' '

April 10

SUPREME COURT REPORTS

RATTAN LAL

\'.

STATE OF PUNJAB

[K. SUBBA RAO, K.C. DAS GUPTA AND RAGHUBAR DAYAL, JJ.t

Probation of Offenders Act, 1958, ss. 611-Criminal Law- Conviction of accused by trial court before the coming into force of the Act-Whether High Court can exercise powers conferred on Court under s. 6.

The appellant, a resident of Palwal in Gurgaon District, committed house trespass and tried to outrage the modesty of a girl aged 7 years. By an order dated May 31, 1962, he was convicted by magistrate and sentenced to rigorous imprisonment.

He was also ordered to pay fine. At the time of his conviction, he was 16 years old.

The Probation of Offenders Act, 1958 was extended to Gurgaon on September 1, 1962 and hence at the time of his conviction the magistrate had no power or duty to make any order under the Act. The appeal of the appellant was dismissed by the Additional Sessions Judge, Gurgaon by his order dated September 22, 1962. His revision petition was also dismissed by the High Court on September 27, 1962. No ground was taken either before the Additional Sessions Judge or High Court that the provisions of the Probation of Offenders Act, 1958 should be applied in the case. After the dismissal of the revision petition, appellant filed a criminal miscellaneous petition requesting the High Court to exercise its powers under s. 11 of the Act and pass orders under ss. 3, 4 or 6 of the Act. The application was also dismissed by High Court. The appellant filed a petition in the High Court for the grant of a certificate of fitness to appeal to this Court and one of the grounds taken was that High Court should have acted under s. 11\0f the Act and passed orders under ss. 3, 4 or 6 of t!J.e Act. The certificate having been refused by High Court, the appellant came to this Court by special leave.

Accepting the appeal, Held (Per Subba Rao and Das Gupta, JJ.): The order of the High Court be set aside and High Court be directed to make an order under s. 6 or if it so desires, remand the case to the Sessions Court for doing so. It is true that ordinarily, this court is reluctant to. allow a party to raise a point for the first time before it, but in this case. both the Additional Sessions Judge and the High Court ignored the mandatory provisions of the Act. It i< true that the appellant did not bring the provisions of the Act to the notice of the Court till after the disposal of the revision . petition, but that does not absolve the court from discharging its . duty under the Act.

The appellate court in appeal or the High Court on revision can, in exercise of the powers conferred under s. 11 of the Act, make an order under s. 6(1).

The Act is a milestone in the progress of the modern liberal trend of reform in the field of penology. It is the result of the recognition of the doctrine that the object of criminal law is more to reform the individual offender than to punish him. The Act distinguishes offenders below 21 years of age and those

7 S.C.R.

SUPRE:\IE COURT REPORTS 677

above that age and offenders who are guilty of committing an offence punishable with death or •imprisonment for life and

those who are guilty of a lesser offence. While in the case of offenders who are above the age of 21 years, absolute discretion is given to the court to release them after admonition or on probation of good conduct, in the case of offenders below the age of 21 years an injunction is issued to the court not to sentence them to imprisonment unless it is satisfied that having regard .to the circumstances of the case, including the nature of the offence and the character of the offenders, it is not desirable to deal with them under ss. 3 and 4 of the Act.

An order under s. 11(1) of the Act can be made by any court empowered to try and sentence the offender to imprisonment and also by High Court or any other court when case comes before it on appeal or in revision. The sub-section ex fade does not circumscribe the jurisdiction of an appellate court to make an order under the Act only in a case where the trial court could have made that order. The phraseology used therein is wide enough to enable the appellate court or High Court, when the case come before, it, to make such an order. It was purposely made comprehensive as the Act was made to implement a social reform. As the Act does not change the quantum of the sentence, but only introduces a provision to reform the offender, there is no reason why the legislature should have prohibited the exercise of such a power even if the case was pending against the accused at one stage or other in the hierarchy of tribunals.

The term "court" in s. 6(1) includes an appellate court as well as revisional court.

Per Raghubar Dayal, J. (dissenting}---When a person has been found guilty for the first time of an offence to which the provisions of ss. 3 and 4 of the Probation of Offenders Act, 1958 could apply, and such finding, be it of the trial court or of the appellate court, is arrived at before the application of the Act, the court of appeal or revision cannot take action under s. 11 (1) of the Act when the case comes before it in appeal or revision.

It is true that appellate courts have allowed parties to take advantage of a Jaw enacted during the pendency of the case, but this is done when .parties can litigate further in view of the changed law and is done to save multiplicity of proceedings.

Such a 'ground is not available in the present case.

Ramji Missar v. State of Bihar, [1963] Supp. 2 S.C.R. 745. referred to.

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 190 of 1962. Appeal by special leave from the judgment and order dated Septen2ber 27, 1962 of the Punjab High Court in Criminal Revision No. 1172 of 1962.

Nanak Chand, for the appellant.

Gopal Singh, R.N. Sachthey and R.H. D/rebar, for the respondent.

April 10, 1964. The Judgment of Subba Rao and Das Gupta JJ. was delivered by Subba Rao J. Raghubar Dayal, J. delivered a dissenting Opinion.

Rattan Lal .,, State of Pv•jab

Rattan Lal v.

State of Punjab

Subb<• Rao, J.

SuBBA RAO, J.-This a(>peal by special leave raises the question of jurisdiction of an appellate court to exercise its power under s.6 of the Probation of Offenders Act. 1958 (Act, No: 20 of 1958), hereinafter called the Act, in respect of an accused who was convicted by the trial court before the Act came into force.

The facts are not now in dispute. The appellant, a resident of Palwal in Gurgaon District, committed house trespass and tried to outrage the modesty of a girl aged 7 years. He was sent up for trial before the Magistrate, First Class. Palwal. The said Magistrate. on May 31, 1962, convicted him under ss. 451 and 354 of the Indian Penal Code and sentenced him to six months' rigorous imprisonment under each count and directed that the sentences should run concurrently. He further imposed a fine of Rs. 200/- on the appellant under s. 451 of the Indian Penal Code and ordered that, in default of payment of tine. he should undergo rigorous imprisonment for two months. The appellant was 16 years old at the time of his conviction. The Act was extended to Gurgaon District on September I. 1962 and, therefore, at the time the appellant was convicted by the Magistrate, the Magistrate had no power or duty to make any order under the Act. The appellant preferred an appeal against his conviction and sentences to the Additional Sessions Judge. Gurgaon, who by his judgment dated September 22, 1962. dismissed the appeal. Though by the time the Additional Sessions Judge disposed of the appeal the said Act had come into force, neither the appellant relied upon the provisions of the Act nor did the learned Additional Sessions Judge exercised his power thereunder. The revision filed in the High Court by the appellant was dismissed on September 27, 1962. The revision petition was dismissed in /i111i11e. but no ground was taken in the revision petition that the Additional Sessions Judge should have acted under s.6 of the Act. After the revision petition was disposed of. it appears that the appellant filed Criminal l\focellaneous Petition No. 793 of 1962 requesting the High Court to exercise its jurisdiction under s.11 of the Act and to pass orders under ss. 3, 4 or 6 thereof. The said application was also dismissed. Unfortunately the said application is not on the record and we are not in a position to know the exact scope of the relief asked for in the application and the reasons for which it was dismissed. The appellant tiled a petition in the High Court under Art. 134(1) (c) of the Constitution for a certificate of fitness to appeal to this Court. One of the grounds for seeking such a certificate was that the High Court should have acted under s. 11 of the Act and passed orders under ss .. 3, 4 or 6 thereof. That petition having been dismissed. the nppellant has preferred the present appeal to this Court by obtaining special leave.

Learned counsel for the appellant contends that, having 1964 regard to the admitted facts 'in the case, the High Court should Hauan Lal have acted under s.11 of the Act and released the appellant on v. probation of good conduct instead of sending him to prison. 61•1• 01 Punjab On the other hand. learned counsel for the State argues that Subba Rao, J. the Act is not retrospective in opcratioQ and, therefore, it wil ! not apply to the appellant, as he was convicted before it came into force in Gurgaon District. Further. he contends that neither s.11 of the Act nor s.6 thereof, on the. basis of the express phraseology used therein, can be invoked in the circumstances of the present case. In any view, he says that the appellant, not having raised this plea till after the revision petition was disposed of by the High Court, is precluded by his default to raise this contention at this very late stage.

The Act is a milestone in the progress of the modern liberal trend of reform in the field of penology. It is the result of . the recognition of the doctrine that the object of criminal law is more to reform the individual offender than to punish him.

Broadly stated, the Act distinguishes offenders below 21 years of age and those above that age, and offenders who are guilty of having committed an offence punishable with death or imprisonment for life and those who are guilty of a lesser offence.

While in the case of offenders who are above the age of 21 years absolute discretion is given to the court to release them after admonition or on probation of good conduct. subject to the conditions laid down in the appropriate provisions of the Act, in the case of offenders below the age of 21 years an injunction is issued to the court not to sentence them to imprisonment unless it is atisfied that, having regard to the circumstances of the case, including the nature of the offence and the character of the offenders, it is not desirable to deal with them under ss. 3 and 4 of the Act.

With this short background we shall now read the relevant provisions of the Act.

Section 6. (l) When any person under twenty-one years of age is found guilty of having committed an offence punishable with imprisonment (but not with imprisonment for life), the Court by which the person is found guilty shall not sentence him to imprisonn_ient unless it is satisfied that, having regard to the circumstances of the case including the nature of the offence and the character of the l'ffender, it would not be desirable to deal with him Hnder section 3 or section 4. and if the Court passes ally sentence of imprisonment on the offender, it shall record its r.easons for doing so.

Raltan Lal ...

Blot• of Punjab

8ubba Rao, J.

SUPREME COURT REPOHTS [1964]

(2) For the purpose of satisfying itself whether it would not be desirable to deal under section 3 or section 4 with an offender referred to in sub-section (I) the Court shall call for a report from the probation officer and consider the report, if any, and any other information available to it relating to the character and physical and mental condition of the offender.

Section I I. (!) Notwithstanding anything contained in the Code or any other law, an order under this Act may be made by any Court empowered to try and sentence the offender to imprisonment and also by the High Court or any other Court when the case comes before it on appeal or in revision.

(2) Notwithstanding anything contained in the Code, where an order under section 3 or section 4 is made by any Court trying the offender (other than a High Court), an appeal shall lie to the Court to which appeals ordinarily lie from the sentences of the former Court.

(3) In any case where any person under twenty-one years of age is found guilty of having committed an offence and the Court by which he is found guilty declines to deal with him under section 3 or section 4, and passed against him any sentence of imprisonment with or without fine from which no appeal lies or is preferred, then, notwithstanding anything contained in the Code or any other law, the Court to which appeals ordinarily lie from the sentences of the former Court may, either of its own motion or on an application made to it by the convicted person or the probation officer, call for and examine the record of the case and pass such order thereon as it thinks fit.

IG x x x x x x The first question is whether the High Court, acting under s.11 of the Act. can exercise the power conferred on a court under s.6 of the Act. It is said that the jurisdiction of the High Court under s.11(3) of the Act is confined only to a case that has been brought to its file by appeal or revision and, therefore. it can only exercise such jurisdiction as the trial court had, and in the present case the trial court could not have made any order under s.6 of the Act, as at the time it made the order the Act had not been extended to $Jurgaon District. On this assumption, the argument proceeds. the Act should not be given retrospective operation, as, if so given, it would affect the criminal liability of a person for an act committed by him before the Act came into operation. In support of this contention a numbr of decisions bearing on the question of retroactivity of a

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RaUanLal ...

statute in the context of vested rights have been cited. Every law that takes away or impairs a vested right is retrospective.

Every ex post facto law is necessarily retrospective. Under Art. 20 of the Constitution, no person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence, nor be subject ed to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence. But an ex post facto law which only mollifies the rigour of a criminal law does not fall within the said prohibi

lion. If a particular law makes a provision to that effect, though retrospective in operation, it will be valid. The question whether such a. law is retrospective and if so, to what extent depends upon the interpretation of a particular statute, having regard to the well settled rules of construction. "Maxwell On Interpretation of Statutes", I Ith edition, at pp. 274-275, summarizes the relevant rule of construction thus: -

Stal< o/ l'llnjd

"The tendency of modern decision, upon the whole, is to narrow materially the difference between what is called a strict and a beneficial construction. All statutes are now construed with a more attentive re

gard to the language, and criminal statutes with a more rational regard to the aim and intention of the legislature, than formerly. It is unquestionably right that the distinction should not be altogether erased from the judicial mind, for it is required by the spirit of our free institutions that the interpretation of all statutes should be favourable to personal liberty, and this tendency is still evinced in a certain reluctance to supply the defects of language, or to eke out the meaning of an obscure passage by strained or doubtful influences. The effect of the rule of strict construction might almost be summed up in the remark that, were an equivocal word or ambiguous sentence leaves a reasonable doubt of its meaning which the canons of interpretation fail to solve. the benefit of the doubt should be given to the subject and against the legislature which has failed to explain itself. But it yields to the paramount rule that every statute is to be expounded according to its expressed or manifest intention and that all cases within the mischiefs aimed at are, if the language permits. to be held to fall within its remedial influence."

Let us now proceed to consider the question raised in the present case. This is not a case where an act, which was not an offence before the Act, is made an offence under the Act; nor

/JublJa llalJ, J.

11~4

Ralta~ Lal

v. ' Sim of Pttt<j<W

Subba Rao, J.

is this a case where under the Act a punishment higher than that obtaining for an offence before the Act is imposed. This is an instance where neither the ingredients of the offence nor the limits of the sentence are disturbed, but a provision is made to help the reformation of an accused through the agency of the court. Even so the statute affects an offence committed before it was extended to the area in question. It is, therefore, a post facto law and has retrospective operation. In considering the scope of such a provision we must adopt the rule of beneficial construction as enunciated by the modern trend of judicial opinion without doing violence to the provisions of the relevant section. Section 11 (3) of the Act, on the basis of which the learned counsel for the State advances most of his arguments, has no relevance to the present appeal: the said subsection applies only to a case where no appeal lies or is preferred against the order of a court declining to deal with an accused under s.3 or s.4 of the Act, and in the instant case an appeal lay to the Sessions Judge and indeed an appeal was preferred from the order of the Magistrate. The provision that directly applies to the present case is s.11 (I) of the Act, whereunder an order under the Act may be made any Court empowered to try and sentence the offender to imprisonment and also by the High Court or any other court when the case comes .before it on appeal or in revision. The sub-section ex facie does not circumscribe the jurisdiction of an appellate court to make an order under the Act only in a case where the. trial court could have made that order. The phraseology usi:a therein is wide enough to enable the appellate court or the High Court, when the case comes before it, to make such an order. It was purposely made comprehensive, as the Act was made to implement a social reform. As the Act does not change the quantum of the sentence, but only introduces a provision to reform the offender, there is no reason why the Legislature should have prohibited the exercise of such a power, even if the case was pending against the accused at one stage or other in the hierarchy of tribunals. If the provisions of s.6(1) of the Act were read along with s.11, we would reach the same result.

When s.J 1(1) says that an appellate court or a revisional court can make an order under the Act, it means that it can make an order also under s.6(1) of the Act. If so, "court" in s.60) will include an appellate court as well as a revisional court. If an appellate court or a revisional court finds a person guilty, under that section it shall not sentence him to imprisonment unless the conditions laid down in that section are satisfied.

Can it be said that the expression "the court by which the person is found guilty" does not include the appellate or revision al court? When an appellate court or a revisional court confirms a conviction made by a trial court or sets aside an acquittal made by it and convicts the accused, in either case it

finds the accused guilty, for without finding the accused guilty 1964 it cannot either confirm the conviction or set aside the order Baltan Lal of acquittal and convict him. If the contention advanced by v. learned counsel for the State, namely, that the Act will apply State 01 Punjab only to convictions made by the trial court after the Act ca!Ile S11b1K1 Bao, J. into force, be accepted, it would lead to several anomalies; it would mean that the Act would apply to a conviction made by a trial court after the Act came into force, but would not apply to an accused, though his appeal was pending after the Act came into force; it would apply to the accused if the appellate court set aside the conviction and sent back the case to the trial court for fresh disposal, but would not, if the appel

late court itself convicted him. On the other hand if the expression "found guilty" was given the natural meaning, it would take in the finding of guilty made by any court in a, pending criminal proceeding in the hierarchy of tribunals after the Act came into force. This view gets support from the judgment of this Court in Ramji Missar v. State of Bihar('). The facts of that case relevant to the present case were as follows: The Assistant Sessions Judge, Arrah, convicted one Basist under s.307 and s.326 of the Indian Penal Code. As the offences under the said sections were punishable with imprisonment for life, the provisions of the .Probation of Offenders Act, 1958, were not applicable to Basist and, therefore, the Assistant Sessions Judge sentenced him to undergo rigorous imprisonment for 6 years under s.307 of the Tndian Penal Code

and for 4 years rigorous imprisonment under s.326 of the said Code and ordered the sentences to run concurrently. But the High Court on appeal found Basist guilty of an offence under s. 324 of the Indian Penal Code. It was contended that the High Court could not make an order under s.6(1) of fhe Probation of Offenders Act, 1958, on the ground thats. 11 of tht> Act did not confer such a power on the High Court. Dealing with this argument, this Court observed : -

"It is however possible that the words in s.11 (I) "pass

an order under the Act" are not to be construed so strictly and literally, but to be understood to mean "to exercise the powers or jurisdiction conferred by the Act." This wide interpretation might perhaps be justified by the scope and object of this section. Section 11 is to apply "notwithstanding anything in the Code or any other law" to all courts empowered to sentence offenders to imprisonment. To read a beneficial provision of this universal type in a restricted sense, so as to confine the power of these courts to the exercise of the

('l [1963] Supp. 2 S.C.R. 745, 755.

1lallo1o Lal ... 8'41< of Punjab

8t!.l; ba Roo, J.

powers under ss. 3 and 4 alone would not, in our opinion, be in accord with sound principles of statutory interpretation. We are therefore inclined to hold that the Courts mentioned in s.II be they trial courts or exercising appellate or revisional jurisdiction are thereby empowered to exercise the jurisdiction conferred on Courts not only under ss. 3 and 4 and the consequential provisions but also under s.6."

When it was contended that the word "may" in' s. I I of the Act empowers the appellate court or the High Court to exercise the power at its option and the words "any order under the Act" empower it to make an order without reference to the standards laid down in the Act, this Court rejected both the contentions. It held that the expression "may" has compulsory force and that the power conferred on the ap- pellate court was of the same nature and characteristic and subject to the same criteria and limitations as those .conferred on courts under ss. 3 and 4 of the Act. This decision lays down three propositions, namely, (i) an appellate court or a revisional court can make an order under s.6(1) of the Act in exercise of its power under s. II (I) thereof; (ii) it can make such an order for the first time even though the trial , court could not have made such an order, having regard to the finding given by it; and (iii) in making such an order it is .subject to the conditions laid down in ss. 3, 4 and 6 of the Act.

The only distinguishing feature. between the present case and the said decision is that in the present case the trial court did not make the order as the Act was not extended to the area within its jurisdiction and in the said decision the trial court did not make the order as it could not, on its finding that the accused was guilty of an offence punishable with imprisonment for life. But what is important is that this Court held that the High Court for the first time could make such an order under s. 11 of the Act, as such a power was expressly conferred on it by s. I I of the Act. We, therefore, hold that the appellate court in appeal or the High Court in revision can, in exercise of the power conferred under s. II of the Act, make an order under s.6(1) thereof, as the appellate court and the High Court, agreeing with the Magistrate, found the accused guilty of the offences for which he was charged.

The next question is whether this Court can exercise the same power under s.11(1) of the Act. This Court in disposing of an appeal against an order of the High Court would be deciding what the High Court should have held in the revision before it. This Court's power would also be confined to the scope of the power exercisable by the High Court. This Court, therefore, can either make an order under s.6(1) of the Act or

direct the High Court to do so. But whether this Court direct- 1961 Jy makes an order under s.6(1) or directs the High Court to do Rattan Lal so, it is bound to comply with the provisions of s.6 of the Act.

A court cannot impose a sentence of imprisonment on a per st .. t• 01 Punjab

son under 21 years of age found guilty of having committed Subba &w, J. an offence punishable with imprisonment (but not with im

prisonment for life) unless it is satisfied that, having regard to .the .circumstances of the case including the nature of the offence and the character of the offender, it 'would not be desirable to deal with him under s.3 or s.4 of the Act. For 1he purpose of satisfying itself in regard to the said action, under subs. (2) of s. 6 of the Act the Court shall call for a report from the probation officer and consider the report, if any, and any other information avail.able to it relating to the character and physicd and mental condition of the offender. After considering the said material the court shall satisfy itself whether it is desirable to deal with the offender under s. 3 or s. 4 of the Act. If it is not satisfied that the offender should be.dealt with under either of the said two sections, it can pass the sentence of imprisonment on the offender after recording the reasons for doing so. It is suggested that the expression "if any" in sub-s. (2) of s.6 indicates that it is open to the court to call for a report or not; but the word "shall" makes it a mandatory \ condition and the expression "if any" can in the context only cover a case where notwithstanding such requisition the Probation Officer for one reason or other, has not submitted a report.

Briefty stated the calling for a report from the Probation Qffi. cer is a condition precedent for the exercise of the power under s.6(1) of the Act by the Court. We think that in the circumstances of the case the best course is to remand the matter to the High Court to make an order after complying with s. 6(1) of the Act.

Lastly it is contended that we should not at this very late stage of the proceeding, and especially in view of the observations of the Additional Sessions Judge in sentencing the accused, interfere with the order of the High Court. Ordinarily this Court would be reluctant to allow a party to raise a point for the first time-before it. But in this case both the Additional

Sessi?s Judge and the High Court ignored the mandatory prov1s1ons of the Act. n is true that the accused did not bring the provisions of the Act to the notice of the court till after the revision was disposed of. But that does not absolve the court from discharging its duty under the Act. The observa

tions made by the Additional Sessions Judge in sentencing the accused were tnade de hors the provisions of the Act. From

tese obseations it cannot be held that the learned Additt?nal Sessons Judge had satisfied himself of the conditio11s Ja1d down m s.6(1) of the Act. That apart, as we have pointed

Jlaltan Lal

SW. of Pnj<lb

8vbba Rao, J.

Dayal, J,

Baghar

out, he could not have legally satisfied himself of the matters mentioned in s.6(1) of the Act without complying with the conditions laid down therein. We are satisfied that, as the Act was recently extended to Gurgaon District, its existence had escaped the attention of the Additional Sessions Judge as well as of the High Court and, therefore, it is a fit case for our interference under Art. 136 of the Constitution. We set aside the order of the High Court and direct it to make an order under s.6 of the Act, or, if it so desires, to remand it to the Sessions Court for doing so. We should also make it clear that we do not intend to question the correctness of the find-· ing of the courts in regard to the guilt of the accused; indeed, the learned counsel for the appellant did not question the said finding. ·

.RAGHUBAR DA~AL, J.-1 do not agree, and am of opinion that when a person has been found guilty for the first time of an offence to which the provisions of ss. 3 and 4 of the Probation of Offenders Act, 1958 (Act No. XX of 1958), hereinafter called the Act, could apply,.and such finding, be it of the trial Court or of the appellate Court, is arrived at before the application of the Act, .the Court of appeal or revision cannot take ac!ion under s. 11 (!) of the Act when the case comes before it in appeal or revision.

Jn this case, the trial Court had convicted the appellant prior to the application of the Act in that area and could not take into consideration the provisions of that Act in the passing of the sentences on convicting the appellant.

The appellant was convicted by the trial Court on May 31, 1962, prior to the application of the Act to that area .. The Act was applied on September 1, 1962, by a Government Notification, when the appellant's appeal was pending in the Court of the Sessions Judge. The appeal was dismissed on September 22, 1962. The appellant did not draw the attention of the Court to the provisions of the Act. The Court did not consider them.

The appellant went in revision to the High Court. The revision was dismissed on September 27, 1962. The High Court also did not refer to the provisidns of the Act.

On September 28. 1962 the appellant filed a petition praying that under ss. 3, 4 and 6 of the Act the petitioner be released or that he be dealt with under s. 562(2) of the Code of Criminal Procedure, hereinafter, called the Code. That application was rejected. Neither this petition nor the order of rejection was mentioned in the petition for special lea.ve to appeal. Reference to these is found in the petition filed in the High Court for leave to appeal to this Court under Art. 134- (l)(c) of the Constitution dated October 3, 1962, printed at

p. 25 of the appeal record and in the grounds of appeal accom- 1964 panying it. The petition for special leave filed in this Court RaUan Lal sought leave to appeal against the order and judgement dated v.

September 27, 1962 in the main revision case and not against State 01 Punjab the order rejecting the petition, Criminal Miscellaneous, No. RagkWxi7Daya1, J. 793 of 1962. It was not a correct statement in paragraph 9 of the special leave petition, to the effect that the petitioner filed an applica.tion under Art. 134(l)(c) of the Constitution for grant of certificate of fitness for leave to appeal to this Court, but it was refused on October 19, 1962. The ground, as recorded. prima facie showed that such an application was for leave to appeal against the order in the Criminal Revision, No. 1172 of 1962. In these circumstances, the special leave granted is liable to be revoked. '.

The appellate Court sees that the order of the Court below on the material on record is correct or not and has to pass a correct order on that material. If the trial Court could not have taken action under the provisions of the Act which was not in force at the time it found the accused guilty, the appellate Court could not have taken action under those provisions unless the Act specifically provided for those provisions to be applicable to cases which had. been decided earlier, prior to its application. There is no such express provision in the Act and I do not find any necessary implication from the provisions of the Act in that regard.

It is true that appellate Courts have allowed parties to take advantage of a law enacted during the pendency of the case. but thi~ is done when parties can litigate further in view of the changed law and is done to save multiplicity of proceedings. Such a ground is not available in the present case.

Ordinarily, it takes a few years for a case decided by a Magistrate who tries it in the first instance, and the passing of 1he final order by the High Court in revision. Ordinarily, an appeal lies to the Sessions Judge from the order of the Magistrate and a revision against the Sessions Judge's order to the High Court. The two pro'ceedings before the Sessions Judge and the High Court do take time. The Act is an all-India Act and there would be a very large number of persons convicted by trial Courts prior to the enforcement of the Act. It is too much to suppose that the legislature intended that all the orders of the Magistrates in such cases of conviction against persons under 21 years of age automatically become illegal and liable to correction by the Courts of appeal and revision. Not only would they be liable to be set aside, the setting aside of the Magistrates' orders about sentences would not have ended the matters but would have led to further proceedings to be taken by the Magistrates or the appellate Courts for the purpose of coming to a conclusion whether action can be taken .in accordance with the provisions of ss. 3, 4 and 6 of the

RauanLal

Slate of Punjab

Act. All those numerous cases would have to be reopened and f cannot believe that the legislature would have intended such a result and would not have expressed itself very clearly if it had really intended so.

R"!P"'bar IJr; yal. J, Section 3 of the Act empowers the Court to release certain offenders after admonition and s. 4 empowers the Court to release certain offenders on probation of good conduct. The Court which is to take action under these sections is the Court by which the person is found guilty of the offences in the respective sections and in circumstances specified in the respective sections. Such orders are made instead of sentencing the person found guilty to any punishment which could be awarded to him. It is clear that action under these sections can be taken by the Court which finds a person guilty of the offence for the first time. A person may be found guilty of the respective offence by the trial Court or by appellate Court if it alters his conviction for an offence which did not fall under either of those sections to one which falls under any of them, or by the High Court if it finds the accused person guilty on appeal against acquittal. It is in these circumstances that it can be said that the trial Court or the appellate Court or the High Court has found an accused guilty. A Court of revision cannot convert a finding of acquittal into a finding of conviction and therefore no such case can arise in which a Court of revision for the first time finds an accused guilty of an offence to which the provisions of ss. 3 and 4 of the Act apply.

When an appellate Court confirms the conviction of a person it is not the Court which finds him guilty but is the- Court which confirms the finding of the trial Court about the person being guilty on forming an opinion that the order of the trial Court is correct. If the expression 'the Court by which the person is found guilty' was to include the appellate Court confirming the conviction of a person for the offence which fell under any of the two sections, it would not have been necessary to clothe the appellate Court with a power to take action under these sections, as sub-s. (I) of s. 11 does. This subsection reads: "Notwithstanding anything contained in the Code or any other law, an order under this Act may be made by any Court empowered to try and sentence the offender to irnprisonmeht and also by the High Court or any other Court when the case comes . before it on appeal or in revision." ·

Jt is clear from the language of this sub-section that the Court which is empowered to order under the Act in the first instance is the Court which is empowered to try a.nd sentence the offender to imprisonment, i.e., the original trial

Court. It is given the power to take a.ction under the Act. 1964 Orders under the Act can also be made by the High Court or Ra1tan Lal any other Court when the case comes before it on appeal or v. in revision. The question is as to in which case the High Court State 0! Punjab or any other Court, can exercise its power. It can exercis_e it Raghubar Daial, J. when the case in which the trial Court could have exercised the power comes before it. This is to be deduced from the use of the word 'also' and from the occasion when the High Court or any other Court can make such an order, it being when the ca5e comes before it on appeal or in revision. It must, therefore, be the case in which the trial Court could ta.ke a Lertain action in which the High Court or a.ny other Court could also take action only when it came before it on appeal or .in revision. I do not consider it reasonable to construe the language of sub-s. (!) to mean that the High Court or any other Court could take action in all cases of appeal or revision before it irrespective of the fact whether the trial Court could have made an order under the Act in those cases or not.

The scheme of s. 11 seems to support this view. Subsection (!) mentions the Courts which can make orders under the Act. Sub-section (2) provides an appeal where an order under s. 3 or s. 4 is made by any Court in trying an offender.

This means that when a Court trying an offender convicts him and takes action under s. 3 or s. 4, an appeal in that case will lie. Of course no question of the appellate Court taking action under s. 3 or s. 4 arises in such appeals because a, ction has already been taken by the trial Court and the appellate Court would only look to the correctness of the conviction and in case it finds action under s. 3 or s. 4 to be unjustified, may even set aside that order and pass suitable sentence as provided in sub-s'. (4). Sub-section (2) makes provision for an appeal and sub-s. (4) makes provision for the appellate Court to consider the propriety of any order made under ss. 3 or 4 of the Act. These provisions in sub-s. (2) and sub-s. (4) exhaust the cases in which orders under ss. 3 or 4 could b"

made by the High Court or any othrr Court.

While ss. 3 and 4 confer a discretionary power in the Court to make an order under those sections in certain drcumstances, sub-s. (l) of s. 6 makes it incumbent on the Court finding a person under 21 years of age guilty of offences

punihable with imprisonment not to sentence such per.on convicted of such an offence to imprisonment unless it is satisfied, having regard to the facts mentioned in the sub-section that it would not be desirable to deal with him under s. 3 or s .. 4 and. in tat case it has to rcord its reasons for sentencing

him to 1mpnsonment. Sub-section (2) makes it incumbent on the Court to get a report from the Probation Officer and consider it in order to satisfy itself whether it would not be desir able to deal under s. 3 or s. 4. These provisions of s. 6 restrict

1964 the discretion of the trial Court for taking action under s. 3

Rauan Lal and s. 4 in regard to persons under 21 years of age and conv. victed of all offences except offences punishable with impri- State 01 Punjab sonment for life. A Court can, however, sentence such a

R"Yh•'"" 11,,,101 J person to imprisonment only after considering various matters

 and finally satisfying itself that it would not be desirable to make an order under s. 3 or s. 4 in regard to that person.

A case to which the provisions of s. 6 apply is dealt with by sub-s. (3) of s. 11 which provides that when a Court has declined to deal with the person under s. 3 or s. 4 and has passed a sentence of imprisonment and when no appeal lies or none has been preferred from that order, the Court to which appeals ordinarily lie from the sentence of the Court may, mo motu or on an application made to it by the convicted person or the Probation Officer, call for and examine the record of the case and pass such order thereon as it thinks fit. Of course, if the order is appealable, the appellate Court can consider the matter in view of the power conferred under sub-s. (!), which enables the appellate Court when the case comes before it to make any order under the Act. Action under sub-s. (3), it is clear, can be taken by the appellate Court only in cases in which the trial Court has declined to take action under s. 3 or. s. 4, that is to say, the trial Court, at the time of conviction and sentencing a person, had the power to make an order under s. 3 or s. 4 and had felt satisfied that such an order was not desirable. If it has no such power at the time and has passed a non-appealable order, or when the convicted person does not appeal, action cannot be taken under sub-s. (3) because it cannot be said with any propriety that the trial Court had declined to take action under s. 3 or s. 4. This is a strong indication of the fact that powers conferred on the High Court or any. Court of appeal or revision under s, 11 are to be exercised in the cases coming before them in which the trial Court itself could have made an order under the Act.

Reference may also be made to an incidental matter. An order of admonition under s. 3 puts an end of the case it being the final order against the convicted person. subject of course to the orders of the appellate Court in case the con victed person appeals against his conviction. This cannot be said with respect to an oraer under s. 4, an order which would direct that the convicted person be released on his enter ing into a bond to appear and receive sentence when called upon during such period, not exceeding 3 years, as the Court may direct and in the meantime to keep the peace and be of good behaviour. The passing of the sentence provided for the offence is put off and the convicted person stands the risk of a proper sentence being passed against him in future in

certain circumstances. Section 9 provides in case of the con- 11164 vict's failure to observe the conditions of the bond that he Batta• Lal and his sureties be summoned to Conrt which may remand T. the a.ccused to custody or grant him bail and, if satisfied that Stal< 01 hnjab he had failed to observe any of the conditions of the bond, Raghha-;[,.yal, J. forthwith to sentence him for the original offence and where the failure is for the first time to impose upon him a penalty not exceeding Rs. 50 /- without prejudice to the continuance in force of the bond. In case a convicted person has not been able to observe the conditions of the bond, he, in a way. stands to suffer larger punishment than what he would have got in the first instance in case in addition to the sentence which would be passed upon him he J:iad already, for a certain period, observed the conditions of the bond and had also. in view of the provisions of s. 5. paid compensation to the victim of the offence and rosts of the proceedings which are recovered as fine. The Code does not provide for the payment of costs and provides for the payment of compensation when ordered out of the fine imposed on an accused; vide ss. 545 and 546A of the Code.

This Court considered certain provisions of the Act in Ramji Missar v. State of Bihar(') and held that the crucial date for the application of the aforesaid sections viz., ss. 3, 4 and 6 of the Act IOI the case of an accused whose conviction by the trial Coyrt of offences to which those sections do not apply, was altered by the appellate Court to an offence to which the provisions of those sections applied, would be the <late of the decision of the trial Court in view of the terms of the section on grounds of logic as well as on the theory that the order passed by an appellate Court was the correi order which the trial Court should have passed. This tends to support. the view I have expressed above. It may be mentioned that in tha.t case the trial Court could make an order under s. 4 of the Act at the time it convicted one Basist, who was then under 21 years of age, if it had convicted him of the offence to which the provisions of s. 4 applied. The High Court altered the conviction to such an offence but held that it was not competent to pass an order under s. 6 of the Act This Court held that it could. In the instant case, the trial Court could not take any a.ction in accordance with the provisions of the Act for the simple reason that the Act was not in force on the day it convicted the appellant.

I am, therefore of opinion that the point f()r determination before us. that is, whether the appellate Court can make an order under the Act in cases in which the trial Court on the date of conviction could not ha.ve made an order under the Act did not arise for decision in that case. This question

('} [1963) Supp. 2 S.C.R. 745.

1964 is very different from the question whether an appellate Court can make an order under the Act when it alters the convic- Ra~~ Lal tion of an appellant to an offence with respect to which an Slak of Punjub order under the Act could have been made by the trial Court

.Raghvb-;;_;-Dayal, J. as arose in Ramii's Case(').

I am therefore of opinion that the High Court could not have made an order under the Act in this case and that therefore this appeal should fail. I would accordingly dismiss it.

ORDER

In accordance with the opinion of the majority, we set aside the order of the High Court and direct it to make an order under s. 6 of the Probation of: Offenders Act, 1958, or, if it so desires, to remand it to the Sessions Court for doing so.

Appeal allowed .

(') [1963] Supp. 2 S.C.R. 745.

RATTAN LAL

STATE OF PUNJAB

K. SUBBA RAO

K.C. DAS GUPTA

RAGHUBAR DAYAL, JJ

Probation of Offenders Act, 1958

ss. 611

s. 6

Probation of Offenders Act, 1958

Gurgaon

September 1, 1962

Additional Sessions Judge, Gurgaon

September 22, 1962

September 27, 1962

Probation of Offenders Act, 1958

s. 11

ss. 3, 4

s. 11

ss. 3, 4

Subba Rao

Das Gupta

s. 6

s. 11

s. 6(1)

ss. 3 and 4

s. 11(1)

s. 6(1)

Raghubar Dayal

ss. 3 and 4

Probation of Offenders Act, 1958

s. 11

Nanak Chand

Gopal Singh

R.N. Sachthey

R.H. D

Rattan Lal

SuBBA RAO

Probation of Offenders Act

Palwal

Gurgaon District

Magistrate, First Class. Palwal

May 31, 1962

ss. 451 and 354

Indian Penal Code

s. 451

Indian Penal Code

September I. 1962

Additional Sessions Judge. Gurgaon

ss. 3, 4

Art. 134(1)

s. 11

Hauan Lal

ss. 3 and 4

Section 6

section 3

section 4

Raltan Lal

8ubba Rao

section 3

section 4

section 3

section 4

section 3

section 4

Jurgaon District

RaUanLal

Art. 20

/JublJa llalJ

Ralta~ Lal

Section 11

Baltan Lal

Bao

Assistant Sessions Judge, Arrah

Basist

Indian Penal Code

Probation of Offenders Act, 1958

Penal Code

s. 324

Indian Penal Code

Probation of Offenders Act, 1958

Section 11

Roo

ss. 3 and 4

ss. 3 and 4

ss. 3 and 4

ss. 3, 4 and 6

s. 11

Rattan Lal

Subba

s. 6

s. 3

s. 4

Briefty

s. 6(1)

Jlaltan Lal

8vbba Rao

Dayal

Art. 136

.RAGHUBAR DA

ss. 3 and 4

Probation of Offenders Act, 1958

s. 11

September 28. 1962

ss. 3, 4 and 6

s. 562(2)

Code of Criminal Procedure

Art. 134

RaUan Lal

State 01 Punjab

Art. 134(l)(c)

October 19, 1962

ss. 3, 4 and 6

Section 3

s. 4

ss. 3 and 4

s. 11

Ra1tan Lal

High Court State 0! Punjab

Raghubar Daial

s. 11

s. 3

s. 4

s. 3

s. 4

s. 3

s. 4

s. 3

s. 4

ss. 3

ss. 3

ss. 3 and 4

s. 6

s. 3

s. 3

s. 4

s. 6

s. 3

s. 4

s. 3

s. 4

s. 6

s. 11

s. 3

s. 4

s. 3

s. 4

s. 3

s. 4

s. 3

s. 4

s. 3

s. 4

Section 9

s. 5

ss. 545 and 546A

ss. 3, 4 and 6

s. 4

s. 4

s. 6

Ramii

s. 6

Offenders Act, 1958


78.C.R.

SUPREME COURT REPORTS 693

COMMISSIONER OF INCOME-TAX, KERALA v.

MALAYALAM PLANTATION LTD.

JK. SUBBA RAo, J. c. SHAH AND s. M. Snrn, JJ.]

Income Tax-Assessee treated as agent-Estate duty of non-resident paid bu assessee-If an allowable deduction-Expression "for the purpose of the bushess"-Meaning of- Indian Income-tax Act, 1922 (11 of 1922), s. 10(2)(xv}-Estate Duty Act, 1953 (34 of 1953),, s. 34. ·

For the two accounting periods the assessee, a residenf company, incorporated outside India paid estate duty payable on the death of its certain share holders not domiciled in India and debited the said amounts to r€irenue in its accounts in ascertaining the profits and gains of its business for the said years. The Income-tax Officer included the said amounts so paid towards estate d'uty in the profits and gains of the company for the said two accounting periods and assessed the company to income-tax for 1955-56 and 1956-57 on that basis.

The appeals by the assessee to the Appellate Assistant Commissioner were dismissed but on further appeal, the Appellate Tribunal set aside the said orders and held that the assessee was entitled to deduct the said amount in computing its profits. On an application by the Commissioner of Income-tax, the Tribunal stated a case under s. 66(1) of the Act to the High Court and referred the following question of law for its opinion: ''Whether on the facts and in the circumstances of the case, the estate duty paid by the company under s. 84 of the Estate Duty Act, 1953, is a revenue expenditure deductible in computing the assessee's business income for the assessment years in question." The High Court agreed with the view of the Tribunal and answered the question in the affirmative. On appeal by special leave it was urged on behalf of the appellants, (i) that the sum paid by the assessee under s. 84 of the Estate Duty Act wete not expenditure of the assessee company and therefore, they could not be deducted from its profits in computing its assessable income under s. 10(2)(xv) of the Act; and (2) that even ii it was revenue expenditure, It was not laid out or expended wholly or exclusiwly for the purpose of the assessee's business within the meaning of the said sub-clause.

Held: (i) There was nothing on the record to show whether in England, where the concerned share holders died th<! resident company could recover the amount representing the estate duty paid by it in India from the legal representative of the deceased share holders. Therefore, the assessee who, as a statutory agent paid to the State the estate duty, could not recover the same from the legal representative of the deceased non-resident share holders. In that situation the company would be out of pocket to the extent it paid the estate duty of tire said persons. Therefore, it cannot be held that the amounts paid by the assessee towards estate duty were wot' expenditur_e incurred by it, but only amounts paid by it on account with a right to recover the same from the persons on whose behalf it paid.

(ii) The expression "for the purpose of the business" in s. 10(2)(xv) of the Act is wider in scope than the expression "for the purpose of earning profits". Its range is wide: it may

191J4

.April ID

Oommiuiomr of lftCOmt'-lax, Kuala

Maiaydam Planlalion J, i, J,.

Bubba Bao, J.

take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for carrying on the business and the assessee shall incur it in his capacity as a person carrying on the bu9iness. It cannot include sums spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory; in that event, he pays the amount on behalf of another and for a purpose unconnected with the business.

In the present case, the amounts in question were paid by the assessee as a statutory agent to discharge a statutory duty unconnected with the business, though the occasion for the imposition arose because of the territorial nexus afforded by the accident of its doing business in India. Therefore, it must be held that the estate duty paid by the respondent was not an allowable deduction under s. 10(2) (xv) of the Act.

Case law reviewed.

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 384 and 385 of 1963. Appeals by special Jeave from the judgment and Decree dated January 19, 1961, of tbe Kerala High Court in Income-tax Referred case No. 20 of 1959.

K. N. Rajagopal Sastri and R. N. Sachthey, for the appellant Bishan Narain, G. 8. Pai. T. A. Ramachandran, ]. B.

Dadachanji, 0. C. Mathur and Ravinder Narain, for the respondents.

April 10, 1964. The judgment of the Court was delivered by

SUBBA RAo, J.-These two appeals by special leave raise the question whether the estate duty paid by the resident Company, hereinafter called tbe assessee. incorporated outside India, on behalf of members not domiciled in India is deductible from its profiis in computing its assessable income under s. 10(2)(xv) of tbe Indian Income-tax Act, 1922, hereinafter called tbe Act

The material facts are not in dispute and they may be briefly stated. The assessee is a resident Company icorpo rated outside India. Most of its shareholders are m the United Kingdom. During the accounting period ending March 31, 1955, it paid £ 1,302-94 and £ 1,303 towards estate duty which was payable on tbe death of certain shar~

holders who were not domiciled in India. The assessee debited tbe said amounts to revenue in its accounts in ascertain-

7 S.C.R. 'suPREME COURT REPORTS 695

1964 ing the profits and gains of its business for the said year.

Similarly, for the accounting year ending March 31, 1956, it paid a sum of .£ 3.809-1-5 towards estate duty payable on the death of certain shareholders and debited the said amount to revenue in its accounts in ascertaining the profits and gains of its business for that year. The Income-tax Officer included the said amounts so paid towards estate duty in the profits and gains of the company for the said two accounting periods and assessed the company to income-tax for 1955-56 and 1956-57 on that basis. The appeals preferred by the assessee to the Appellate Assistant Commissioner were dismissed. On further appeal to the Appellate Tribunal it held that the assessee was entitled to deduct the said amount in computing its profits; and on that finding it set aside the orders of the Appellate Assistant Commissioner.

On an application made by the Commissioner of Income-tax, the Appellate Tribunal stated a case under s. 66(i) of the Act to the Kerala High Court, and referred the following question of law for its opinion:

OommiBaioner of lncomt-tax, Kerala

"Whether on the facts and in the circumstances of the case, the estate duty paid by the Company under Section 84 of the Estate Duty Act, 1953, is a revenue expenditure deductible in computing the assessee's business income for the assessment years in question?"

The High Court agreed with the view expressed by the Appellate Tribunal and answered the question referred to it in the affirmative. The present appeals by special leave have been filed against the said order of the High Court.

Mr. Ra jagopala Sastri, learned counsel for the Commissioner of Income-tax, raised before us the following two points; (!) The sums paid by the assessee under s. 84 of the Estate Duty Act, 1953, are not expenditure of the assessee- Company and, therefore, they cannot be deducted from its. profits in computing its assessable income under s. 10(2)(xv) of the Act; and (2) even if it is revenue expenditure, it is not laid out or expended wholly or exclusively for the purpose of the assessee's business within the meaning of the said sub-clause.

Mr. Bishan Narain, learned counsel for the respondent, supported the judgment of the High Court and contended that the said estate duty was revenue expenditure incurred by the assessee as it. was put out of pocket to that extent and that it had not 'been proved that the assessee could legally recover the said amounts from the legal representatives of the deceased shareholders. He further argued that

Malayalam Plantation Ltd.

Subba Rao, J.

1P64 the said expenditure was wholly and exclusively for the pur- OommiMi<>mr of pose of the assessee's business within the meaning of Incomtlaz, Kerala s. I 0(2)(xv) of the Act inasmuch as it discharged its statu-

M.Z:; ai.m tory obligation in order to preserve the assets of the com- Plantalitm Lid. pany.

Subba Roo, J. The question raised turns upon the provis.ions of s. 10(2}

(xv) of the Act. It reads: Section IO. Business-The tax shall be payable by an assessee under the head "Profits and gains of business, profession or vocation" in respect of the profits and gains of any business, profession or vocation carried on by him.

(2) Such profits or gains shall be computed after making the following allowances, namely: - • * * * •

(xv) any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusively, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly or exclusively for the purpose of such business, profession or vocation." The first facet of the argument turns upon the question whether the estate duty paid by the assessee is an expenditure incurred by it within the meaning of the said provision.

Under s. S of the Estate Duty Act the property of every person dying after the commencement of the said Act shall be liable to a duty called "estate duty" at the rates fixed in accordance with s. 35 thereof. Under s. 2'1 of the said Act there shall not be included in the property passing on the death of the deceased, inter alia, movable property situated outside the territories to which the said Act extends at the time of the death of the person. Under s. 53 of the said Act, where any property passes on the death of the deceased,

very legal representative to whom such property so passes for any. beneficial interest in possession or in whom any interest in the property so passing is at any time vested and others mentioned in the section shall be accountable for the whole of the estate duty on the property passing on the death. Section 84 thereof is aimed to reach the property of a member of a company dying outside India: the section before amendment read: Section 84. Company to furnish particulars of deceased members to the Controller- .

(i) Where a company incorporated outside India carried on business in the territories to which this Act extends and has been. treated for the -

purposes of the Indian Income-tax Act, 1922 1964 (XI of 1922), as resident for two out of three Oommls.ioner of completed assessments immediately preceding, Int.ometall:, K•rala such company shall, within three months of the

M.;:· receipt of intimation of the death of a member P1an1a1r.:L:a. dying after the commencement of this Act, furnish to the Controller such particulars as may Subba Rao, 1• be prescribed in respect of the shares of the deceased member in the company, and shall be liable to pay estate duty at the rates mentioned in Part III of the Second Schedule, on the princi pal value of the shares held by the deceased in the company except in cases where the deceased member was a person domiciled in India and the person accountable has obtained a certificate from the Controller showing that either the estate duty in respect thereof has been paid or will be paid or that none is due, as the case may be."

Under this section in the circumstances mentioned therein ; a company is liable to pay estate duty in respect of the shares of the deceased member of the company on the princi pal value of the share held by the deceased in the company: under this section a statutory obligation is imposed on the company to pay the estate duty on the shares of a deceased non-resident member. If such a member of the company had died in India, subject to the conditions mentioned in the section, the company would not be liable to pay the estate duty payable on the shares held by the deceased. In substance the. company is made a statutory agent to pay the said duty payable in respect of property belonging to another. Section 77 of the Estate Duty Act enables a person authorised or required to pay estate duty in respect of any property to transfer the said property for the purpose of paying the duty. This section cannot .have extra-territorial operation. Prima facie the company cannot transfer tlie shares or the property of a person domiciled in a country , outside India. Nor sub-s. (2) of s. 77, which says that a person having an interest in any property, who pays the estate duty in respect of that property, shall be entitled to the like charge, as the estate duty in respect of that property had been (aised by means of a mortgage to him, has application, for it -cannot be said that the company has any legal interest in the shares owned by a third party. That apart, the said sub-section also cannot have extra-territorial operation. Nothing has been placed before us to enable us to come to the conclusion whether in England, where the concerned shareholders died, the resident company could re- <:over the amount representing the estate duty paid by it in

1964 India from the legal representatives of the deceased share- Commissioner of holders. We, therefore, assume that the assessee who, as a Income-tax, Kera/a statutory agent pays to the State the estate duty, cannot re-

,, 1 v. 1 cover the same from the legal representatives of the deceased ~• ayn am "d h h Id I h · h Plantation Ltd. non-rest ent s are o ers. n t at s1tuat10n t e company would be out of pocket to the extent it paid the estate duty Subba Rao, J. of the said persons. We cannot, therefore. accede to the contention of the learned counsel for the appellant that the amounts paid by the assessee towards estate duty were not expenditure incurred by it, but only amounts paid by it on aocount with a right to recover the same from the persons. on whose behalf it paid.

The next question is whether the said expenditure was. expended wholly and exclusively for the purpose of the business of the assessee within the meaning of s. 10(2)(xv) of the Act. The crucial words of the section relevant to the present enquiry are "for the purpose of such business." Subsection (2) cl. (xv) is a residuary clause which provides for allowing the items of business expenditure not covered by the other clauses of sub-s. (2) of s. 10 of the Act. Before the Amending Act of 1939, the language of the predecessor of this clause read thus:

"not being in the nature of capital gains incurred solely, for the purpose of earnmg such profits or gains." The Amending Act of 1939 substituted the present clause and made it more comprehensive by using the expression "for the purpose of such business". Some of the decisions cited at the Bar, both English and Indian, throw some light on the construction of the said expression and we would, therfeore, briefly notice them.

The House of Lords in Strong and Company of Rom sey, Limited v. Woodifield(') construed a corresponding provision in the Income-tax Act of the United Kingdom, the relevant part whereof read : "money wholly and exclusively laid out or expended for the purposes of such concern." There, a brewing company, which also owned licensed houses in which it carried on the business of innkeepers. incurred damages and costs to the amount of £ 1,490 on account of injuries caused to a visitor staying at one of its houses by faiiing in of a chimney. The House of Lords held that the damages and costs were not allowable as a deduction in computing the company's profits for income-tax purposes. The learned Lord Chancellor said :

"They cannot be deducted if they are mainly incidental to some other vocation, or fall on the

(') (1906) 5 T.C. 215, 219, 220.

trader in some character other than that of a trader."

Lord Davey, whose dictum was the basis for some of the subsequent decisions in that country, referring to the expression "for the purpose of trade" observed as follows:

"It is not enough that the disbursement is made in the course of, or arises out of, or is connected with, the trade or is made out of the profit• of the trade. It must be made for the purpose of earning the profits."

Lord Davey's definition appears to be much narrower than that of the Lord Chancellor, for the former restricts the expression to mean that the expenditure should have .been made only for the purpose of earning profits. Finlay, J., in Allen v. Farquharson Brothers Limited('), noticed that the qualifictaion "for the purpose of earning profits" was a slight expansion of the words of the statute, though he expressed the view that it brought out the real import of the relevant section. In Rowntree and Company, Ltd. v. Curtis (ff.M. Inspector of Taxes)('). in disallowing the deduction claimed by a company of a sum set aside for the relief of the invalid employees, Rowlatt. J ., applied the test whether the said expenditure incurred by the company was for the purpose of earning profits. In Cooke v. Quick Shoe Repair Service('), the court allowed a deduction in respect of sums paid by the respondent-firm in discharging the liabilities of the business outstanding at the date of the said respondent purchased the business from a third party on the ground that the said expenditure, having been incurred for the . purpose of preserving the goodwill and for ensuring the ccntinuity of supply of raw-material and labour, was wholly and exclusively laid out for the purpose of its business. After referring to earlier decisions, Croom-Johnson, J., made the following observation:

"Here is a payment made in the circumstances of this case in order to ensure a supply of leather for the business, a payment made in order to ensure '.I cotinuace of labour willing to be employed m this business, and payment for rent in order to ensure that the landlord's consent to assignment of the premises, of the premises in which the business was carried on. should not be refused. I find it quite impossible to say that there is no evidence to justify those findings."

(') 17 T.C. 59. 65.

(') (1924) 8 T.C. 678.

(') (1949) 30 T.C. 460, 466.

Com, miasioner of lncome.tax, Kertzla

Malayalam Plantatwn IMJ.

Subba Rao, J.

1964 Here it will be noticed that the learned Judge went beyond aommis.Joner of the limited scope given by Lord Davey to the expression in Income-tax, Kerola the statute and did not confine it to the amounts spent only

Mai:· la for earning profits, but to expenditure incurred in connec- Plantatl'::. I::d. tion with the business. where a company incurred an expenditure in defending its title to property, it was held in Bub/Ja Rao, J. Southern (11.M. Inspector of Taxes) v. Borax Consolidated, Ltd.(') that the said amount was spent wholly and exclu-- sively for the purpose of the company's trade and was, therefore, an allowable deduction for the purpose of computing the profits of the company for income-tax purposes.

This decision gives a more liberal meaning to the expression "for the purpose of the trade" than that given by Lord Davey. "Purpose" of the trade includes the purpose to pro-· tect the assets of the company carrying on the trade. The House of Lords resurveyed the legal position in Morgan ·

(Inspector of Taxes) v. Tate and Lyle Ltd.(') in the context of the questions whether the expenditure incurred by a company engaged in sugar refining in a propaganda campaign to oppose the threatened nationalization of the industry was. an admissible deduction. Lord Morton, after referring to the relevant case-law and to Lord Davey's formula, made the following observations:

" ......... this seems to me to be an assumption wholly

unwarranted by the evidence. There is no evi- dence that a transfer of the assets to a national body or authority would not destroy or adversely affect the company's business ................ It is clear on the authorities that Lord Davey's formula includes expenditure for the purpose of

preventing a person from being disabled from carrying on and earning profits in the trade."

Lord Reid laid down the relevant test thus:

"A general test is whether the money was spent by the person assessed in his capacity of trader or in some other capacity-whether on the one hand the expenditure was really incidental to the trade itself or on the other hand it was mainly incidental to some other vocation or was made by the trader in some other capacity than that of trader."

This decision also restated the two tests, namely, (i) that the expenditure should be for carrying on the business to• earn profits in the trade, and (ii) that the expenditure shall' be inurred by the assessee in his capacity of a: person

(') (1942) 10 I.T.R. (Suppl.) 1, 8.

(') (1954) 26 I.T.R. 195, 205, 206, 219.

carrying on the business. Lord Greene, M.R., in Rushden 1964 Heel Co., Ltd. v. Keene(') reaffirmed the second test in the Commi., ionero/ following words: Income-tax, Kerala.

v. "I find, however, in Strong and Company's case(') pf!::r::!:~1.1. what appears to me to be a clear answer to the present appeal. It is, I think, a matter not of Subba Bao, J. dictum but of decision in that case that an expense is not deductible if it falls on a trader in some character other than that of a trader. This was the ground of the opinion of Lord Loreburn, L.C., with which Lords Macnaghten and Atkinson agreed. Their Lordships held that the expense there in question fell upon the appellants in their character not of traders but of householders."

In Smith v. Lion Brewery Co., Ltd.('), the question was whether a brewery company, which was owner and lessee of a number of licensed premises where business was carried on on the tide-house basis, was entitled to deduct for the purposes of income tax its liability in respect of compensation fund charges under the Licensing Act, 1904.

It was contended by the -Crown that the liability to which the Company became subject was in its capacity as landlord of the property and not as trader carrying on the trade of brewer. When the case ultimately came up before the House of Lords, the House was equally divided. The view of two of the members who agreed with the view of the Court of Appeal prevailed. The basis of the judgment was that the liability was wholly and exclusively related to the carrying on of the company's business, because on the facts of that case the company had assumed the position of landlonl for the purpose of its trade. If the finding was that the company paid the tax in its capacity as landlord as opined by the learned Lords who dissented, the result would have been the other way. In Harrods (Buenos Aires) Ltd. v. Taylor-

Gooby <H.M. lnspectc, r of Taxes)('), Buckley, J., covered

th~ entire ground over again in the context of a question whether the appellant-company therein which was incorporated ad resident in the United Kingdom and carrying on the busmess of a large general stores in Buenos Aires, having paid in Argentina a tax known as the "substitute tax" to which it was liable, could claim deduction under the Income-tax Act, 1952 (15 and 16 Geo. VI and I Eliz. II, c. 10, s. 137(a)). The learned Judge held on the facts of that case-

(') (1947) 30 T.C. 298, 316.

(') 11905) 5 T.C. 215. ('l (1910) 5 T.C. 568. (') Appeal No. 2048 (Ch. D.) decided on 25th March, 1963- (unreported).

1964 that incurring liability for that tax was a pre-condition of

CommiBBiontr of the Company's earning profits in the Argentina, for without fncome-tax, Kera'a incurring liability for that tax the Company could not carry

JI ,:· 1 _ on business in the Argentina at all. On that finding the

Pln~., fo~ °L7a. learned Judge came to conclusion that it was a liability which the Company had undertaken for the purpose of its Subba Rao, J. trade, and was, therefore, a payment made wholly and exclusively for the purpose of the company's trade. It will be seen that in that case the tax was paid by the Company in its capacity as company doing business and unless that tax was paid the company could not carry on its business. The two tests laid down are satisfied.

Pausing here, we shall briefly recapitulate the legal position in England. The relevant wordings of section with which the English Judges were concerned are, in effect, similar to the terms of s. 10(2J(xv) of the Indian Income-tax Act, 1922.

The test laid down by Lord Davey in Strong and Company of Ramsey, Ltd. v. Woodifie/d('), namely, the disbursement

must be made for the purpose of earning profits, has been accepted and followed throughout, though the content. of that test has been expanded to meet diverse situations.

Broadly, the English courts applied two tests to ascertain whether a deduction was permissible or not, namely, (i) whether the expenditure was incurred for th~ purpose of carrying on of the business and for removing obstacles and impediments in the conduct of the business, and (ii) whether the assessee paid the amount in his capacity as businessman or in his personal capacity.

Now coming to the Indian decisions, a Division Bench of the Bombay High Court in Tata Sons Ltd. v. Commissioner of lncome-ta:r:, Bombay(') held that the share of bonus voluntarily paid by a company, which held the managing agency of another company, to some of the officers of the managed company was a permissible deduction under s. I 0(2)(xv) of the Act. The reason for the conclusion is stated thus:

"But having considered the whole case and the question submitted to us I am satisfied that looking purely at it from the point of view of commercial prinoiples what the assessee company has done is something which had as its object increasing the profits of the Tata Iron and Steel Co. and thereby increasing its own share of the commission."

(') (1906) 5 T.C. 215.

(') (1950) 18 I.T.R. 460, 472.

In Badridas Daga v. Commissioner of Income-tax('), where 1964 the agent of the assessee misappropriated his money and the Oommi,.ioner of assessee claimed the part of the amount misappropriated Income-tax. Kerala and not recovered from the agent as a deduction under Mal:; aiam s. 10(2)(xv) of the Act for the purpose of income-tax, this Plantation Ltd. Court held that it was not allowable under 8. 10(2)(xi) or Subba Rao, J .. s. 10(2)(xv) of the Act. Venkatarama Ayyar, J., observed:

"The result is that when a claim is made for a deduction for which there is no specific provision in section 10(2), whether it is admissible or not will depend, on whether having regard to accepted commercial practice and trading principles, it can be said to arise out of the carrying on of the business and to be incidental to it."

This decision, though not direct in point, lays down the principle that an expenditure can be deducted only if it arises out of the carrying on of the business and is incidental to it. In Indian Molasses Co. (Pvt.) Ltd. v. Commissioner of Income-tax, W.B.('), this Court held that s. 10(2) (xv) of the Act enacted affirmatively what was stated in the negative form in the English statute and was substantially in pari materia with the English enactment and the courts might consider the English authorities as aids to the interpretation thereof. The decision of this Court in Commissioner of Income-tax, Bombay v. Abdul/abhai Abdulkadar("), though turns upon the provisions of s. 10(1) of the Act, gives some assistance in deciding the question raised. One of the questions raised was whether the tax paid by the assessee-firm as an agent of the non-resident principle could be claimed as a bad debt or a trading loss. In the words of Kapur, J., "the loss which the appellant has incurred is not in its own business but the liability arose because of the business of another person and that is not permissible deduction within s. I 0(1) of the Act". It is true that this decision did not arise under s. 10(2)(xv) of the Act, but the principle that the expenditure incurred by the assessee in his capacity as agent of another is not a deductible item equally applies to the present case. This Court in The Commissioner of Jncometax, W.B. v. Royal Calcutta Turf Club(') had to consider the question whether an expenditure incurred by a race club for the purpose of training jockeys of the club was an allowable deduction within the meaning of s. 10(2)(xv) of the Act.

( ') [1959] S.C.R. 600.

(') [1961] 2 S.C.R. 949. ('l (1959) 37 I.T.R. 66.

Kapur, J., speaking for the Court, after considering the rele- Oommissioner of vant decisions, concluded thus: Jl.ncome.tax. Kerala

•· "Applying the law, as laid down in those cases, to .Malayalam h 1 ' h th .Plantn6on Ltd. the present case t e cone us10n 1s t at e amount

Su'>ba Rao, J, in dispute was laid out wholly and exclusively for the purpose of the resp(mdent's business because if the supply of jockeys of efficiency and skill failed the business of the respondent would no longer be possible. Thus the money was spent for the preservation of the respondent's business."

This decision gives a liberal interpretation to the relevant expression. In MI s. Haji Aziz and Abdul Shakoor Bros. v.

The Commissioner of Income-tax, Bombay City 1/('), this Court disallowed deduction of the amount paid by a firm as penalty to release the consignment confiscated by the Customs authorities. In coming to the conclusion, Kapur, J., speaking for the Court, observed:

"The words "for the purpose of such business" have been construed in Inland Revenue v. Anglo Brewing Co., Ltd.(') to mean "for the purpose of keeping the trade" going and of making it pay." ...

After considering the relevant decisions, the learned Judge proceeded to state thus:

"They cannot be deducted it they fall on the assessee in some character other than that of a trader.

Therefore, where a penalty is incurred for the contravention of any specific statutory provision, it cannot be said to be a commercial loss falling on the assessee as a trader the test being that the expenses which are for the purpose of enabling a person to carry on trade for making profits in the business are permitted but not if they are merely connected with the business."

No doubt this judgment is really based upon the fact that an expense which is paid by way of penalty for breach of law .cannot be said to be an amount wholly and exclusively laid out for the purpose of the business; but the observations in the decision go further and indicate that the expenditure, if .incurred by the trader in some character other than that of a

trader, is not an allowable deduction.

(') [1961] 2 S.C.R 651. 657, 663.

(') (1925) 12 T.C. 803. 813.

The aforesaid discussion leads to the following result: 1964 The expression "for the purpose of the business" is wider o,,,,,,.;,,;.,,..,. of in scope than the expression "for the purpose of earning 1,.,,.,,,,.ta•, KerOJa profits''. Its range is wide: it may take in not only the day M 1 'Y.1am to day running of a business but also the rationalization of Pin•~:,,.,. Lid. its administration and modernization O, f its machinery; it may inciude measure for the preservation of the business Suboa Ba<>, 1• and for the protection of its assets and property from expropriation, coercive procss or assertion of hostile titles; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say. the expenditure incurred shall be for carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. It cannot include sums spent by the assessee as agent of a third party, whether the origin of the agency is voluntary or statutory; in that event, he pays the amount on behalf of another and for a purpose unconnected with the business. In the present rose, the company, as a statutory agent of the deceased owners of the shares, paid the sums payable by the legal representatives of the deceased shareholders. The payments have nothing to do with the conduct of the business. The fact that on his default, if any, in the payment of the dues the Revenue may realise the amounts from the business assets is a consequence of the default of the assessee in not discharging his statutory obligation, but it does not make the expenditure any the more expenditure incurred in the conduct of the business. It is manifest that the amounts in question were paid by the assessee as a statutory agent to discharge a statutory duty unconnected with the business, though the occasion for the imposition arose because of the territorial nexus afforded by the accident of its doing business in India.

We, therefore. hold that the estate duty paid by the respondent was not an allowable deduction under s. 10(2)(xv) of the Act. We answer the question in the negative. The order of the High Court is wrong and is set aside. ·

In the result, the appeals are allowed with costs. One set of hearing fees.

Appeals allowed.

I.f P(D)ISCI-43

693

COMMISSIONER OF INCOME-TAX, KERALA

MALAYALAM PLANTATION LTD

JK. SUBBA RAo, J.

c. SHAH

Meaning of- Indian Income-tax Act, 1922

s. 34

s. 66(1)

s. 84

Estate Duty Act, 1953

s. 84

s. 10(2)(xv)

England

India

s. 10(2)(xv)

Maiaydam Planlalion

Bubba Bao

s. 10(2)

K. N. Rajagopal Sastri

R. N. Sachthey

Bishan Narain

T. A. Ramachandran

B.

Dadachanji

C. Mathur

Ravinder Narain

SUBBA RAo

s. 10(2)(xv)

Indian Income-tax Act, 1922

United Kingdom

March 31, 1955

March 31, 1956

s. 66(i)

Kerala High Court

Section 84

Estate Duty Act, 1953

Ra jagopala Sastri

s. 84

Estate Duty Act, 1953

s. 10(2)(xv)

Bishan Narain

Malayalam Plantation Ltd.

Subba Rao

Subba Roo

s. 10(2}

(xv)

s. 35

s. 2

s. 53

Section 84

Section 84

Indian Income-tax Act, 1922

Subba Rao

Second Schedule

Section 77

s. 77

s. 10(2)(xv)

s. 10

Before the Amending Act

Income-tax Act

Davey

Finlay

Rowlatt

Croom-Johnson

Malayalam Plantatwn

Morton

Reid

Greene

Subba Bao

Loreburn

Macnaghten

Atkinson

Licensing Act, 1904

Buenos Aires

Buckley

Argentina

Income-tax Act, 1952

s. 137(a)

s. 10(2J(xv)

Indian Income-tax Act, 1922

Tata Iron and Steel Co.

s. 10(2)(xv)

s. 10(2)(xv)

Venkatarama Ayyar

section 10(2)

s. 10(2)

s. 10(1)

Kapur

s. 10(2)(xv)

s. 10(2)(xv)

[1961] 2 S.C.R. 949

Su'>ba Rao

[1961] 2 S.C.R 651

s. 10(2)(xv)