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C.I.T. MADRAS

T. V. SUNDRAM IYENGAR (P) LTD.

April 9, 1975

[Y. V. CHANDRACHUD, R. S. SARKARIA AND A. C. GUPTA, JJ.]

Indian !ncon1e Tax Act, 1922, s. 23 A-Scope of.

Under Section 23A of the Indian Incon1e Tax Act, 1922, if in respect of any previous year the profits and gains distributed as dividends within the

12 months immediately fol1owing the expiry of that previous year are Jess than the statutory percentage of the total income of that previous year as reduced by the amounts mentioned in els. (a), (b) and (c) and sub-s. (!), the Income Tax Officer shall make an order that the company shall be liable to C pay super-tax at the prescribed rate on the undistributed balance Of the total income of the previous year. According to Explanation 2. statutory percentage means 45 per cent of the industrial profits and 60 per cent of non-industrial profits.

The explanation further says that the said percentages should be applied separately v.ith refer.ence to the amounts of profits and gains -attributable to the two parts of the company's business as if the said amounts were respectively the total income of the company in relation to each of its parts, the amount of divio"ends and taxes also being sin1Uarly apportioned for D purpose of sub-s. (!).

In the present case 45 per cent of the industrial profits comes to Rs. 1.51 lakhs, while 60 per cent of non-industrial profits comes to Rs. 8.43 laths.

The company, instead of distributing a sum of Rs. 9.94 lakhs by way of dividends distributed Rs. 4.20 lakhs, equally as profits of the industrial and non-industrial activities leaving aside the profit of Rs. 13.21 Jakhs. The income Ta"'{ Officer aUOcated the aividends declared by the company to the E industrial and non-industrial segments in the same proportion as the profits of the two segments bore to the total profits of the company and levied additional super-tax under s. 23A on the entire undistributed balance of the total profits available for distribution, namely Rs. 13.21 Jakhs.

The Order was confirn1ed bythe Appellate Assistant Commissioner.

On appeal, the Appellate Tribunal held that in so far as the profits of the industrial activity \vere concerned, the company must be deemed to l1ave F distributed by way of dividends out of those profits just so much as would be equal to 45 per cent of such profits and accordin_gly it allocated the dividend out of industrial and non-industrial profits.

On this allocation it came to the conclusion that the company having declared the statutory dividend on its industrial profits, was not liable to pay additional supertax in so far as these profits were concerned. 1t, however, upheld the levy of additional super-tax on non-industrial profits.

The High Court confirmed the Tribunal's view.

Allowing the appeal,

HELD : (1) The High Court was in error in holding that the profits of the two parts of the con1pany's business should be treated as if they were the total income of the company for a11 purposes. In taking this view the High Court overlooked the concluding words of Explanation 2 by reason of which the legal fiction has to be ilimited to its duly appointed purpose. [106 D-E].

(2) The High Court and the Tribunal were wrong in holo'ing in favour of the assessee.

Where a company has a composite bqsiness, the first step is to ascertain the distributable profits of the t\vo parts separately. For the purpose of finding out the minimum dividend that the company ought to have distributed, the proper statutory percentage as prescribed by Explanation 2 has to be ap~

plied separately to the distributable profits of the two parts, as if the respective profits are the total income of the company in relation to each part of its business. The composite dividend distributed by the company has then to be

app01iioned between the two parts in the same ratio as the respective profits of the two parts bear to the toal profits of the company. [103H-10~B],

(3) (a) Explanation 2 by its express terms requires that for the purpose of sub-s. (1) the amount of dividends must be "similarly apportioned". [101 E]

(b) 'fhe word "similar" may generally be said to be a \Vord of a1nbiguous import in the sense that the mere stipulation in a statute that something should be done similarly is insufficient by itself to signify the <legree of similarity with which that thing must be done.

The "'ords "similarly apportioned" mean apportioned with reference to the amounts of profits and gains attributable to the two parts of the oompanys business.

The Exphtnation first refers to nn apportionment or splitting up and then provides that the dividends and taxes shall be similarly apportioneO, that is to '>ay, similarly split up.

Accordingly, the words "similarly apportioned" have a definite meaning and are not ambiguous. [lOlG-102 C].

(c) The' word "apportion'' is used in Explanation 2 in the sense of "split up" so that "similarly apportioned" means "similarly split up". fhe divioends have, therefore, to be split up similarly, i.e. in the same ratio as lhc industrial and non-industrial profits bear to each other after the total profit is split up in two parts, indnst'fial and non-industrial. [102D-E]

(d) An assignment as a proper portion of the dividends \vould mean an assignment in the same or similar ratio as the respective profits of the two segments bear to the total profits of the company. Jt is not open to the company to split up and apportion the diviocnds to the profits of the two segments in such a manner as it finds convenient or thin ks fit. 'fhe company's freedom to apportion the dividends is conditioned by the ratio \vhich the profits of the two segments bear to the total profits. [102 F-GJ

The sun1 of Rs. 4.20 Jakhs has to be split up in the same proportion which the respective profits of the two segments bore to the total profits of the company. There is a short-fall in respect of both the segments and accordingly the company would be liable to pay adoitional super-tax at the rate of 37 per cent on the entire undistributed balance of the distributable profits. [102 H-103 BJ.

(4)(a) The language of s. 23A(l) as also of Explanation 2 is clear and distinct and does not yield to more than one reasonable interpretation~ The fiction created by the Explanation is expressly limited to the purposes of sub-s. (1) and there is no justification for pursuing the fiction to its logical conclusion so as to permit it to operate beyond the limited purpose of sub-s. (1). Under the scheme contained in s. 23A where a company has a composite business it is necessary at the outset to find out the profits attributable to the two parts of its business. The statutory percentages as prescribed by Explanation 2 have then to be applied separately to the profits of the two parts.

By reason of the fiction created by Explanation 2, the profits of each part have, for this purpose, and for this purpose alone, .to be treated a<; if they were the total income f that part of th~. Company's busi_n.ess.

By. sub-s.

(1) the company becomes liable to pay add1ttonal super-tax 1f the d1v1a'ends distributed by it are "less than the statutory percentage of the total income''.

Explanation 2 creates the fiction that for the purpose of sub-s. (1) the income of the respective parts is to be regarded as the total inconle of each part so that the statutory percentages can be applied separately to the income of each part.

The fiction operates in this limited field and is in terms created for this Iin1ited purpose. [1050-106 B].

(b) The levy of additional super-tax under s.23A(l) is a single levy. The super-tax has to be levied "on the undistributed balance of the totalincome of the previous year".

Sub-section ( 1) itself clarifies that by these \\'Ords is meant "total income as reduced by the amounts, if anv. referred to in els. (a), (b) or (c) and the dividends actually distributed, rr any." Even iE the Income Tax Officer finCls that the apportioned dividend in any part of the company's business is less than the dividend that onght to have been

C.I.T. v. T. V. SUNDRAM (P} LTD.

declared by application of the statutory percentage, the additional supe1-tax has to be levied on the whole of the undistributed profits of the company.

[106 B-D].

4RGUMENTS

For the t1ppella11t :

1. On a true interpretation of Section 23A(l) and Explanation 2 thereto B where the company's profits liable to be distributed as oividcnd are co1nposite consisting of industrial and non-industrial profits, the Income-tax Officer has first to find out profits attributable to industrial activity and profits attributable to non-industrial activity and ascertain the ratios bet\veen the industrial and non industrial profits to the total Oistributable profit.

By the fiction created by explanation 2 he has to treat the profits in each section as if they were the total income of that section and apply the statutory percentage to find out the minimum dividend that must be declared by the company.

He hat C then to dissect the composite dividend declarcO: b~' the company and apportion the same between the dividend relating to industrial profiti and dividend relating to non-ino'ustrial profits in the same ratios as the industrial profits bear to the total distributable profits and non-indu:-.trial profits bear to the total distributable profits. Thereafter, he has to find out \vhether the dividends so apportioned between the two parts is below the minimum distributable on the application of the statutory percentage.

If he finds that the declared Oividend apportioned to any part of the business is below the taxable D minimum arrived at by applying the statutory percentage then the Incometax Officer has to levy additional super tax on the entire undistributed profits, that is to say, on the distributable profits minus the total composite dividend -declared by the company.

2. The levy of additional super-tax u/s. 23A(l) is a single levy and is -0n the undistiibuted profits on their entirety and, therefore, where on apportionment of the composite dividend declared by the company the industrial and non-industrial profits, the J ncome-tax Officer finds that the apportioned dividend in any part of the company's business is less than the dividend that

ought to have been declared by application of the statutory percentage the Income-tax Officer has to levy additional super-tax on the entire undistributed profits even though in the other sectio11 of the business the declared dividend as apportioned may not be below the minimum that ought to have been distributed by the application of the statutory percentage.

F -3. The fiction created in clause of explanation 2 of Section 23A ( 1) prescribing that the amounts of profits or gains attributable to two parts of company's business should be treated as if they were the total income of the company in relation to each of the parts is only for the purpose of applying the statutory percentage which has to be applied to the total income to find out the dividend liable to be distributed.

This fiction cannot be extended for the purpose of deeming the profits of each part as total lncon1c for the purpose and levy of additional Sllper-tax as if there were as many G total income as there were parts of business profits.

4. Even on the interpretation put by the High Court and the opinion given by it on the question referred to u'/s. 66(2) of the Income-tax Act

1922. the Income-tax Officer \Votlld be justifled in levying additional super-ta_~ on the entire distributed profit of Rs. 13,21,174 or atleast on Rs 12 36196 which i.s . the amotnt of non-industinl pr9fits minus the balance f the 'aeclared d1v1dend attnbutable to non 1ndustnal profits i.e. Rs. 14,05.310 n1inns Rs. 2,69,114. ·

For tl1e respondent

Section 23~ of the Income-tax Act was recast by the II of 1957 with effect from 1-4-1957.

Jt is this amended applicable to the cnse under consideration as it relates to the 1957-58.

Finance A.:t section that is assessment year

A The scope of Explanation 2 \\'Otlld appear to require the foUo\\'ing steps to be taken in order to find out whether s. 23A (I) is applicable in the case of a company whose profits consist partly of industrial activity and partly of non-industrial activity.

(i) Ascertain the profits relating to each part separately when the company's business consists of partly in manufacture and partly of other activities.

(ii) Treat the profit of each part as the total income: of the company (in order to find out whether the dividend distributed is leR<.: than the staulory percentage).

(iii) Apportion the taxes relating to each part and deduct such tax from the profits of that of the company"s business.

Arrive at the balance of income by deducting the amount coverea by item

(3) from the an1ount covered by item (2).

(iv) Apply the statutory percentage of either 45 per cent or 60 per cent on the balance of income arrived at.

(v) Find out whether the dividend distributed and apportioned to each part is less than the statutory percentage.

(vi) If the divioend distributed is less than the statutory percen tage, then on the undistributed balance of income of each part less the taxes specified in subsection (1) and dividend apportioned to this part, additional supertax to be levied at 37 per cent.

The expression 'similar' is an ambiguous \Vord.

The word 'apportion~ means split up.

So long as the apportionment is made with the desire to act as fairly and justly as possible by all patties no uniform mode of appor tionment is necessary.

In the light of this the assessee company has appor tioned the dividend in accordance with the law.

There is no other method of apportionn1ent indicated in the explanation.

Section 23A(l) is not applicable to that party of the company's profits relating to manufacture. If he follow~ the provisions of explanation 2 the Incometax Officer cannot be saiO: to be satisfied that the dividend distributed relating to this part of the company's business is less than the statutory per centage.

The contention of the Revenue on the other hand is that the dividend should be apportioned in the same proportion in which the industrial profits and nonindustrial profits bear to the total income of the company less the tnxes specified in els. (a), (b) and (c) of s. 23A(l).

G It is undeniable that the \Vords used in the latter part of the explanation

are ambiguous. They are capable of more meaning than one. The in terpretation contended fqr by the revenue leads to anamolous results. In the circumstances, the construction which favours the assessee and saves it from the penal consequences deserved to be adopted.

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1392-93 of 1970.

From the j11dgment and order dated the 23rd January, 1969 of the Madras High Court in Tax Cases No. 116 of 1965 and 190 of 1967, Reference No. 48 of 1965 and 72 of 1967.

D. N. Kharkhanis and S. P. Nayar, for the appellant.

S. Swaminathan and S. Gopalakrislman, for respondent.

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The Judgment of the Court was delivered by

CHANDRACHUD, J.-These appeals by certificate granted by the High Court of Madras under section 66A(2) of the Income-tax Act, 1922 arise out of a common judgment dated January 23, 1969 delivered by the High Court in Tax Cases Nos. 116 of 1965 and 190 of 1967. Tax Case No. 116 of 1965 arose out of the reference made by the Income-tax Appellate Tribunal undei; section 66 (1) of the Act while Tax Case No. 190 of 1967 arose out a reference made by the Tribunal in pursuance of an order made by the High Court under section 66(2) of the Act.

The question which arises for consideration in these appeals is whether under section 23A of the Act, the asscssee-company is liable to pay additional super-tax in respect of any portion of its profits.

Section 23A of the Act of 1922, in so far as material read thus at the relevant time :

"23A. (1) Where the Income-tax Officer is satisfied that m

respect of any previous year the profits and gains distributed as dividends by any company within the twelve months immediately following the expiry of that previous year are less than the statutory percentage of the total income of the company of that previous year as reduced by-

( a) the amount of income-tax and super-tax payable by the company in respect of its total income, but excluding the amount of any super-tax payable under this section ;

(b) the amount of any other tax levied under ahy _Jaw for the time being in force on the company by the Government or by a local authority in excess of the amount, if any, which has been allowed in computing the total income ; and

(c) in the case of a banking company, the amount actually transferred to a reserve fund under section 17 of the Banking Companies Act, 1949 ;

the Income-tax Officer shall. unless he is satisfied that havi.ng regard to the losses incurred by the company in

earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable make

an order in wr!tfog that the company shall, apart from the sum determmed as payable by it on the basis of the H assessment under section 23, be liable to pav super-tax at the rate of fifty per cent in the. case of "a company whose business consists wholly or mainly in the dealing in or holding of investments, and at the rate of thirtyseve_n J?er cent in the case of any other company on the und1stnbutecl balance of the total income of the previous

SU!'REME CQ_URt REPORTS

[1975] SUPP, 'S.C.R.

year, that is to say, on the total income as rednced by the amounts, if any, referred to in clause (a), clause (b) or clause (c) and the dividends actually distributed, if any.

x x x x x x

x x x x x x x

x x x x x x x

Explanation 2.-For the purposes of this section. statutory percentage means,-

(i) Jn the case of a company whose business consists wholly or ma; nJy in the dealing in or holding of investments l 00%

(ii) Tn the case of an Jndian company whose business consists wholly in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other from of power 4 5 %

(iii) In the case of an Indian company a part only of whose business consists in ny of the activities specified in

~ clause (ii)-

(a) ,; n relation to the said part of the company's business 45%

(b) i'n relation to the remaining part of the company's business --

(1) if it is a comp111y which satisfies the conditions specified rn sub-clause (a) of clause (iv)

(2) in any other case

the said percontages being applied separately wit11 reference to the amounts of profits and gains attributable to tile two parts of the company's business aforesaid as if the said amounts were respectively the total income of the company in relation to each of its parts. the amount of dividends and taxes also being similarly apportioned for the purposes of sub-sPction ti).

x x x x x x

90%

60%

For the assessment year 1957-58 relevant to the previous year ended December 31, 1956 the company was assessed to additional super-tax under the aforesaid provision. The business of the company consists partly in the manufacture or process111g of goods and partly.

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of an activity of a non-industrial nature.

Out of a total income A. of Rs. 37,98,774 the profits of the company available for distri?ution came to Rs. 17,41,814 out of which Rs. 3,36,504 represented mdnstrial profits and Rs. 14,05,310 represented non-industrial profits. The company distributed by way of dividends a sum of Rs. 4.20,640 only clai111ing that the dividend was declared equally out of the profits of the industrial and non-industrial activities. Thus, the profits B which were available for distribution but which were not distributed came to Rs. 13,21,174.

The Income-tax Officer, while making the assessment, allocated the dividends declared by the company to the industrial and nonindustrial segments in the same proportion as the profits of the two C segments bOre to the total profits of the company. By tbis method, out of the total dividend of Rs. 4,20,640 declared by the company, a sum of Rs. 81,264 was treated as dividends declared out of industrial profits while a sum of Rs. 3,39,376 was treated as dividends declared out of non-industrial profits. Holding that under section 23A, the company was liable to distribute by way of dividends a sum D of Rs. 1,51,426 out of industrial profits and a sum of Rs. 8,43,186 out of non-industrial profits. the Income-tax Officer levied additional super-tax on the entirety of the undistributed balance of the total income, that is to say, on Rs. 13,21,174.

The Appellate Assistant Commissioner having rejected the appeal, E the company carried the matter in a further appeal to the Income-tax Appellate Tribunal, Madras Bench, contending that it had declared dividends utilising the industrial and non-industrial profits equally and since the dividends thus declared out of industrial .profits exceeded the statuory percentage of the minimum distributable dividend as provided in section 23A, the levy, of additional super-tax on the indus- F trial profits was unjustified. On the other hand, it was submitted on behalf of ; he Department of section 23A, to be apportioned in the same for the purposes of section 23A. to be apportioned in the same ratio in which the profits themselves were apportioned between industrial and non-industrial activities. The Tribunal rejected the method canvassed by the Department as "a Rule of thumb;' but then it also rejected the m"thod adopted by the company of allocating the declared G dividend half and half to the profits of the two segments.

Having rejected both the methods, the Tribunal held that in so far as profits of the industrial activity were concerned, the conipany must be deemed to have distributed by way of dividends out of those profits just so much, neither more nor less, as would be equal to 45 per cent of such profits.

Accordingly, the Tribunal allocated a sum of Rs. 1,51,426 as dividends out of industrial profits and the balance, H namely, Rs. 2,69,214 as dividends out of non-industrial profits.

On this allocation the Tribunal came to the conclusion that the company, having declared . the statutory dividend on its industrial profits, was not liable to pay additional super-tax in so far as those profits were concerned.

It, however, upheld the levy of additional super-tax on non-industrial profits.

Under section 66 (1) of the Act, the Tribunal referred the following question for the opinion of the High Court :

(1) "Whether on the facts and in the circumstances of the case, Tribunal was right in holding tbat the assessee company was not liable Jo the additional super-tax under sec. 23A in respect of the assessee's industrial profits for the assessment year

1957-58".

Under section 66(2) of the Act the Tribunal referred to tbe High Court the following question :

(2) "Whether on the facts and in ihe circumstances of the case, the Tribunal is right in holding that additional super- . tax is not lcviable under sec. 23A of the Act, in respect of any portion of the profits of the assessee company for the a, ssessment year 1957-58."

The second question on which the High Court called for a reference may seem to suggest that under the judgment of the Tribunal the Company was held not liable to pay additional super-tax in respect of any portion of its profits. Tha, t is not so. The Tribunal held that the Company was not liable to pay additional super-tax on its industrial profits but was liable to pay it on non-industrial profits.

The High Court confirmed the Tribunal's view. It held that there was no justific;\tion in Explanation 2 for the apportionment of dividends in the ratio which the industrial profits bear to non-industrial profits, that it was open to the assessee to apportion the dividends in such a way as to conform to the requirements of section 23A in respect of one of the two segments of its business and that the profits of the other segment only would attract the incidence of aPditional super-tax.

The High Court demonstrated the absurdity of the contrary view witb the help of a hypothetical illustration.

We are concerned in this appeal with the true construction ot section 23A as recast by Finance Act 2 of 1957.

The section, in so far as relevant, is extracted above.

It has no application to companies in which the public are substantially interested. The section provides for levy of additional super-tax at 50 per cent in the G case of a company whose business consists wholly or mainly in tbe dealing in or holding of investments and at 37 per cent in the case of any other company.

The additional super-tax is leviable if in respect of any previous year the profits and gains distributed as dividends within the 12 months immediately following the expiry of that previous year are Jess than the statutory percentage of the total income of the previous year as reduced by the amounts mentioned H in clauses (a),(b) and (c) of sub-section (1). The additional super-tax, which in the instant case would be 37 per cent, is payable on the undistributed balance of the total income of the previous year.

By 'undistributed balance of the total income' is meant the total income as reduced by the a, mounts, if any, referred to in clauses (a),

(b) and ( c) of sub-section ( 1) and the dividends actually distributed, if any.

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By ; Explanation 2, 'statutory percentage' means for the present A purpose, 45 per cent of inddstrial profits and .60 per cent of nonindustrial profits. These percentages ha, ve to be applied separately to the profits of the two segments as if those profits Were respectively the total income of the company in relation to each segment of its business. The dividends and taxes have also to be 'similarly apportioned', for the purposes of sub-section (1).

Two questions arise for decision : (1) Whether the dividends distributed by the Company have to be apportioned as between .the profits of the industrial and non-industrial segments of its bu&incss

in the same proportion as the respective profits bear to the total profits of the Company; and (2) Whether, if on apportionment, the d.ividend .apportionable to one of the two segments is found to be less than C the statutory percentage in respect of that segment, the additional super-tax is Jeviable on the entire balance of the Company's undis~

tributed profits or whet]ler it is leviahle on the balance of undistributed' profits of that segment only in respect of which the short-fall has occurred. The second question may not strictly arise if on the first question it is found that the dividend apportiom\ble to the two seg- D ments is less than the statutory percentage in respect of both the

egments. AU the same, it would be necessary to examine that qµestion also as the High Court has, held that the liability to pay the add!tiolllll super-tax must be restricted to the undistributed profits of that segment only, in respect of which the default has occurred.

On the first question, the language of Explanation 2 is clear apd admits of no doubt or difficulty. It requires by its express terms that for the purposes of sub-section (1), the amount of dividends must be "similarly apportioned".

But,, counsel for the respondent urged that since the Explanation does not refer to any apportionment at all, the words "similarly apportioned" cannot be ascribed any rational meaning and it would therefore be open to the company to apportion the dividends 50 : 50 to the profits of the two segments.

Relying on "Words and Phrases Legally Defined" by Saunders, Vol.

V, p. 79 where it is stated that the word 'similar' is an ambiguous word, it was submitted that the benefit of an ambiguity in a taxing statute must go to the assessee and accordingly, the company would be free to make a convenient apportionment of dividends so as to attract the least incidence of the additional super'tax. Counsel also relied on Burrow's "Words and Phrases'', Vol. I, p. 217, where it is said that so long as the 11pportionment is made with the desire to act as fairly and justly as possible by all parties, no uniform mode of apportionment is necessary.

The word 'similar' may be said to be a word of ambiguous import in the sense that the mere stipulation in a statute that something H should be done similarly is insufficient by itself to signify the degree

of similarity with which that thing must be done. A thing can be done similarly without its being a slavish copy of the model. But Expl, anation 2 indicates with meticulous particularity, how similarly dividends and taxes must be apportioned, When it SaJ"ll that they mnst be "similarly apportioned", the reference obviously is to the apportionment which is

SUPREME COURT REPORTS [1975) SUPP. s.c.J.t.

spoken of earlier in the Expla, nation. After specifying what particular percentages shall constitute the statutory percentage for the purposes of section 23A, Explanation 2 provides that the said percentages shall be applied separately "with reference to the amounts of profits and gains attributable to the two parts of the company's business." The words "similarly apportioned" which thereafter occur in the Explanation mean apportioned "with reference to the amounts of profits and gains attributable to the two parts of the company's business". Thus, the Expl, a, nation first refers to an apportiawmcnt or splitting up and then provides that the dividends and taxes shall be similarly apportioned, that is to say, similarly split up. Accordingly, the words 'similarly apportioned" convey a definite meaning and are not ambiguous.

It is urged that the division of total profits of a company into industrial and non-industrial profits cannot be the result of any apportionment properly. so-ca11ed but must conform to the company's books of account and therefore, Explanation 2 ca, nnot be said to refer to any apportionment before speaking of the dividends and taxes being "similarly apportioned''.

This argument reads too much in the word 'apportioned'. That word is used in !Expl11;11ation 2 in the sense of 'split up', so that 'similarly apportioned' means simply 'similarly split-up'. The dividends have therefore to be split up similarly, that is, in the same ratio as to industrial and non-industrial profits bear to each other after the total profit is split up in two parts, industrial and non-industrial.

According to Burrow's Words and Phrases Vol. I. p. 217, to 'apportion' means 'to split up'.

It is therefore impossible to accept the respondent's contention that though Explanation 2 requires that dividends should be similarly apportioned, it would be open to the company to make any convenient division of the dividends distributed by it.

According to the Shorter Oxford English Dictionary, 3rd Ed., Vol. l, p. 87, to 'apportion' is 'to assign as a proper portion'.

An assignment as a proper portion of the dividends would mean an assignment in the same or similar ratio as the respective profits of the two segments bear to the total profits of the company.

Ir is thus not open to the company to split up and apportion the dividends to the profits of the two segments in such manner as it finds convenient or thinks fit.

The company's freedom to apportion the dividends is conditioned by the ratio which the profits of the two segments bear to the total profits.

The total distributable profits of the company came to Rs. 17,41 ,814 out of which the industrial profits are Rs. 3,36,504 and the non-industrial profits are Rs. 14,05.310. Forty-five per cent of the industrial profits comes to Rs. 1,51,426 while 60 per cent of the non-industrial profits comes to Rs. 8,43,186. The company therefore ought to have disfribnted a sum of Rs. 9.94,612 by way of dividends whereas it distributed a sum of Rs. 4,20,640 only. This sum of Rs. 4,20,640 has to be split up in the same proportion which

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the respective profits of the two segments bear to the total profits of A the company.

That is to ay, a sum of Rs. 81,264 from out of the total dividends distributed is apportionable to the industrial profits while a sum of Rs. 3,39,376 is_ apportionable to the non-industrial profits. There is thus a short-fall in respect of both the segments and accordingly the company would be liable to pay the additional supertax at the rate of 37 per cent on the entire undistributed balance of B distributable profits.

The hypothetical illustration which was cited before the Incometax Officer and which is relied upon by the High Court may at the highest, if its fundamental premise is true, show that the interpretation canvassed by the Revenue may conceivably work out injustice.

But if the language of the statute is clear and unambiguous, and if two interpretations are not reasonably possible, it would be wrong to discard the plain meaning of the words used in order to meet a possible injustice.

Besides, the illustration only assumes an injustice

and therefore its fundamental premise is wrong.

The distributable profits of the hypothetical company are said to be Rs. 1,00,000 out D of which Rs. 30,000 are industrial and Rs. 70,000 non-industrial profits. Applying the statutory percentage of 45 and 60 per cent respectively, the company must distribute by way of dividends Rs. 13,500 plus Rs. 42,000, that is, Rs. 55,500. The High Court says that even if the company distributes Rs. 55,500 by way of dividends, apflertioning Rs. 13,500 to industrial profits and Rs. 42,000 to nonindustrial profits, it would violate section 23A because, if the sum of Rs. 55,500 is to be apportioned in the same ratio which the profits of the two segments bear, a sum of Rs. 16,650 will be apportionable to industrial profits and Rs. 38,850 to non-industrial profits.

The fallacy of this illustration consists in its overlooking that if the compny is liable to distribute Rs. 55,500 by way of dividend& and it does distribute that sum, there is no violation of section 23A. That section applies only if "profits and gains distributed as dividends .... are less than the statutory percentage of the total income .... as reduced .... "

If the dividends have to be apportioned in the ratio of profits of

the two segments, the taxes have also to be similarly apportioned for Explanation 2 speaks of "the amount of dividends and taxes also G being similarly apportioned".

A "similar" apportionment of taxes, it is urged by the respondent, may in practice lead to impossible and unreal situations since the taxes on the profits of the two segments ma.y be unequal as in the case of a newly established industrial undertaking which, in respect of its industrial income, may enjoy a tax concession.

There is no merit in this contention. The method specified in section 23A has to be worked out according to its scheme and 1t H is no answer 10 the obligation to apportion the dividends and taxes, that taxes levied on the profits of the two segments are unequal or are leviable on a different basis.

Thµs, the High Court and the Tribunal were wrong in holdmg in favour of the assessee on the first of the two questions which we have framed for consideration.

Where a company has a composite

10 SC/75-8

~---

A business, as for example industrial and non-industrial business, the

- first step is to ascertain the distributable profits of the' two parts separately: For the purpose of finding out the minimum divided that the company ought to 'have distributed, the proper statutory percentage as prescribed by Explanation 2 has to be applied separately to the dis

tributable profits of the two parts, as if the respective profits arc the total income of the company in relation to each part of its business.

The composite dividend distributed by the company has then to be apportioned between the two parts in the same ratio as the respective profits of the two parts bear to the total profits of the company.

_ We have shown that in the instant case the dividend apportionable between the two parts of the company's business is less than the statutory percentage in respect of both the parts. T!"!c High Court, like the Tribunal, gave to. the company the choice to allocate the dividend suitably to the two parts and held on such allocation that since the default had occurred in respect of the profits of the nonindustrial part only, the company would be liable to pay the additional super-tax on the undistributed balance of the non-industrial profits .only.

The second question which we propose to consider, though it does not arise on our findings, is whether the company is liable to pay additional super-tax on the undistributed balance of non-industrial profits only or whether it is liable to pay the additional super-tax on the entire undistributed balance of its distributable profits.

We have heard a full argument on this question and if we did not decide it the view of the High Court is likely to cause misunderstanding.

As observed by Chagla C- J_ in Sir Kasturchand Ltd. v'. Commissioner of Income-tax, Bombay City,(') section 23A was enacted in terrorem against private companies. The object of the section .is to prevent evasion of super-tax by the shareholders of a company in which the public are not substantially interested. The shareholders of a private company could avoid the high incidence of super-tax by allowing the profits of the company to accumulate in its hands so that the accumulated profits could be distributed eventually ia the form of bonus shares which are not assessable as income in their hands.

G In considering whether the company is liable to pay additional super-tax on the entire balance of distributable profits, it has to be borne in mind that section 23A is clearly penal in nature ; for, in the the circumstances mentioned therein, if a private company fails to distribute by way of _dividends the statutory percentage of its distribntable profits, it becomes liable to pay, apart from the sum determined as payable by it on the basis of the assessn1ent under section 23, H super-tax at 50 per cent or 37 per cent as the ease may be, on the undistributed balance of its distributable profits.

In the first place, this provision being penal, the burden wonld lie on the revenue to prove that the conditions laid down by the section are satisfied.( 2)

(I} 17 I. T. R. 493, ot 495 and 496. (2) Commissioner of Incometax, West Bengal v. Gangad/rar Banerjee & Co.

(p} Ltd., 57 LT.R. 176, 184.

. -

• .. • •

Secondly, penal statutes have t<l._ be construed strictly in the sense that A if there is a reasonable interpretation which will avoid the penalty, that interpretation ought to be adopted : "When the legislature imposes a penalty, the words imposing it must be clear and distinct".(')

Jt is contended on behalf of the respondent that the language of section 23A (1) read with Explanation 2 is ambiguous and therefore B the court ought to adopt the interpretation which favours the assessee, more particularly because the relevant provisions provide for the imposition of a penalty. In this behalf, learned counsel for the respondent relied strongly on the provision contained in Explanation 2 by which the statutory percentages are required to be applied separately with reference to the amounts of profits and gains attributable to the C two parts of the company's business, "as if the said amounts were respectively the total income of the company in relation to each of its parts". It is urged that the fiction created by Explanation 2 must be given its full effect and that it must be carried to its' logical conclusion.

As the distributable profits of the two parts are to be deemed to be the total income of the company in relation to each of those parts, the penalty, according to the respondent, can be im- D posed on that part of the income only in respect of which the default has occurred.

It is impossible to accept this contention. If two interpretations of

E the relevant provisions were reasonably possible, we would have readily accepted that interpretation which favours the assessee.

But the language of sub-section ( 1) of section 23A as also of Explanation 2 is clear and distinct and does not yield to more than one reasonable interpretation.

Sub-section (1) provides that if the dividends distributed by a company are less than the statutory percentage of the "total income" of the company as reduced by the amounts mentioned In clauses (a), (b) and (c), the Income-tax Officer shall make an F order that the company shall be liable to pay additional super-tax at the prescribed rates "on the undistributed balance of the total income of the previous year'', that is to say on the total income as reduced by the amounts referred to in clauses (a), (b) and (c) and the diyidends actually distributed. Explanation 2 clarifies what is meant by "statutory percentage" and provides that the prescribed percentages should _be appl_ied separately with reference to the amounts of profits

nd _gams attnbutable to the two parts of the company's business, as 1f the said .!_!mounts were respectively the total income of the company in reltion to eac~ of its parts, ...... for the purposes of sub-section ( 1) .

The fictlon created by the Explanation is thus

expessly li1!1ited to the purposes of sub-section (1) and there is no 1us!Ificat10n. for_ pursuing the fiction to its logical conclusion so a, s to p7nmt 1t to operate beyond the limited purpose of sub-sectlon (1). Under the scheme contained in section

23A where a company has a compsite business it is necessary at th~ outset to find out the profits attnbutable to the two parts of its busi-

(I) Willis v, Thorp (1875) L.R. 10 Q.B. 383, 386, See also Craic> n Statute

Law, Sixth Ed., P.' 529-530.

~---"'-

SUPREME COURT ~EPORTS (1975] SUPP, S.C.R.

A ness. The statutory percentages a prescribed by Explanation 2 have then to be applied separately to the profits of the two parts. By reason of the fiction created by Explanation 2 the profits of each part have for this purpose, and this purpose alone, to be treated as if they were the total income of that part of the company's business.

By sub-section 1, the company becomes liable to pay additional super-tax if the dividends distributed by it are "less than the statutory percentage of the total income". Explanation 2 creates the fiction that B

for the purposes of sub-section 1, the income of the respective parts is to be regarded as the total income of each part so that the statutory percentages can be applied separately to the income of each part.

The fiction operates in this limited field and is in terms created for this limited purpose.

The levy of additional super-tax under section 23A (1) is a single levy. The supr-tax has to be levied "on the undistributed balance of the total income of the previous year". Sub-section (1) itself clarifies that by these words is meant "total income as reduced by the amounts, if any, referred to in clause (a), clause (b) or clause (c) and the dividends actually distributed, if any".

The additional super-tax has therefore to be levied on the entire undistributed balance of the net income of the company.

In other words, even if the Income-tax Officer finds that the apportioned dividend in any part of the company's business is less than the dividend that ought to have been declared by application of the statutory percentage, the additional superta::r has to be levied on the whole of the undistributed profits of the company. The High Court was therefore in error in holding that the profits of the two parts of the company's business should be treated

as if they were the total income of the company for all purpo•es. In taking this view, the High Court overlooked the concluding words of Explanation 2 by reason of which the legal fiction has to be limited to its duly appointed purpose.

In the result we set aside the order of the High Court and allow the appeal with costs.

P.B.R.

Appeal allowed.

' --

C.I.T. MADRAS

T. V. SUNDRAM IYENGAR (P) LTD

Y. V. CHANDRACHUD

R. S. SARKARIA

A. C. GUPTA, JJ.

Tax Act, 1922

s. 23

Section 23A

Tax Act, 1922

s. 23A

s. 23A(l)

s. 23A

Section 23A(l)

s. 23A(l)

Section 23A

s. 66(2)

Income-tax Act

Section 23

Income-tax Act

s. 23A

Section 23A(l)

s. 23A(l)

section 66A(2)

Income-tax Act, 1922

section 66

section 66(2)

section 23A

Section 23A

section 17

Banking Companies Act, 1949

section 23

section 23A

section 23A

section 23A

section 23A

section 66

sec. 23A

section 66(2)

sec. 23A

section 23A

section 23A

section 23A

section 23A

section 23A

section 23A

section 23A

section 23A

section 23

section 23A

section 23A

section

23A

section 1

section 1

section 23A


M/S. SABLE WAGHIRE & CO. & OTHERS

UNION OF INDIA & OTHERS

March 21, 1975

(K"K. MATHEW, V. R. KRISHNA !YER AND P. K. GOSWAMI, JJ.]

Emblems and Narnes (Prevention of Inzproper Use) Act, 1950-Legislative conipetence of Parliament-Sanctity of na1nes and emblen1s of international a11d

national entities-Act, if covered by , Entries 49 and 91 of List l or by Entry i 26 of List Tl of Schedule Vil of the' Constitution.

E1nblen1s and Na1nes (Prevention of Improper use) Act, 1950, Sections 3, 4 t;1nd 8-Regulation of use of e1nblen1s and ruunes_:."Clzltatrapati Shivaji'", if could be used as trade narne-Provisions, if suffer from the vice of excessive delegation of legislative power-Petitioner's right under Article 19(1)(f) and {g), if violated.

The petitioners Nos. 2 to 5 in Writ Petition No. 37 of 1970 are the D sole partners of petitioner No. 1 which is a registered partnership firm carrying OJ). the business of manufacturing, marketing and selling bid.is under the pictorial representation , and the trade name "Chhatrapati Shivaji Bidi".

The firm is the sole proprietor of the Registered Trade Mark No. 12549 in respect of the pictorial representation of the picture of "Chhatrapati Shivaji" and of the Registered Trade Mark No. 12550 in respect of the trade name "Chhatrapati

Shivaji" registered in the Registry of Trade Marks, Bomba~. The petitioner in Wr.it Petition No. 38 of 1970 supporting the petitioners in Writ Petition E No. 37 of 1970 has submitted the additional petition claiming the same re!iefs. The petitioner in \Vrit Petition No. 38 of 1970 (the company) has ,.iso been impleaded as respondent no. 4 in Writ Petition No. 37 of 1970. By a declaration dated November 25, 1938, filed with the Registrar of Assurances at Bombay, petitioner no. 2 obtained protection for the user of the said pictorial representation of "Chhatrapati Shivaji" and for the use of the said trade name -as the exclusive proprietor thereof.

In due course under an agreement dated June 29, 1967, the firm while retaining exclusive proprietory tights in respect F of the Registered Trade Marks Nos. 12549 and 12550 gave exclusive right of

UBer thereof to the company for valuable consideration.

By a notification No. S0/1020 dated March 16, 1968, issued by the Central Government under section 8 of the Emblems and Names (Prevention of Improper Use) Act, 1950,

and published in the Gazette of India on March 23, 1968, in item No,. 9A in the Schedule to the Act after the words "pictorial representation of'', the \vords "Chharapati Shivaji Maharaj or" were inserted.

On the representation made by the petitioners, the Government ailowed the petitioners to use the G existing Trade Marks with the name and the pictorial representation of Chhatrapati Shivaji till May 31, 1969.

The Joint Registrar of Trade Marks (Respondent No. 3) by Notice No. PR/ 1951 dated October 16, 1969, informed the firm that the use and registration of the name and the pictorial representation of "Chhatrapati Shivaji Maharaj"

is prohibited by virtue of section 3 and 4 of the impugned Act and the registration of the aforesaid Trade Marks Nos. 12549 and 12550 offended H 1he provisions of section 11 of the Trade and Merchandise Marks Act 19.58 read with section 32(b) of the said Act, and, therefore, proposed o recttfy the Register by expunging therefrom the said Trade Marks unde~ sect!on. 56(4) of the said Act.

The Registrar called upon the firm to submit ob1ections tf any.

The petitioners applied for extension of t!me. to show case before th~ Rerristrar and ultimately moved these Writ apphcattons ch.a1leng1ng the constttut'fonal validity of the Act and in particular of sections 3, 4 and 8 of the

i\ct as well as of. the Notification of the Central Government dated March 16,

A 1968.

They have also prayed for quashing the Notice of the Registrar dated October 16, 1969.

A rule nisi was obtained on March 2, 1970, with interim stay preventing the Goverrunent from enforcing the provisioris of the Act. ·

It was contended for the petitioners : (1) The Act is void for want or legislative competence: (ii) Sections 3, 4 and 8 of the Act suffer from the vice of excessive delegation of legislative power; (iii) The Act has become unv.'orkable because no rules have been framed under section 9 of the Act; aud (iv) 'fhe Notification under section 8 was not published in the name of the President and was issued by the Under Secretary who was not authorised to do so.

Rejecting the contentions and dismissing. the \Vrit Petitions :

HELD : (i) Entry 49 of' List I may \Vell supply the coverage for the Union legislative field so far as the Act is concerned. Trade marks, designs and nierchandise marks may legitimately take in matters relating to their abuses and improper uses.

Even otherwis.e the residuary entn 97 of List I is of v1ide amplitude to take care of the particular suhjP-ct matter of legislation, namely, prevention of improper use of certain en1blems and names for professional and/or commercial purposes.

[14G]

(ii) The scheme disclosed in the provisions of the Act read with the preamble, and the Objects and Reasons rr.ake it clear that there was imperative necessity for regulating the use of certain emblems and names.

The fact that only improper use Of the names and emblems is prohibited itself provides guidance.

The original entries in the Schedule would also point to the nature and character of the names, emblems and entities.

It is not possible for the Parliament to envisage the possibility of improper use of all names and emblems as tin1e goes on. Nol\ is it possible to enumerate in the Schedule an exhaustive list of all the names, emblems and entities. ction 8, therefore, makes provision for empowering the Central Government td add to or alter the Schectnle.

In the nature of things, there is no abdication of legislative function by Parlian1ent in delegating its po\ver under section 8 in favour of the Central Government which will be the appropriate authority to consider from time to time as to the ilems to be included in or omitted from the Schedule in the light of knowledge and experience gathered from the nook and corner of the entire country.

There is, therefore. no excessi\'C delegation of legislative power by PaiJiament in favour of the Central Government.

[16A-B]

The petitioners' right to trade in bidis is not at all interfered with by the legislation. Section 3 in terms provides for enabling the affected persons to vdjust their business or affairs inasmucli as the Central Government can pennit some time to alter their emblems, designs, etc. to carry on with their trade.

Indeed in the present case the petitioners on their own application obtained an extension of time presumably under section 3 of the Act and, therefore. cannot complain on that score.

There is built-in safeguard in section 3 itself for mitigating any hardship to persons. or any rigour of the law. The provisions arc accordingly regulatory in nature and even. if at all. they impose only reasonable restrictions on the exercise of the petitioners' right under Article 19(1)(f) and (g )..

Section 4 is a consequential provision and validly co-exists with section 3. [16FG]

(iii) From the scheme and machinery of the Act there is nothing to indicate that absence of rules will make the Act unworkable. [16G-H}

(iv) The Notification is not an executive order but is .a piece of subordinate legislation made by the Central Government under section 8 of the Act.

It was duly published in the Gazette of India over the signature of the Under Secretary who was authorised for the purpose.

Therefore, the question of violation of Article 77 does not arise. J17A] ORIGINAL JURISDICTION : Writ Petitions Nos. 37 and 38 of 1970.

Petition under Art. 32 of the Constitution of India.

B. D. Bal, J. V. Deshpande, 0. C. Mathur and D. N. Mishra, for the petitioners.

L. 'N. Sinha, Solicitor General of India, G. L. SanRhi and Girish Chandra, for the respondents.

The Judgment of the Court was delivered by

GOSWAMI, J.-The petitioners Nos. 2 to 5 in Writ Petition No. 37 of 1970 are the sole: partners of petitioner No. 1 which is a registered partnership firm (briefly the firm) carrying on the business of manufacturing, marketing and selling bidis under the pictorial representation and the trade name "Chhatrapati Shivaji Bidi". The firm is the sole proprietor of the Registered Trade Mark No; 12549 in respect C of the pictorial representation of the picture of "Chhatrapati Shivaji"

and of the Registered Trade Mark No. 12550 in respect of the trade name "Chhatrapati Shivaji" registered in the Registry of Trade Marks, Bombay: The petitioner in Writ. Petition No. 38 of 1970 supporting the petitioners in Writ Petition No. 37 of 1970 ha.s submitted the additional petition claiming the same reliefs.

Jn fact the petitioner D in Writ Petition No. 38 of 1970 (briefly the company) has also been impleaded as respondent No. 4 in Writ Petition No. 37 of 1970.

According to the petitioners the business of manufacturing bidis accoording to special formll_lae and processes and of marketing and selling them under the pictorial representation of "Chhatrapati Shivaji" E and under the trade name "Chhatrapati Shivaji" was first started in about the year 1928 by one Raghunath Ramchandra Sable, the father of petitioners 2 and 4. It is stated that Raghunath Ramchandra Sable

adopted the said pictorial representation and the said trade name in response to a call of the then popular leaders to adopt the name of Chhatrapati Shivaii. in relation to aU articles designed for public use F or consumption with a view to popularise and keep before the public

eye the image of the national hero, Chhatrapati Shivaji. By a declaration dated November 25, 1938, filed with the Registrar of Assurances at Bombay, petitioner No. 2 obtained protection for the user of the said pictorial representation of "Chhatrapati Shivaji" and for the use of the said trade name as the exclusive proprietor thereof. In due course under an agreement dated June 29, 1967, the firm while retaining G exclusive proprietary rights in respect of the Registered Trade Marks Nos. 12549 and 12550 gave exclusive right of user thereof to the company for valuable consideration. It is said that the bidi business developed on a very vast and extensive scale and' the sale of bidis marketed and sold under the pictorial representation of "Chhatrapati .

Shivaji" and the words "Chhatrapati Shivaji" associated therewith came to over Rs. 2 crores. The business also spread to different States.

Troubk started when by a Notificatiori No. S0/1020 dated March 16, 1968. issued by the Central Government under section 8 of the Emblems and Names (Prevention of Improper Use) Act 1950 (br!efly the Act) and published in the Gazette of India on Mrch 23 1968, in item No. 9A in the Schedule to the Act after the word;

A "pictorial representation of', the words "Chhatrapati Shivaji Maharaj or" were inserted.

We have, therefore, to turn our attention to the

Act. I

The long title of the Act is The Emblems and Names (Prevention 0f Improper Use) Act, 1950.

The preamble shows that it is "an Act to prevent the improper use of certain emblems and names for professional and commercial purposes". The Act extends to the whole of India and also applies to citizens of India outside India. It was brought into force from September I, 1950.

Section 3 which is the most important section reads as under :

Prohibition of Improper use of certain emblems and names.

3. "Notwithstanding anything contained in any law for the time being in force, no person shall, except in such cases and under such conditions as may be prescribed by the Central Government, use, or continue to use, for the purpose of any trade, business, calling or profession, or in the title of any patent, or in any trade mark or design, any name or emblem specified in the Schedule or any colourable imitation thereof without the previous permission of the Central Government or of such officer of Government as may be authorised in this behalf by the Central Government".

Section 4 prohibits registration of ccrlain companies, etc. and 1s as follows 4( I). "Notwithstanding anyt]1ing contained in any law for the time being in force, no competent authority shall,- ( a) register any company, firm or other body of persons which bears any name, or

(b) register a trade mark or design which bears any emblem or name, or

(c) grant a patent in respect of any invention which bears a title containing any emblem or name;

(2)

if the use of such name or emblem is in contravention of section 3.

If any question arises before a competent autl1onty whether any emblem is an emblem specified iii the Schedule or a colourable imitation thereof, the competent authority may refer the question to the Central Government, and the decision of the Central Government thereon shall be final.

Section 5 which imposes penalty for contravention of section 3 of the Act runs as follows :-

' 5. ";\ny person who contravenes the provisions of section 3 shall be punishable with fine which may extend to five hundred rupees''.

. s. WAGHIRB & co. v. UNION (Goswami, J.)

Section 8 reads as under :-

!· Power of the Central Government to amend the Schedule.

8. "The Central Government may, by notification in the Official Gazette, add to or alter the Schedule, and any such addition or alteration shall have effect as if it had B been made by this Act".

Section 9 empowers the Central Government to make rules to carry out the purposes of the Act.

Originally the Schedule atta_ched to the Act bad only three items, namely,-

(!) The name, emblem or official seal of the United Nations C Organization;

(2) The name, emblem or official seal of the World Health Organization; and (3). The Indian National Flag.

But by various notifications of the Central Government in the course D of several years the Schedule now contains 17 items of which we are now concerned only with item No. 9A which as amended by the impugned Notification dated March 16, 1968, stands as under :-

9A. "The name or pictorial representation of Chhatrapati

Shivaji Maharaj or Mahatma Gandhi or the Prime E Minister of India (except the pictorial use thereof on calendars where only the name of the manufacturers and printers of the calendars are given and the calendars are not used for advertising goods)."

It is, therefore, clear that under section 3 read with the Schedule F as amended the petitioners will not be able to use for the purpose of their trade or business the particular Trade Marks containing the name ot emblem of Chhatrapati Shivaji.

The petitioners represented to the Government of India in the Commerce Department about the hardship caused to them and . requested for extension of time upto March 31, 1972 for continuing G to the use the said Trade Marks. The Government allowed the petitioners time to use the existing Trade Marks with the name and the pictorial representation !Jf Chhatrapati Shivaji till May 31, 1969. After the expiry of _the aforesaid date no further extension of time was granted.

The Joint Registrar of Trade Marks (Respondent No. 3) by Notice No. PR/2951 dated October 16, 1969, informed the firm that H the use and registration of the name and the pictorial representation of "Chhatrapati Shivaji Maharaj" is prohibited by virtue of sections 3 and 4 of the impugned Act and the registration of the aforesaid Trade Marks Nos. 12549 and 1~550 offended the provisions of section 11 of the Trade and Merchandise Marks Act 1958 read with section 32(b) erthe said Act and, therefore, proposed to rectify the Register by

~--

expunging therefrom the said Trade Marks under section 56( 4) of the said Act.

The Registrar called upon the firm to submit objections if any.

The petitioners applied for extension of time to show cause before the Registrar and ultimately moved these Writ applications challenging the constitutional validity of the Act and in particular oi sections 3, 4 and 8 of the Act as well as of the Notification of the Central Government dated March 16, 1968.

They have also prayed for quashing the Notice of the Registrar dated October 16,

1969. A rule nisi was obbned on March 2, 1970, with interim stay preventing the Government from enforcing the provisions of the Act.

Mr. Bal, learned counsel for the petitioners, submits that the Act is void for want of legislative competence of the Parliament.

According to him the subject matter of the legislation relates to "trade and commerce'" and, therefore, falls squarely within entry No. 26 of List II of the Seventh Schedule to the Constitution. Hence the Parlia- ment is not competent to make the law in question.

On the other band, the learned Solicitor General, contends that the pith and sub- D stance of the legislation as gathered from the preamble, the marginal note of section 3 and the illustrations furnished by -the Schedule is the preservation of sanctity of the names and emblems of international and national entities, and not "Trade and commerce lvithin the State".

Hence the residuary entry 97 of List I will be attracted. Alternatively, be submits the legislation is closer to entry No. 49 "Patents, inventions, designs, copyright, trade marks and merchandise marks" in List N0. I of the Seventh Schedule.

In considering the question of competency of legislation and, for the matter of that, in interpreting the entries in the Lists of the Seventh Schedule a broad and liberal approach has been a well-settled rule of the Court. The subject matter of the legislation is also to be gathered from the totality of the provisions of the Act read with the preamble and the Schedule. So read it is clear that the Act does not concern itself directly or even substantially with trade or commerce.

Entry 49 of List I may well supply the coverage for the Union legislative field so far as the Act is concerned. Trade marks, designs .

G and merchandise marks may legitimately take in matters relating to their abuses and improper uses.

Even otherwise the residuary entry 97 of List I is of wide amplitude to take care of the particular subject matter of legislation, namely, prevention of improper use of certain emblems and names for professional and/ or commercial purposes.

The objection on the score of legislative incompetency of Parliament is. therefore, devoid of merit.

H Next attack is upon sections 3, 4 and 8 of the Act. It is contended that sections 3, 4 and 8 cqnfer unguided, uncana!ised and arbitrary power on the Ce?tral Governmnt t~": exercise of which is capble o1 leading to discnmma!Ion and 1mpos11Ion of unreasonable restnct10ns on the fundamental rights of the citizens under articles 14 and

19(1)(f) and (g) of the Constitution. It is emphasised that there is no guideline in the Act for exercise of power. There is, therefore, the vice of excessive delegation of legislative power, says counsel.

Let us, therefore, have a background of the promulgation of the Act. The Statement of Objects and Reasons will make the position clear and may be quoted in exlenso :

"The General Assembly of the United Nation Organisation recommended in 1946 that members of United Nations should take necessary legislative or other appropriate measures to prevent the use, without proper authority, and in particular for commercial purposes, of the emblem, . the official seal and the name of the United Nations and of the abbreviations of that name.

A similar recommendation .has since been received also from the World Health Organisation for prevention Qf the use of its name (and abbreviations), emblem and official seal.

Instances have also come to light of the use in India (and abroad) of the Indian National Flag and emblem and of the names or pictorial representations of Mahatma Gandhi and other national leaders, for commercial and trade purposes and in a manner likely to offend the sentiments of the people .• The provisions of the Indian Trade Marks Act, 1940, Indian Patents and Designs Act, 1911, Indian Merchandise Marks Act, 1889, and the Indian Companies Act, 1913, are not adequate to prevent these abuses._ The Bill seeks to prevent the improper use Qf these names, emblems, etc., for the purpose of trade, business; calling, profession, patent or design, and to impcse a penalty for misuse of emblems, etc., specified in the Schedule and empowers the Central Government to make additions and amendments in the Schedule as and when necessary". 'What is in a name' may not always be innocent.

Logically, proper names are not connotative but have often gathered a content, a halo, around them sometimes or for all times to come.

National or international significance gets attached to certain , names or institutions over the years or ages and then they belong to the nation or to nations.

Human sentiments and often a deep sense of religiosity pervade through and provide a sacred mantle as it were to the nomenclature. Jn order to arouse national sentiments everywhere invocation of "Chhatrapati Shivaji" in manifold ways in the era of struggle fot independence of. our country is now, hy turn of history, replaced by an arent worship of the proud hentage by a grateful nation.

Law reflectmg the nallonal consciousness, therefore, forbids ordinary commercial use of the sacred name by individuals in their own interest as opposed to national interest.

We take it that the scheme disclosed in the provisions of the Act read with the preamble, and the Objects and Reasons make it clear that there was imperative necessity for regulating the use of

certain emblemi and names.

The fact that only improper use of the names and emblems is prohibited. itself provides guidance.

The original entries in the Schedule would also point to the nature and character of the names, emblems and entities. It is not possible for the 'Parliament to envisage the possibility of improper use of all names and emblems as time goes on.

Nor is it possible to enumerate in the Schedule an exhaustive list of all the names, emblems and entities.

Section 8, therefore, makes provision for empowering the Central Government to add to or alter the Schedule. In the nature of things, there is no abdication of legislative function by Parliament in delegating its power under section 8 in favour of the Central Government which will be the appropriate authority to consider from time to time as to the items to be included in or omitted from the Schedule in the light of knowledge and experience gathered from the nook and corner of the eutire country. There is, therefore, no excessive delegation of legislative power by Parliament in favour of the Central Government.

From the Objects and Reasons, the preamble and the Provisions of the Act with the built-in limitations in section 3 taken with the Schedule, a D policy is clearly discernible and there is sufficient guidance therein to enable the Central Government to exercise its power under the Act.

The relevant matters mentioned above are sufficiently informative of the policy of the law to rob the efficacy of an argument on the score of scantiness in the Act. The impugned N otiJication dated March 16, 1968 of the Central Government under section 8 cannot, therefore, be

invalid. The objection on the score of Article 14 is of no avail.

There is also no merit in the contention that section 3 and 4 violate the provisions of Article 19 (1) (f) and (g) of the Constitution. The petitioners' right tµ trade in bidis is not at all interfered with by the legislation. Section 3 in terms provides for enabling the affected persons to adjust their business or affairs inasmuch as the Central Government ca permit some time to alter their emblems, designs, etc. to carry on with their trade. Indeed in the present case the petitioners on their own application obtained an extension of time presumably under section 3 of the Act and, therefore, cannot complain on that score. Thre is built-in safeguard in section 3 itself for mitigating any hardship to persons or any rigour of the Iaw. The provisions are accordingly regulatory in nature and even, if at all, impose only reasonable restrictions on the exercise of the petitioners' right under Article 19 ( l) ( f) and (g) . Section 4 is a consequential provision and validly co-exists with sectio11 3.

It is also contended by the petitioners that no rules have been .framed under section 9 of the Act which make the same unworkable.

We are not impressed by this argument. From the scheme and machi- H nery of the Act there is nothing to indicate tbat absence of rules will make the Act unworkable. The submission is devoid of substance.

Lastly it was submitted that the Notification under section 8 was not published in the name of the President and was issued by the Under Secretary who was not authorised to do so. The Notification is not an executive order but is a piece of subordinate legislation

made by the Central Government under section 8 of the Act. It was A duly published in the Gazette of India over the signature of the t l!nder Secretary who was authorised for the purpose. The question of violation Qf Article 77 d, oes not arise.

Since the Act and the impugned provisions are constitutionally valid, objection to the Notice of the Joint Registrar dated October B: 16, 1969, is also of no avail.

In the result the petitions are dismissed but there will be no order as to costs.

Petitions dismissed

V.M.K.

M/S. SABLE WAGHIRE & CO. & OTHERS

UNION OF INDIA & OTHERS

K"K. MATHEW

P. K. GOSWAMI, JJ.

Schedule V

Sections 3, 4

Article 19(1)(f)

section 8

section 3 and 4

section 11

section 32(b)

sections 3, 4 and 8

Sections 3, 4 and 8

section 9

section 8

section 8

Section 3

section 3

section 3

Article 19(1)(f)

Section 4

section 3

section 8

Article 77

Art. 32

Constitution of India

section 8

Section 3

Section 4

section 3

Section 5

section 3

section 3

Section 8

Section 9

section 3

sections 3 and 4

section 11

Trade and Merchandise Marks Act 1958

section 32(b)

section 56( 4)

sections 3, 4 and 8

Seventh Schedule

section 3

Seventh Schedule

Seventh Schedule

sections 3, 4 and 8

sections 3, 4 and 8

articles 14 and

19(1)(f)

Indian Patents and Designs Act, 1911

Indian Merchandise Marks Act, 1889

Indian Companies Act, 1913

Section 8

section 8

section 3

section 8

Article 14

section 3 and 4

Article 19

Section 3

section 3

section 3

Article 19

Section 4

section 9

section 8

section 8

Article 77