COMMISSIONER OF WEALTH TAX, WEST BENGAL A

CHAMPA KUMARI SINGHI & ORS.

Jauary 19, 1972

[K. S. HEGDE, A. N. GROVER AND A. N. RAY, JJ.]

Wealth Tax Act, 1957, Section 3-Jain undivided family, whether Hindu Vndivided Fa111ily.

The High Court held that the assessee, a Jain undivided family was not a Hindu undivided family within the meaning of section 3 of Wealth

Tax Act, 1957. According to the High Court, in order to form a Hindu C undivided family its members must be Hindus; the assessee family being Jains were not Hindus and so its members could not form a Hindu undivided family although it was "capable of forming a unit of very much of the same type and g_overned by the law applying to a Hindu undivided family". On the question whether the word 'Hindu' preceding the words undivided family signifies that the undivided family should be of th05e (i) who profess Hindu religion; or (ii) to whom Hindu Law applies; or,

(iii) who though not professing Hindu religion have come to be regarded D as Hindu undivided family by judicial and legislative prac'ice,

HELD : The expression Hindu undivided family includes 'Jain undivided family'.

For a Jong time Courts seem to have taken the view that Jains are Hindu dissenters. [.123 EJ ·

Blzagwandas Tejmal v. Rajmal, (1873) 10 Bbm. HCR. 241, Lala Mohabeer Pershad v. Musammut Kundar Koover, 8 Cal. W.Rep. 116 Civ. Rul and Sheokuarbai v. Jeoraj, [1921) P.C. 77, referred to.

The above view has been challenged by Jain historians and writers and it has been maintained that Jains are quite distinct f:rom Hindus and have

a separate code of law which unfortunately was not brought to the notice of the courts. [124 EJ

Bobba/adi GatePP• v. Bobbaladi Eramma & Others, Al.R. 1927 Mad. 228 and C.R. Jain, Jain Law, (1926) pp, 3-23, 21~258, referred to.

But, the sugges'tion that Jain law which is found in the av&ilable books should still be applied and the error which bas crept in the matter of jains being governed by Hindu Law should be rectified cannot possibly be follow. ed partic; ularly in view of statutory enactment, s which in express tenns G lia\e been made applicable to Jains. [125 BJ

Panna Lal & Others v. Siiabai, I.L.R. 1954 Nagpur 30, Sheokuarbai v.

Jeoraj, p92!) P.C. 77, referred to.

Before the amendment and codification of major branches of Hindu law by the four statutes, i.e. the Hindu Marriage Act, 1955, the Hindu

Succession Act, !956, the Hindu Minority and Guardianship -ct, i956, lithe Hindu Adoption and Maintenance Act, 1956, the undisputed position was that the Jains were governed by Hindu law modified by custom •Qd a Jain joint family was a Hindu joint family ·.with all the incidents

A attached to such a family under the Hindu Law.

The legislative practice also was to generally treat Jains as included in the term 'Hindu' in various statutory enactments. Wherever Jains were mentioned in addition it was ex abundant/ cautela. The. new statutes did not change the situation. The

fallacy underlying the reasonini of the High Court is that the artificial field of application of the law m those statutes shows that Jainism is not treated even as a form or a development of Hinduism.

Even if the reli- B gions are different, what is common is that all those who are to be governed by the provisions of these enactments are included In the term 'Hindu'.

They ai:e to be governed by the same rules relating to marriage, succession, minority, guardianship, adoption and maintenance as HindUs. The statutes thus accord legislative recognition to the fact that even though Jains may not be Hindus by religion they are to be governed by the same laws as the Hindus. The expression 'Jain undivided family' is not known to law. The Jains are governed by all the incidents relating to the Hindu joint family.

C Hindu undivided family is a legal expression which has been employed in taxation Jaws.

It has a definite connotation and embodies the meaning ascribed to the expression 'Hindu Joint Family'. [127 E128A)

Kamawali v. Digbijai, A.l.R. 1922 P.C. 14, Bachebi v. Makhan Lal & Another, I.LR. 3 All. SS Bhagwan Koer v. J. C. Bose, Ambalal v. Keshav .Bandhochand Gujar, I.LR, 1941 Bom. 2SO and Ka/ani Vithal Das v.

Commissioner of Income Tax, L.R. 64 I.A. 28, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1090 of 1971 arid 1686 ol 1968.

Appeals by special leave/certificate from the judgment and order dated August 25, 1967 of the Calcutta l; ligh Court in Wealth Tax Reference No. 435 of 1963.

. S. Mittra, B. D. Sharma and R. N. Sachthe, v, for the appellant (m both the appeals).

S. T. Desai, D. N. Mishra, J.B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the respondents (in both the appeals).

The Judgment of the Court was delivered by

Grover, J. This is an appeal by special leave from the judgment of the Calcutta High Court arising out of a reference under the Wealth Tax Act 1957 in which the question involved is one of imP!'rtance, namely, whether a Jain undivided family is included in the expression "Hindu undivided family" within s. 3 of the Act.

The facts are few and may be stated. For the assessment year 1957-58, the valuation date being 31-12-56 the Wealth Tax Officer assessed the family assets of the assessee iii the status of a Hindu undivided family.

On appeal to the Appellate Assistant Commissioner the contentions raised, inter alia, were that (i) upon the description of the assessee in the notice of demand the assessment should be deemed to have been made in the status of an association of persons which was not a unit on which t!!X

could be levied under the Act; (ii) even if the assessee was to be A treated a1 a Hindu undivided family, the imposition of wealth tax on such family was ultra vires the Constitution.

These contentions failed before the Appellate Assistant Commissioner.

The Appellate Tribunal, to whom the matter wa5 taken in appeal, held that the assessee followed the Jain religion ll and since the unit chargeable to wealth tax under s. 3 of the Act was either individual or Hindu undivided family or company none of the units covered the case of the assessee which was a Jain family.

According to the Tribunal Jains were not Hindus and, therefore, the expression "Hindu undivided family" in s. 3 dhid not cover the cashe. of a Jain family. The Tribu~I et aside C: t e assessment on t 1s ground alone.

The Comm1ss1oner of Wealth tax filed an application under s. 27 ( 1) of the Act praying that the question of law which arose out of the order of the Tri bunal be referred to the High Court.

At the time of the hearing of that application it was suggested on behalf of the assessee that further questions arising out of the order of the Tribunal should n. also be referred.

Finding that questions other than the question suggested by the Commissioner of Wealth tax arose out of the order, the Tribunal referred the following question of law for the opinion of the High Court :-

" l. Whether, the assessee, a Jain undivided family, was not a Hindu undivided family within the meaning of E s. 3 of the Wealth tax Act, 1957, and as such the Tri bunal was right in setting aside the assessment made on the assessee ?

2. Whether levy of Wealth tax on Hindu undivided family or joint family governed under Mitakshra school of Hindu law was beyond the legislative compe- F tence of Parliament and ultra virts the Constitution of India?

3. Whether the Wealth Tax Act in so far as it pur ports to levy Wealth tax on Hindu undivided families is void and inoperative as it offends Article 14 of the G Constitution of India ?"

The High Court held that the Jains not being Hindus in the generally accepted sense of the term a Jain undivided family could not be a Hindu undivided family although the incidence of a Jain family and a Hindu family "may be the same or largely the same''.

According to the High Court, in order to form a H Hindu undivided family its members must be Hindus,_ the assessee family being Jains, were not Hindus and so its members.

A could not form a Hindu undivided family although it was "capable c>f forining a unit c>f very much of the same type and governed by the law applying to a Hindu undivided family". The answer to the first question, therefore, was returned in the -affirmative and in favour of the assessee.

The other two questions were not pressed before the High Court, presumably in view of B the decision in Banarsi Dass v. Wealth Tax Officer, Special Circle, Meerut( 1).

According to s. 2(c) of the Act assessee means a person by whom Wealth tax or any other sum of money is payable under the Act and includes :-

( i) every person in respect of whom any proceedings under this Act has been taken for the determination of wealth tax payable by him or b} any other person or the amount of refund due to him or such other person;

(ii) every person who is deemed to be an assessee under this Act;

(iii) * * * * f, f * (•"

Section 3 is in the following terms :-

"Charge of wealth tax-Subject to the other provisions contained in this Act, there shall be charged for every (assessment year) commencing on and from the first day of April 1957, a tax (hereinafter referred to as wealth tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the schedule".

The only other provision in the Act in which the expression "Hindu" undivided family" occurs is s. 20. It deals with assessment after partition of a Hindu undivided family.

Under s. 3 G of the Act it is the Hindu undivided family which is one of the assessable entitieS. It should be distinguished from a Hindu co-parcenary which is a much narrower body than the Joint family.

A Hindu joint family consists of all persons lineally descended from a common ancestor, and includes their wives and unmarried daughters.

A Hindu coparcenary includes only those H who acquire by birth an interest in the joint coparcenary property, being the sons, grandsons and great grandsons of the holder of the joint property. Thus \here can be a joint Hindu family

(I) 56 1.T.R. 224. 9-L%lS"PCl '72

122 SUPREME COURT llBPORTS

(1972) 3 S, C.R.

consisting of a single male member and widows of deceased A coparceners.

It must be remembered that the words "Hindu undivided family" are used ln th!!! Income tax statutes with refe rence not to one school of Hindu law only but to all schools. The sole previous decision in which an identical question came up for consideration under the Income tax law is that of the Nagpur Judicial Commissioner's Court in Nathu Sao v. Commissioner of B Income tax C.P. & Berar( 1). In that case the assessee was a member of the Lad Yaish community and was a Jain.

He claim ed to be governed by the Hindu law and contended that his widowed mother and widowed aunt who lived with him ronsti tuted a Hindu joint family.

It was held that ordinarily Hindu Law applied to Jains in the absence of proof of custom or usage to the contrary and that the expression "Hindu undivided family" C did not mean a Hindu coparcenary but was a wider expression which would take ln the widowed mother aald the widowed aunt of the assessee in that case.

No contrary view seems to have been expressed in any other case subsequently and it appears that it is for the first time that the Calcutta High Court in the judgment under appeal has upheld the contention that a Jain undivid D ed family cannot fall within the expression "Hindu undivided family".

It will not be out of place to mention that indisputably eVCll" since income tax laws have been inforce no distinction has ever been made between a Jain undivided family and a Hindu undivided family and a Jain family has always been assessed as a Hindu undivided family.

Even in the forms prescribed for E making returns of Income tax no such differentiation or distinction has ever been made.

The main reasoning which prevailed with the High Court is that although Hindu law applies to Jains except in so far as such law is varied by custom, Jains do not become Hindus in the same F way as Khojas and Cutchi Memons of Bombay and Sunni Borahs of Gujarat etc. cannot be regarded as Hindus although Hindu law applies to them in matters of inheritance and succession.

Moreover, Hinduism does not include Hindu converts to Christianity and Islam and also dissenters from Hinduism who formed. themselves into distinct communities or sects with peculiar G religious usages so divergent from the principles of the Shastras that they could not be regarded as Hindus.

Reliance was placed on the decision of the Mysore High Court. in P. F. Pinto v. Commissioner of Wealth Tax, Mysore(•). In that case the ancestors of the assessee were originally Hindus.

They later on became converts to Christianity.

It was found that although for the purposes of succession to property the Hindu law was still applicable H to the family of the assessee, he could be assessed only as an

(I) 2~1.T.R. 463.

(I) 65 I.T.R. !23.

COMM~. WEALTH-TAX v. CHAMPA (Grover, J.) 123

individual for wealth tax purposes and could not be assessed in the status ?f Hindu undi.v.ided family.

The Mysore High Court was mctmed, to the view that the expression 'Hindu undivided family' in s. 3 of the Act was limited to Mitakshra families or. families of persons professing Hindu religion governed by M1takshra law and thus it could not include a Christian undivided fam!IY alth?ugh governed by Hindu law.

The Calcutta High Court ID the judgment under appeal, however, did not consider that the Myore High Court was right in holding that s. 3 of the Act was limited only to Mitakshra families.

It may be pointed out that so far as Income ta11: law IS cvno•rned the expression 'Hindu undivided family' has been held to have rerer•nce to all •chool• nf Hindu law and not one school only. [Se.. K .. 1,_,1.

Vithal Das v. Commissioner of Income tax(')].

The real question for detennination is whether the word 'Hindu' preceding the words 'undivided family' signifies that the undivided family should be of those (i) who profess Hindu D religion; or (ii) to whom Hindu Jaw applies; or (iii) who though not professing Hindu religion have come to be regarded as Hindu undivided family by judicial decisions and legislative prac'tice.

It may be mentioned that for a Jong time the courts and particularly the Privy Council seem to have taken the view that Jains are of Hindu origin; they are Hindu dissenters and although gene- E rally adhering to the ordinary Hindu Law they do not recognise any divine authority of the Vedas nor do they practice a number of ceremonies observed by the Hindus.

But the modern trend of authority is against the view that Jains are Hindu dissenters.

As a result of comparative research in Hinduism, Jainism and 'Buddhism, it is being emphatically claimed that the theory that Jains are Hindu dissenters is based on a misreading of the ancient F authorities relating to these religions (See C. R. Jain-'Jain Law'-pp. 3-23 and 219-258).

One of the early decisions in which Ji1ins were stated to be of Hindu origin being Hindu dissenters is that of Westropp C.J. in Bhagwandas Tejmal v.

Ra,;.. mal('). The learned Chief Justice based his view on high authority including the researches of Mr. Mountstuart Elphin- G stone, !.:ate Col. Mackenzie (9th Vol. of the Asiatic Reseaches. including the essay of Mr. Cole Brooke on the Sect of Jamas), the .work of Abbe Dubois on the Manners etc. of the People of India and tl1e elaborate account of the Jain sect in the First Volume of Prof. H. H. Wilson's work.

He also referred to certain decisions of the Sudder Divani Adault in Calcutta and the H High Court of Calcutta; in particular to the opinion of Peacock C.J. in Lala Mohabeer Pershad v. Musammut Kundar Koover(').

(I) L.R. 64 I.A. 28.

(1) (!873) IO llom. HCR 241.

(3) 8 Cal. W. Rep. 116 Civ. Ru\.

The following passage from the judgment of. W estropp CJ. ls noteworthy :-

"The term Hindu or Gentu, when used in Regulations Act, Statutes, and Charters in which Hindu.s or Gentus have been declared .entitled to the benefit of their own Jaw or succession and of contract, has been largely and liberally construed. See the remarks at pages 184, 185, 186, S Born. High C. RepOrts (Lopes

v. Lopes), where Sir Edward Hyde East's evidence in 18 30 before the House nf Lords' Committee is mentioned, in which ho stated that Stlchs were treated as a sect of Hindus or Gentus of which they woro " dissenting branch.

The authorities, already 9uoted, show thiit J ainas are regarded as a sect of Hindus."

Out of the decisions of the Privy Council, we may mention Sheokuarbai v. Jeoraj(•1) in which their lordships relied on the statement in Mayne's Hindu law and Usage that Jains are of Hindu origin; they are Hindu dissenters and although "generally D adhering to ordinary Hindu law, that is, the law of the three superior castes, they recognise no divine authority in the Vedas and do not practice the Shradha-or ceremonies for the dead".

The above view has been challenged by 1 ain historians and writers and .it has been maintained that the 1ains are quite dis- E tinct f~ Hindus and have a separate code of law which unfortunately was not brought to the notice of then:ourts. Kumaraswami sastri, Officiating Chief 'Justice; delivering the. judgment of. the Bench in Bobbaladi Gateppa v. Bobbaladi Etmrtrila d: Others(2) elaborately diseussed the contrary view . and observed that if the matter wtiro res integra be wouldi •be inclined tt> hold that modern research had shoWn _that Jains' were' not Hindu' ells- Ii'_ senfers but that Jainism had an origin and tm.r long iilltetior to Smritis and commentaries which were recOiiil'sed authorities of Hindu law and •ilsage. Mr. C.-R. Jain hi his work "Jain Law"writtcm, ln 1926 has discusSed the finding& of varioui.Opentalists suent thoee mentioned in the. judf!1Cnt of Westiop}l C.J •. and bas: put fonv.al:ll G the thesis that Hindws!ll apd Jainism were parilllel creeds .th'!!Jjb they shared the same forni of social order lUi4 mode :,'of liVin,.

Jain Law was quite independent of Hindu, law.: . According -~ him the Courts had tried on each dccasion to.asi:ertaBi the,, Taiil Law but unfortunately for various -reasons .Jains concealed their

Shatras and objected : to their production in .Courts. He ... B emphasised that Jain 4tw which is found in the. available. boob should still be applied and the error which has CreJ>t in the matter ·

(I) [1921] P.C. 77. .

(2) A.I.R. 1927 Mad. 228, _

A of Jains being governed by Hindu Law should be rectifieil. Since

1926 there have been several enactments apart from the codification of certain major Branches of Hindu law which in express terms have been made applicable to Jains. The course suggested by C. R. Jain cannot possibly be followed particularly in the presence of statutory enactments.

B In Panna Lal & Others v. Sitabai(1), Hidayatullah J. (as he then was) delivering the judgment of the Divis.ion Bench observed that it was too late in the day to contend that "Jains' are not included in the term "Hindus" for the purposes of law. He referred to Mayne's Hindu law as also the leading cases on the point apart from West and Buhler's Hindu Law (4th E<ln.), Gopal C Chandra Sarkar's Hindu Law (7th Edn.) and Harl Singh Gour's Hindu Code (4th Edn.). All these are acknowledged authorities and the conclusion which was derived not only from the statements contained in their works on Hindu law but also from decided cases was that the Jains were to be rearded as Hindus for the purposes of law though they seem to d1Ssent from eome of the D principles of orthodox Hinduism.

In the Nagpur cilSe the question which was being considered was whether The Hindu Women's Right to Property Act 1937 was meant to apply to Jains as weJI or to Hindus proper. It was in that CO!lpection

that the extent to which Jains were governed by Hiadu law or were to be treated as Hindus for purposes of that Jeilv came up E for discussion. The following passage may be 111*oduced with advantage :-

"The .legislature must be taken to be aware of the pronouncements of the Privy Council as well as the leading decisions of the Indian High Courts where a liberal interpretation was given to the tetlll 'Hilldu'.

We do not think that the Legislature used lhe term without advertence to these dicta and, in our judgment, the Legislature must be deemed to have used the term "Hindu' in that larger sense which has beeo explailed by Mayne at page 5 of his treatise in the paS&age quoted by us elsewhere and which has been the fouodation of G decisions on the subject in the courts of Idia";

It may be mentioned that the statement from Mayne's Hindu

Law referred to above is the same which was relied upon by the Privy Couneil in Sheokuarbai v. Jeoraj(").

We may next notice certain decisions in which . the. word 'Hindu' as used in various statiites came to bci intetpreted by the H Courts.· In Kamawali v. Dlgbijai Singh( 8 ) s. 331 of the Indian

(l) I.LR. 1954 N~BPur 30.

(2) A.I.R. 1921 P.C.14.

(3) [1921] J'.C. 77.

126 SUPREME COU!l.T REPORTS

(1972] 3 S.C.R.

Succession Act 1865 had to be interpreted.

According to that A section the provisions of that Act were not to apply to intestate or testamentary succession to the property of any Hindu.

It was held that the person who had .ceased to be a Hindu in religion and had become a Christian could not elect to be bound by the Hindu Law in the matter of succession after the passing of the Indian Succession Act and that a Hindu convert to Christianity B was solely governed by that Act.

In other words, according to the Privy Council a person who had ceased to be a Hindu by religion was not a Hindu within the meaning of s. 331 of the aforesaid Act. It was held in Bachebi v. Makhan Lal & Another(') that the term 'Hindu' ins. 331 of the Indian Succession Act 1865 included a Jain and consequently in matters of suces- C sion Jains were not governed by that Act. It was pointed out that the ordinary Hindu law of Inheritence was to be applied to Jains in the absence of proof of custom or usage varying that law.

The Privy Council in Bhagwan Koer v. J, C. Bose & Others(') expressed the view that a Sikh was a 'Hindu' within the meaning of that tern1 as used in s. 2 of the Probate and Administration Act 1881. It was pointed out that the Courts had always D acted upon the premise that Sikhs were Hindus and that Hindu Law applied to them in the same way as it applied to Jains in the absence of custom varying that Law. It was observed :

"It appears to their Lordships to be clear that in s. 331 the term "Hindu' is used in the same wide sense as in earlier enactments, and includes Sikhs. If it be not E so, then Sikhs were, and are, in matters of inheritence. governed by the Succession Act, and Act based upon, and in the main embodying, the English law; and it could not be seriously suggested that such was the intention of the legislature".

In Ambalal v. Keshav Bandlwchan& Gujar( 3 ) the question was whether Jains were governed by Hindu law of Inheritence (Amendment) Act 1929 which applied to all persons governed

by Mitakshara as modified by the Mayukha. It was argued in that case that the Indiiin Succession (Amendment) Act of 1929 speaks of Jains as-well as Hindus and ss. 4 and 57 of the Indian G Succession Act 1925 also did the same.

The Court pointed out thats. 331 of the Indian Succession Act 1865 did not make any separate mention of Jains and even then it had been held that the term 'Hindu' included Jains.

The Hindu Wills Act of 1870 which applied to the territories under the Lt. Governor of Bengal and the cities of Bombay and Madras no doubt mentioned Jains as well as Hindus being governed by certain sections of the H

(I) I.L.R. 3 All. 55.

(2) l.L.R. 31 Cal. 11.

(3) !.L.R. i 941 Born. 250.

COMMR. WEALTliTAX V, CHAMPA (Grover, I.) 127

Succession Act of 1865 and the Indian S11ecession Act 1925 was a cc111solid!lting At which repealed the previous Act of 1865 .. as well as H11;1du Wills Act of 1870. It was, therefore, probably th?ugh.t necessary emajore cautela to separately mentiOiD. the I ams m the consolidating measure.

However in all the other e.nactmen~ affecting the Hindu Law there was' no separate men tion of Jams along with the Hindus.

The Jains were therefore governed by the Hindu Law of Inheritence (Amenent) Act

1929. The mention of Jains separately in Article 25 of die Constitution was noticed in Panlltlla/ v. Sita Bai(1) and it was obse~ that the .framers of te Constitution felt, having regard to the differences m the two faiths that an express mention might c be made of all faiths ex-abundanti cautela and to put the matter beyond all controversy, and that faith is one thing and law is another and the Constitution could not be taken to ha.ve undone the long series of decisions on the subject.

Before the amend ment and codification of major branches of Hindu law by the four statutes, i.e. The Hindu Marriage Act 1955, the Hindu Succes

0 sion Act 1956, the Hindu Minority and Guardianship Act 1956, the Hindu Adoption and Maintenance Act, 1956, the undisputed position was that the Jains were governed by the Hindu law modified by custom and a Jain joint family was a Hindu joint family with all the incidents attached to such a family under the_Hindu law.

The legislative practice also was to generally treat Jains as included in the tern1 'Hindu' in various statutory enactments.

E Wherever Jains were mentioned in addition it was only by way of abundant caution.

The new statutes did not change the situation and it is not possible how the High Court in !'he judgment under appeal pressed them into service in support of its view.

The fallacy underlying the reasoiling of the High Court is that the artificial field of application of the law in those statutes shows that Jainism is not treated even as a forni or a development of Hinduism.

That is an erroneous approach.

We are not con F

cerned with the question whether J ains are a sect of Hindus <!r Hindu dissenters.

Even if the religions are different, what !s common is that all those who are to be governed by the prov1 s10ns of these enactments are included in the terni 'Hindu'. They are to be governed by the same rules relating to marriage, succes G sion, minority, guardianship, adoptin :ind m~nance as Hindus. The statutes thus accord legJSlative recogmtton to the .fact that even though J ains may not be Hindus by religion they are to be governed by the e lw~ as the . ?indus. . I~ tbfas view of the matter the expression Hindu undivided family will certainly include the 'Jain undivided f.amily'.

The latter class of family is not known to law: Th~ .Jruns ar; e gove!11ed by all. the incidents relating to the Hindu 1omt family.

Hmdu und1v1ded H

(!) I.L.R.1954 Nagpur 30

fam11y is a legal express.ion which has been employed in taxation A laws. It has a definite connotation and embodies the meaning ascribed to the expression 'Hindu joint family'.

For the above reasons the appeal is allowed and the question referred is answered in favour of the Revenue and against the a~. There will be no order as to costs in this Court. The appeal by Certificate (CA 1686/68) being defective for want of 8 reasons is het"by dismissed.

K.B.N.

Appeal allowed.

COMMISSIONER OF WEALTH TAX, WEST BENGAL

A

CHAMPA KUMARI SINGHI & ORS

K. S. HEGDE

A. N. GROVER

A. N. RAY, JJ.

Wealth Tax Act, 1957

Section 3

section 3

Tax Act, 1957

C.R. Jain

Hindu Marriage Act, 1955

L.R. 64 I.A. 28

S. Mittra

B. D. Sharma

R. N. Sachthe

S. T. Desai

D. N. Mishra

J.B. Dadachanji

0. C. Mathur

Ravinder Narain

Grover

s. 3

s. 3

s. 3

s. 27

s. 3

Wealth tax Act, 1957

Constitution of India

Whether the Wealth Tax Act

Article 14

Constitution of India

s. 2(c)

Section 3

s. 20

s. 3

Nagpur Judicial Commissioner's Court

Bombay

Gujarat

Hinduism

Islam

Mysore High Court

s. 3

Myore High Court

s. 3

Westropp

Mountstuart Elphin- G stone

Cole Brooke

Abbe Dubois

India

H. H. Wilson

Sudder Divani Adault

Calcutta

H High Court of Calcutta

Peacock

L.R. 64 I.A. 28

W estropp

Edward Hyde East

Mayne

Kumaraswami sastri

C.-R. Jain

C. R. Jain

Hidayatullah

West

Buhler

Gopal C Chandra Sarkar

Harl Singh Gour

Nagpur

Right to Property Act 1937

s. 331

Succession Act 1865

Indian Succession Act

s. 331

Indian Succession Act 1865

s. 2

Probate and Administration Act 1881

s. 331

Mitakshara

Mayukha

ss. 4 and 57

Indian G Succession Act 1925

Indian Succession Act 1865

Madras

Article 25

Hindu Marriage Act 1955

K.B.N.


GOUR! SHANKAR JHA

THE STATE OF BlllAR AND ORS.

January 20, 1972

(J. M. SHELAT AND ff. R. KHANNA, JJ.]

Habeas ('orpus-Reniand order-Mcgistrate can pass Order if for some reason the accused cannot he productd--Order sheet showing lvrongly that person in custody was produced before magistrate-Such wrong entry does not 1nean that renuznd order was not in fact oasstd •

. Code of Criminal Procedure, 1898-Ss. 167, 344-Scope of-Power under s. 34 can1bt exercised even lnjore submission of charge-shtet.

Jn the appeal against the order of the Hiah Court dismissing the appellant's petition for a writ of habeas corpus the appellant urged that be was not produced before a magistrate within 24 hours after biJ arrest as required by s. 167 of the Code of Criminal Procedure or even later; that he was never informed of the grounda for his arrest; that no custody D warrant was ever issued warran\ing the jail authorities to keep the appeallant in jail custody; that the remand P.rders passed by the magistrate were under s. 167 and not under s. 344 !>f the Code, as the latter section did not apply at the stage of investigation and that even if s. 344 applied the

magi>tiate could not order detention for more than JS days in the whole.

He also urged that the Jail Superintendent did not prbduce befo!e the High Court the jail records but only produced his report. thus disabling the E. appellant from establishing his case.

Dismissing the appeal,

HELD : ( 1) The order sheet produced before the Hifh Coo.rt showed that the appellant wa< produced before the magistrate within 24 llours after his arrest and that the magistrate remanded him to jail custody. Tilough the order sheet had entries showing that on subsequent occasions when remand orders were made the appellant wa produced before the magistrate, the High Court has found that the Magistrate had wrongly recorded that the appellant was produced before him on those occasions. However, the wron,11 entries made by him do not mean that the remand orders were not in fact passed by him though he did so in the absence of the appellant; Such orders can be lawfully passed if an accused person caMot for some reason or the other be brought before the magistrate. [134 E-FJ

Raj Nt:rain v. S1tf.trintelllle111, Central Jail, New Delhi, Writ Petition No. 330 of 1970, decided on Sept. 1, 1970, referred to.

(ii) The facts negative the suggestion of the appellant being kepi in ignoranee of the reasons for his arrest. [135 Fl

(iii) There is no reason to think that the magistrate ord.ered the appellant to be taken into jail custody without custody warrant. [ 136 A]

(iv) S. 167 operates at a stage when a person is arrested and either an hlvestiption has started or is yet lo start, but is such that it cannot be completed within 24 hours. Section 344, on the otherband, ahowa that investiption has already begun and sufficient evidence has been obtained raising a suspicion that the accu"'d person may have committed the offence

and further evidence may be obtained, to enable tbe polioe to d\) which, A a remand to jail custody is necessary. The fact that s. 344 occurs in the Chapter dealing with. inquiries and trials does not mean that it does not apply to cases in which the process of investigation and collection of evidence is still going on. Therefore, it is not as if the stage at which tbe Magistrate passed the remand orders was still the stage when s. 167 applied

and not s. 334. The Magistrate, provided he complied with tbe condition to the Explanation, was competent to pass remand orders from time to 8 time subject to each order being not for a period exceeding 15 days. The Magistrate had satisfied that tondition.

[136 GJ

View contra in Artatran v. Orissa AIR 1956 Orissa 129 disapproved.

A 'Lakshamanrao v. Judicial Magistrate, A.LR. 1971 S.C. 186, Chanaraattr v Slate, (1953) 3 B.L.J.R., 323 and Ajit Singh v. State, (1970) 76 Crl.L.H. 1075, referred to C

The appellant was content with the production of the superintendent's report.

No prejudice was caused to the appellant's case since the jail record could not have proved anything more than what the jail Sliperinten dent's report proved.

CRIMINAL APPELLATE JTJRISDICTION : Criminal Appeal No. 123 of 1968.

Appeal by special leave ftom the judgment and order dated May 3, 1968 of the Patna High Coun in Criminal W.J.C. No. 17 of 1968 and Criminal Miscellaneous Case No. 447 of 1968.

B. C. Ghose, S."N. Misra aind A. K. Nag, for the appellant.

D. Goburdhun, for the respondent.

The Judgment of the Court was delivered by- Shelat, J.

This appeal, by special leave, is against the dismissal by the High Court of Patna of the Writ Petition and an application under s. 561A of the Code of Criminal Procedure, for a writ of habeas corpus and an order of a like nature. filed by the appellant. Both of them were heard together as they contained common allegations and both were dishlissed by a common judgment.

In the two aforesaid proceedings, the case of the appellant was that he was arrested on February 18, 1968, that since then he had been detained in, custody without being informed of the grounds for his arrest and detention and also without having been produced before a Magistrate either within 24 hours after his detention as requ:red under the Code, or even thereafter.

On February 21, 1968, he was removed to Darbhanga jail where he was threatened that he would be falsely involved in several cases of dacoity unless he made cenain incriminating statements which the police wanted him to make. He made two applications from jail one on February 25, 1968, and the other on February 28,

G. s. JHA v. BIHAR (She/at, J.) 131

A 1968 to the Sub-Divisional Magistrate.

The first was not received at all by the Magistrate, while the second was received but after a long time, and was rejec.ted.

He also alleged that thereafter he made two further applications, one dated March 22, 1968 and the other dated March 27, 1968 wherein he applied for directions to the police to furnish him witli particulars of B offences charged against him and for bail, but that he re, ceived no order on either of them.

On these allegations, he claimed release forthwith from detention and the quashing of the criminal proceedings ag_ainst him.

In the counter-affidavit filed by the State before the High C Court, it was stated that one Bilal Sahni and one Baleshwar Paswan made confessions before the Magistrate at Samastipur on 23rd and 24th January, 1968 confessing their own guilt and implicating the appellant and certain other persons in abou1 eight dacoity cases, all havilllg been committed in that locality Thereupon, the appellant was arrested on February 17, 1968 He was produced before the Sub-Divisional Magistrate ol D Samastipur on February 18, 1968, but was remanded to police custody by the said Magistrate for four days on an application by the police therefor.

On February 21, 1968, the ~!ant was once again produced before the same magistrate and on an application by the police he was remanded to jail custody .. :-The affidavit alleged that the appellant was involved in as many as E nine dacoity cases wherein remand orders had been passed from time to time and that that was how he had, since February 21, 1968, been detained as an undertrial prisoner.

On April 19, 1968, an identification parade was held in connection with one of the said nine cases whereat the relevant complainant identified the appellant. The case of the State was that the appellant was F one of the three leaders engaged with certain hardened criminals in the aforesaid several dacoity cases, that it was not true that he was unaware of the case against him or that he was not produced before the magistrate or that he was kept in prison without proper remand orders having been passed by the Magistrate.

Five contentions were raised before the High Court, viz., G

(1) that the appellant was never produced before any magistrate within 24 hours after his arrest or even thereafter; hence bis detention was in breach of Art. 22 of the Constitution, (ii) that although the order-sheet, in respect of Laheriasarai Police Station Case No. 1 of 1968, records that the appellant had been produced before the Magistrate on several days set out therein, H that order-sheet had been falsely made; (iii) that the magistrate had no powe.r to detain the appellant in jail in excess. of. 15 days in all, (iv) that even if he had the .power to remand hun m excess of 15 days in all, the condition for passil)g such orders was not

satisfied, and (v) that no remand order was factually ever passed.

A None of these contentions was accepted by the High Court, and the High Court, therefore, dismissed, as aforesaid, both the applications on May 3, 1968.

Mr. Ghose, who appeared for the appellant before the High B Court and who appeared before us also raised the following points: ( 1) that the appellant was not produced before any magistrate either on February 18, 1968 or on any other date thereafter, (2) that the appellant was never infonned of the grounds for his arrest, and detention thereafter, (3) that no custody warrant was ever issued watranting the jail authorities to keep the appellant in jail custody, and ( 4) that assuming that C the said remand orders were passed, the appellant could not be kept in jail custody for more than 15 days in the whole.

On the basis of these four points he urged that the appellant's arrest and detention were illegal and that therefore he was entitled to be released forthwith and the criminal proceedings instituted

~1gainst him by the police quashed.

Mr. Ghose also made a 0 point that the jail Superintendent did not produce before the High Court the jail records which would show his having been taken out of the jail for being produced before the Magistrate when the magistrate decided the applications for remand by the police and passed the remand orders said to have been passed by him and that instead the jail Superintendent produced his report, thus disabling the appellant from establishing his case as laid in his E writ petition.

We may at this stage dispose of Mr. Ghose's last point in regard to the non-production of the jail record before the High 'Court.

It is true that the appellant did ask for production of that record first in the writ petition, and then on April 22, F 1968 to which date the hearing of the writ petition was adjourn- ed. But the order-sheet maintained by :_the High Court in connection with the writ petition and the said application under s. 561A of the Code shows tliat when the writ petition came up for admission, the learned Judges called for the record of tho Magistrate's Court and report from the jail superintendent re- G garding the dates on which the appellant was said to have been produced before the Magistrate for the purpose, of the hearing of the remd applications. It appears that on April 22, 1968, to which date tbe writ petition was made returnable, neither the record of the Magistrate's Court nor the report of the jail Superintendent had arrived.

01) that day, the appellant made an application for his J?roduction !n Court at the tiin~ of the hearing H and for the production of the Jail record. The Htgh Court, however, rejected the prayer for his production in . Court and as regards the jail' record ordered as follows:

G. s. JHA v. BIHAR (Shelat, /,) 133

A "so far as the production of the record of the jail is concemed, an express reminder by telegram may be sent to the Superintendent of jail to send the report

already called' for immediately, if possible by a special messenger. A reminder may also be sent to the Court concerned to send tbe records immediately, if possible, B by a special messenger."

The High Court does not seem to have pressed for the production of the jail record as it presumably thought that the Court's record would show the dates when the appellant was produced before lL w1d the Superintendent's report would make that point C clear.

It appears trom that order that the appellant also was content with tbe production of the Superintendent's report and did not press for the calling of jail record. The judgment of the High Court also shows that that was also the case when tbe High Court heard the writ petition and tbe said s. 561A application.

Neither the order-sheet nor the judgment of the High Court seems D to warrant the allegations made in para 28 of the Special Leave Petition that repeated prayers were made for the production of the jail rec.ord.

In any event, no prejudice apgears to have been caused to the appellant's case since tbe jail record could not have proved anything more than what the jail Superintendent's report prove<!.

E Tne report, which was before the High Court, clearly pointed out !bat the appellant was remanded to jail custody. on February 21, 1968 by the Sub-Divisional Magistrate, Sadar in the case under s. 395 of tbe Penal Code. The next date for his appearance was fixed on March 5, 1968, bllt the appellant refused t<> go to the Magistrate's Court on that day as 8JSo on March 20; F 1968 and Aril 4, 1968, on the ground !bat the identification parade for hun had not yet been held and his going to and appearing in the Court would expose him to possible witnesses.

The Magistrate, therefore, had to postpone his production before

him to April 18, 1968 when the appellant was produced and once again remanded to jail custody till the next date, that is, G May 2, 1968. The report of the jail Superintendent, thus, frankly conceded that the appellant could not be produced on the dates above-stated and that the Magistrate, therefore, had to pass remand orders in his absence. It is clear from the report that the appellant himself had refused to appear and be present before the Magistrate when he heard the remand applications.

He, therefore, cannot legitimately make a grievce that those H orders were passed in his absence. Those orders could be passed validly in his absence if his presence at .th~ tie could not b.e secured. This has been held by the ma1onty 1udgment of th1~

134 SUPREME COUll.T REPORTS [1972] 3 s.c.R.

Court recently in Raj Narain v. Superintendent, Central Jail, A New Delhi.(')

We now proceed to consider the remaining points in the order in which Mr. Ghose raised them. The first point urged before us was that the appellant was not produced before a magistrate within 24 hours after his arrest as required by s. 167 of the Code of B Criminal Procedure, or even later and tluit therefore his arrest and the-detention were bad in law. The order-sheet of the Laheriasarai Police Station Case No. 1(i)68 produced before the High Court shows that the appellant was produced before the Magistrate on February 18, 1968, that is, within 24 hours after his "''""and

that the Magistrate remanded him to jail custody on the applica C tion by the police until March 5, 1968.

So far there is no diffi culty because these entries in the order-sheet are corroborated by the report of the Superintendent of jail.

The order-sheet, how- ' ever, has entries dated March15, 1968, March 20, 1968 and April 4, 1968 whe:i remand orders are shown to have been made, each for a period of 15 days, and further that the appellant was produced before the Magistrate on each of those three occasions. That, as D the High Court has rightly observed, was not correct as the jail Superintendent's report clearly showed that the appellant had refused to go from the jail for fear that he would be seen or be

shown to probable witnesses.

No reason has been shown as to why we should not agree with the aforesaid observation of the High Court, viz., that the Magistrate had wrongly recorded that E the appellant was produced before him and that the remand orders were passed in his presence.

The wrong entries made by him, however, do not mean that the remand orders were not in fact passed by him though he did so in the absence of the appellant.

Such orders, as already pointed out, can be lawfully passed if an accused person cannot for some reason or the other be brought before the Magistrate. It is, therefore, not possible to say that F remand orders were not passed or that consequently his detention in the jail was without a valid basis. In the High Court no such contention, viz,, that remand orders were not passed on those three dates appears to have been raised.

Indeed, the allegation that the appellant was never produced before the Magistrate is belied by an elaborate order made by the Magistrate on G March 28, 1968 when the appellant was represented by counsel.

At that stage his counsel did not argue that the appellant was never produced before the Court or that no remand orders were ever, passed. The argument urged at that time was that the proceedings at that stage attracted s. l 67 of the Code, 'hat the stage had not yet reached when s. 344 would operate and that therefore the Magistrate had no power to remand t!he appellant to jail cus- • H tody for more than 15 days in the whole.

That contention was

(I) Writ Petition No. 330 of 1970, dee. on September l, 1970.

G. S. JHA v. JllHAll (Shlat, /,) 135

A rcJected by tho Magistrate holding that there was an inquiry befOre

bun, and tha~ therefore, s. 344 applied and he was competent, therefOre, to pass remand orders from time to time so long as each of those orders was not for a period in excess of 15 days. By that very order, the Magistrate rejected the bail application made by the appellant's advocate holding that the investigation in the cases I of dacoity in which the appellant was concerned was going on at that stage and that release. of the appellant on bail would hinder its progress.

The next contention was that the appellant was never informed of the grounds of his detention and that that being so, his detention was invalid. Paras 3, 4 and 35 oflhis writ petition did not charge C that at the time of his arrest he was not informed of the grounds for his arrest and that even when he filed his writ petition he was

not informed of those reasons, and that that constituted breach of Art. 22(1). This allegation is . without any foundation. All throughout, his case was that the police had tortured him and threatened to involve him in a umber of. dacoity cases unless he D made certain incriminating statements which iliey wanted from him. What were those incriminating statements which the police were trying to get from him ? From the fact tha~ the police were wanting him to make those statements, he must have realised that those statements were related to the cases for which he had been arrested. Next, in the application he made from jail to the Magistrate on February 28, 1968, he alleged that the senior Sub- E Inspector of Police came to him on February 19, 1968, first abused him and then later on asked him "to admit that offence and promised that by doing so I would be discharged". According to that application he refused to admit the offence whereupon he was assaulted by the police.

It also appears that he knew that an identificat, ion parade was going to be held and therefore had re- F fused to be taken out of jail for being produced befOre the Magistrate. All these facts negative the suggestion of his being kept in ignorance of the reasons for his arrest or the cases charged against him.

The third contention was that no valid custody warrant was issued by the Magistrate. enabling the jail authorities to detain the G appellant in the Darbhanga jail and hence the detention must be

held to be without any legal authority. In support of the argument, counsel pointed out the custody warrant dated February 18, 1968 which according to him must be deemed to have been cancelled as at the foot of it there is the Magistrate's endorsement that the appellant was instead remanded to police custody. Assuming H that to be so, there is nothing to show that on February 21, 1968 when the Magistrate ordered the appellant to be taken into jail custody, a fresh custody warrant had not been issued by him. The Magistrate, while passing that order, must have known that the

jail authorities would not accept the appellant in jail unless the A police taking hin1 there produced a custody warrant.

There is no reason to think first that the Magistrate had not issued such a warrant, and secondly, that the jail Superintendent inducted the

appellan~ in the jail without such a warrant. The contention, in our view, is wholly without any basis.

The last contention of Mr. Ghose was, firstly, that the remand orders passed by the Magistrate were under s. 167 and not s. 344, as the latter section did no! apply at that stage, and secondly, that even if s. 344 applied, the Magistrate could not order detention

for more than 15 days in the who.le. Sec. 167 appears in Ch. XIV which deals with information and investigation. As its language C shows, it deals with the stage when a person is arrested by the police on information that an offence has been committed. In providing tllat such a person must, ~1 terms of s. 61, be produced before a magistrate within 24 hours after his arrest, the section reveals the policy of the legislature that such a person should be brought before a magistrate with as little delay as possible. The object of the section is two-fold, one that the law does not favour D detention in police custody except in special cases and that also for reasons to be stated by the magistrate in writing, and secondly, to enable such a person to make a representatioo before a magistrate. In cases falling under s. 167, a magistrate undoubdly can order custody for a period at the most of 15 days in the whole and such custody can be either .police or jail custody. Sec.

E 344, on the other hand, appears in Ch. XXIV which deal with inquiries and trials. Further, the custody which it speaks of is not such custody as t'he magistrate thinks fit as in s. 167, but only jail custody, the object being that once an inquiry or a trial begins it. is not proper to let tb, e accused remain under police influence.

Under this section, a magistrate can remand an accused person to custody for a term ot excCeding 1 S days at a time provided F that sufficient evidence has been collected to raise a suspicion that such an accused person may have committed an offence and it appears likely that further evidence may be obtained by granting a remand.

. Thus, s. 167 operates at a stage when a person is arrest~.d and G either an investigation has started or is yet to start, but is such that it cannot be com11leted wiin 24 hours.

Sec. 344, on the other hand, shows that investigation has already begun and sufficient evidence has been obtained raising a suspicion that the accused person may have committed the offence and further evidence may be obtained, to enable the police to do which; a remand to H jail custody is necessary. The fact that s. 344 occurs in the Chapter dealing with inquiries and trials does not mean that it does not apply to cases in which the process of investi11ation a.nd

G. s. JHA v. BIHAR (Shela/,/.) 137

A collection of evidence is still going on. That is clear from the very language of sub-s. 1-A under which the magistrate has the power to postpone the commencement of the inquiry or trial. That would be the stage prior to. the commencement of the inquiry or trial which would be the stage of investigation. (see A. Lakshamanrao v. Judicial Magistrate('). Therefore, it is not as if the stage B at which the Magistrate passed the remand orders was still the

 stage when s. 167 applied and not s. 344. The decision of the Orissa High Court in Artatran v. Orissa('), to the effect that s. 344 does not apply at the stage of investigation and can apply only after the Magistrate has taken cognizance of and issued processes or warrant for the production of the accused if he is not C produced before him cannot, in view of A, Laks/UJmanrao's case(1),

ble regarded as correct. The power under s. 344 can be exercised even b, efore the submission of the charge-sheet, (cf. Chandradip

v. State(') and Ajit Singh v. State('), that is, at the stage when , the investigation is still not over. If the view we hold is correct that s. 344 operated, the Magistrate, provided he complied with the condition in the Explanation, was competent 1io pass remand D orders from time to time subject to each order being not for a period exceeding) 5 days. There can be no doubt that the Magistrate had satisfied that condition. The judgmeni of the High Court in para 11 points out that the prosecution case was that the appellant had himself made a confession before the police. That was in addition to a confession by two others which implicat!ed the E appellant in the commission of offences under s. 395 of the Code.

In our view none of the contentions raised on behalf of 'the appellant can be sustained. The appeal, therefore, fails and has. to be rejected.

K.B.N.

(I) A.J.R. 1971 S.C. 186.

(2) A.J; R. 1956 OrisBB 129.

IO-L864Sll!iCI/72

Appeal dismissed ..

(3) (1955) Bihar Law Journal Reports, 323.

(4) (1970) 76 Cr. LJ. 1075.

JHA

THE STATE OF BlllAR AND ORS

January 20, 1972

M. SHELAT

ff. R. KHANNA, JJ.

Code of Criminal Procedure, 1898

Ss. 167, 344

s. 34

s. 167

Code of Criminal Procedure

s. 167

s. 344

s. 344

Sept. 1, 1970

S. 167

Section 344

s. 344

s. 167

s. 334

B. C. Ghose

S."N. Misra

A. K. Nag

D. Goburdhun

Shelat

High Court of Patna

s. 561A

Code of Criminal Procedure

February 18, 1968

February 21, 1968

Darbhanga jail

February 25, 1968

March 22, 1968

March 27, 1968

Bilal Sahni

Baleshwar Paswan

Samastipur

23rd and 24th January, 1968

February 17, 1968

April 19, 1968

Art. 22

Laheriasarai Police Station

May 3, 1968

Ghose

April 22, F 1968

s. 561A

April 22, 1968

s. 561A

Sub-Divisional Magistrate, Sadar

s. 395

Penal Code

March 5, 1968

May 2, 1968

s. 167

March 28, 1968

s. 344

September l, 1970

s. 344

Art. 22(1)

February 28, 1968

February 19, 1968

s. 167

s. 344

s. 344

Sec. 167

s. 61

s. 167

s. 167

s. 167

Sec. 344

s. 344

s. 1

s. 167

s. 344

Orissa High Court

s. 344

UJmanrao

s. 344

s. 344

s. 395


I. C. I. (INDIA) PRIVATE LTD.

C. I. T., WEST BENGAL

January 20, 1972

[A. N. GROVER AND M. H. BEG, JI.]

Income-tax Act, (1961) ss. 52 and 256--Dlrectlons by High Court to Tribunal to refer questions-Scope of High Court's ; urisdiction

After negotiations in 1953 with the concerned Department of the Government of India and the Reserve Bank, a Company, incorporated in U.K. advanced large sums by way of loans to its subsidiary in India, namely the assessee, for subscribing for shares in 80llle Indian Companies. The cormpondence showed that the U.K. Company had the right to acquire at any time the shares at par, in satisfaction of the loans. ln 1961, the asseisee transferred the ahares when called upon by the U.K. Company to do ao.

The Income-tax Officer applied s. 52 of the Income-tax Act, 1961, and

use&Sed the usessee to capital gains tax, which was not in existence in 1953 but was re-introduced in the Finance Bill of 1959. The Income-tax Officer held that the object Of the transfer was to avoid or reduce the assessee's liability to capital gains tax. The Appellate Aaistant Commissioner however, held that the assessee was not liable to capital gains tax, and the Appellate Tribunal, after an elaborate discussion of the cornspondence, confirmed the order, holding that the transfer was not effected with that object.

The Department applied to the Tribunal to refer the questions, (i) E whether certain documents were not properly construed, (ii) whether the Tribunal ignored evidence on essential matten, (iii) whether the finding of the Tribunal was perverse, and (iv) whether s. 52 was not applicable, u arising out the Tribunal's order.

The Tribunal rejected the application.

The Department then moved the Higb Court and the High Court direct. ed Tribunal to state a case in relation to the four questions, but the F High Court did not give any reasons for doini so.

Allowing the appeal to this Court,

HELD : The Higb Court can exercise its jurisdiction in the matter or reference, (a) when the point for determination is a pure question of law, such as, the construction of a statute or a document of title; (b) when the point for determination is a mixed question of law and fact-(Wbile the findings of the Tribunal on the facts are final, its decision as to the leJnll effect of the findings is a question of law. Where, however, the findin1 is one of fact, the fact that it is an inference from other basic facts will not alter its character as one of fact); and (c) when a finding on a que•tion of fact is pervene. rl47C-EJ

The necessary ingredients of s. 52 are : (i) there should be a direct or indirect connection between the person who acquires a capital asset and the u9essee; (ii) the income-tax officer should have reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee to capital gains; and (iii) if the ftnt two conditions

are satisfied then the full value of consideration for the transfer may be tal<en to be the fair market value of the capital asset on the date of the transfer. The intention with which a particular transfer is made and the

object which is to be achieved . by such transfer are essentially questions of fact, the conclusion relating to which, are to be arrived at_ on a conside ration of relevant material; that is1 before the incometax .officer can have

B any reason to believe that a transfer was effected with the object mentioned in the section facts, must exist showing that the object .was to avoid or reduce the liability to capital gains. [141 H; 142 AD]

In the present case, the orders of the Tribunal show that there was no dispute as to the construction of any expression in any letter or document, that no relevant evidence was overlooked, that the inference was drawn from other facts and, that no question was raised on the construction of s. 52. When the Tribunal found, as a fact, that before there was any C proposal to re-impose the capital gains tax which had remained abolished for some time, the scheme between the assessee and the U.K. Company had been fully evolved, the applicability of s. 52 could not be attracted.

The findings of the Tribunal that the object mentioned in the section could not be held to be established from the mere absence of a formal agreement between the assessee and the U.K. Company, is not perverse, but is supported by evidence and is eminently reasonable.

In view of the clear, cogent and precise findings and conclusions of the Tribunal, the Himt D Court should at least have recorded a speaking order showing how tlie questions of law of the nature sought to be referred arose from the order of the Tribunal. [146 BD; 141 A~. F; 148 C.D] Shree Meenakshi Mills Ltd, v. C.1.T., Madras.

31 I.T.R. 28, followed.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1308 of E 1970.

Appeal by special leave from the order dated September 8 .. 1970 of the Calcutta High Court in Income Tn Reference No. 50 of

1971.

N. A. Palkhivala, Veda Vyasa, T. A. Ramachandran and F. D. N. Gupta, for the appellant.

V. S. Desai, S. K. Aiyar and H. D. Sharma, for the respondent.

The Judgment of the Court was delivered by

Grover, J. This is an appeal by special leave from an order G of the Calcutta High Court directing the Income-tax Appellate

Tribunal, 'B' Br11<nch, Calcutta, to draw a statement of case relating to four questions of law which, it was stated, arose out of the order of the Trib/unal in the matter of assessment of the appellant which was the assessee in respect of the assessment year 1962-63.

The Appellate Tribunal had rejected the application of the Com- H missioner of Income-tax requiring it to refer those questions to the High Court. The High Court, on being moved, issued a rule nisi and then made it absolute after full arguments without giving any reasons, whatsoever.

The assessee is a 100% subsidiary of Imperial Chemical Jn.

A dustries Ltd., iincorporated in the United Kingdom (hereinafter referred to as I.C.l. for convenience).

I.C.I. advanced large amounts by way of loans to the assessee from time to time. This, it was claimed, was done for subscribing to shares in three Indian Companies called Indian Explosives Ltd., Alkalai & Chemical Corporation of India and Atic Industries Private Ltd., (herein- .B after called as I.E.L., A.C.C.I and A TIC respectively).

Subsequently the assessee transferred the shares in the aforesaid companies at par to I.C.I. in satisfactiQ!l of the loans advanced by that company. The Income-tax Officer applied s. 52 of the Income-tax Act, 1961 (hereinafter called the 'Act') and assessed .. the assessee to capital gains.

The Appellate Assistant Commisc sioner took the contrary view and held that on the facts which had been established, the assessee was not liable to capital gains under the aforesaid section.

The Tribunal upheld the decision of the Appellate Assistant Commissioner by a detailed and well reasoned order.

Broadly, the case of the assessee was that I.CJ. wanted to D make investments in India in sterling currency.

The assessee was already in. existeaiee but the other three companies which have been mentioned, were incorporated later.

I.C.I. devised a scheme by which it .could make the investment as desired by it and by which it could also take advantage of the tax relief which could be availed of by the new enterprises under s. 15(CJ and 56(A) of the Income-tax Act, 1922. The scheme in short was that I.C.I. \\'Ould arrange to let the assessee hold shares in the three companies by investing the money which was to be given by I.C.I. to

the assessee. 'The modus operandi was that I.C.I. would give that money by way of loans to the assessee who agreed that the shares in the three companies would be transferred to I. C.I. in satisfaction of the loans at par or issue price as and when desired F by I.C.I. All this Was done after negol!ations with the concerned Department of the Government of India at the highest level and with the approval of the Reserve Bank of India.

The entire scheme was conceived and was put into operation prior to 30th November 1956 when the Finance BilJ was introduced re-imposing capital gains tax which had remained abolished for certain .years.

There was a provision for charging ijnterest by the I.C.I. from the assessee at a rate not exceeding l /2% above the Indian Bank rate which came to 5 t % per annum hut the interest was not to exceed in any case the divideinds received by the assessee from those shares. It was claimed on behalf of the assessee tl1at

this arrangement was advantageous both to I.C.I. and the ff assessec.

I.C.I. having taken the risk (of depreciation in shares or otherwise) attached to the new busiiness pioneering adventures, cnsiJred that capital appreciation of the shares, if any, also went

.A to itself.

The assessee did not suffer any disadvantage because it had to pay no interest if no dividend was received and it could keep aind get the benefit of any dividend in excess of 5!%. As a result of I.C.I. investments being held through the assessee instead of directly, LC.I, achieved an advantage of saving tax in U.K. amounting to £ 68,000 in the relevant years.

In 1959 the structure of Lndian taxation regarding the grossing up of dividends was radically changed and by the Finance Act 1959, the system of grossing up of dividends (under s. 16(2) and 18 ( 5) of 1922 Act) was abolished and intercorporate dividends became liable to income tax at each stage.

Thus, the dividends passing from the three companies through the assessee C to I.C.L became liable to tax stages. This affected the net return of I.C.I. on its investments in the three companies substantially. In these circumstances, it was decided by LC.I. that the investments in the three companies should ]le held by it directly.

For that reason it called upon the assessee in February 1961 to transfer to it the aforesaid shares in the three companies at the D issue price in satisfaction of the sterling loans in accordance with the .previous agreements.

The approval of. the Reserve Baali:: to these transfers was received in February 1961 and the transfers were made in March/ April 1961. According to the assessee there was no question of the transfer of shares having been affected with the object of avoidance or reductiqn of the liability of the 'E assessee to capital gains which alone could attract the applicability of s. 52 of the Act. ·· ·

Section 52 is in the following terms :-

"Consideration for transfer in cases of under-statement : Where th~ person who acquires a capital asset from an assessee is directly or indirectly connected with the assessee and the Income-tax Officer has n to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under s. 45, the full value of the consideration for the :transfer shall, with the previous approval of the Inspecting Asstt. Commissioner, be taken to be the fair market value of the capital asset on the date of the 1ransfer".

The necessary ingredients of the section are : '

(i) there should be a direct or indirect connection between the pe!Son who acquires a capital asset and the assessee; (ii) the H Income tax Officer should have reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee to capital gains; (iii) if the first two conditions are satisfied then the full value of consideration for the

transfer can be taken to be the fair market value of the capital 4 asset on the date of the transfer.

s regards the first requirement, that was admittedly satisfied m the present case. The second requirement could be satisfied only if there was any cogent material on which the Income tax Officer could have reason to believe that the transfers were B effected with the object of avoidance and reduction of liability to capital gains. It is abundantly clear that the intention with which a particular transfer is made and the object whiCh is to be achieved by such transfer is essentially a question of fact the conclusion relating to which is to be arrived at on a consideration of the relevant material. In other words, before the Income c tax Officer can have any reason to believe that a transfer was effected with the object mentioned in the section facts must exist showing that the object was to avoid or reduce the liability to capital gains.

The Tribunal examined folly the correspondence and the other material with regard to each of "the three :(ndian companies D in which the investment had been made of the money advanced by I.C.L to the assessee.

We may briefly notice the discussion relating to each company. It was .in or. about 1949 that LC.I. was asked _by the Government of India to consider the manufacture of commercial Lasting High Explosives in India.

Negotiations advanced more towards October 1953 when the E representatives of LC.I. met the officials of the Government of India. The Tribunal referred to the minutes of the meeting held on October 1, 1953 as also on the 6th October 1953. In the final draft of the Declaration of Intention dated November 5, 1953, it was mentioned that the Gove111llil.ent had agreed that if I. C.I. made a loan to the assessee the Iaiter would hold the shares in I.E.L. and that the loan "may be repaid by a transfer of the F shares to I.C.I. at any time".

On 21st December 1954, the assessee applied to the Reserve Bank of India for formal sanction for borrowing Rs. 160 lakhs from I.C.I. for the purchase of shares in I.E.L. in terms of the agreement dated November 5 1953. It was stated in the letter that I.CJ. would charge no

iterest until such time as the shares began to yield dividends.

G The loans were advanced from 30th September 1954 to 30th June 1957 by the I.CJ. to the assessee of the equivalent. of Rs. 160 lakhs in Sterling.

The other correspondence relatmg to the aforesaid amount was also noticed by the Tribunal. In 1958 there was a Rights Issue by I.E.L. I.C.I. agreed to give a loan of Rs. 80 lakhs to the assessee to cover the Sterling require- 8 ment of I.E.L. The assessee was to take up shares of that amount. The terms of the loan were that I.C.I. had the right to acquire at any time the shares held bv the assessee in I.E.L.

A at par in satisfaction of the loan and the rate of interest payable on the loan was to be 1 % above the Indian Bank rate. This was followed by other correspondence and a re.solution which was recorded on 30-9-1958 containing terms of the second loan of Rs. 80,00,000/-. It is not necessary to refer to the other correspondence looked into by the Tribunal with regard to that B loan. On 15-2-1961 the assessee was called upon by I.C.I. to transfer the investments in satisfaction of the loans. After the sanction was obtained from the Reserve Bank of India, the shares were transferred at par. The Tribunal referred to the undisputed facts relating to the Circumstances in which the scheme for advancing the loan to the assessee for investment in C I.E.L. came to be mooted and was ulti!llately approved by the Government. This is what the Tribunal said :

"The above background would show tllat the idea was not to make the assessee the real beaeficial owner of the shares. The fact that the shares should be held only for a time beneficially by the assessee is clear from the "Declaration of Intention" dated S-11-1953"

Before the Tribunal the counsel for the Department had accepted the position that if there was an arm1F11ent or agreement before the reintroduction of capital gains tax he would have no case.

According to him, until the transfers were actually made of the shares, there was no agreement on which the parties E could have gone to court in order to obtain the share transfers at par in favour of I.C.I. The Tribunal proceeded first to examine whether there was any kind of understanding between the assessee and I.C.I. regarding the transfer of shar.is at par.

After recapitulating the correspondence and the relevant facts, the Tribunal came to the following conclusion: F "Taking this along with the minutes of the meeting with the officials of the Government of India, in October 1953, it is clear that the whole idea of I.C.I. throughout was to make some funds available to the assessee so that the shares could be acquired in its name and that the shares could be transferred to I.C.I.

G as and when it demanded".

It 'was however stated by the Tribunal that taking into account the co;,.espondece and the documents referred to earlier it was satisfied with the assessee's case that the transfer of shares to London at issue price or at par was throughout the basis of the advances of loans to the assessee. It is necessary to reproduce H paragraph 31 of the order of the Tribunal :-

"In October 1953 the.re was no mention of any capital gains tax being' revived. At that time the assessee could not have had any idea of avoiding or reducing any liability to capital gains tax.

The learned counsel for the department laid some emphasis on the fact that there was no enforceable arrangement. The question as to whether there was an enforceable arrangement or not is not really material. What we have to find out is whether the object in putting through these transactions of taking over the shares at par or at issue price was one of avoidance or reduction of liability to capital gains tax. That object does not get established by the mere absence of an enforceable arrangement.

Having regard to the assessee being the subsidiary of I.C.I., there is nothing surprising about the arrangement not being so formal or not being put through after complying with all the necessary legal formalities.

The absence of formal agreement is thus understandable in this context and cannot by itself suggest anything in favour of the department.

Businessmen are not always motivated by legalistic considerations. Even taking that the arrangement was only binding morally and not legally, still so long as the assessee wanted to fulfil a moral obligation and had not the capital gains tax in mind, it cannot be said that the transaction was entered into with the object of avoidance or reduction of liability to capital gains tax".

The Tribunal proceeded to say :

"We have to find out the object of the transaction.

It is removed in point of time from the result. In such a case one cannot try to infer the object from the results .. We really have to put ourselves at a point of time when the transaction was conceived ....... .

Taking the materials before us, we consider that there is nothing to suggest that the parties had the capital gains tax in their mjnd in 1953 and later when they put through the aforesaid transactions. We have, therefore, to hold that the factual requisities of section 52 have not been established here".

In dealing with the second Company, namely, A.C.C.I it was pointed out by the Tribunal that ·!he scheme for manufactur

ing Polythene was placed before the Government of India by a letter of the assessee dated 13-12-1955 addressed to Mr. H. V. R.

Iengar, Secretary, Minister of Commerce & Industry, in which it was specifically stated that to enable the assess.ee to subscribe for H the new shares I.C.I. would lend the subscription monies to the assessee on the understanding that at a later date I.C.I. could acquire at the issue price these new shares in satisfaction of its

A Joan.

The Tribunal dealt with all the relevant facts relating to the loan advanced to A.C.C.I. including ithose stated in the affidavits of P. T. Manzies dated 17-8-1966 and U. R. Newbery dated 10-1-1967 and considered that the transaction relating to this Company was not in any way different from those relating to the I.E.L. ATIC, the third Company was incorporated jiri- B maray for the manufacture of certain Dye-stuffs. On 29-12-1955 I.C.I. agreed to advance Rs. 25 lakhs as Joan to the assessee The shares acquired under 1the loan could be transferred to I.C, t on request by the latter at the issue price. l.C.l. waived its right to interest on the loan until the commencement of the period in respect of which ATIC paid the dividend.

There was a funher C Joan of Rs. 35,00,000 on the same terms. These shares were al'o subsequently required to be transferred to I.C.I. in February

1961. The Appellate Assistant Commissioner had referred to the affidavits which had been filed on behalf of the assessee and had mentioned that the Department had not cross-examined the deponents.

Before the Tribunal the counsel for the Department stated that he accepted the affidavits as correct in so far as facts D were concerned but he only disputed the inferences therefrom.

The Tribunal in this connection observed:-

"In our opinion, once the facts mentioned therein are taken as correct, the inference that the transaction was not for 11e purpose of avoiding or reducing liability to capital gains tax has to follow".

Finally the Tribunal, as stated before, confirmed the decision of the Appellate Assistant Commissioner that the material on record did no! justify the conclusion of the Income tax Officer that the object of the transfer of the shares of all the three Companies by the .assessee to I.CJ. was the avoidance of liability to capital gains which would attract the applicability of s. 52 of the Act.

The Commissioner of Income tax asked for a reference on six questions.

The Tribunal again examined the further contentions of the Department in its order dated 28-7-1969 by which it declined to make the reference on the ground that no question of G Jaw arose oll't of the order of the Appellate Tribunal. Only four questions appear to have been pressed for being referred.

As regards question No. 1 (which was No. 3 before the Tribunal) it was pointed out that it proceeded on the basis tha! there was some dispu~ about the construction of the correspondence or documents.

The Tribunal ob!erved that '.here was no such dis- H pute and it had not been suggested that a particular expression in any letter or document had been wrongly construed.

Regarding question No. 2 (which was No. 4 before the Tribunal), the Departmental representative was asked to particularise the documents or evidence omitted from consideration. He referred to A certain documents and evidence which according to him had not been conidered by the Tribunal. The Tribunal made it clear that all the relevant materials which had been referred to had been considered by i!.

These materials were distributed over four bulky vol1111les of typed records and, therefore, ead! document could not have been mentioned in the order.

Nothing relevant B was actually over-looked. At any rate the documents on which particular reliance was placed on behalf of the Department were considered and !he Tribunal observed that the grievance of omission of materials from consideration related to irrelevant matters.

As regards the other two questions, the Tribunal observed that the charge of perversity was only a desparate attempt at ex!racting C a question of law where none existed and that the object or intention of an assessee was always a question of fact. It was a factual inference to .be drawn from other facts.

It was pointed out that on the construction of s. 52, the par'ies had not joined any issue.

We may now mention the four questions which the High Court D directed to be referred :-

1. "whether on the facts and in the circumstances of the case and on a proper construction of the documents referred to and/or considered by it the Tribunal was right in arriving at the finding that the transfer of the shares to Imperial CMmical Industries Ltd., Loadon at the issue price or par was throughout the basis of the advance of loans to the assessee ?

2. Whether, in arriving at the said finding the Tribunal misdirected itself in la)V in basing the said fiuding on evidence covering some matters only and ignoring evidence on other essential matters ?

3. Whether, on the facts and in the circumstances of the case and particularly in view of the finding that there was. no enforceable 'agreement making it obligatory upon the assessee to transfer the shares to Imperial Chemical Industries Ltd., London, at par or issue price the oonclusion of the Tribunal that the transfer of the shares by the assessee to the latter company at par was not effected with the object of avoidance or reduction of the liability of the assessee to capital gains tax was unreasonable or perverse ?

4. Whether, on the facts and in the circumstances

of the case, the Tribunal was right in holding that

s. 52 of the Income tax Act, 1961, was not applicable to the facts of the case ?

On the analysis o.f s. 52 of '!he Act made by us at a previous stage and the clear, cogent and precise findings and conclusions of B the Appellate Tribiunal, we are wholly unable to comprehend, how any question of law of the nature sought to be referred arose

or arises from the order of the Appellate Tribunal.

It is unfortunate that in a case of this naure and magnitude, the High Court did hotichoose to record a speaking order to enable us to appreciate the reasons which prevailed with it for directing c the four questions o be referred.

The jurisdiction in the matter of reference can be exercised (i) when the point for determination is a pure question of law such 'as construction of a statute or document of title; (ii) when the point for derermination is a mixed question of law and fact. While the finding of the Tribu nal on the facts is final its decision as to the legal effect of those findings is a question of law, (iii) a finding on a question of fact D is . open to attack as erroneous in law when there is no evideince

to support it or if it is perverse.

Where, however, the finding is one of fact, the fact that it is an inference from other sic facts will not alter its character as one of fact (See Sree Meenakashi

Mills Ltd. v. Commissioner of Income tax, Madras(1). In that

case it was held that there was no question of construction of any statutory provision or document of title.

The issues which arose for derermination, whether the sales entered in books of the appellant in the names of the intermediaries were nuine, and if not, to whom the goods were sold 'and for what price, were all questions of fact.

Their determination did not involve the application of any Jegal principles to facts esblished by the evidence.

The findings of the Tribunal were amply supported by evidence .and were eminently reasonable.

It, therefore, followed that there was no question which could be referred to the Court under s. 66 (1) of the Income tax Act 1922. The same principles will apply when a reference is sought under s. 256 of the Act. We are altoirether unable to see how findings of the Appellate Tribu"' nal that the transfer of shares in the present case was not made wi!h the intention or object of avoidance or reduction of liability to capital gains were not questions of fact and did not depend on inference of facts from the. evidence or the material before the Tribunal.

It can well be said that the determination of !he question whether the object of the assessee was to avoid or reduce its liability to' capital gains by niakin.R; the transfers in question did not involve tile applicadon of any le2al principles to the facts established by the evidence.

The findings of the Tribunal were amply supported by evidence and were eminently reasonable. It

(I 31 I.T.R. 28.

is true that the amount involved is very large but that cannot A justify a reference as under s. 256 of the Act neither the Appellate Tribunal could make a reference nor could the High Court direct the reference to be made to it by the Tribunal on pure questions .of fact.

The learned counsel for the Commissioner has sought to invite our attention <to certain parts of the order of the Tribunal and, B in particular, to the statement extracted by us at an earlier stage about the question whether 1he .assessee had held the shares benefically and the pc>int which was debated before the Tribunal

whether there was any binding legal agreement between 'the assessee and I.C.I. for transfer of the shares at par. We are unable to see how these matters were relevant for the purpose of determining the inteotion or object under-lying the transfer of the C shares to r.c.r. by the assessee. Once the Tribunal came to the conclusion which was purely one of fact that before there was any proposal to reimpose capitiil gains tax which came to be embodied in the Fin.ance Bill towards the end of November 1956, the scheme had been fully evolved between !he assessee and I.C.I. of making the loans by the latter to the former for being D invested in the three companies and that the shares would be

transferr~ at par by !he assessee to I.C.I. whenever desired, the applicability of s. 52 could not be attracted as the same depend- . ed on certain facts which must exist or must be found and which had not been s0 found by the Tribunal.

In the result the appeal is allowed and ithe order of the High E Court is hereby set aside.

The assessee shall be entitled to its costs in this Court.

v.P.S.

Appeal allowed.

I. C. I. (INDIA) PRIVATE LTD

C. I. T., WEST BENGAL

January 20, 1972

A. N. GROVER

M. H. BEG

Income-tax Act

ss. 52 and 256

Reserve Bank

U.K.

India

U.K. Company

s. 52

Income-tax Act, 1961

s. 52

s. 52

s. 52

s. 52

CIVIL APPELLATE JURISDICTION

N. A. Palkhivala

Veda Vyasa

T. A. Ramachandran

F. D. N. Gupta

V. S. Desai

S. K. Aiyar

H. D. Sharma

Grover

Imperial Chemical Jn.

A dustries Ltd.

United Kingdom

I.C.I.

Indian Explosives Ltd.

Alkalai & Chemical Corporation of India

Atic Industries Private Ltd.

A.C.C.I

s. 52

Income-tax Act, 1961

s. 15(CJ and 56(A)

Income-tax Act, 1922

I.

C.I.

Government of India

Reserve Bank of India

30th November 1956

s. 16(2) and 18

I.C.L

s. 52

Section 52

s. 45

LC.I.

October 1, 1953

6th October 1953

November 5, 1953

I.E.L.

21st December 1954

November 5 1953

I.CJ

30th September 1954

30th June 1957

London

section 52

H. V. R.

Iengar

A.C.C.I.

P. T. Manzies

U. R. Newbery

I.C

s. 52

s. 52

Imperial CMmical Industries Ltd.

Loadon

Imperial Chemical Industries Ltd.

s. 52

Income tax Act, 1961

s. 52

s. 66

Income tax Act 1922

s. 256

s. 256

s. 52

P.S.