7 S.C.R.

SUPREl\IE COURT REPORTS

IBRAHIM 'v

STATE OF RAJASTHAN

[M. HIDAYATULLAH AND N. RAJAGOPALA AYYANGAR, JJ.)

Foreigners Act, 1946 (31 of 1946), ss. 2(a) 3.9 and 14- Whether a person is a foreigner has to be riccid?d in relation to the time of the offence-The fact. that he was not a foreigner before the time of offence; not material-Onus of proof on the accused-Citizenship Act, 1955 (LVII of 1955). s. 9(2).

The appellant, a Pakistani National originally came over to India on a Pakistani Passport ancl on the strength of visa.

He was found to be overstaying in India and he was deported on April 21, 1957. Subsequently on finding him again in India he was charged with an ofience of having entered India without a passport in contravention of s. (2) (a) of the Foreigners Act,

1946. His defence was t.hat he had been in India from his birth and that the person who was said to have been deported in 1957 was some other and not himself. The trial court accepted this defence and acquitted him. The State appealed to the High Court and the High Court rever; ed the finding of the lower court and held l\im guilty of the offence charged. The present appeal was filed on a special leave granted by this Court.

The first contention of the appellant was that the High Court was wrong in rever81ng the fh1ding of the -trial court on the issue of the identity of the appellant. Secondly it was submitted that under s. 2(2) of the Foreigners Act as it stood before

the Amendment which crune onto force on January 19, 1957 the appellant though a Pakistani citizen was not a "foreigner"

and hence his entry into India before that date \Vould not constitute an offence. It was contended further that the co1.<rts had no jurisdiction to determine whether the appellant was or was not a foreigner by reason of the provision of s. 9(2) of the Indian Citizen-ship act 1955.

Held: The appellant was the person who was deported on April 21, 1957 and the f; nding of the High Court on the question of his identity was corre:::t.

(ii) If on the date when the offence is committed a person is "a foreigner'' as defined by the Act, it would be no excuse for him to say that on an Ci.irlier date he was not foreigner. Since the appellant was deported in April 1957 and he came back to India subsequently without a passport he v..•as a foreigner under the amendment provision which came into force on January 19, 1957 had committed an offence under s. 3 of the Foreigners Act.

(iii) Under s. 9 of the Foreigners Act the onus is upon the person who is accused under the Act to prove that he is not a foreigner. It is only where there is proof that a person is, to start with a citizen of Tndia and it is alleged that he has lost his Indian Citizenship by reason of acquiring the nationality of tl:e foreign State that any question of invoking the provisions of s. 9(2) of the Citizenship Act arises. In the present case the appellant a Pakistani national came to India originally with a Pakistani Passport and after his deportation in April 1957 came back to India without a passport and hence he cannot invoke s. 9(2) of the Citizenship Act and he had committed an offence under s. 3 (2)(a) of the Foreigners Act.

Afarch 24

Stat. of Rajaathan

.Ayyangar, J.

CRIMINAL APPELLATE JURISDICTION: Criminal Appeals No. 14 of 1963. Appeal by specl1eave from the judgment and order dated November 9, 1962 of the Rajasthan High Court in D.B. Criminal Appeal No. 502 of 1961.

S. Shaukat Hussain, for the appellant.

H. R. Khanna and S. P. Nayar, for the respondent.

March 24, 1964. The Judgment of the Court was delivered by

AYYANGAR, J.-This appeal, by special leave, against the judgment of the High Court of Jodhpur raises for consideration the legality of the conviction of the appellant for a contravention of s. 3 of the Foreigners Act (Act XXXI of 1946) which is an offence under s. 14 of that Act. The relevant portion of s. 3 enacts : -

"3. ([) The Central Government may by order make provision, either generally or with respect to all foreigners or with respect to any particular foreigner or any prescribed class or description of foreigners, for prohibiting regulating or restricting the entry of foreigners into India or other departure therefrom or their presence or continued presence therein.

(2) In particular and without prejudice to the generality of the foregoing power, orders made under this section may provide that the foreigner: -

(a) shall not enter India or shall enter India only at such times and by such route and at such port or place and subject to the observance of such conditions on arrival as may be prescribed;

Section 14 reads :

"14. If any person contravenes the provisions of this Act or of any order made thereunder, or any direction given in pursuance of this Act or suc)l order, he shall be punished with imprisonment for a term which may extend to five years and shall also be liable to fine; and if such person has entered into a bond in pursuance of clause (f) of subsection (2) of section -3. his bond shall be forfeited, and any person bound thereby shall pay the penalty thereof, or show cause to the satisfaction of the convicting Court why such penalty should not be paid."

The facts giving rise to the appeal are briefly these: The 1964 case of the prosecution was that the appellant-Ibrahim, s Io Ibrahim Miru--a resident of Rajgarh in Bikaner Division-was a v.

Pakistani national who had originally come over to India on Bw.te 01 RajClfllia• a Pakistani passport issued to him in 1954 and on the strength Ar J. of a visa granted in December, 1956. He was then found to be overstaying in India since February 18, 1957 and an order was thereupon passed in March, 1957 for his deportation. This order was given effect to and on April 21, 1957 he was taken across the Pakistan border at the Check Post Munabao by the Indian police officials and deported. Then followed the events which have given rise to the present proceedings. Subsequent to his deportation to Pakistan and on a date as regards which the prosecution had no information, the appellant had, unknown to the Indian authorities, managed to come over to India clandestinely and he was found again in Rajgarh. On seeing him there the Sub-Inspector of Churu made a report to the Station House Officer of Rajgarh by which he drew the latter's attention to the fact that the appellant who had been deported had 10anaged to cross the border. on the side of Ganganagar and had re-entered India and he brought this to his notice for the purpose of action being taken. The accused was thereupon apprehended and was charged with an offence of having entered India without a passport in contravention of s. 3(2)(a) of the Fordgners Act.

The defence of the appellant was simple. He said he had been in India all the time since birth, had never gone to Pakistan and so had never come here in 1957 with a Pakistani passport, was never deported therefrom and therefore there was no question of his having entered India without a passport. In other words, his defence was that h:e was not the 'person who had come over in 1957 and had been deported to Pakistan in April 1957.

In support of their case the prosecution proved the order of Government by which Ibrahim, son of Meeru of Rajgarh had been directed to be deported in which is found a reference to his having come over to India with a passport a.nd having overstayed the time permitted by the visa, the general diary of the , Emigration Check Post, Munabao dated April 21, 1957 which recited that on April 21, 1957 the deportee-.

Cbrahim-had come with a Head Constable and that the deportation order had been given effect to, and an entry in the deportation register of the Check Post which recited the date arid number of the Pakistani passport and the .. authority by which the order of deportation had been passed and the carrying out of the acwat deportation. In order tO establish the identity of the appellant with Ibrahim mentioned in these documents the _prosecution examined. two witnesses-- Shiv Rattan who was the Police Inspector in-charge of the

'".

Btate of Rajasthan

.Ayyangar, J.

,_-.

Munabao Check Post at the relevant date (P.W. 2) and Govind Singh who was a pe9n who was posted at the police lines at Churu and who accompanied Dube Singh, Head Constable when Ibrahim was taken from Rajgarh to the Check Post at Munabao for being deported. These two witnesses identified the appellant who was present in Court Ibrahim whom they had seen off at the border Check Post in execution of the order to deport. The learned Megistrate, however, was not satisfied with this proof of identity. because he was of the view that the two prosecution witnesses-P.Ws 2 and 3could not, after the lapse of 4 years, be believed when they said that they remembered that the appellant was Ibrahim whom they had seen deported at the Check Post. The learned Magistrate also held that there was some discrepancy in the father's name of Ibrahim in one of the documents produced by the prosecution which, according to him, did not tally with the name of the appellant's father. On tltese grounds the learned Magistrate acquitted the accused.

The respondent-State filed an appeal to the High Court against this order of acquittal and the learned Judges h.olding that there could be no doubt about the identification by P.W.s 2 and 3 of the appellant as the Ibrahim whom they had deport ed, reversed the order of acquittal and held the appellant guilty of the offence charged and. sentenced him to a term of imprisonment. It is from this judgment of the High Court that the present appeal has been filed pursuant to leave granted by this Court.

The first point urged by learned counsel for the appellant was as regards the identity of the appellant \\ith Ibrahim.

On this we are quite satisfied that the learned Judges were correct in their appreciation of the evidence in the case. Both the witnesses-P.W.s 2 and 3-are public servants and there is no reason why they should depose falsely against the appellant.

The documents produced as regards which there is no challenge give the name of the person deported as Ibrahim, his father as Miru and besides, they specify his age as 27 which, it is conceded, tallies with the description of the appellant. The only point that was suggested by learned Counsel was that in Ex. P-I-the deporting register at the Check Post-the neme of Ibrahim's father was stated to have been entered as Murra and not Miru. When, hc'wever, it was poin.ted out to learned Counsel during the course of the arguments that there was a possibility of these words written in Urdu being wrongly transliterated in the English learned Counsel did not persist in the point. If then Ibrahim s/o Miru, aged 27 was deported and there is evidence adduced which has been accepted by the High Court that it was the appellant tl13t was deported on the former occasion, we find no substance in the argument as regards this question of identity.

The second submission of learned counsel was based on 1964 the fact that under s. 2(a) of the Foreigners Act, 1946, as origi- Ibrahim nally enacted, a citizen of Pakistan which wa~ a member of the 8 ,, vR. . ,_ B .. h C 1 h " f . " . h. h A tate o, "'"'"~• nt1s ommonwea t was not a ore1gner wit m t at ct _. and that citizens of Pakistan became "foreigners" only by Ayyanyar, J. virtue of the amendment effected by Central Act XI of 1957 which came into force on January 19, 1957. The argument based on this feature was as follows: A person wh<> can be held guilty of a contravention of s. 3 of the Foreigners Act is only a "foreigner". Even according to the case of the prosecution the appellant had come over to India on the strength of a Pakistanl passport issued in 1954 and under a visa of December, 1956. It must, therefore, be taken that he had crossed over to India before the 19th January, 1957. On that date he was not a foreigner, though a Pakistani, as he was a citizen of a Common-wealth country. He c0uld not, in Jaw, become a "foreigner" subsequently and no action could be taken against him on the footing that he had become a "foreigner". We see no merit in this submission. A prima facie reading of the Foreigners Act would show that if on the date when the offence is committed a person is a "foreigner"', as defined by the Act, it would be no excuse for him to say that on an earlier date he was not a foreigner. But it is, h0wever, unnecessary to consider this point further because, firstly, there is no proof on the record before us that the appellant entered India before January 19, 1957. But even if he had it would only mean that the earlier order of deportation which was passed in March/ April 1957 was a wrong order and that certainly is not a matter with which we are concerned, because it is common ground, if the identity of the appellant is held to be established, that the appellant was deported to Pakistan in April,

1957. He could come over to India only subsequent to April, 1957 and if he did come over it is also common ground that he came over without a passport. As the date upon which he could have come over was certainly after April, 1957 by which date s. 2(a) of the Foreigners Act containing the definition of 'Foreigner" had been amended, the appellant was a foreigner when he came into India without a valid passport and visa in contravention of the provisions of s. 3 of the Foreigners Act, and that is the offence with which he is now being charged. We find therefore that there is no substance in this point.

Lastly, it was submitted that the Courts could have no jurisdiction to determine whether the appellant was a "foreigner" and that their jurisdiction in that regard was barred by the provisions of s. 9(2) of the Citizenship Act, 1955. This argument proceeds upon a misapprehension of the legal position. In the first place, under s. 9 of the Foreigners Act the onus is upon the person who is accused tinder that Act to

1961 prove that he is not a foreigner. In the present case once the Ibrahim plea regarding the absence of identity of the appellant with v.. the deportee of April, 1957 was rejected it could not be sug- 8101' 01 R11:1081Jian gested that the appellant was ever an Indian citizen. It is only

A111/<lnuar, J. where there is proof that a person is to start with, a citizen of India and it is alleged that he has lost his Indian citizenship by reason of acquiring the nationality of a foreign State that they question of invoking the provisions of s. 9('.!) of the Citizenship Act arises. That is not the case here. The case of the prosecution was that the appellant was a Pakistani national who had come over to India on a valid Pakistani passport. in 1957 and had been legally deported out of India in April, 1957. On those facts there is no question of s. 9(2) of the Citizenship Act being invoked or coming into play. The offence charged was that having been deported once out of India, he again en, tered India without proper travel documents in violation of the provisions of s. 3(2)(a) of the Foreigners Act.

There was one further point that was mentioned by learned Counsel but which we did not permit him to argue. Learned Counsel said that the order now passed was one by the State Government and that there was no proof that the Central Government had delegated this power to the State Government. Apart from the point being without s11bstance in view of the tenns of s. 3(2)(a) we have extracted earlier, and which was the offence with wliich the appellant was charged, this point about delegation was never urged in the Courts below and consequently no evidence was led to establish delegation under s. 12 of the Act if that was necessary for sustaining the prosecution in the present case. As this point was not raised in the Courts below we declined to pennit learned Counsel to raise it before us.

We consider that the learned Judges were right in holding that the prosecution had established the offence charged against the accused.

There are no merits in the appeal which fails and is dismissed.

Appeal dismissed •.

IBRAHIM

v

STATE OF RAJASTHAN

M. HIDAYATULLAH

N. RAJAGOPALA AYYANGAR, JJ.

Foreigners Act, 1946

ss. 2(a)

s. 9(2)

India

April 21, 1957

Foreigners Act

s. 2(2)

Foreigners Act

s. 9(2)

January 19, 1957

s. 3

Foreigners Act

s. 9

Foreigners Act

Tndia

s. 9(2)

Citizenship Act

s. 9(2)

Citizenship Act

s. 3

Foreigners Act

.Ayyangar

S. Shaukat Hussain

H. R. Khanna

S. P. Nayar

AYYANGAR

High Court of Jodhpur

s. 3

Foreigners Act

s. 14

s. 3

Central Government

Section 14

Ibrahim

Rajgarh

Bikaner

Pakistan

Churu

Ganganagar

s. 3(2)(a)

Ibrahim

Meeru

Munabao

Cbrahim

Shiv Rattan

Govind Singh

Dube Singh

s 2 and 3

\\ith Ibrahim

s 2 and 3

Miru

Murra

s. 2(a)

Foreigners Act, 1946

Ayyanyar

Central Act XI of 1957

s. 3

Foreigners Act

19th January, 1957

Foreigners Act

s. 2(a)

Foreigners Act

s. 3

Foreigners Act

s. 9(2)

Citizenship Act, 1955

s. 9

Foreigners Act

s. 9('.!)

Citizenship Act

s. 9(2)

Citizenship Act

s. 3(2)(a)

Foreigners Act

s. 3(2)(a)

s. 12


7S.C.R.

SUPREME COURT REPORTS 447

COMMISSIONER OF INCOME-TAX, PUNJAB JAMMU

& KASHMIR, HIMACHAL PRADESH AND PATIALA v.

PUNJAB DISTILLING INDUSTRIES LTD.

[A.K. SARKAR, M. HIDAYATULLAH AND J.C. SHAH, JJ.]

Income Tax-Distiller taking deposit refundable on return

of bottles-Balance of deposits after refund, if trading receipt-Indian Income-tax Act, 1922 (11 of 1922), s.10.

The assessee, a distiller of country liquor, carried on the business of selling liquor to licensed whole salers. The assessee '5tarted collecting from its customers from the year 1945 besides the price of the liquor and the bottles in which the liquor was sold a further charge called "empty bottles return security deposit." The entire sum collected on this account in respect of any one transaction would be refunded in full on return of 90 per cent. of the bottles covered by it. The question for consideration before this Court was whether t~ charge "security deposit" amounted to a trading receipt assessable to Income Tax.

Held: The amounts paid to the assessee and described as 'security deposit' were trading receipts and therefore income of the assessee assessable to tax. These amounts were paid as an integral part of the commercial transaction of the sale of liquor in bottles and represented an extra price charged for the bottles. They were not security deposits as there was nothing to secure, there being no right to the return of bottles. These appeals are covered by the judgment of this Court in Punjab Distilling Industries Ltd. v. Commissioner of Income-tax.

Punjab Distilling Industries Ltd. v. Commissi07leT of Income tax [1959] Supp. 1 S.C.R. 693, relied on.

Davies v. Shell Company of China Ltd. (1951)32

T.C. 133 and K.M.S. Lakshmanier & Sons v. Commissioner of Incometax and Excess Profits Tax, Madras [1953] S.C.R. 1057, distingW.•hed.

CivIL APPELLATE JuR1so1cnoN: Civil Appeals Nos. 107-111 of 1963 .. Appeals by special leave from the judgment and order dated March 23, 1961 of the Punjab High Court in Income-tax Reference No. 14 of 1960.

R. Ganapathi Iyer and R.N. Saclzthey, for the appellant (in all the appeals).

S.T. Desai, R.K. Gauba, B.P. Singh and Naunit Lal, for the respondent (in all the appeals).

March 24. 1964. The Judgment of the Court was delivered by

SARKAR, J.-We think.that these appeals are covered by the judgment of this Court in Punjab Distilling Industries .Ltd. v. Commissioner of Income-tax(') and the High . Court

(') [1959] Supp. 1 S.C.R. 693.

Sarkar, I.

Oommiuioner of

lntome-t®;, Punjab, Jammu

d1 Kashmir,

Himaclial Pradesh and

Patiala

Pun}ab Diatilling

lnduatries Ltd.

Sarkar, J.

was in error in its view that the ratio decidendi of that judgment was not applicable to them. The earlier case had arisen out of the assessment of the same assessee but it was concerned with the years 1947-48 and 1948-49 while the present appeals are concerned with the years 1946-47, 1949-50, 1950-51, and 1951-52. The accounting period of the assessee was from December 1, in one year to November 30 of the following year. In both the cases the assessments were for income-tax, excess profits tax and business profits tax, The point for consideration in respect of all these taxes was, however, the same.

A full statement of the facts will be found in the Judgment in the earlier case and it is unnecessary to state them at length over again. The assessee who was a distiller and seller of bottled country liquor, started collecting from its customers from the year 1945 besides the price of the liquor and the bottles in which the liquor was sold, a further charge called "empty bottles return security deposit". This charge was made at a certain rate per bottle delivered depending on its size on the term that it woud be refunded as and when the bottles were returned to the assessee and that the entire sum collected on this account in respect of any one transaction would be refunded in full on return of 90 per cent of the bottles covered by it.

The question is whether this charge is a trading receipt assessable to tax. In the earlier case this Court held it to be assessable. This Court then said (p. 687), "the trade consisted of sale of bottled liquor and the consideration for the sale was constituted by several amounts respectively called, the Price of the liquor, the price of the bottles and the security deposit. Unless all these sums were paid the appellant would not have sold the liquor. So the amount which was called security deposit was actually a part of the consideration for the sale and, therefore, part of the price of what was old."

In respect of the years now under consideration the Income-tax Officer taxed these charges and on appeal the Appellate Assistant Commissioner confirmed the Income-tax Officer's view. On further appeal, however, the Income-tax Tribunal reversed the decisions of the authorities bdow and held that these charges were loans and not trading receipts.

It may be stated that all this had happened before the aforesaid earlier judgment was delivered. After the Tribunal's decision, the Commissioner of Income-tax obtained a reference of the following question to the Punjab High Court: ·

"Whether on the facts and circumstances of the case the collections by the assessee company. described in its accounts as 'empty bottle return security deposits' were income assessable under Section 10 of the Income-tax Act."

1960 It is of interest to note that the earlier case also concerned .an identical question and had been answered both by the High Court and this Court in the affirmative.

If the judgment in the earlier q1se covered the present appeals, then the question referred would, of course, have to be answered in the affirmative. The High Court, however, took the view that as a result of the amendment of the rules made under the Punjab Excise Act, 1914 which came into effect irom April I, 1948, the charges collected after that date were not covered by that judgment. It held that the amended rule made the ratio decidendi of our judgment inapplicable to the charges collected after that date. The rule referred to is r. 40(14)(0 and the relevant part of it on which the High Court based its view is as follows: -

Commi8sioner o/

IncQme-taz, Punjab, Jammu

&r Kashmir, HimaclUJl and

Patiala v Punjab Distilling

Industries Ltd. p

<v) It is compulsory for the licensee to return at least

90 per cent. of the bottles issued to him by the licensed distiller.

(vil The licensed distiller may, at the time of issue, demand security at the rates of three rupees, two rupees or one rupee and eight annas per dozen quart, pint or nip bottles respec!ively upto 10 J.ler cent. of the bottles issued by him and confiscate the security to the extent falling short of the 90 per cent. limit.

The licensee referred to in the earlier of the ntles quoted is the wholesaler to whom the distiller sold his liquor. It is not very .::!ear what is meant by the words "upto 10 per cent. of the bottles issued" or the words "falling short of the 90 per cent. limit". It is not necessary, however, to pursue this matter for we shall not be concerned with the precise meaning of these words. It is not in dispute that some charge described as a deposit was realised on the term that it would be refunded in certain eventualities and that is enough for our purpose for lhe only question is whether this charge was a trading receipt.

The High Court thought that the earlier judgment of this Court had been based on three considerations, namely (!) that the charge concerned had been made without Government's sanction and entirely as a condition imposed by the assessee itself for the sale of its liquor; (2) that it could not be security deposit for the return of the bottles for there was no right to their return and (3) that it was refundable under the contract of sale itself. In the High Court's view if these circumstances were not there, our decision would have been different. The High Court held that since the amended rules came into force, none of these considerations was available and, therefore, the

LP(D) !SCI-15&

Sarkar, J.

Commissioner of

Income.tax, Punjab, Jammu

JIKasMnir,

Himaau.l Pradeah and

Patia'fa

Punjab DiMUting lnd""1'iea Ltd..

Sarkar, J.

charges could not be held to be trading receipts. The following quotation from the judgment of the High Court fairly summarises its reasoning: -

"The amended rules were given effect from 1st April.

1948. To securities demanded in accordance with the above rules the three considerations which prevailed with their Lordships of the Supreme Court and which have been mentioned above will not apply to the instant case. It cannot. therefore, be said, as was the case in the appeal before their Lordships of the Supreme Court, that the 'additional amounts had been taken without Government's sanction and cntirely as a condition imposed by the appellant itself for the sale of its liquor'.

Again it cannot be said that the 'wholesalers were under no obligation to return the bottles.' Lastly, in view of the statutory rule amended in 1948 it cannot be said that the deposit was part of each trading transaction and was refundable under the terms of the contract relating to trading transaction under which it had been made." It is not in dispute that if the High Court was in error in this reasoning, the present case will be governed by the earlier decision.

With respect to the learned Judges of the High Court, we think that the earlier judgment of this Court has been misunderstood by them. That judgment had not been based on the three points mentioned by the High Court and this we now proceed to show. The first point of distinction between the two cases was based on the observation in the earlier case that the additional amounts had been taken without Governmenfs sanction and entirely as a condition imposed by the appellant itself for the sale of its liquor'. The High Court apparently th9ught that by this observation it was suggested that if the amounts had been taken under Government's sanction, then they would not have been taxable. We are wholly unable to agree that this is a correct reading of that judgment. That observation contained only a recital of fact and was made for the purpose of distinguishing these amounts from the other amounts charged by the assessee as price of bottles to which we have earlier referred. The other amount was charged under a scheme framed " by the Government and called the "buy back scheme". We find nothing in the earlier judgment to show that the conclusion there arrived at was based on the fact that the charge had not been. made with the sanction of the GovernmeQt. That nothing turned on whether a charge was made under a Government scheme or purely as a matter of contract would indeed appear to have always been the common case. Thus even before the

.amended rules had come into force, the assessee had been .collecting under the aforesaid "buy scheme" which had the sanction of the Government, from its customers as price of the bottles, a charge which was refundable on the return of the bottles. The charge now under consideration is a charge .additional to that collected under the 'buy back scheme' and this we have earlier said. lthas never been in dispute, either in the earlier case or now, that the charge under the 'buy back scheme' which was collected under Government's sanction constituted a taxable income. This Court had never said, nor was it ever contended by the assessee that a collection would not be taxable if it had been made with the sanction of the Government. The first point of distinction sought to be made by the High Court is, therefore, unfounded.

The second point made by the High Court was that the observation in the earlier judgment that the charge could not be a security for the return of the bottles as there was no right to such return, was no longer applicable as under the amended rules there was a right to the return of the bottles. We do not agree for reasons to be stated later, that under the amended rules there was such a right but we will assume for the present that there was. Now, the argument in connection with which that observation was made was that if the charges were deposits for securing the return of the bottles, they were not trading receipts. By the aforesaid observation this Court dealt with the first part of this argument and said that the assumption that the charges were for securing the return of the bottles was unfounded for there was no right to such return. If the charges were not by way of security deposit the argument must, of .course, fail. So that was one answer that was given to the argument. But this Court did not stop there and proceeded to •consider the argument as a whole, namely, whether if the charges were security deposits, they were not trading receipts.

Now, the reason why it was said that if the charges were security deposits they were not trading receipts is to be found in two cases on which the argument was based. The first. was the case of Davies v. Shall Company of China Ltd.('). In that Case the Company had delivered its product to certain agents for sale and payment of the sale proceeds to it. The Company took money from each agent as deposit to secure itself against the risk of default by him to account for the sale proceeds. It was observed by Jenkins L.J.,

"Mr. Grant described the agents' deposits as part of the Company's trading structure, not trade receipts but anterior to the stage of trade receipts, and I think that is a fair description of them. It seems to

!'l (1951) 32 T.C. 133.

LP(D)iSCI-15

1964 Comm-•/ Imome-taz, Punjab, Jamm•

di Kaahmir,.

Himachal Pradukand

Paliala

y, Punjab Dialilling lndmtrieo Lid.

Sarkar, J,

Oommialitnlu of

]ncome-ta:t, Pvnjab. Jammu

di Kaali.mir,

Himadoal Pmduhaml

Patiala

Punjab Di/dilling

lndmtriea Ltd.

.Sarkar, J.

me that it would be an abuse of language to describe one of these agents, after he had made a deposit, as a trade creditor of the Company in respect of the deposit, not on account of any goods supplied or services rendered by him in the course of its trade, but simply by virtue of the fact that he has been appointed an agent of the Company with a view to him trading on its behalf, and as a condition of his appointment has deposited with or, in other words, lent to the Company the amount of liis stipulated deposit."

That was the kind of security deposit which Mr. Sastri appearing for the assessee on the earlier occasion said the "empty bottles .return security deposits" were. The real point, therefore, in contending that the deposits were security deposits was to establish that they were not part of the trading transactions at all but related to a stage anterior to the trading transactions. This contention was rejected and it was held that the "empty bottles return security deposits" were not the kind of deposits considered in the Shall Company case.

The other case on which Mr. Sastri then relied was K.M.

S. Lakshmanier & Sons v. Commissioner of Income-tax and Excess Profits Tax Madras('). That case dealt with three trade arrangements. Mr. Sastri contended that the "empty bottles return security deposits" were the kind of deposits dealt with in the third arrangement considered in that case but this argument also failed. Under the third arrangement, the trader took from its constituent at the commencement of an expected series of trading transactions with it a deposit and kept the same till the business connection came to an end whereupon the deposit was refundable to the constituent with interest at 3 per cent per annum after deduction thereout of any amount remaining due from the constituent on the trading transactions. The understanding was that the constituent would pay for each purchase made by him from the trader during the continuance of the business connection and it was only where he failed to make the payment that the amount due became liable to be deducted from the deposit. This deposit was held by this Court to be a loan for these reasons : "The amount deposited by a customer was no longer to have any relation to the price fixed for the goods to be delivered under a forward contract-either in instalment or otherwise. Such price was to be paid by the. customer in full against delivery in respect of each contract ............... It was only at the end of the 'business connection' with the appellants that an adjustment was to be made towards any possible liability arising out

(') [1953] S.C.R. 1057.

of the customer's default ............ The transaction had thus all the essential elements of a contract of loan." (p. 1063).

None of these cases, therefore, was concerned with the question whether a security deposit was by its very nature such that it could not be a trading receipt. The first case dealt with

Oommiasionu of

lncome-taz, Punjab, Jamm1'

& Kaahmir, Himachal Praduhand an actual security deposit but it was held that that deposit Pa1; a1a was not a trading receipt not for the reason that it was ii P . 6 Ti, nr , security deposit but for the reason that it formed t:1~.tri~ ~;; t the structure under which trading transactions producing trading receipts were conducted and was not itself connected with any trading transaction. In the second case the receipt was held to be a loan; that it might be also a security deposit was not even mentioned. It was held not to be a trading receipt because it had no connection with the trading transactions but related to a stage anterior to the trading transactions.

It is, therefore, clear that the contention that the charges formed a security deposit had been advanced only for the purpose of showing that they were not a part of the trading transactions. The question was not really whether the charges were security deposits but whether they were part of the trading transactions or had been made at anterior stages. This Court decided that they were part of the trading transactions and were not relatable to an anterior stage. That is all that it was called upon to decide and did decide.

That on the earlier occasion this Court was not concerned with the question whether the charges made were security deposits or not would appear from the following observations occurring at p. 690. "Mr. Sanyal was prepared to argue that even if the amounts were securities deposited for the return of the bottles, they would still be trading recepits, for they were part of the trading transactions and the return of the bottles was necessary to enable the appellant to carry on its trµde, namely, to sell liquor in them. As we have held that the amounts had not been paid as security for the return of the bottles, we do not consider it necessary to pronounce upon this contention." This Court, therefore, did not decide that if the deposits had been made to secure the return of the bottles, they could not be a trading receipt. The High Court was in error in distinguishing the present case from the earlier one on the basis that this Court had then so decided.

We now turn to the question whether under the amended rules there was any right in the distiller to the return of the bottles. We think there was not and in this respect the two cases .are identical; in none was the charge in fact. a security deposit. The reason for that view is this. The liquor passed through three sales before it reached tbe consumer first the distiller sold it to wholesaler then the wholesaier to a retailer and lastly, the retailer to the consumer, If the

Sarkar, J.

Co, nmissiontf" of

Inrome-tax, Punjab. Jammu Ka.skmif", Himachal Pradesh and Patiala

P unjoh DistiUin1

ln-fu.<1trie~ Ltd-

Sarkar, J.

rules created an obligation on the wholesaler to return the bottles to the distiller, then the rules. would provide for a return of the bottles to the wholesaler by the retailer and to the retailer by the consumer; without such rules it would be idle to require the wholesaler to return the bottles to the distiller.

We have not been shown anything creating a right in the wholesaler or the retailer to a return of bottles. Clearly, the consumers were under no obligation to return the bottles in which they bought liquor. Sub-clause (v) of the rule on which the High Court based itself, referred to the return of the bottles in which liquor was sold. In the absence of a right in the wholesaler to a return of the bottles from the retailer, it would be insensible to read that provision as creating an obligation on the wholesaler to return the bottles. He had no means under the rules to perform that obligation. That rule, therefore, must be read as intending only to lay down that if the wholesaler could not return the bottles, his <ieposit was liable to be confiscated under sub-d. (vi). Again, the rules do not lay down any procedure by which the distiller might enforce the return of the bottles to him, which they would have undoubtedly done if it was intended to give him a right to the return of the bottles. Indeed there is nothing to show that he can obtain such a return. Whether the wholesaler would be liable to punishment under the Act for breach of his obligation to return the bottles or not is to no purpose, for we are now concerned with the right of the distiller to obtain a return of the bottles. It seems to us that the only reason why the rules required a wholesaler to return the bottles to the distiller was to authorise the imposition of a term of the sale upon the breach of which, tpe charges lnade for the bottles would cease to be refundable.

We now come to the last point of distinction made by the High Court. On the earlier occasion this Court had said that the amount deposited was refundable under the terms of the contract constituting the trading transaction and was, therefore, a trading receipt. The learned Judges of the High Court seem to have been of the opinion . that since the rule was amended, the deposits had to be made under it and, therefore, were not thereafter received under the contract or as part of the trading transaction constituted by it. With great respect to the learned Judges, there appears to be some confusion here. The rule by its own fdrce does not compel a deposit to be made. The terms of the rule make this perfectly clear. All that it does is to empower a distiller to take a deposit. But the deposit must be taken under a contract in regard to it: it is not taken under the rule itself. In other words, all that the rule does is to authorise the making of a contract concerning the deposit on the terms mentioned in it, the object apparently

being to avoid any question as to its validity arising later. We

19G4 may here point out that the trade.in liquor is largely control-co,,,,,,;,.;;-,,;;;, of led by Government regulations. It must, therefore, be held Inw'!'e-tax, that the deposit was actually taken under a contract; it was ~1:, t.;[; mmu none the less so though the contract was authorised by the H; ma, hal ' stationery rules. The third point of distinction on which the f:ad7h and High Court relied was, therefore, also without foundation. at•a :.

Whether if the deposits had beenmade without a contract and Punjah DistUhng directly under the rules and in respect of a trading transaction Ina,,, tric.• J, id. made by a contract they would have been trading receipts or Sarkar, J. not, is not a question that arises in the present appeals and on that question we express no opinion now.

For these reasons we think that these appeals are compietely governed by the earlier judgment of this Court and we answer the question referred in the affirmative. We should state that even according to the High Court the amounts collected as "empty bottles return security deposit" prior to April I, 1948, were chargeable to tax.

The appeals are allowed and the respondent will pay the costs here and below.

There will be one set of costs allowed as hearing fee.

Appeals allowed.

PUNJAB DISTILLING INDUSTRIES LTD

A.K. SARKAR

M. HIDAYATULLAH

C. SHAH, JJ.

Indian Income-tax Act, 1922

R. Ganapathi Iyer

R.N. Saclzthey

S.T. Desai

R.K. Gauba

B.P. Singh

Naunit Lal

SARKAR

Sarkar

Punjab High Court

Section 10

Income-tax Act

Punjab Excise Act, 1914

April I, 1948

Supreme Court

Jenkins

Grant

.Sarkar

Sastri

Sanyal

Punjah DistUhng


SUPREME COURT REPORTS [1964]

SRI VENKATA SEETARAMANJANEYA RICE AND

OIL MILLS AND ORS.

STATE OF ANDHRA PRADESH ETC. [P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO, J. c. SHAH,

N. RAJAGOPALA AYYANGAR AND s. M. S!KRI, JJ.J

Madras Essential Articles Control and Requisitioning (Temporary) Powers Act, 1949 (Mad. 29 of 1949), ss. 3(1) (2)- Applicability of the Act to electricity supplied by State-Intention of Legislature, consideration of-Notified orders <>nhancing agreed rate by State-Whether valid under s. 3-Regu- Zate, meaning of-Increase of tariff-If reasonable and in interest of general public-Whether contravenes Arts. 14 and 19(1)-Constitution of India, Arts. 14 and 19(l)(g) and (f).

Electricity was supplied to the appellants by the respondent-state for manY. years past, and several individual agreements were passed between them prescribing the terms and conditions for the supply. One of these terms stipulated the rate at which the supply had to be charged. These agreements did not contain any provision authorising the State to increase the rates during their operation. The respondent-state issued two notified orders enhancing the agreed rates. The orders indicated that the main reason which inspired the increase was that the existing electricity tariffs which were formulated several years before, had become completely uneconomic and meant continuously growing loss to the State. A large number of consumers challenged the validity of the two orders in the High Court under Art. 226. The writ petitions were allowed and the respondent was restrained from enforcing the revised rates. These decisions were challenged by the respondent by appeals in the High Court, which took a different view and dismissed the writ petitions. On appeals to this Court, it was contended, inter alia that the respondent had no authority to increase the rate, changing this important term of the contract by taking recourse to s. 3(1) of the Madras Essential Articles Control and Requisitioning (Temporary) Powers Act. that the power to regulate the supply of essefltial articles had to be applied in regard to transactions between citizens and citizens and could not be applied to an essential article which the State itself supplied; that the power to regulate conferred on the respondent by s. 3(1) could not include the power to increase the tariff rate, that the notified orders were invalid as they contravened the provisions of Art. 19(l)(f) and (g) and that of Art 14 of the Constitution.

Held: (i) The challenge to the validity of the notified orders on the ground that they were outside the purview of s. 3(1) of the Act could not be sustained.

The State is not bound by a statute unless it is so provided in express terms or by necessary implication. In applying this rule, the court must attempt to ascertain the intention of the Legislature by considering all the relevant provisions of the statute together and not concentrating its attention on a particular provision which may be in dispute.

Where the quest!ion is not so much as to whether the State is bound by the statute, but whether it can claim the benefit of the provision of a statute, the same rule of construction

may have to be applied. Where the statute may be for the pub- 19~4 lie good and by claiming the benefit. c".nferre~ on it bv i!s . - provisions the State may allege that it is servmg the public /" Venka~ good, it would sti.11 be necessary to ascertain whether te. in- Ric~~d'Q;~3n; lf: tention of the l"'g1slature was to make the relevant proV1s1ons and Otkera applicable. v.

Director of Rationing and Distribution v. Corporation of Slale of Andhro Calcutta, [1961] 1 S.C.R. 158 ahd Province of Bombay v. Muni- Praluh etc. cipa! Corporation of the City of Bombay, [1945-46] L.R. 73 I.A. 271, applied.

(ii) In construing s. 3 of the Act of the usual rule of construction must be adopted. s. 3 must not be read in isolation, but must be considered in its proper setting and due regard must be had for the other provisions of the Act and its general sch.., me and purpose.

(iii) The purpose of the Act is to secure the supply of essential articles at fair prices, it would be irrelevant as to who makes the supply; what is relevant is to regulate the supply at a fair price.

(iv) ft is well-settled that the function of a clause like

cl. (2) of s. 3 is merely illustrative. In other _words the proper approach to adopt in construing els. (D andl (2) of s. 3 is ta assum"' that whatever is included in cl. (2) is also included in cl. (1).

King Emperor v. Sibnath Banerjee, 72 I.A. 241 and Santosh Kumar Jain v. State, [1951] S.C.R.. 303, applied.

(v) The word 'regulate' is wide enough to confer power on the State to regulate either by increasing the rate or decreasing the rate, the test being what is it that is necessary or expedient to be done to maintain, increase or secqre supply of the essential articles in question and to arrange for its equitable distribution and its availability at fair prices.

(vi) Having regard to all the circumstances in this case, th" change made in the tariff were reasonable and in the interests of the general public.

(vii) There was ats0lute no material on the record of the appeals on which a plea under Art. 14 of the Constitution could even be raised.

OVIL APPELLATE JURISDICTION: Civil Appeals Nos. 429 439, 591, 592, 597, 689, 694, 724, 725 and 727 of 1962 and 15, 139, 140, 159, 267 to 269, 331, 334, 337, 340, 342, 343, 347, 352, 389, 746 and 748 of 1963. Appeals from the judgments and order dated December 19, 1958, March 7, 1959, March 11, 1959, April 22, 1959, April 24, 1959 in Writ Appeals Nos. 135, 122 of 1957 etc.

T. V. R. Tatachari, for the appellants (in C.A. Nos. 429 to 434 and 694 of 1962 and C.A. No. 269 / 63).

M. C. Setalvad. P. Kodandaramayya, E. V. Bhagarathi Rao and T. V. R. Tatachari, for the appellants (in C.A. Nos. 438 and 439 I 62).

M. C. Setalvad, and R. Ganapathi Iyer, for the appellants (in C. A. Nos. 436, 437, 724, 725 and 727 / 62).

1964 K. Srinivasamurthy and Naunit Lal. for the appellants Sri Venkata (in C. As. Nos. 591, 582, 597, and 689 /62 and 140, 267 Seetaramanjaneya and 268 / 63).

Riu and OilMiU.

and Others.

K. Jayaram and R. Thiagarajan, for the appellants (in

State of'.4ndhra C.A. Nos. 139, 159, 330, 334, 337, 340, 342, 343, 347 and

PradeBh etc. 352/ 63).

K. R. Chaudhuri, for the appellants (in C.A. Nos. 15 and 389 of 63).

A. Vedavalli and A. V. Rangam, for the appellant (in C. As. Nos. 746, and 748 of 63).

D. Narsaraju, T. Anantha Babu, M. V. Goswami and B. R. G. K. Achar, for the respondents (in C. As. Nos. 435- 437, 724, 725 and 727 / 62).

D. Narsaraju, T. Anantha Babu, Yogcshwar Prasad and B. R. G. K. Achar, for the respondents (in C. As. Nos. 429- 434, 438, 439 and 694/62 and 269 of 63).

D. Narsaraju, T. Anantha Babu, M. S. K. Sastri and B. R. G. K. Achar, for the respondents (in C.A. Nos. 591, 597 and 689/62 and 140, 267 and 268/63) and respondent No. 1 (in C.A. No. 592/62).

J. V. K. Sarma and T. Satyanarayana, for respondent No. 2 (in C.A. No. 592/62).

D. Narsaraju, T. Anantha Babu, R. Gopalakrishnan and B. R. G. K. Achar, for the respondents (in C. As. Nos. 15, 139, 331, 334, 337, 340, 342, 343, 347, 352, 159, 389 and 746-748/63).

March 25, 1964. The judgment of the Court was delivered by

Qajendreyadkar, C.J.

GAJENDRAGADKAR, C. J.-The principal question of law which arises in this group of 37 civil appeals relates to the construction of section 3 of the Madras Essential Articles ControI and Requisitioning (Temporary Powers) Act, 1949 (No. 29 of 1949) (hereinafter called 'the Act'). The dispute which has given rise to these appeals centres round the validity of two notified orders issued by the respondent, State of Andhra Pradesh on the 28th January, 1955, and 30th January, 1955 respectively, and it is the contention of the appellants that the said notified orders are outside the purview of s. 3. The appellants in all these appeals are supplied electricity by the respondent for many years past, and several individual agreements have been passed between I them and the respondent during the period 1946 to 1952 prescribing the terms and conditions on which the said supply would be 'made to them. One of these terms stipulated the rate at which the supply of electricity had to be charged ,

/7 S.C.R.

SUPREl\IE COURT REPORTS 459

1964 against the consumers. The impugned orders have purported to increase this rate, and the appellants contend that the Sri Venkara respondent had no authority to change this important term s,, taramanjaneya

of the contract to their pre1 udice by taking recourse to Rfre and Oil Mills and Otliers s. 3(1) and issuing notified orders in that behalf. That, in v. substance, is the nature of the controversy between the parties Stare 01 AndAra before us.

Pradc41 etC.

G'ajendragadCar , C.J ~

It appears that the Government of Madras, and subsequently, its successor, the respondent, had a single power grid system for the whole State comprising Tungabhadra and Machkund Hydro Electric System and the Thermal System of Nellore. The entire energy was integrated into one power system. The Government of Madras entered into agreements with several consumers in the State, including the appellants,. for the supply of energy in bulk at the specified rates which were called tariffs, for the years 1951 and 1952. These agreements were to be in operation for ten years. It is common ground that these agreements did not contain any provision authorising the Government to increase the rates during their operation. The charges fixed were calculated at graded regressive rates according to increasing slabs of consumption units, and the overall unit rates including the demand charge were not to exceed 66 annas without prejudice to the monthly minimum payment and the guaranteed consumption.

The Government of Andhra then issued the two impugned orders relating to Machkund and Nellore, and Tungabhadra and Chittoore District areas respectively, enhancing the agreed ra.tes. These enhanced rates were specified in Schedules A and B attached to the said orders. According to these orders, these increased tariffs were to take effect from the date on which meter readings were to be taken in the month of February, 1955 and were to operate for the future., The increase in the rates effected by these orders was thus to operate not retrospectively, but prospectively. The impugned orders indicate that the main reason which inspired the said orders was the knowledge that the existing electricity tariffs which were formulated nearly 15 years before. had become completely uneconomic; the charges of labour and the price level of all material had enormously increased; and that inevitably meant continuously growing loss to the Government.

The Accountant-General made queries in respect of th~ recurring loss and drew pointed attention of the State Government to the deficits in the working of the Power System. Accordingly, the question of revision of tariffs was considered in the State of Madras, but was not decided because reorganisation of the States was then in contemplation. After the respondent State was born, its Chief Engineer sumbitted proposals for

1964 revii:ions of tariffs in all the areas covered by the relevant Sri Venkata schemes. That is how the impugned notified orders came to 8eetaramani_antya be ii:sued by the respondent.

Rsce and Oil Mills

and Other The appellants were naturally aggrieyed by these orders,

8 v. , because they added to their liability to pay the rates for the 1f.!df.f':f:'.'a, supply of electricity by the respondent to them. Accordingly,

- a large number of consumers moved the Andhra Pradesh Gajendraqadkar,0.J.High Court under Art. 226 of the Constitution, and challenged the validity of the two impugned orders. The learned sing:le Judge who heard these writ petitions upheld the appellants' plea and came to the conclusion that the impugned orders were not justified by the authority conferred on the . respondent by s. 3 of the Act, and were unauthorised, illegal and inoperative. In the result, the writ petition filed by rnme of the appellants before us were allowed and an appropriate order was issued against the respondent restraining it from enforcing the revised tariff rates.

These decisions were challenged by the respondent by preferring several Letters Patent Appeals. The Division Bench which heard these Letters Patent Appeals took a different view; it held that on its fair and reasonable construction, s. 3 did confer authority on the respondent to issue the impugned orders, and so, the challenge made to the validity of the said orders could not be sustained. That is why the Letters Patent Appeals preferred by the respondent were allowed and the writ petitions filed by the appellants were dismissed. It is against these orders that the appellants have come to this Court with a certificate issued by the said High Court.

After the Division Bench had pronounced its decision on this point, several other writ petitions were filed by other consumers, and naturally the single Judge who heard them followed the decision of the Division Bench and dismissed the said writ petitions. The consumers who were aggrieved by the decision of the learned single Judge were then allowed to come to this Court directly by special leave, because the points which they wanted to raise were exactly the same as were raised by the other consumers who had come to this Court against the principal decision of the Division Bench.

The present group of appeaJs thus consists of matters which have been decided by a Division Bench of the Andhra Pradesh High Court, as well as those which have been decided by a learned single Judge, and they all raise thesame common question about the construction of s. 3 of the Act, and the validity of the impugned notified orders.

Before addressing ourselves to the question of construin:~ s. 3, it is necessary to recapitulate the legislative history of the Act. It will be recalled that during the Second World

War, the Government of India passed the Defence of India 1961 Act (No. 35 of 1939) on the 29th of September, 1939. By s.; Venkata virtue of the powers conferred on the Central Government s.-a-"4•""!f<J

by s. 2 of the said Act, several Rules came to be framed by R""' ~:Z ~7,!;" Central Government known as the Defence of India Rules. v.

Amongst these Rules was Rule 81(2) which clothed the sia;,•:J..1M.Ara Central Government with power to issue orders which may '_ e1e. appear to the Central Government to be necessary or ex- Gajendraga<ik&r, O.J. pedient for securing "the defence of British India, or the efficient prosecution of the war, or for maintaining supplies and services essential to the life of the community". These Rules were in operation during the continuance of the war.

After the war came to an end, it was realised that the economic situation in the country continued to be serious, and for the proper regulation of economic affairs, it was thought necessary to continue the orders issued under the Defence of India Rule 81(2), because shortage of supply of essential articles was very much in evidence then. The purpose of continuing the orders was to ensure the supply of essential articles to the community at large at reasonable prices and to secure their equitable distribution. In due course, the Defence of India Act came to an end in 1946, but the Central Legislature thought it necessary to pass another Act to take its place and that was the Essential Supplies (Temporary Powers) Act, 1946 (No. 24 of 1946). On the same lines, the Madras Legislature passed an Act in 1946 (No. 14 of 1946).

Later, it was replaced by Act No. 29 of 1949 with which we are concerned in the present appeals. After the respondent State was created under the Scheme of Reorganisation of States, it passed Act No. 1 of 1955 and this Act received the assent of the President on the 21st of January, 1955. By this Act, the Legislature of the respondent State virtually adopted the Madras Act. As a result, the impugned orders are, in substance, referable to s. 3 of the Madras Act.

Before we part with this topic, it may be mentioned that when the Madras Act was passed, its Schedule gave a list of the essential articles as defined by s. 2(a) and these articles were 12 in number. When the Andhra Legislature passed Act No. 1 of 1955 and adopted the Schedule of essential articles for its purpose, the number of these articles was reduced to two; they are charcoal and electrical energy. The Andhra Act was originally intended to be in operation until the 25th January, 1956, but it was later continued from time to time. It is common ground that when the impugned_ orders were passed, section 3 of he_ Act was in operation and the present appeals have been argued on the basis that the said section is constitutionally. valid, so that the main point which calls for our decision is the construction of the said section.

1964 Mr. Setalvad for the appellants contends that in con- Bri v enkata strui:1g s. 3, we ought not to concentrate on the words used seetaramanjaneya in s. 3 in isolation, but must look at the said section along , Bi<• and Oil Mills with the other provisions of the Act. The rule of harmonious

and Olhers h th tru ll v. constructton, e urges, requires at we must so cons e a Stale of Andhra the provisions of the Act as to avoid any conflict or repug-

Prodesh etc. nancy between them. So construed, section 3, according to

Gajend"'!ladkar, O.J. him, cannot be said to confer power on the respondent to enha nee the tariff rate ohargeable against the appellants in respect of the supply of energy made by the respondent to them. The whole scheme of the Act indicates clearly that the power to regulate the supply of an essential article which has been conferred on the State Government has to be applied in regard to transaction between citizens and citiz•!ns and cannot be applied to an essential article which the State itself supplies. It would be odd, he suggests, if the State Government is given the power to issue a notified order regulating the rates at which it should supply energy which it itself produces. Therefore, the dealings by the State Government in the matter of supply of energy to the wnsumers should be deemed to be outside the provisions of s. 3, and that would make the impugned orders invalid.

The question as to whether the State Government would be bound by the provisions of legislative enactments passed by the State Legislature has sometimes led to difference in - judicial opinion; but the decision of this Court in the Director of Rationing and Distribution v. The Corporation of Calcutt.2 and Ors.(') must be taken to have settled this question.

The effect of the majority decision rendered in that case is to :recognise the validity of the rule of interpretation of statutes enunciated by the Privy Council in Province of Bombay v. Municipal Corporation of the City of Bombay(') and that rule is that the State is not bound by a statute un-. less it is so provided in express terms or by necessary implication. In applying this rule, it is obviously necessary that the Court must attempt to ascertain the intention of the Legislature by considernig all the relevant provisions of the statute together and not concentrating its attention on a particular provision which may be in dispute between the par1 ies. If, after reatling all the relevant provisions of the

sta~Jte, the Court is' satisfied that by necessary implication the obligation imposed by the statute should be enforced aga:inst the State, that conclusion must be adopted. If there are express terms to that effect, there is, of course, no difficulty. In dealing with this vexed question, sometimes it is nec•!ssary also to enquire whether the conclusion that the State is not bound by the specific provision of a given statute,

(') [1961] 1 S.C.R 158.

(') 73 I.A. 271.

would hamper the working of the statute, or would lead to l964 the anomalous position that the statute may lose its effi- Sri Venkata cacy, and if the answer to either of these two questions Se.eJar•".;""<i•nta . d' h th bl' . . d b th h uld Rice""" O•l Milla m 1cates t at e o 1galion impose y e statute s o and au.era be enforced against the Stat~, the Court would be inclined •· to infer by necessary implication that the State, in fact, is Stj,~:J,1,.W:/:.• bound by the statute.

Where, however, the question is .not so much as to Gajendrayiulkar, O.J. whether the State is bound by the statute, but whether it can claim the benefit of the provision of a statute, the same rule of construction may have to be applied. Where the statute may be for the public good, and by claiming the benefit conferred on it by its provisions the State may allege that it is serving the public good, it would still be necessary to ascertain whether the intention of the legislature was to make the relevant provisions applicable to the State. This position is also established by the decision of the Privy

Council in Province of Bombay(') and it still continues to be a law in this country.

Incidentally, we may add that where the Crown seeks to take advantage of a statute and urges that though it is not bound by the statute, it is at liberty to take advantage of it, English Law does not easily entertain such a plea, though there are observations made in some judicial .pronounce- . ments to the contrary. As Halsbury points out, "it has been

said that, unless it is expressly or impliedly prohibited from doing so, the Crown may take advantage of a statute notwithstanding that it is not bound thereby." Having made this statement, Halsbury has added. a note of caution by saying that "there is only slender authority for this rule, and since both the rule and such authority as does exisf have also been doubted, the rule cannot, perhaps, be regarded as settled law(')".

To the same effect is the comment made by Maxwell when he quotes with approval the view expressed by Sir

John Simon that the decisions which recognise the right of the Crown to take advantage of a statutory provision "start with a passage in an unsuccessful argument of a law officer which was not even relevant to the case before the court, but which has been taken out by a text-writer and repeated for centuries until it was believed that it must have some

foundation(')".

Therefore, in construing s. 3 of the Act we cannot permit the respondent to rely upon the artificial rule that since

(') 73 I.A. 271.

I') Halsbury's Laws of England, Vol. 36, p. 432, para 654.

~') Maxwell on Interpretation of Statutes, 11th Ed. p. 136

1964 the respondent claims a benefit under s. 3, that construc- 8,.; Venkaw tion should be adopted which supports such a claim. Thus,.

Be<taranjaya the position is that when we construe s. 3, we must adopt R••0•"ffWJ..M•11• the usual rule of construction; we must not read s. 3 in iso-

•• v. "· lation, but must consider it in its proper setting and must Swee of Andhra have due regard for the other provisions pf the Act, and

Praiuhete. its general scheme and purpose.

Gajendragadl:al', O.J.

Reverting then to Mr. Setalvad 's main argument, it may be conceded that when the Act was passed in 1949, mainly and primarily the power conferred by s. 3 on the State Government must have been intended to regulate the supply of essential articles made by one citizen to another. The Stale had not then entered commercial activities on a large scale and when s. 3(1) contemplated notified orders issued for the purpose of securing equitable distribution and availability at fair prices of essential articles, the legislature could not have in its mind supply of essential articles made by the State itself. That is one point in favour of Mr. Setalvad's construction. If we examine the scheme of the Act, it may also have to be conceded that some of the provisions may not be applicable to the State. Take, for instance, the provision of s. 4 which relate to the powers of requisitioning and acquisition of properties, and the subsequent two sections that deal with payment of compensation and release from requisition respectively; these provisions may not be applicable to the State. Take, again, the control of agriculture which is contemplated by s. 7; it would not be applicable to the State. Section 12 which deals with penalties may also be inapplicable to the State, and so, would s. 13 be inapplicable, because it deals with abetment and assistam; e of contravention 9f the provisions of the Act. Therefore, the general scheme of the Act and some of its provisions seem to suggest that the State may not have been within the contemplation of the Act.

But it is obvious that the rule of harmonious constrµcticn on which Mr. Setalvad has solely rested his case, can be invoked successful1y by him only if the words used in s. 3 are capable of the construction which he suggests. If the said words are capable of two constructions one of which supports the appellants' case and the other that of the respondent, it would be legitimate to adopt the first construction. because it has the merit of harmonising the provisions of s. 3 with the general scheme and purpose of the Act. On the other hand, if the words used in s. 3(1) are not reasonably capable of the construction for which the appellants contend, then it would be unreasonable and illegitimate for the Court to limit the scope of those words arbitrarily solely for the purpose of establishing harmony between the

Act. Therefore, it 1964 assumed object and the scheme of the is necessary tq, examine the words used fully. Let us first read s. 3(1) :- in s. 3 very care- Sri Ve1'kala Seetaramanjaneya Rice and Oil Muz.t. "The State Government so far as it appears to them and Others. to be necessary or expedient for maintaining, instate ofAtUlhra creasing or securing supplies of essential articles Pradeahetc. or for arranging fQr their equitable distribution Ga.j d --;; dk

O.J and availability at fair prices may, by notified en rag "'• • order, provide for regulating or prohibiting the supply, distribution and transport of essential aticles arid trade and commerce therein''.

Sub-section (2) provides that without prejudice to the generality of the. powers conferred by sub-section (i), an order made thereunder may provide for objects specified in clauses

(a) to (k). The majority of these objects may not be applicable to the State, while, conceivably, some may be applicable to it.

Section 3(1) is obviously intended to secure supplies cf essential articles and to arrange for their equitable distribution and availability at fair prices. If electrical energy is one of the essential articles mentioned in the Schedule, there can be no difficulty in holding that a notified order can be issued under s. 3(1) for regulating the supply of the said energy and making it available at a fair price. Indeed: it is not disputed and cannot be disputed that if electrical energy is produced by a private licensee and is then supplied to the consumers, such a supply would fall within the mischief of s. 3(1), and the terms on which it can and should be made to the consumers can be regulated by a notified order.

There can also be no serious dispute that the terms of a contract entered into between a private supplier of electrical energy and the consumer could be modified by a notified order. Section 3(i) undoubtedly confers power on the State Government to vary ang modify contractual terms in respect of the supply or distribution of essential articles. If that be so, on a plain reading of s. 3(1) it seems very difficult to accept the argument that the supply of electrical energy which is included in s. 3'(1) if it is made by a private producer should go outside the said section as soon as it is produced by the. State Government. The emphasis .is not on who produces and supplies, but on the continuance of the equitable distribution and supply of essential articles at fair prices.

If the object which s. 3(1) has in mind is such equitable distribuiton and availability at fair prices of essential articles, then that object would still continue to attract the provisions of s. 3(1) even though the essential article may be produced by the State and may be supplied by it to the consumers.

1964 The words used in s. 3(1) are so clear, unambiguous and Sri Venkata wie that it would be unreasonable to limit their scope arti-

Seelarama~:iane.ya ficially on the ground that by giving effect to the wide -~~-1 . . .. andOthers. anguage of the sechon, we might reach a result which 1s v. not completely harmonious or consistent with the assumed

:>tarad"f.h j, dhra object and purpose of the Act. Indeed, as we have just indi- - cated, if the purpose of the Act is to secure the supply of

ajendrOIJ•dkar, O.J. essential articles at fair prices, it would be irrelevant as to who makes the supply; what is relevant is to regulate the sup:ply at a fair price. Therefore, we are not prepared to accede to Mr. Setalvad's argument that s. 3(1) does not confer on the respondent the power to modify the terms of agreements between it and the appellants.

Mr. Setalvad, no doubt, contended that in construing s. 3(1), we may have regard to the fact that most of the clauses under s. 3(2) would be inapplicable to the respondent State, and so, he virtually suggests that even though the words in s. 3(1) may be wide, their width should be controlled by the limited scope of the clauses prescribed by subsection (2). We are not prepared to accept this argument.

After the decision of the Privy Council in King Emperor v.

Silinath Banerjee('), it is well-settled that the function of a clause like clause (2) of s. 3 merely illustrative (vide also.

Santosh Kumar Jain v. The State(')). In other words, the proper approach to adopt in construing clauses (]) and (2) of s. 3 is to assume that whatever is included in clause (2) is also included in clause (!). That is not to say that if the words of clause (!) are wide enough to include cases not included in clause (2), they must, for that reason. receive a narrower construction. Therefore, we must ultimately go back to clause (!) to decide whether the supply of electrical energy made by the respondent to the appellants can be regulated by a notified order issued under it or not, and the answer to that question must, in our opinion, be in the affirmative.

In this connection, it may be pertinent to refer to s. 3(2}(b) which provides for controlling the prices at which any essential article may be bought or sold. It is not easy to see why this clause cannot take in articles which may be purchased or sold by the State. The clause is so worded that the transactions of sale and purchase of all essential articles would be included in it. It is true that where the State wants to sell its essential articles, it may be able to regulate the prices and control them by means of an executive order; but that is not relevant and !llaterial in construing the effect

(') 72 I.A. 241 at p. 248.

(') 1951 S.C.R. 303.

of the words; if the words take within their sweep. essential

articles sold by the State, there is no reason why 1t should Sri Venkata not be competent to the State to issue a notified order con- •1::;•::-di~Af; I\. trolling the prices in that behalf. and Others In regard to the purchase of essential articles by the State of. Andhra State, the position is still clearer. If the State wants to pur- PradVJh eic. chase essential articles. power to regulate th~ pnces of such Gajewlragadkar, C.J. articles would seem to be clearly mcluded m s. 3(2)(b). Indeed, during the course of his arguments, Mr. Setalvad did not seriously dispute this position. Therefore, when 'he State wants to purchase essential articles, it can regulate the price in that behalf by means of a notified order issued under s. 3(1) and that shows that in the cases of both sale and purchase of essential articles by the State, s. 3(2)(b) read with s. 3(1) would clothe the State with the power to issue the relevant notified order.

Then, it was faintly argued qy Mr. Setalvad that the power to regulate conferred on the respondent by s. 3(1) cannot include the power to increase the tariff rate; it would include the power to reduce the rates. This argument is entirely misconceived. The word "regulate" is wide enough to confer power on the respondent to regulate either by increasing the rate, or decreasing the rate, the test being what is it that is necessary or expedient to be done to maintain, increase, or secure supply of the essential articles in question and to arrange for its equitable distribution and its availability at fair prices. The concept of fair prices to which s. 3(1) expressly refers does not mean that the price once

fixed must either remain stationary, or must be reduced in order to attract the power to regulate. The power to regulate can be exercised for ensuring the payment of a fair price, and the fixation of a fair price would inevitably depend upon a consideration of all relevant and economic factors which contribute to the determination of such a fair price. If the fair price indicated on a dispassionate consideration of all relevant fa.c.tors turns out to be higher than the price fixed and prea1hng, then the power o regulate the price must

necessnly . mclude t.he power to mcrease the price so as to make 1t farr. That 1s why we do not think Mr. Setalvad is right in contending that even though the respondent may have the power to regulate the prices at which electrical energy should be supplied by it to the appellants, it had no power to enhance the said price. We must, thert!fore, hold that the challenge to the validity of the impugned notified orders on the ground that they are outside the purview of s. 3(1) cannot be sustained. ·

That takes us to the next question as to whether the impugned notified orders are invalid, because they contravene

SUPREME COUR'I REPORTS (1964]

I . 1964 the provisions of Art 19(l)(f) and (g) of the Constitution.

Sri Venkata The. impugned orders have been notified by virtue of the

~etaramantane¥• power conferred on the respondent by s. 3(1) and may there- "'"'' aw.I Oil Mills b ted l f ' aw.I Other•. tore, e trea . as aw or the purpose of Art. 19. We may v. alo assume m favour of the appellants that the right to re-

Sta~, i,1.dhra ce1ve the supply of electricity at the rates specified in the __ etc. agreements is a right which falls within Art. 19(1)(0 or (g).

Gajendraqwlkar, G.J. Even so, can it be said that the impugned notified orders are not reasonable and in the interests of the general public?

That is the question which calls for an answer in dealing with the present contention. It is true that by issuing the impugned notifii:d orders, the respondent has successful1y altered the rates agreed between the parties for their respective contracts and that, prima facie, does appear to be unreasonable. But, on the other hand, the evidence shows that the tariff which was fi i,; d several years ago had become completely out of date and he reports made by the Accountant-General from time to time clearly indicate that the responden.t was supplying electricity to the appellants at the agreed rates even though 1t was incurring loss from year to year. Therefore, it cannot l>e said that the impugned notified orders were not justified on the merits. The prices of all commodities and labour charges having very much increased meanwhile, a case had certainly been made out for increasing the tariff for the supply of electrical energy. But it could not be possible to hold that the restriction imposed on the appellants' right by the increase made in the rates is reasonable and in the interests of the general public solely because the impugned orders have saved the recurring loss incurred by the respondent under the contracts. If such a broad and general argument were accepted, it may lead to unreasonable and even anomalous consequences in some cases. This question, however, has to be considered from the point of view of the community at large; and thus considered, the point which appears to support the validity of the impugned orders is that these orders were passed solely for the pur.- pose of assuring the supply pf/electrical energy and that would clearly be for the goOd of the community at large.

Unless prices were increased, there was risk that the supply of electrical energy may itself have come tp an end. If the respondent thought that the agreements made with the appellants were resulting in a heavy loss to the public treasury from year to year, it may have had to consider whether the supply should not be cut down or completely stopped. It may well be that the respondent recognised its obligation to the public at large and thought that supplying electrical energy to the consumers who were using it for profit-making purposes. at , a loss to the public exchequer would not ?e reasonable and legitimate, and it apprehended that the legislature may well question the propriety or wisdom of such I

.a course; and so, instead of terminating the .contracts, de- 1964 cided to assure the supply of eledrical energy at a fair price Sri Venkata .and that is why the impugned notified orders were issued. Seetaramanjaneya

We ought to make it clear that there has been no suggestion Ric~::a'"ii?,;,;. 1 ' 118 before us that the prices fixed by the impugned notified v. orders are, in any sense, unreasonable or excessive, and it State 01 Andhra

' ' 'fi h h d 'ff h t • t Pradesh etc. 1s s1gn1 cant t at even t e revise tan as o come m o _ operation prospectively and not retrospectively. Therefore, Gajendragadkar, O.J. having regard to all the circumstances in this case, we are disposed to hold that the change made in the tariff by the notified orders must be held to be reasonable and in the interests of the general public.

Mr. Setalvad also attempted to challenge the validity of the impugned orders on the ground that they contravene Art. 14 of the Constitution. In support of this contention, he invited our attention to the allegation made in Writ Petition No. 923 of 1956. In that writ petition, one of the petitioners stated that the rate prescribed under the agree- . ments had not changed and had remained stationary as far as consumers under the State Government's licensees were concerned. The affidavit appears to concede that certain other licensees had increased their rates, but that increase, it is claimed, was negligible or nominal; and so, the argument \vas that the rate, s which are widely divergent between consumer and consumer constitute a contravention of Art.

14. Mr. Setalvad fairly conceded that these allegations are vague and indefinite and no other material has been produced either by the petitioner who has made this affidavit, or by any of the other petitioners who moved the High Court for challenging the validity of the impugned orders. 1!1 fact, we do not know what the rates charged by other licensees are and have been, and how they compare with the rates prescribed by the original contracts as well ras the rates enhanced by the impugned notified orders. We ought to add that the Division Bench of the High Court appears to be in error when it assumed that the respondent was the

ole supplier of electrical energy in the State of Andhra. It is true. that the bulk of the energy is supplied by the respondent; but there are some other private licensees which are licensed to supply electrical energy to the consumers and in that sense, at the relevant time the respondent was not a monopolist in the 1,0atter of supply of electricity. This Court

has repeatedly pomted out that when a citizen wants to challenge the validity of any statute on the ground that it

cotravenes Art. 14. SJ?ecific. clear and unambiguous allegabons 1!1ust be made m that behalf and it must be shown that the. 1mpu.gne~ sta!ute is based on discrimination and that such discnmmatmn 1s not referable to any classification

1964 whic:h is rational and which has nexus with the object in- Sri Venkata tended to be achieved by the said statute. Judged from that Seetaramanjaneya point of view, there is absolulety no material on the record RicrnndOil Mill8 of any of the appeals forming the present group on which and Otliera. . v. a plea under Art. 14 can even be raised. Therefore, we do State of Andhra not think it is necessary to pursue this point any further.

Prade11hetc.

-~- Gajendragadkar, O.J.

The result is the appeals fail and are dismissed with costs. One set of hearing fees.

Appeals dismissed.

STATE OF ANDHRA PRADESH ETC

P. B. GAJENDRAGADKAR, C.J.

K. N. WANCHOO, J.

c. SHAH

N. RAJAGOPALA AYYANGAR

Powers Act, 1949

ss. 3(1)

s. 3

Arts. 14 and 19(1)

Constitution of India

Arts. 14 and 19(l)(g)

Art. 226

s. 3(1)

s. 3(1)

Art. 19(l)(f)

Art 14

s. 3(1)

[1961] 1 S.C.R. 158

L.R. 73 I.A. 271

s. 3

s. 3

s. 3

s. 3

Art. 14

M. C. Setalvad

P. Kodandaramayya

E. V. Bhagarathi Rao

T. V. R. Tatachari

R. Ganapathi Iyer

K. Srinivasamurthy

Naunit Lal

Venkata

Riu

K. Jayaram

R. Thiagarajan

K. R. Chaudhuri

A. Vedavalli

A. V. Rangam

D. Narsaraju

T. Anantha Babu

M. V. Goswami

B. R. G. K. Achar

T. Anantha Babu

Yogcshwar Prasad

M. S. K. Sastri

B. R. G. K. Achar

J. V. K. Sarma

T. Satyanarayana

R. Gopalakrishnan

Qajendreyadkar

GAJENDRAGADKAR

section 3

State of Andhra Pradesh

30th January, 1955

s. 3

Venkara

s. 3(1)

G'ajendragadCar

Government of Madras

Government of Andhra

Machkund

Nellore

Tungabhadra

Chittoore District

Madras

Rsce

Andhra Pradesh Gajendraqadkar,0.J.High

Accordingly,
a large number of consumers moved the Andhra Pradesh Gajendraqadkar,0.J.High Court under Art.

Art. 226

s. 3

s. 3

Andhra Pradesh High Court

s. 3

s. 3

Government of India

29th of September, 1939

Venkata

Central Government

s. 2

Gajendraga

Defence of India

Madras Legislature

21st of January, 1955

s. 3

s. 2(a)

Andhra Legislature

25th January, 1956

section 3

Setalvad

s. 3

s. 3

section 3

Gajend"'!ladkar,

s. 3

[1961] 1 S.C.R 158

Gajendrayiulkar

Bombay

Halsbury

Maxwell

John Simon

s. 3

s. 3

s. 3

s. 3

s. 3

s. 3(1)

s. 4

s. 7

Section 12

s. 13

s. 3

s. 3

s. 3(1)

s. 3(1)

s. 3

Section 3(1)

s. 3(1)

s. 3(1)

Section 3(i)

s. 3(1)

s. 3

s. 3(1)

s. 3(1)

s. 3(1)

s. 3(1)

s. 3(1)

s. 3(2)

s. 3(1)

s. 3

s. 3

s. 3(2}(b)

Gajewlragadkar

s. 3(2)(b)

s. 3(1)

s. 3(2)(b)

s. 3(1)

s. 3(1)

s. 3(1)

s. 3(1)

Art 19(l)(f)

Venkata

s. 3(1)

Art. 19

Art. 19(1)(0 or (g)

Gajendraqwlkar

Seetaramanjaneya

Gajendragadkar

Art. 14

Art.

14

Art. 14

Art. 14

State of Andhra