made a distinction between one Colllpany and another, and that distinction has been pressed upon us by the assessee Company. Relying upon the well-known case of Salo.man v. Salomon & Co. Ltd. (1), it was argued before us that each company 111ust be viewed as a separate entity, and that the intention of one company could not be attributed to another company, even though the proprietorship of the companies might be same. As a propoeition affecting com p<\nies, it cannot be gainsaid; but we are not con oerned with a theoretical qut>stion as to the assessee Company being a separate legal entity, but with the

(I) [1897JA.C.22.

19•1

Tlit Commis1ionl" o j

Inc0me-ta'C, Udhi

arid Rajaatlrt111

"· M/s. Nation•I

Fina~: Ltd.

H id'!Yatulld J.

1962 n. o...,,,;..;- of

/neortU-14Jf, ll1lhi

oflll Rajasrllan

JI /s. N.i; o .. 1

F;..-. Lid.

Hi41willolt .J.

882 SUPREME COURT REPORTS [1962] SUPP.

question whether a particular loss made by the

assessee Company is a capital or a revenue loss.

The two Companies, i. e., Jaswant Sugar Mills Ltd. and the e88e88ee Company, were directed by the same set of persons, and tho facts show that even though Jaswant Sugar Mills Ltd. temporarily acquire tho shares, they conferred all the benefits of the acquisition upon the assessoo Company from the very first day. The assesscA Company also ultimately ca.me into posseSBion of all the shares a.long with another Company, which was also directed hy the 8ame persons, and Jaswant Sugar

Mills Ltd. went out of the picture within three months. In these circumstances, it is easy to see that the interposition of Jaswant Sugar Mills Ltd. was merely a device to secure the benefit of the English caae, to which we have referred. It was never intended that Ja.swant Sugar Mills Ltd. would hold the shares or the benefits arising from the acquisition of a block of shares, givmg to the holder a decisive voice in tho affairs of Madhusudan Mills Ltd. That controlling interest was acquired by the 'Yodh Raj Bhalla group' for the benefit of the ll.SSP.SSco Company, and it was an !!. quisition of an interest of an enduring nature.

Re(erence was made, in this connection, to the transactions with thP- Dalmia Cement and Marketing Co. Ltd. in which the latter paid the same price namely. Rs. 400 per share. Perhaps, the Da.lmia

Company was after the controlling interest in its own way, and it. is significant to note that within a short time, those shares again found their way in the hands of the same P.'roup .. Similarly, the shares changed hands even within this group through th:i agency of Amrit Bhushan, no doubt a broker but also a relative of :\fr. Yodh Raj Bhalla, who profited only to the extent of 8 annas per share, and bought and sold the shares from one Company to another on the same day. All this show that the affairs of these Companies were centrally arranged, and the

intention was to benefit the assessee Company by the acquisition of a large blook of shares at a very much larger price than obtaining in the m'l.rket, to acquire certain agencies of a profitable character.

In our opinion, this transaction must be regarded as one on the capital side. Shares were never treated as part of the stock-in-trade. Tb.ey were not sold in the market, but were sold at a loss to another Company belonging to the same group, with the obviouR intention of setting off the losses against the profits, thus cancelling the profits, and saving them from taxation.

In the result, the appeal is allowed with costs on the respondent.

Appeal all(JWed.

EMPLOYERS IN RELATCON TO THE

BHOWRA COLLIERY

THEIR WORKMEN (P. B. GAJENDRAGADKAR, A. K. SARKAR and

K. N. WANCHOO, JJ.)

Indualrial Di1pute-Bonua-Mali1 Working in fficers bungalowa_:Whether entiUe~Ooal Mines Provident Fund and Bonus 8cheme1 Act, 1948 (46 of 1948) •· 5.

In exercise of the power conferred by s. 5 of the Coal Mines Provident Fund and Bonus Schemes Act, 1948, the Central Government frame.d a Bonus Scheme for the payment of bonus to employees of coal mines. Paragraph 3 of the scheme made every employee in a coal mine eligible for a bonus except, inl<ir alia, "a mali on domestic and persorn~I work". The question for consideration was whether under thi< paragraph the malis workin' in the officers' bungalows had any right to bonus

Held, that these malis were not entitled to any bonus under tho BontS Scheme. Paragraph 3 contemplated malis who were emplovces of thf'.: colliery owners and were yet on domestic work.

D1.nestic meant as of the home. The malis

The CommiasiontJ of

lncome~, ax, Dflhi

and RajaJthan

v . .1.\1 f°J. Na 1io'lal

Finance Ltd.

H 1d1J1alullah J.

Jc..,,,,, y30.

THE COMMISSIONER OF INCOME TAX, DELHI AND RAJASTHAN

M/S. NATIONAL FH{ANCE LTD

S.K. DAs

M. HIDAYATULLAH

C. SHAH, JJ.

1962)

2 S.C.R. 276

s. 66(3)

[1962] 2 S.C.R. 2

s. 5

Limitation Act

s. 5


2 S.C.R.

SUPREME COURT REPORTS 883

intention was to benefit the assessee Company by the acquisition of a large blook of shares at a very much larger price than obtaining in the m'l.rket, to acquire certain agencies of a profitable character.

In our opinion, this transaction must be regarded as one on the capital side. Shares were never treated as part of the stock-in-trade. Tb.ey were not sold in the market, but were sold at a loss to another Company belonging to the same group, with the obviouR intention of setting off the losses against the profits, thus cancelling the profits, and saving them from taxation.

In the result, the appeal is allowed with costs on the respondent.

Appeal all(JWed.

EMPLOYERS IN RELATCON TO THE

BHOWRA COLLIERY

THEIR WORKMEN (P. B. GAJENDRAGADKAR, A. K. SARKAR and

K. N. WANCHOO, JJ.)

Indualrial Di1pute-Bonua-Mali1 Working in fficers bungalowa_:Whether entiUe~Ooal Mines Provident Fund and Bonus 8cheme1 Act, 1948 (46 of 1948) •· 5.

In exercise of the power conferred by s. 5 of the Coal Mines Provident Fund and Bonus Schemes Act, 1948, the Central Government frame.d a Bonus Scheme for the payment of bonus to employees of coal mines. Paragraph 3 of the scheme made every employee in a coal mine eligible for a bonus except, inl<ir alia, "a mali on domestic and persorn~I work". The question for consideration was whether under thi< paragraph the malis workin' in the officers' bungalows had any right to bonus

Held, that these malis were not entitled to any bonus under tho BontS Scheme. Paragraph 3 contemplated malis who were emplovces of thf'.: colliery owners and were yet on domestic work.

D1.nestic meant as of the home. The malis

The CommiasiontJ of

lncome~, ax, Dflhi

and RajaJthan

v . .1.\1 f°J. Na 1io'lal

Finance Ltd.

H 1d1J1alullah J.

Jc..,,,,, y30.

IfU

Bllf1'/o)wrs ;,, 8'1alio• lo u..

B/Mulr• OollU.,.

•• n,;, ".,,,_

s..., J,.

SUPREME OOURT REPORTS [1962] SUPP.

who were working in the bungalows occupied by the officers were workinit in the homes of the officers. They were there! fore, on domestic work. The work they were doing did not cease to be domestic work because the bungalows belonged not to the offici:n but to the appellant or because they were under the control and orders of the appellant. Further, these malis were on personal work. The word "personal" was tu.d in the sense of work for an individual as distinguished from work for the coal mine as an institution. These malis were undoubtedly working for the officers as individuals.

CIVIL Al>PELLATE JURISDICTION: Civil Appeal No. 96 of 1961.

Appeal by special leave from the a.ward dated December 7, 1959, of the Central Governmnt Industrial Tribunal Dhanbad in reference No. 42 of 1959.

S. 0. Banerjee and P. K. Chatterjee, for the appellant.

Janardan Sharma, for the respondent.

1962. January 30. The Judgment of the Court was delivered by

SARKAR, J.-The appellants, the Bhowra Kankanee Coal Co. Ltd., own the Bhowra and other collieries.

On the Bhowra Colliery there are a. num her of residential bungalows belonging to the appellants oocupied by their officers employed in the colliery. The appellants employ certain malis for working as such in these bungalows and their duty is to look aft.Ar and maintain the gardens there.

A dispute a.rose between the a.ppella.nts and their workmen as to whether these malis, who were fourteen in number, were entitled to bonus. By an order made on June 23, 1959, under the Industrial Disputes Act, 1947, the Government of India referred this dilpute a.long with another with which we a.re not concerned in thil case, for adjudication to the Industrial Tribunal, Dhanba.d. The Points referred concerning the diute abovementioned were in these terms :

(1) Whether the withdrawal of the benefit of bonus provided in the Coal Minee Bonus

Scheme by the management of the Bhowra Colliery from the following garden mazdoors/ malis is justified.

If not, to what relief are they entitled and from what date?

(2) Whether the garden maztloors/malis referred to above are employed on domestic and personal work within the meaning of paragraph 3 (b) of the Coal Mines Bonus Scheme, 1948 and if not, to what relief are they entitled and from what date?

The points so referred were decided by the Tribunal against the appellants by an award made on December 7, 1959, and the present appeal is against that award.

Till January 1, 1955, the Bhowra and certain other collieries managed as a group, were owned by the Eastern Coal Company Ltd., and on that date these collieries were sold to the appellants. At the time when this sale was being arranged, the work men in these collieries raised a dispute that their services should be treated as continuous inspite of the transfer of the collieries from one owner to another by the sale and that the conditions of their service and the facilities which they were enjoying under the previous owners should be guaranteed and continued by the succeeding owners, that is the appellants, after tbe latter took over the collieries.

At the instance of the Conciliation Officer appointed under the Act this dispute was settled by an agreement made on January 14, 1955, to which the Conciliation Officer the workmen the previous owners and the appellants were parties. Paragraph 3 of this agreement provided as follows :

"Agreed that the existing service conditions and the facilities will be continued, excepting pension."

Now in 1948 an Act called the Coal Mines Provident Fund and Bonus Schemes Act had been passed by s. 5 of which the Central Government was

Emplfl1"'S in &lolion lo tM Blwwro Collifry

Their Worknun

Sarllor J,

g~,,.

R#olin to tJw B•-• c.llU.J

Tlr.ir ""*-

empowered to frame a bonus scheme for the pay ment of bonus to the employees of coal mines, The Central Government had framed a. Bonus Scheme

under this provision in 1948 and sinoe then the previous owners had been paying the ma.lie employ ed for the bungalow gardens belonging to the Bhowra.

Colliery, bonus in terms of it. In 1951 they once stopped the bonus but that caused an industrial dispute and they thereupon restored the bonus.

Upto the acquisition of the Bhowra Colliery by the appellants the position thus waa that these ma.lie had been receiving bonus since 1948 excepting for a. short period during which it had been stopped as earlier mentioned. After they became the owners

of the Bhowra Colliery, the appellants however stopped the payment of bonus to these ma.Us. This

raised the industfri.I dispute which had led to tliis appeal.

Paragraph 3 of the Bonus Scheme framed under the Act, so far as relevant for this case, is in the11e terms :

Paragraph 3. Except a.a hereinafter provided every employee in a coal mine to which this Scheme applies shall be eligible to qualify for a. bonus,

ExoeptionB :- .An empleyee in a. coal mine shall not be entitled to a bonus under the Scheme for the period during which-

(a.} .................................................. . (b} he is employed as a ma.Ii, sweeper or demestio servant on demestic and persona.I work; ( c) e • o o o o o o o o o o O Oo • • O O O • O 0 O o O' O O oO o 0 o' O O O O o o o o I' 0 o o o o 0 One of the questions raised in this appeal is whether the bungs.low ma.lie were entitled to bonus under thill

para.graph. The appellants oontended oofore the Tribunal that ma.lie a.s a. class were excepted from the benefit of the Bonus Scheme by the provision

in exception lb) in this paragraph. They further contended in the alt<'rnati ve that thee malis were excepted in any event because they were malis employed on domestic and personal work within the meaning of the exception. The Tribunal rejected these contentions of the appellants and held (a) that these malis were entitlPd to bonus under paragraph 3 of the agreement of January 14, 1955 and (b) that they were not employed on dome.stic and personal work and were therefore not within the exception.

For these reasons the Tribunal held that the withdrawal of the bonus by the appellants was not justified.

It is not clear on what ground the Tribunal held that the malis were entitled to bonus under paragraph 3 of the. agreement of January 14, 1955.

It may be that the Tribunal thought that the Bonus Scheme framed by the Central Government formed a condition of service of the malis or a facility to which they were entitled and which the appellants undertook by the agreement of January 14, HJ55, to continue. If this was the point of view, then of course the further question still remains whether the malis were on domestic and personal work for if they were, then they would not be entitled to the bonus as a facility or a condition of their service under the Scheme.

It was however contended on behalf of the respondent workmen in this Court that the right to bonus was a condition of the service of t.he Malis and a facility to which they were entitled independently of the Bonus Scheme and that this is what the Tribunal had held. The record however is not very clear on thi8 question. The appellants dispute the contention of the workmen and further say that in any event the Tribunal had no jurisdiction to decide that question for the question referred to it was the right of the malis to bonus uncler the Bonus Scheme.

Employers tn Relation le. the Bhowra Collilry

Vo Their W01kmlll

Sarkar J.

tHI - ~·"' ~,..,., ....... c.11;,,,

•• n.;, w .. 1 ....

s.t.J.

We think that the appellants' contention is well foundt,'<l..

What had been referred was the question "whether the withdrawal of the benefit of bonus provided in the Coe.I Mines Bonus Scheme

.. .... is justified". Un the language of the order of reference it seems to us that the dispute referred WM as to the right as provided in the Bonus Scheme and not as to any othe.r right. This also was the workmen's oa.se before the Tribunal as a.ppoe.rs from its written statement filed there.

In the statement of oase filed in this appeal also, the respondent took the same position. We therefore think that if the Tribunal had held that the ma.lie were entitled to tho bonus under the agreement of January 14, 1955 independntly of the Bonus

Schme it had exceeded its jurisdiction and its a.ward cannot be upheld.

The question still remains &a to whether on a pro per construction of paragraph 3 of the Bonus Scheme these inalis had any right to bonus. That

was undubita.bly the question referred to the Tribu. n&I.

The words requiring construction a.re "on domestic and persona.I work". The Tribunal held that ma.lie working in bungalows belonging to the appellants were not working for the home or household of privat~ persons or individuals and were therefore not on domestic work. It also held that &a the malis work under the direction and control of the appellants and were liable to be tre.ll8ferred from one bungalow to another or to some other work they were not on persona.I work. We are unable to accept this construction of para.graph 3 of the Bonus Scheme. Domestic means 118 of the home. We feel no doubt that the ma.lie who were working in the bungalows occupied by the officers were working in the home of the office111. They were, therefore, on domestic work. The work they were doing would not cease to be domestic work because tho bungalows belonged not to the

officel'll but to the appellants. Whether a work

is domestic or not would depend on its nature.

Suppoe an officer has employed his own mali for working in the bungalow garden, that mali would surely be on domestic work. This is not disputed.

The nature of that work would not change because the mali was working not under the orders of tho officer occupying the bungalow but under the appellants, nor because the bungalow did not belong to the officer but to the appellants. Nor for the same reason does the fact that the malis were employed by the appellants and not by the officers make any difference. The fact that Malis might be transferred to other jobs and cease to be malis altogether is also irrelevant. On such transfer they might become entitled to bonus. The exception in paragraph 3 deprives them of the bonus only for the time they are malis on domestic and personal work.

Paragraph 3, of the Bonus Scheme contemplated malls who were employees of the colliery owners and were yet on domestic work.

The Tribunal thought that paragraph 3 only contemplated cases of malis appointed by the officers who were paid some allowance by the colliery owners for keeping malis in the gardens of the bungalows occupied by iliem. It may be that malis so engaged would be the employees of the colliery owners, as the term employee is defined in the Act under which the Bonus Scheme was framed, but we see no reason to restrict malis on domestic work referred to in paragraph 3 to such malis only. As we have said earlier, whether a mali is on domestic work or not would depend on the moture of the work. As the work which the malis with whom we are concerned did, was domestic work, these malis must be deemed to be within the exception. mentioned in paragraph 3. They would not cease to be malis on domestic work because they had been working in the bungalows belonging to the appellants or were under their control and orders.

We further feel no difficulty in holding that

EmployfTJ ia lltlation to th.

Bhowra Oalli11')

Tluir Worlnm

Barkat J.

E,,, sin Relation 14 tAt Bh0W1a Collin.1

\'.

TJ., ir Wor4:mtn

Se1Ur J.

I96Z

J-ry 30.

these malis were on persona.I work.

The word "persona.I" is obviously used in the Bt'nce of work for an individual as distinguished from work for the Coal mine as a.n institution. These malis were undoubtedly working for the officers as individuals.

ThereCore they were on persona.I work.

For these reasons in our view the malis in the present case were not entitled to any bonus under the Bonus Scheme. As in our opinion the order of ruference does not raise any question as to whether the malis were entitled to bonus apart

from the Ronus ::icbeme, it is unnecessary for us to ex presa any opinion on that question and we do not do so.

The result is that this appeal is allowed and we set aside the award of the Tribunal in so far as it is concerned with the two points of dispute earlier set out which had been referred to it. \\e do not think it a fit ca.so to make any order for cos ta.

Appe, al allowe.d.

GIRJA SHANKAR KASH! HAM

THE GUJABAT SPlNNING &

WEAVING CO. LTD. (P. B. GAJENDRAGADKAR, A. K. SARKA!! and K. :N'.

WANC!tOO, , TJ.) lndu.tria/ Dilpuk-Erclu8ive right of Reprt3entalive Union to repreaent emplnyee•-Bomhay IndU81rtal Relatinns Act

(Xlo/ 1947) ••, 27A, J2, JJ, 42 (4).

The Gujarat Spinning & Weaving Co. Ltd., closed its business on May 14, 1953, and •old its asscrs to Tarun Commercial Mills Co. Ltd. The old company had discharged all its workmen when it closed its business.

The new company restarted the business after a week an<l took in its service the workmen of the old rompany.

When the closure took place a dispute was pending hetween the old company and its v.orkmen lvith respect to bonus. l'hc rextile Labour Associa tion, which is a Representative Union of the textile wockers in the city of Ahmedabad, filed an application before the Labour

EMPLOYERS IN RELATION TO THE BHOWRA COLLIERY

THEIR WORKMEN (P. B. GAJENDRAGADKAR

A. K. SARKAR

K. N. WANCHOO, JJ.

s. 5

S. 0

Industrial Disputes Act, 1947

s. 5


E,,, sin Relation 14 tAt Bh0W1a Collin.1

\'.

TJ., ir Wor4:mtn

Se1Ur J.

I96Z

J-ry 30.

800 SUPREME COURT REPORTS [1962] SUPP.

these malis were on persona.I work.

The word "persona.I" is obviously used in the Bt'nce of work for an individual as distinguished from work for the Coal mine as a.n institution. These malis were undoubtedly working for the officers as individuals.

ThereCore they were on persona.I work.

For these reasons in our view the malis in the present case were not entitled to any bonus under the Bonus Scheme. As in our opinion the order of ruference does not raise any question as to whether the malis were entitled to bonus apart

from the Ronus ::icbeme, it is unnecessary for us to ex presa any opinion on that question and we do not do so.

The result is that this appeal is allowed and we set aside the award of the Tribunal in so far as it is concerned with the two points of dispute earlier set out which had been referred to it. \\e do not think it a fit ca.so to make any order for cos ta.

Appe, al allowe.d.

GIRJA SHANKAR KASH! HAM

THE GUJABAT SPlNNING &

WEAVING CO. LTD. (P. B. GAJENDRAGADKAR, A. K. SARKA!! and K. :N'.

WANC!tOO, , TJ.) lndu.tria/ Dilpuk-Erclu8ive right of Reprt3entalive Union to repreaent emplnyee•-Bomhay IndU81rtal Relatinns Act

(Xlo/ 1947) ••, 27A, J2, JJ, 42 (4).

The Gujarat Spinning & Weaving Co. Ltd., closed its business on May 14, 1953, and •old its asscrs to Tarun Commercial Mills Co. Ltd. The old company had discharged all its workmen when it closed its business.

The new company restarted the business after a week an<l took in its service the workmen of the old rompany.

When the closure took place a dispute was pending hetween the old company and its v.orkmen lvith respect to bonus. l'hc rextile Labour Associa tion, which is a Representative Union of the textile wockers in the city of Ahmedabad, filed an application before the Labour

2 S.C.R.

SUPREME OOURT REPORTS 891

Appellate Tribunal where the dispute was pending. The matter was compromised and the old company agreed to pay some agreed bonus. The textile J.abour Association gave an undertaking not to claim compensation in any other way in any future proceeding.

Later !'>n, 376 employees of the old company gave a notice under s. 42(1) of the Bombay Industrial Relations Act, 1947, and claimed compensation. The Textile Labour Association made an appearance before the Labour Court and contended that the application should be dismissed iii view of the compromise arrived at before the Labour Appellate Tribunal. The Labour Court accepted the contention and dismissed the application. The workmen went in appeal to the Industrial Court but their appeal was also dismissed.

They made a petition in the Higl) Court under Art. 227 of the Constitution but that was summarily rejected. They have come in appeal to this Court by special leave.

Held, that where a Representative Union appears in any proceeding under the Act, no one else can be allowed to appear, not even the employee at whose instance the proceedings might have been siarted under s. 42(4). Where che appearance is by any representative of the employees other than a Representative Union, the authorities under s. 32 can permit the employee to appear himself in all proceedings before them. The employee is entitled to appear through any person in certain proceedings sprcified in s. 33.

However, whenever the Representative Union makt"s an appearance, even the employee rannut appear in any proceeding under the Act, and the representation must be confined only to the Representative Union. The complete ban laid bys. 27A on representation otherwise than through a representative of employees remains complete where the representative of employees is a Representative Union that has appeared. If the representa tive of employees that has appeared is other than the Representative Union, ss. 32 and 33 provide for exceptions.

The bona fides or mala fides of the representative of employees can have nothing to do with the ban imposed Ly s. 27 A on the appearance of any one else except the representative of employees ao defined in •· 30.

The argument based on the so called tyranny of a Representative Union or its motives in taking the action it may choose to take in any proceedings after it appears can have no relevance if the intention of the legislature is perfectly clear from the provisions of the Act.

CIVIL APPELLATE JuiusnwTION: Civil Appeal o. 189 of 1961.

I96Z

Girja Shoalcor

Kaahi Ra"'

Thi Gr9aJat Spinning d: Wtaiiing

Co. L•tl.

116%

Girja SMflkar

Jr1111ti R""'

Tif Gttjtll Spiruo;., di W """" c:.. Lid.

892 SUPREME COURT REPORTS [1962) SUPP.

Appeal by special leave from the judgment and order dated ovcmber 2i, 1957, of the Indus trii.l Court, Bombay, at Ahmedabad in Appeal (I. C.) 187 of I 95i.

G. T. Daru, V. L. Narasimhamoorthy, E. Udaya rathnam and S. S. Shukla, for the appellants.

c. K. Daphtary, Solicitor General of India. I. M.

Nanavati', J. B. Dadaclianji and 0. C. Malhur, for the respondent No. I.

N. M. Barot, Secretary of the Textjle. Labaur Associati<m, for respondent No. 2.

1962. January 30. The Judgment of the Court was delivered by

WANCHOO, J.-Thi.s appeal by special leave against the order of the Born bay High Court summarily dismissing the pc ti ti on of the appellants under Art. 227 of the Constitution raises an important question with regard to the right of a Ropresentative Union under the Bombay Industrial Relations Act, No. XI of 1947, (hereinafter called tho Act) to appear in a proceeding under the Act to the exclusion of an employee desiring a

change under s. 42(4) of the Act. Tbe question arises in this way. The Gujarat Spinning and Weaving Company Limited (hereinafter called thB

old Company) closed its busineBB on May 14, 1953 and sold its assets to the Tarun Commercial Mills Company Limited (hereinaft:; r called the new Com pany). The old Company had discharged all its

workmen when it closed its business which happened before s. :!5F relating to retrenchment was introduced in the Industrial Disputes Act, (No. XIV of 1947). The new Company re-started the business after a week and took in it.s service the workmen of the old Company. It appears th:\t at the time the

closure took place a <liHpute wa~ pending between the old Company and its workmen with respect to bonus. As the clour1J had taken place while that

dispute was pending, the Textile Labour Association (hereinafter called the Association), which is a Representative Union of the textile workers in the city of Abmedabad, filed an application under s. 22 of the Industrial Disputes (Appellate Tribunal) Act of 1950 before the Labur Appellate Tribunal where the dispute was pending. In that matter there was a compromise, and though, according to the old Company, there was no available surplus to give bonus, the old Company agreed to pay bonus by way of settlement to the extent of I /8th of the earnings of the work!Ilen for the year in dispute; and in consideration of this the Association on behalf of all the workmen discharged as a result of closure agreed not to press for any compensation for their discharge and the workmen who accepted the b'.lnus by this agreement gave an undertaking not to c !aim compensation in any other way in any future proceeding. This happened in March 19.55. Thereafter in July 1956, 376 persons who had been in the employ of the old Company and were a minority of its workmen gave notice under s. 42(1) of the Act and claimed compensation for the closure which had taken place in 1953. As no settlement could be arrived at between the parties this was followed by an application under s. 42( 4) of the Act before the labour court in October 1956 and these workmen claimed that they should be paid adequate compensation for the closure of the mill in view of their past services. To this application both the old Company and the new Company were made parties.

The application was opposed by both the companies on various grounds with which we are however not concerned in the present appeal. In January 1957, the Association made an appearance before the labour court and contended that the application should be dismissed in view of the compromise wl:tich

had been arrived at before the Labour Appellate Tribun'tl in 1953.

The labour court accepted this contention and dismissed the application.

196t

Girj• Shankar

Kas!ti Ren

The Guiar 1t Spinning ch W eavi11.,

Co. ltd.

Wancho J,

Gir/• 81-lur

K.Jii Rm

v. '114 Gujatol Spimtirrz if. W tac1ng

Co. Ltd. w ,,... J.

894 SUPREME OOURT REPORTS (1962] SUPP.

Thereupon some of the workmen went in appeal to the industrial court and their contention seema to have been that, though no individual oan be permitted to appear in any proceeding where the Rep.esentative Union 'lppears as representative of employees, in this case the action of the Association after itR appearance in not supporting the case of the workmen before the labour court was malafide; therefore the Association should not have been allowed to appear on behalf of tho employees who had applied to the labour court and they ehould be permitted to carry on their application. This contention was rejected by the industrial court, which was of opinion that it was not for an industrial court to go into the question of bona/ides or malafitles for appearance of a Representative Union and that the law under the Act was clear that where a Representative Union appeared it alone could represent thti applicants even in a case under s. 42( 4) of the Act. The appeal was therefore dismiBsed.

Thereupon the employee.s appear to have filed a

petition \, efore the High Court unde.r Art. 227 of the Constitution, which was summarily rejected.

The High Cuurt also n fuRed to give leave to appeal.

Then thore was a petition to th is Court for special leave which was granted, and that is how the matter has come up before us.

'l'he main contention on behalf of the appellant.a

hfore U8 is tha.t reading the various provisions or theAct, an employee making an application under s. 42( 4) of th<' Act is not debarred from appearing in the labour or industrial court and carrying on with his application even though the Repreeent11tive Union makes an appearanoo. It is submitted that if the inti>rprntation pr1.ssrd on behalf of the respondents were a.ceepten it would amount to tyranny of the Representative Union and this could not be the intention of the legislature in framing the Act.

It is also contenrled that if the interpretation

pressed on behalf of the respondents is correct, the

..,

provisions in the Act may he liable to be struck down as ultra vires the Constitution.

The case of the respondents on the other hand is that the provisions of the Act are perfectly plain and provide that where a Representative Union appears in any proceeding it alone, to the exclusion even of the employee who might have made an application under s. 42 (4), is entitled to carry on with the proceedings and the employee concerned has no locus standi in the matter after the application has been filed by him, if the Representative Union chooses to appear.

It is urged that the so-called tyranny by the Representative Union can have no bearing on the interpretation of the provisions of the Act if they are plain in their intent.

Further it is contended that there is no question of the constitutionality of the various provisions of the Act in this case as at no stage has the constitutionality of the . provisions been challenged by the appellants, not even in their special leave petition.

Before we deal with the interpretation of the various provisions of the Act in this behalf we may point out that the constitutionality of the provisions has never been challenged so far and we therefore express no opinion as to the colliltitutionality of these provisions. We are further of opinion that the argument based on the so-called tyranny of a Representative Union or its motives in taking t.he action it may choose to take in any proceeding after it appears can have no relevance if the intention of the legislature as it can be gathered from the various provisions is perfectly plain.

Let us therefore see what the Act provides in this behalf. The main provisions with which are concerned are contained in Chap.Vof the Act which deals with "representatives of employees and employers, and appearance on their behalf". It may be stated at the outset that the Act contains elaborate provisions for registrat.ion of unions and approved unions in

Girj11 Shankar

liaski Ram

The Gujara~ Spinning &: W eavin, e

Co. Ltd.

Wancho1 J.

IllOt

Giri• Sh..J:.,

K•sln Rim

v. ,.,., o.; ... 1 S#flti., .b W ,....,

Co. Ltd.

W.....U.J.

896 SUPREME COURT REPORTS [1962) SUPP.

Chapters III and IV respectively and ia in this respect riifferent from the Industrial Disputes Act.

Under Chap. III the Registrar is given the power to register a. Representative Union for any indUBtry in any local area and also the power to cancel such

ristration under certain circumstances and there is also a provision for appeal where a registration is oancolled.

Then <Jomes Chap. V which deals with the representatiVPil of employees and employers and anpe11.ranoe on their behalf in proceedings under the Act. Section 27 provide3 for recognition of an aeeociation of employers and its right to app!l&r in proceedings under the Act. Seotion 30 enumerates the representatives of employees and gives an order of preferenoe in which the six cl&lllle8

of rP.preqentatives of employees mentioned in that section oan appear or act in any industry in any local area., the first being a Representative Union for such industrv. It is not in dispute that the A88ociation in the present ca.se is a Representative Union in the textile industry in thl\t region and has the most preferential right to appear or to act &a the representative of employees in the textile industry in that are11. Sections 28 and 29 provide for election or representatives or employees where there is no Representative Union in rt'llp60t of any industry in any local area and such elected representativeR under s. 30 are respreaentativea of employees and are fifth in order of preference.

Then we oome to SB. 27 A, 32 and 33 with which we are particularly concerned in this appeal. Th11y may be read in exten.~.

"2"A-Save as provided in sections 32 and 33. no employee shall be allowed to appear or act in any prooeeding under this Act except through the representative of employees."

"3~A conciliator, a Board, an Arbitra ior. a'wsge Board, a Labour Court and the Industrial Court may, if hu or it coneiders it

expedient for the ends of justice, permit an indivHual, whether an employee or not, to appear in any proceeding before him or it ;

Provided that no suoh individual shall be permitted to appear in any proceedings in which a Representative Union has appeared as the representative of employees."

"33-N otwithstanding anything contained in any .other provision of this Aot, an employee or a representative union shall be entitled to appear through any person.

(a) in all proceedings before the industrial court ;

(aa) in all proceedings before a wage board;

(b) in proceedings before a Labour Court for deciding whether a strike, lock-out, closure or stoppage or change or an order passed by an employer under the standing orders is illegal or for deoiding any industrial dispute referred to it under section 72 ; ( c) in such other proceedings as the Industrial Court may, on application made "in that behalf, permit ;

Provided that a legal practitioner shall not be permitted under clause (o) to appear in any proceeding under this Act except before a Labour Court as provided in section 83A or the Industrial Court ; Provided further that no employee shall be entitled to appear through any person in any proceeding under this Act in which a

Representative Union has appeared u the repre1entative of employees."

,,,~

firj• Siank.,

Ksshi Ram

IM Guj•r•t S; innint ch W enin o,. Lti.

lift

Qirj• Slwml:r

cshi R~

' "nlc.Joru v• w,..;,,

Co. UC.

W.W. J,

898 SUPREME OOURT REPOR'.l'S [1962] SUPP.

It will be seen that e. 27 A provides that no employee hall be allowed to appear or act , in any proceeding under the Act, except through the representative of employet>s, the only exception to this being t.he provisions of BB. 32 and 33.

There fore, this R<'ctio!I completely bans the appearance of an employee or of any one on his behalf in any proceeding after it has once commenced except through the representative of employees. The only exceptions to this complete ban are to be found in ee. 32 and 33, to which we shall presently refer.

But it i~ clear that bona /irks or mala fi<IM of the reprt>eentative of employees can have nothing to do with th" ban placed by ~. 27 A 011 the appearance of any one else except the representative of employees a.8 defined in e. 30 and that if anyone else can appPar in any proceeding. we must find a provision in that behalf in either s. 32 or s. 33 which are the only exceptions to 8. 27A. It may be noticed that there is no exception in e. 27A in favour of the empfoyee, who might have made an application under s. 42 (4). to appear on his own behalf and the ban which is placed bys. 27A will apply equally to such an employee. In order however to aoften the rigour' of the provisions of a. 27A, for it may well be that the representative of employees may not choose to appear in many proceedings started by an employee under 8. 42 ( 4 ), exceptions are provided in es. 3:? and 33. The scheme of these three provisions clearly is that if the Representative Union appears, no one else can appear and carry on a proceeding, even if it be i, egun on an application under s. 42 (4\ but where the Representative Union does not cho06e to appear there are provisions in BB. 32 and 33 whi.ch permit others to appear in proceedings under the Act.

Section 32 gives power to a conciliator, a boa.rd, a wage board, a. labour court and the industrial court to permit an individual, whether an

employee or not, to appear in any proceeding before him or it.

This shows that the complete ban imposed bys. 27A can be removed if the authorities under the Act think it expedient to permit another person to appear and that person may be an employee or not.

Thus the employee who has made an application under s. 42(4) may be permitted to appear before tbe authorities under the Art ; but this provision is subject to a proviso namely that no such individual which would include an employee who has himself made an application under s. 42(4), shall be permitted to appear in any proceeding in which the Representative Union has appeared as the representative of employees.

Reading therefore ss. 27A, 30 and 32 together, it is clear that no one else can appear in any proceeding under the Act except a representative of employees ; but the authorities ari; i empowered to permit anyone to appear whether he be an employee or not, if they consider it expedient for the ends of justice (and we have no doubt that where representative of employees does not choose to appear the authorities will generally permit the employee who has made the application under s. 42(4) to appear). but this power is subject to the proviso, namely, that no one will be allowed to appear if the Representative Union has made an. appearance. It will be seen that the proviso puts the Representative Union in a special position out of the six classes mentioned as representatives of employees in s. 30.

Thuss. 32 makes it clear that where the Representative Union of the six classes in s. 30, appears no one else can appear, including the person who

miht have made an application under s. 42 (4).

If the other five classes which ~.re mentioned in s. 30 as representatives of employees appear, the authorities have the P.Ower to allow the employee or any other person to appear along with them.

Qirj• ShtinkM

Kash1 Ram

The Gujar•t

~·; innint tb W ea•inl

Co. Ltd.

Wanchoo J,

]~· o;,;. si-ur

Keslti Ram

•• Ti.. G.J.,.al Spitllt#i14' W..W.1

Co. Lid.

W•.loo J.

900 SUPREME OOURT REPORTS [19!12) SUPP.

Then we come t-0 s. 33, which starts with a non obBllt.nte clause and deals with the appearance of an employee or a repreRentative union through any person. 8Pction 33 thus is an exception to s. 27 A an :I authorisea an employee who could not appear in any proceeding under the Act except through the representative of employees under 8. 27 A, to appear through any perRon in certain proceedings men tioned in 8. 33, but this again i.~ subject to provisos, with the first of which we are not concerned here.

The second proviso lays down that no employee Rhall he entitled to appear through any person in any pro<'PMing unrler thr- Aet in which the Representativ" Union has appeared as the rPpresente.· tive of timployees.

This proviso age.in gives a. special position to the Representative Union out of the six classes of representatives of employees provided in s. 30 anrl makes it clear that though an employee may appear in certain proceedings specified in s. 33 through any person in spite of s. 27A, he cannot do so where a Representative Union has appeared as tho representative of em ployees. Here again the position is the same as in s. 32; if a representative of employees other than a Representative Union has appeared in the proceeding the employee can also appear through any pers'?n in the proceedings mentioned in s. 33; but he cannot do so where the representative of employe011 which has appeared even in proceedings under s. 33 is the RepresentBtive Union.

Tho result therefore <•f taking 88. 2i A, 32 and 33 together is that s. 27 A first places a complete ban on the appearanre of an employee in proceed. ings under the Act once it has commenced except throu<rh the representative of employees.

But there a.re two exceptions to this ban contained in

88. 32 and 33, Sertion 32 is concerned with all prooeedings beforr the authorities and gives power

to the authorities under the Act to permit an employee himself to appear even though a representative of employees may have appeared hut this permission cannot he granted where the representative Union has appeared as a representative of employees. Section 33 which is the other exception allows an employee to appear through any person in certain proceedings only even though a representative of employees might have appeared; but here again it is subject to this that no one else, not even the employee who might have made the application, will have the right to appear if a Representative Union has put in appearance as the rl:presentative of employees. It is quite clear therefore that the scheme of the Act is that where a Representative Union appears in any proceeding under the Act, no one else can be allowed to appear not even the employee at whose instance the proceedings might have begun under s. 42 ( 4).

But where the appearance is by any representative of employees other than a Representative Union authorities under s. 32 can permit the employee to appear himself in all proceedings before them and further the employee is entitled to appear by any person in certain proceedings specified in s. 33. But whenever the Representative Union has made an appearance, even the employee cannot appear in any proceeding under the Act and the representation must be confined only to the Representative Union. The complete ban therefore laid by s. 27 A on representation otherwise than through a representative of employees remains complete where the representative of employees is the Representative Union that has appeared ; but if the representativa of employees that has appeared is other than the Representative Union then ss. 32 and 33 provide for exceptions with which we have already dealt.

Girja S4tutA:ar

Kashi 8am

Tiu O, Yarat Spinni11t th W1aving

C•. Ltd.

Wan&hoo J.

IHI

v. n. o.g..i l; iMiqdl w ......

C.. L". w.-..w.J.

J-., Jl.

902 SUPRll:ME COURT REPORTS [1002] SUPP.

'!'.here oa.n therefore be no escape from the concJu.

BJOn tha.t the Act plainly intends that where the Representative Union appears in any proceeding under the Act even though that proceeding might have commenced by an employee under s. 42 (4) of the Act, the Representative Union alone can represent the employee and the employee oa.nnot '.l.ppear or act in such proceeding.

. .

In this view o.f te mattn the appeal must tail and Is hereby d1sm1ssed.

In the circumstances we pa.as no order as to costs.

Appe.al dismiB&ed.

THE COMMISSIONER OF INCOME-TAX

BOMBAY

v. l\IANILAL DHANJI, BOMBAY (S.K. DAs, M. liIDAYATULLAH and J.C. SHAH, JJ.)

Income Tax-Trmt crealed in favour of minor child-No benefit =ruing to ™nor in acwunting yoar-Whelher incomt from tnul la:etJbl< a.< i~ of a.<llUM~-Triut by aut.18tea fatMr- Aaae&U directed to iue it1COme for benefit of him8df, Ma wife and cAi/dron-Whtther income tazabl< a.< i•come of aaauaee-lndian lnconitW Act 1922 (XI of 1922) as. 16(3) 41(1)-Indian

T"'81JJ Act, 1882 (11of1882) •· 8.

In 1953 the assessee created a trust in 1espect of a sum of money and provided that the interest on that amount was to be accumulated and added to the corpus and that his minor daughter C was to rettive the income from the corpu1 increased by the addition of interest when she attained the age of 18 years.

In the relevant account year, when C was 1tlll a minor the income derived from the trust fund was Rs. 410 Earll.,; in 1941, the as1e1ace's father had created a tru1t in respect of =tain shares and money directing the trustees to pay the net intercat "':'d income ther"."f to the assessee "for the maintenance of hunself and h11 wife and for the malnten• ance education and bcneflt of all his children till his death".

In the relevant account year a sum of Rs. 14, 170 accrued as income in the hands of the asscssee from the said trust funds,

s. 42(1)

Bombay Industrial Relations Act, 1947

Art. 227

s. 42(4)

s. 32

s. 33

ss. 32 and 33

s. 27

Art. 227

s. 42(4)

Industrial Disputes Act

s. 22

s. 42(1)

s. 42( 4)

s. 42( 4)

Art. 227

s. 42( 4)

s. 42

Section 27

Sections 28 and 29

s. 30

sections 32 and 33

section 72

section 83A

s. 32

s. 33

s. 42

s. 42

Section 32

s. 42(4)

s. 42(4)

ss. 27A, 30 and 32

s. 42(4)

s. 30

s. 30

s. 42

s. 30

s. 33

s. 27

s. 30

s. 33

s. 27A

s. 32

s. 33

s. 33

s. 27

Section 33

s. 42

s. 32

s. 33

s. 27

ss. 32 and 33

s. 42

JJ Act, 1882