judgement:
Appeal No. 780 of 1962.
Appeal by special leave from the judgment and decree dated November 28, 1960, of the Patna High Court, in Miscellaneous Judicial Case No. 724 of 1958.
K. N. Rajagopal Sastri and R. N. Sachthey, for the appel lant.
section K. Kapur and B. N. Kirpal, for the respondent.
March 13, 1964.
The judgment of HIDAYATULLAH and SHAH, JJ. was delivered by HIDAYATULLAH J. SARKAR J. delivered a dissenting opinion.
SARKAR, J.
This matter has come before us on a case stated by the Income tax Appellate Tribunal.
The question is how to determine the cost of acquisition of bonus shares for ascertaining the profits made on a sale of them.
The assessment year concerned is 1949 50 for which the accounting year is the calendar year 1948.
The assessee held shares by way of investment and also as stock in trade of his business as a share dealer.
We are concerned in this case only with its holdings of ordinary shares in Rohtas Industries Ltd. In 1944 the assessee acquired 31,909 of these shares at a cost of Rs. 5,84,283 / and was holding them in January 1945.
In that month the Rohtas Industries Ltd. distributed bonus shares at the rate of one ordinary bonus share for each original share and so the assessee got 31,909 bonus shares.
Between that time and December 31, 1947, the assessee sold 14,650 of the original shares with the result that on January 1, 1948 it held the following shares: (a) 17,259 original shares acquired in 1944, (b) 31,909 bonus shares issued in January 1945, (c) 59,079 newly issued shares acquired in the year 1945 after the issue of the bonus shares and (d) 2,500 further shares acquired in 1947.
The total holding of the assessee on January 1, 1948 thus came to 1,10,747 shares which in its books had been valued at Rs. 15,57,902/ .
In arriving at this figure the assessee had valued the bonus shares at the face value of Rs. 10/ each and the other shares at actual cost.
On January 29, 1948, the assessee sold all these shares for the total sum of Rs. 15,50,458 / , that is, at Rs. 14/ per share and in its return for the year 1949 50 claimed a loss of Rs. 7,444 on the sale.
It is this return which has led to this appeal.
213 The Income tax officer held that the assessee was not en titled to charge as the cost of acquisition of the bonus shares a sum equivalent to their face value for nothing had in fact been paid and he computed their cost at Rs. 6 8 0 per share.
He arrived at this price by the following method, which has been called as the method averaging: 584283 x Face value of bonus shares: 319090 x 1/31909.
In adopting this procedure the Income tax Officer purported to follow the decision of the Bombay High Court in Commissioner of Income tax vs Maneklal Chunilal and Sons Ltd.(1).
The Bombay High Court later followed this case in Emerald and Co. Ltd. vs Commissioner of Income tax, Bombay City, Bombay (2).
On that basis he held that the assessee had made a profit of Rs. 2,39,317 by way of capital gains and levied tax on it accordingly.
On appeal the Appellate Assistant Commissioner held that these shares were not investment shares but formed the assessee 's stock in trade on which it was liable to pay income tax and not capital gains tax.
He also held that the assessee having adopted the method of valuing the stocks at cost and no price having actually been paid for the bonus shares, it must be held that there was an inflation in the opening stock by Rs. 3,19,090.
This figure, it may be observed, represented the cost of the bonus shares at their face value.
It% his opinion the bonus shares had to be valued at nit.
The appellate Commissioner 's conclusion was that the assessee was liable to be taxed on a trading profit of Rs. 3,11.646/ in respect of the sale of shares.
Thise view was confirmed on a further appeal to the Appellate Tribunal.
It is however not clear whether the Tribunal held that there had been a trading profit or capital gains.
This matter does not seem to have been raised at any stage after the Appellate Commissioner 's order and is not material to the real question that has to be decided.
After the Tribunal 's judgment the assessee got an order from the High Court directing the Tribunal to refer the following question to it: "Whether on the facts and circumstances of the case the profit computed at Rs. 3,11,646/ on the sale of shares in Rohtas Industries Ltd. was in accordance with law?" The answer to this question admittedly depends on the cost of acquisition, if any, to be properly attributed to the bonus shares.
If the Appellate Commissioner 's method of valuing (1) (I.T. Ref.
No. 16 of 1948, unreported).
(2) 214 them at nil was wrong, the question had to be answered in the negative.
The High Court, following the judgment of Lord Sumner in Swan Brewery Company Limited vs The King(1), held that the real cost of the bonus shares to the assessee was the face value of the shares and answered the question in the negative.
The observations of Lord Sumner which he later expressed more fully in Commissioner of Inland Revenue vs Blott(2) , no doubt, lend support to the High Court 's view.
I shall consider the view expressed by Lord Sumner later.
Now, I wish to notice another case on which the High Court also relied and that was Osborne (H.M. Inspector of Taxes) vs Steel Barrel Co. Ltd(3).
I do not think that the observations of Lord Greene M. R. in this case to which the High Court referred, are of any assistance.
All that was there said was that when fully paid shares were properly issued for a consideration other than cash, the consideration must be at the least equal in value to the par value of the shares and must be based on an honest estimate by the directors of the value of the assets acquired.
In that case fully paid shares had been issued in lieu of stocks and the question was as to how the stocks were to be valued.
That case had nothing to do with the issue of bonus shares or the ascertainment of the cost of their acquisition.
As I have said earlier, Lord Sumner 's observation in Blott 's case (2) certainly supports the view taken by the High Court but in that case Lord Sumner was in a minority.
The other learned Judges, excepting Lord Dunedin, who took a somewhat different view to which reference is not necessary because it has not been relied upon, held that when the articles of a company authorise the issue of bonus shares and the transfer of a sufficient amount out of the accumulated profits in its hands representing their face value to the share capital account, what happens when the articles are acted upon is a capitalisation of the profits and the bonus shares issued are not in the hands of the share holder income liable to tax.
In Blott 's case (2) the articles gave the power which had been acted upon.
Lord Sumner on the other hand held that since a company could not issue shares for nothing nor pay for them out of its profits, it must be held that what happened in such a case was as if the company had issued cash dividend to the shareholder and had set it off against the liability of the shareholder to pay for the bonus share issued to him.
I think the preferable view is that taken by the majority of the Judges.
When the articles permit the issue of bonus shares and the transfer of undivided profits direct to the share capital account, it cannot be said that a cash dividend must be (1) (3) 215 deemed to have been declared which could be set off against the liability to pay for the shares.
This is not what was done in fact.
What in fact was done, and legally done, was to transfer the profits to the share capital account by a resolution passed by the majority of the shareholders so that the shareholders never acquired any right to any part of it.
The view taken by the majority has since been followed unanimously, and even if it was open to doubt, for myself, at this distance of time, I would not be prepared to depart from it: Commissioners of Inland Revenue vs Fisher 's Executors(1) and Commissioner of Income tax, Bengal vs Mercantile Bank of India Limited(2).
It is of some significance to observe that the latter is a case from India.
In the present case the record does not contain any refer ence to the resolutions resulting in the issue of the bonus shares nor to the provisions of the articles but the case has proceeded before us on the basis that the bonus shares had been legally issued under powers contained in the articles and the profits had been equally legally transferred to the share capital account without the shareholders having acquired any right in them.
Following the majority opinion in Blott 's case(3) I think I must hold that the High Court was in error in the view it took in the present case.
There is no foundation for proceeding on the basis as if the bonus shares had been acquired by the assessee at their face value.
Its profits cannot be computed on that basis.
Two other methods of ascertaining the cost of acquisition of the bonus shares for computing the profits made on their sale have been suggested.
One of them is the method of averaging which is the method adopted by the Bombay High Court in the cases earlier mentioned.
The other is the method of finding out the fall in the price of the original shares on the issue of the bonus shares and attributing to the latter shares that fall and to value them thereby.
The object of these methods seems to me to find out what the bonus shares actually cost the assessee.
But this would be an impossible task for they actually cost the assessee nothing; it never paid anything for them.
There would be more reason for saying that it paid the face value of the bonus shares because the profits of the Company of a, similar amount which might otherwise have come to it had been directly appropriated to the share capital account on the issue of the bonus shares.
But this method I have rejected already and, for the reason that no amount was actually paid for the bonus shares by the assessee.
For the same reasons the two suggested methods for ascertaining the actual (1) ; 2) (1936) A.C. 478.
(3 ) 216 cost of these shares have also to be rejected.
If however it were to be said that these methods were for finding out the market value of the bonus shares the importance of which value for the present purpose will soon be seen I would say that the only way to find out the market value is from the market itself.
How then is the cost of the bonus shares to be determined? We start with this that nothing in fact was paid for them.
But if the cost of acquisition is nil, the whole of the sale proceeds of the shares would be taxable profits.
In Commis sioner of Income tax vs Bai Shirinbai K. Kooka(1) this Court has approved of the Bombay High Court 's view that "obvious ly, the whole of the sale proceeds or receipts could not be treated as profits and made liable to tax, for that would make no sense" (P. 397).
So the profits cannot be ascertained on the basis that the bonus shares had been acquired for nothing.
The view taken by the Appellate Commissioner and the Tribunal cannot be supported.
It seems to me that the cost price of the bonus shares has to be decided according to the principle laid down in Bai Shirinbai Kooka 's case(1).
The assessee in that case had purchased shares many years ago by way of investment at a comparatively lower price.
She started trading with them from April 1, 1945.
The question was how the profits on the sale of these shares were to be ascertained.
The sale price was known but what was the cost price? The High Court said that in order to arrive at real profits one must consider the accounts of the business on commercial principles and construe profits in their normal and natural sense, a sense which no commercial man would misunderstand.
The High Court 's conclusion was this: When the assessee purchased the shares at a lesser price, that is what they cost her and not the business; but so far as the business was concerned, the shares cost the business nothing more or less than their market value on April 1, 1945.
This date, it will be remembered, was the date when the business was started.
These observations were fully approved by this Court.
Bai Shirinbai Kooka 's case(1) therefore is authority for the proposition that where it cannot be shown what was paid for the acquisition of a trading asset by a trader, it has for tax purposes to be deemed to have been acquired at the market value of the date when it was acquired.
I think on the authority of this case, the bonus shares must in the present case be deemed to have been acquired at the market value of the date ,of their issue.
I would, therefore, answer the question framed in the negative.
(1) [1962] Supp. 3 S.C.R. 391. 217 HIDAYATULLAH, J.
This appeal by the Commissioner of Income tax, Bombay raises the important question how bonus shares must be valued by an assessee who carries on business in shares.
The assessee here is Dalmia Investment Co. Ltd. (now Shri Rishab Investment Co. Ltd.) which is a public limited company and the bonus shares were issued in the calendar year 1945 by Rohtas Industries Ltd. in the propor tion of one bonus share for one ordinary share already held by the shareholders.
In this way, the assessee company received 31,909 bonus shares of the face value of Rs. 10/ per share which shows that its previous holding was 31,909 ordinary shares.
The existing ordinary shares were purchased by the assessee company for Rs. 5,85,283/ .
We now come to the assessment year 1949 50 which corresponded to the accounting period of the assessee company the calendar year 1948.
The assessee company was holding shares as investment and was also dealing in shares.
The shares in the trading account, being the stock in trade, were valued at the beginning of the year and also at the end of the year and the book value was based on cost.
Between December 31, 1945 and January 1, 1948, the assessee company sold some shares of Rohtas Industries Ltd. and bought others.
Its holding on the first day of January 1948 was 1,10,747 shares which were valued in its books at Rs. 15,57,902/ .
The assessee company sold these shares on January 29, 1948 to Dalmia Cement and Paper Marketing Company Limited for Rs. 15,50,458/ .
This date, it may be pointed cut, fell within the period in which capital gains were taxable.
The assessee company returned a loss of Rs. 7,444/on this sale.
In its books it had valued these shares as follows: Existing shares Book value (1) 17,259 (out of 31,909 original 13,10,951 Proportionate shares).
cost from Rs. 5,84,283.
(2) 31,909 Bonus shares 3,19,090. 00 at face value of Rs. 10 per share (3) 59,079 Now Issue shares 8,88,561 00at cost.
(4) 2,500 New purchase shares 39,300 00at cost.
Total 1,10,747 shares 15,57,902. 00 The amount of Rs. 3,19,090/ which represented the cost of the bonus shares in the above account was debited to the investment account and an identical amount was credited to a capital reserve account.
, The loss which was returned was the difference between Rs. 15,57,902/ claimed to be the cost price of 1, 10,747 shares and their sale price of Rs. 15,50,458/.
The return was not accepted by the Income tax Officer, Special Investigation Circle, Patna.
In his assessment order, the Income tax Officer held that the market value of the existing 218 shares when bonus shares were issued, was Rs. 18/ per share and the value of the shares was Rs. 5.74,362/ (31,909 x Rs. 18).
He held that the sale of the shares took place at Rs. 14/ per share.
To this data he purported to apply a deci sion of the High Court of Bombay in Commissioner of Income tax vs Maneklal Chunnilal and Sons(1) and held that there was profit of Rs. 7/8/0 per bonus share and the, total profit was Rs. 2,39,317/ which he held was capital gain.
He brought Rs. 2,39,317/ to tax as capital gains.
Before the Appellate Assistant Commissioner, Patna.
reliance was placed upon the decision of the Bombay High Court in Emerald and Co. Ltd. vs Commissioner of Incometax, Bombay City(2) and it was argued that by applying the principle laid down in that case, the average cost was Rs. 9/10/0 per share and total profit Rs. 1,49,355/ .
The Appellate Assistant Commissioner did not accept the above calculation.
According to the Appellate Assistant Commissioner, the bonus shares had cost nothing to the assessee company.
He omitted Rs. 3,19,090/ from the book valuation and held that the actual cost of 1,10,747 shares was Rs. 12,38,812/and that the assessee company instead of suffering a loss of Rs. 7,444/ on the sale of the shares had actually made profit of Rs. 3,11,646/ .
He issued a notice to the assessee company and enhanced the assessment.
On further appeal to the Tribunal, the assessee company submitted again on the strength of the ruling of the Bombay High Court in Emerald and Co. Ltd. vs Commissioner of Income tax, Bombay City(2) that the actual profit was Rs. 1,57,326/ .
This was done by spreading the cost of the 31,909 ordinary shares over those shares and bonus shares taken together and adding to half the cost attributable to the old ordinary shares the cost of new purchases in the same year and finding out the average cost of shares other than bonus shares.
The Tribunal did not accept this calculation.
According to the Tribunal it was not possible to put a valuation upon shares for which nothing was paid.
The Tribunal held that the old shares and bonus shares could not be "clubbed together" and the decision of the Appellate Assistant Commissioner was right.
The Tribunal, however, stated a case under section 66(1) of the Income tax Act at the instance of the assessee company suggesting the question for the opinion of the High Court: "Whether on the facts and circumstances of the case, the profit computed at Rs. 3,11,646/ on the sale of shares in Rohtas Industries Ltd. was in accordance with law?" (1) Income tax Reference No. 16 of 1948 dt.
23 3 1949.
(2) 219 The reference was heard by V. Ramaswamy, C.J. and Kanhaiya Singh, J. They held that the Income tax authorities were wrong in holding that profit should be computed at Rs. 3,11,646/ or at any other amount.
According to them, there was no profit on the sale of 31,909 shares and they answered the question in favour of the assessee.
Before the High Court it was contended by the assessee company that the bonus shares must be valued at their face value of Rs. 10/ per share and the Department contended that they should be valued at nil.
It appears that the other methods of calculation of the cost price of bonus shares were abandoned at that stage.
Ramaswami, C.J. and Kanhaiya Singh, J. held that the issue of bonus shares was nothing but a capitalisation of the company 's reserve account or the profits and the bonus shares could not be considered to be issued free.
According to them, the payment for the shares must be found in the bonus which was declared from the undistributed profits and the face value of the bonus shares represented the detriment to the assessee company in respect of the undistributed reserves.
The present appeal was brought against the decision of the High Court by special leave granted by this Court.
It will be seen from the above that there are four possible methods for determining the cost of bonus shares.
The first method is to take the cost as the equivalent of the face value of the bonus shares.
This method was followed by the assessee company in making entries in its books.
The second method adopted by the Department is that as the shareholder pays nothing in cash for the shares, cost should be taken at nil.
The third method is to take the cast of the original shares and to spread it over the original shares and bonus shares taken collectively.
The fourth method is to find out the fall in the price of the original shares on the stock exchange and to attribute this to the bonus shares.
Before us the assessee company presented for our acceptance the first method and the Department the third method.
We shall now consider which is the proper way to value the bonus shares.
It is convenient to begin with the contention that the cost of bonus shares must be taken to be their face value.
The argument requires close attention, because support for it is sought in certain pronouncements of Lord Sumner to which reference will be made presently.
Mr. Kapur contends that a company cannot ordinarily issue shares at a discount, and argues that a fortiori it cannot issue shares for nothing.
He submits therefore that the issue of bonus shares involves a twofold operation the creation of new shares and the declaration of a dividend or bonus which dividend or bonus must be deemed to be paid to the shareholder and to be returned by him to acquire the new shares.
Since the amount credited in 220 the books of the company as contribution of capital by the shareholder is the face value of the bonus shares, he contends that the cost to the shareholder is equal to the face value of the bonus shares.
He relies upon the decision of the Privy Council in Swan Brewery Company Ltd. vs Rex(1).
In that case, Lord Sumner observed: "True, that in a sense it was all one transaction, but that is an ambiguous expression.
In business, as in contemplation of law, there were two transactions, the creation and issue of new shares on the company 's part, and on the allottees ' part the satisfaction of the liability to pay for them by acquiescing in such a transfer from reserve to share capital as put an end to any participation in the sum of pound 101,450 in right of the old shares, and created instead a right of general participation in the company 's profits and assets in right on the new shares, without any further liability to make a cash contribution in respect of them." Lord Sumner adhered to his view later in the House of Lords in Commissioner of Inland Revenue vs John Blott(2) but Lord Dunedin and he were in a minority, and this view was not accepted by the majority.
In view of this conflict, it is necessary to state what really happens when a company issues bonus shares.
A limited liability company must state in its memorandum of association the amount of capital with which the company desires to do business and the number of shares into which that capital is to be divided.
The company need not issue all its capital at the same time.
It may issue only a part of its capital initially and issue more of the unissued capital on a later date.
After the company does business and profits result, it may distribute the profits or keep them in reserve.
When it does the latter, it does not keep the money in its coffers , the money is used in the business and really represents an increase in the capital employed.
When the reserves increase to a considerable extent, the issued capital of the company ceases to bear a true relation to the capital employed.
The company may then decide to increase its issued capital and declare a bonus and issue to the shareholders in lieu of bonus, certificates entitling them to an additional share in the increased capital.
As a matter of accounting the original shares in a winding up before the increase of issued capital would have yielded to the shareholder the same return as the old shares and the new shares taken together.
What was previously owned by the shareholder by virtue of the original certificates is after the issue of bonus (1) (2) 8 Tax Cases 101.
221 shares, held by them on the basis of more certificates.
In point of fact, however, what the shareholder gets is not cash but property from which income in the shape of money may be derived in future.
In this sense, there is no payment to him but an increase of issued capital and the right of the shareholder to it is evidenced not by the original number of certificates held by him but by more certificates.
There is thus no payment of dividend.
A dividend in the strict sense means a share in the profits and a share in the profits can only be said to be paid to the shareholder when a part of the profits is released to him in cash and the company pays that amount and the shareholder takes it away.
The conversion of the reserves into capital does not involve the release of the profits to the shareholder , the money remains where it was, that is to say, employed in the business.
Thereafter the company employs that money not as reserves of profits, but as its proper capital issued to and contributed by the shareholders.
If the shareholder were to sell his bonus shares, as shareholders often do, the shareholder parts with the right to participation in the capital of the company, and the cash he receives is not dividend but the price of that right.
The bonus share when sold may fetch more or may fetch less than the face value and this shows that the certificate is not a voucher to receive the amount mentioned on its face.
To regard the certificate as cash or as representing cash paid by the shareholder is to overlook the internal process by which that certificate comes into being.
We may now see what was decided in the Swan Brewery 's(1) case.
In that case the company had not distributed all its profits in the past.
As a result, it had a vast reserve fund.
The company increased its capital and from the reserve fund, issued shares pro rata.
These shares, it was held by Lord Sumner, were dividend.
It was claimed in that case that there was no dividend and no distribution of dividend, because nothing had been distributed and nothing given.
Where formerly there was one share, after the declaration of bonus there were two but the right of participation was the same.
This argument was not accepted and the face value of the shares was taken to be dividend.
Section 2 of the Act of Western Australia, however, defined dividend to include "every profit, advantage or gain intended to be paid or credited to or distributed among the members of any company.
" It is obvious that it was im possible to hold that the bonus shares were outside the extended definition.
Swan Brewery 's(1) case has been accepted as rightly decided on the special terms of the section, as indeed it was.
In Blott 's(2) case, Rowlatt, J. observed that the bonus shares were included in the expression "advantage" occurring in the (1) (2) 8 Tax Cases 101.
222 highly artificial definition of the word "dividend".
In the Court of Appeal, Lord Sterndale, M. R. and Warrington and ' Scrutton, L. JJ. distinguished the case on the same ground.
It was, however, pointed out by the Master of Rolls that in Bouch vs Sproule(1) Lord Herschell had observed that in such a case, the company does not pay or intend to pay any sum as dividend but intends to and does appropriate the undivided profits and deals with them as an increase of the capital stock in the concern.
Blott 'S(2) case then reached the House of Lords.
It may be pointed out at this stage that it involved a question whether super tax was payable on the amount represented by the face value of the bonus share.
For purposes of assessment of supertax which was (as it is in our country) a tax charged in respect of income of an individual the total of all income from all sources had to be taken into account and the tax was exigible if the total increased a certain sum.
Such additional duty is really nothing but additional income tax and is conveniently described as super tax.
Viscounts Haldane, Finlay and Cave held that an amount equal to the face value of the shares could not be regarded as received by the tax payer and that there was no more than the capitalisation of the profits of the company in respect of which certificates were issued to the shareholders entitling them to participate in the amount of the reserve but only as part of the capital.
Lords Dunedin and Sumner, however, held that the word "capitalisation" was somewhat "hazy" and the issue of the shares involved a dual operation by which an amount was released to the shareholder but was retained by the company and applied in payment of those shares.
In our opinion, and we say it respectfully, the better view is that of the majority and our conclusions set out earlier accord substantially with it.
It follows that though profits are profits in the hands of the company but when they are disposed of by converting them into capital instead of paying them over to the share holders, no income can be said to accrue to the shareholder because the new shares confer a title to a larger proportion of the surplus assets at a general distribution.
The floating capital used in the company which formerly consisted of subscribed capital and the reserves now becomes the subscribed capital.
The amount said to be payable to the shareholders as income goes merely to increase the capital of the company and in the hands of the shareholders the certificates are property from which income will be derived.
Lord Dunedin did not rely upon Swan Brewery 's(3) case.
He held that as the company could not pay for another, the shareholder must be taken to have paid for the bonus shares himself and the payment was (2 ) 8 Tax Cases 101.
(3) 223 the amount which came from the accumulated profits as pro fits.
Lord Sumner, however, stated that in Swan Brewery 's(1) case, he did not rely upon the extended definition of dividend in the Australian Statute, but upon the principle involved.
He observed that as a matter of machinery, what was done was to keep back the money released to the shareholder for application towards payment for the increased capital.
Lord Sumner had already adhered to his view in an earlier case of the Privy Council, but Swan Brewery 's(1) case and Blott 's(2) case were considered by the Privy Council in Com missioner of Income tax, Bengal vs Mercantile Bank of India Ltd. and others(3).
Lord Thankerton distinguished Swan Bre wery 's(1) case and followed Blott 's(2) case, though in Nicholas vs Commissioner of Taxes of the State of Victoria(4), Blott 's (2) ,case was distinguished on the ground that the definition in the Unemployment Relief Tax (Assessment) Act, 1933 also included within a person 's assessable income "any dividend, interest, profit or bonus credited, paid or distributed to him by the company from any profit derived in or from Victoria or elsewhere by it", and that bonus shares must be regarded as dividend under that definition.
The Indian Income tax Act defines "dividend" and also extends it in some directions but not so as to make the issue of bonus shares a release of reserves as profits so that they could be included in the term.
The face value of the shares cannot therefore be taken to be dividend by reason of anything in the definition.
The share certificate which is issued as bonus entitles the holder to a share in the assets of the company and to participate in future profits.
As pointed out above, if sold, it may fetch either more or less.
The market price is affected by many imponderables, one such being the yield or the expected yield.
The detriment to the shareholder, if any, must therefore be calculated on some principle, but the method of computing the cost of bonus shares at their face value does not accord either with fact or business accountancy.
Can we then say that the bonus shares are a gift and are acquired for nothing? At first sight, it looks as if they are so but the impact of the issue of bonus shares has to be seen to realise that there is an immediate detriment to the shareholder 'in respect of his original holding.
The Income tax Officer, in this case, has shown that in 1945 when the price of shares became stable it was Rs. 9 per share, while the value of the shares before the issue of bonus shares was Rs. 18/ per share.
In other words, by the issue of bonus shares pro rata, which Tanked pari passu with the existing shares, the market price was exactly halved, and divided between the old and the bonus shares.
This will ordinarily be the case but not when the shares (1)(1914) A.C. 231.
(3)(1936) A.C. 478.
(2) 8 Tax Cases 101.
(4) 224 do not rank pari passu and we shall deal with that case separately.
When the shares rank pari passu the result may be stated by saying that what the shareholder held as a whole rupee coin is held by him, after the issue of bonus shares, in two 50 nP coins.
The total value remains the same, but the evidence of that value is not in one certificate but in two.
This was expressed forcefully by the Supreme Court of United States of America, quoting from an earlier case, in Eisner vs Macomber(1) thus: "A stock dividend really takes nothing from the property of the corporation, and adds nothing to the interests of the shareholders.
Its property is not diminished, and their interests are not increased.
The proportional interest of each shareholder remains the same.
The only change is in the evidence which represents that interest, the new shares and the original shares together representing the same proportional interest that the original shares represented before the issue of the new ones In short, the corporation is no poorer and the stock holder is no richer than they were before If the plaintiff gained any small advantage by the change, it certainly was not an advantage of $417,450 the sum upon which he was taxed What has happened is that the plaintiff 's old certificates have been split up in effect and have diminished in value to the extent of the value of the new.
necessarily disposes of a part of his capital interest, just as if he should sell a part of his old stock, either before or after the dividend.
What he retains no longer entitles him to the same proportion of future dividends as before the sale.
His part in the control of the company likewise is diminished.
" Swan Brewery 's (2) case, it may be pointed out, was distinguished here also on the basis of the extended definition.
it follows that the bonus shares cannot be said to have cost nothing to the shareholder because on the issue of the bonus shares, there is an instant loss to him in the value of his original holding.
The earning capacity of the capital employed remains the same, even after the reserve is converted into bonus shares.
By the issue of the bonus shares there is a corresponding fall in the dividends actual or expected and the market price moves accordingly.
The method of calculation which places the value of bonus shares at nil cannot be correct.
(1) L.Ed. 521.
(2)(1914) A.C. 231.
225 This leaves for consideration the other two methods.
Here we may point out that the new shares may rank pari passu with old shares or may be different.
The method of cost .accounting may have to be different in each case but in essence and principle there is no difference.
One possible method is to ascertain the exact fall in the market price of the shares already held and attribute that fall to the price of the bonus shares.
This market price must be the middle price and not as represented by any unusual fluctuation.
The other method is to take the amount spent by the shareholder in acquiring his original shares and to spread it over the old and new shares treating the new as accretions to the old and to treat the cost price of the original shares as the cost price of the old shares and bonus shares taken together.
This method is suggested by the Department in this case.
Since the bonus shares in this case rank pari passu with the old shares there is no difficulty in spreading the original cost over the old and the new shares and the contention of the Department in this case is right.
But this is not the end of the present discussion.
This simple method may present difficulties when the shares do not rank pari passu or are of a different kind.
In such cases, it may be necessary to compare the resultant price of the two kinds of shares in the market to arrive at a proper cost valuation.
In other words, if the shares do not rank pari passu, assistance may have to be taken of other evidence to fix the cost price of the bonus shares.
It may then be necessary to examine the result as reflected in the market to determine the equitable cost.
In England paragraph 10 of Schedule Tax to the Finance Act, 1962 provides for such matters and for valuing Rights issue but we are not concerned with these matters and need not express an opinion.
It remains to refer to three cases to which we have already referred in passing and on which some reliance was placed.
In The Commissioner of Income tax (Central), Bombay vs M/s Maneklal Chunnilal and Sons Ltd., Bombay(1), the assessee held certain ordinary shares of the face value of Rs. 100/ in Ambica Mills Ltd. and Arvind Mills Ltd. These two com panies then declared a bonus and issued preference shares in the proportion of two to one of the face value of Rs. 100/ each.
These preference shares were sold by the assessee and if the face value was taken as the cost, there was a small profit.
The Department contended that the entire sale proceeds were liable to be taxed, because the assessee had paid nothing for the bonus shares and everything received by it was profit.
The assessee 's view was that the cost was equal to the face value of the shares.
The High Court rejected both these contentions and held that the cost of the shares previously held must be divided between those shares and the bonus shares in the same (1)I.T. Ref.
No. 16 of 1948 d. 23rd March 1949.
226 proportion as their face value, and the profit or loss should then be found out by comparing the cost price calculated on this basis with the sale price.
In our opinion, there is difficulty in the High Court 's decision.
The preference shares and the ordinary shares could hardly be valued in the proportion of their face value.
The ordinary shares and the preference shares do not rank pari passu.
The next case is Emerald Co. Ltd. vs C.I.T., Bombay City(1).
In that case, the assessee had, at the beginning of the year, 350 shares of which 50 shares were bonus shares and all were of the face value of Rs. 250/ each.
The assessee sold 300 shares and claimed a loss of Rs. 35,801 / by valuing the bonus shares at face value.
The Department arrived at a loss of Rs. 27,766/ by the method of averaging the cost, following the earlier case of the Bombay High Court just referred to.
The Tribunal suggested a third method.
It ignored the 50 shares and the loss was calculated by considering the cost of 300 shares and their sale price.
The loss worked out at Rs. 27,748/ , but the Tribunal did not disturb the order of the Appellate Assistant Commissioner in view of the small difference.
The High Court held that the method adopted by the Department was proper but this Court, on appeal, held that in that case the method adopted by the Tribunal was correct.
This Court did not decide which of the four methods was the proper one to apply, leaving that question open.
The reason was that the assessee originally held 50 shares in 1950; in 1951, it received 50 bonus shares.
It sold its original holding three days later and then purchased another 100 shares after two months.
In the financial year 1950 51 (assessment year 1951 52), the Income tax Officer averaged the price of 150 shares and found a profit of Rs. 1,060/ on the sale of 50 shares instead of a loss of Rs. 1,365/ which was claimed.
The assessee did not appeal.
In the financial year 1951 52 (assessment year 1952 53), the assessee started with 150 shares (100 purchased and 50 bonus).
It then purchased 200 shares in two lots and sold 300 shares, leaving 50 shares.
The assessee company claimed a loss of Rs. 35,801 / .
The Income tax Officer computed the loss at Rs. 27,766/ and the Tribunal computed the loss at Rs. 27,748 The Tribunal, however, did not disturb the loss as computed by the Income tax Officer in view of the slender difference of Rs. 18/ .
The High Court 's decision was reversed by this Court, because the High Court ignored all intermediate transactions and averaged the 300 shares with the 50 bonus shares.
The shares in respect of which the bonus shares were issued were already averaged with the bonus shares.
This was not a case of bonus shares issued in the year of account.
It involved purchase and sale of some of the shares.
The average cost price of the original and bonus shares was (1)(1956) 227 already fixed in an earlier year by the Department and this fact should have been taken into account.
No doubt, Chagla, C.J. observed that it was not known which of the several :shares were sold in the year of account, but in the Statement of the Case it was clearly stated that bonus shares were untouched.
The decision of this Court in Emerald Company 's(1) case.
however, lends support to the view which we have expressed here.
The bonus shares can be valued by spreading the cost of the old shares over the old shares and the new issue taken together, if the shares rank pari passu.
When they do not, the price may have to be adjusted either in the proportion of the face value they bear (if there is no other circumstance differentiating them) or on equitable considerations based on the ,market price before and after the issue.
Applying the principles to the present case, the cost of 31,909 shares, namely, Rs. 5,84,283/ must be spread over those shares and the 31,909 bonus shares taken together.
The ,cost price of the bonus shares therefore was Rs. 2,92,141 /because the bonus shares were to rank equal to the original ,shares.
The account would thus stand as follows: Share in Rohtas Industries Ltd. Rs. 1 .
Old issue of 17,259 shares brought forward from 1945, at (proportionate) cost 1,58, 035 2.
Bonus shares 31,909 received in 1945, at (proportionate, spread out) cost 2,92,141 3.
New issue 59,079 shares brought forward from 1945 8,88,561 4.
New purchases 2,500 shares brought forward from 1947 39,300 Total 1,10,747 shares 13,78,037 Sales of all theabove shares in 1948 15,50,458 Profit 7,444 Profit to be added to the income returned 1,79,865 The answer to the question given by the High Court was therefore erroneous and the right answer would be that the profit computed at Rs. 3,11,646/ was not in accordance with law.
The appeal is therefore allowed with costs here and in the High Court.
Appeal allowed.

summary:
The assessee company dealt in shares and also held invest ments of shares on January 1, 1948.
The assessee held 1,10,747, shares of Rohtas Industries at a book value of Rs. 15,57,902/ .
Of these shares 31,909 were bonus shares issued by Rohtas Industries in 1945 at the face value of Rs. lo/, each and the assessee had debited the investment account in respect of the bonus shares by Rs. 3,19,090 with a corresponding entry in the capital reserve account on its credit side for the same amount.
The assessee acquired these bonus shares at a cost of Rs. 5,84,283 in 1944.
On January 29, 1948, the assessee sold the entire lot of 1,10,747 shares for Rs. 15,50,458.
The assessee deducted the sale price from the book value of Rs. 15,57,902 and claimed a loss of Rs. 7,444 on the sale of shares.
The appellate Tribunal valued the bonus shares at nil and held that the assessee had made a profit of Rs. 3,11,646/ .
On a reference the High Court held that the Tribunal was wrong in holding that the assessee had made a profit of Rs. 3,11,646/ .
Held (per Hidayatullah and Shah, JJ.): (i) The Income tax Act defines "dividend" and also extends it in some directions but not so as to make the issue of bonus shares a release of reserves as profits so that they could be included in the term.
The face value of the shares cannot therefore be taken to be dividend by reason of anything in the definition.
The shares certificate which is issued as bonus entitles the holder to a share in the assets of the company and to participate in future profits.
The bonus share when sold may fetch more or may fetch less than the face value, and this shows that the certificate is not a voucher to receive the amount mentioned on its face.
The market price is affected by many imponderables, one such being the yield or the expected yield.
The detriment to the share holder, if any, must therefore be calculated on some principle, but the method of computing the cost of bonus shares at their face value does not accord either with fact or business accountancy.
Swan Brewery Co. Ltd. vs Rex , disapproved.
Commissioner of Inland Revenue vs John Blott, 8 Tax Cases 101, approved.
Bouch V. Sproule, , referred to.
Commissioner of Income tax, Bengal vs Mercantile Bank of India Ltd., and Nicholas vs Commissioner of Taxes of the State of Victoria, , referred to.
(ii) The bonus shares cannot be said to have cost nothing to the share holder because on the issue of its bonus shares, there is an instant loss to him in the value of his original holding.
The earning capacity of the capital employed remains the same, even after the reserve is converted into bonus shares.
By the issue of the bonus shares there is a corresponding fall in the dividends 211 actual or expected and the market price moves accordingly.
The method of calculation which places the value of bonus shares, at nil cannot be correct.
(iii) The bonus shares can be valued by spreading the cost of the old shares over the old shares, and the new issue taken together, if the shares rank pari passu.
When they do not, the price may have to be adjusted either in the proportion of the face value they bear (if there is no other circumstances differentiating them) or on equitable considerations based on the market price before and after the issue taking the middle price not that represented by any unusual fluctuations.
On the facts of this case it was held that since the bonus shares in this case rank pari passu with the old shares there is no difficulty in spreading the original cost over the old and the new shares.
Commissioner of Income tax vs Maneklal Chunilal and Sons, Income tax Reference No. 16/1948, dt. 23 3 1949, disapproved.
Emerald and Co. Ltd. vs Commissioner of Income tax, Bombay City, , distinguished.
Eisner vs Macomber, L.Ed. 521, referred to.
Per Sarkar, J. (dissenting): (i) The view taken by the majo rity of Judges in Blott 's case is a correct one.
In that case the learned Judges held that when the articles of a company authorise the issue of bonus shares and the transfer of a sufficient amount out of the accumulated profits in its hands representing their face value to the share capital account, what happens when the articles are acted upon is a capitalisation of the profits and the bonus shares issued are not in the hands of the share holder income liable to tax.
Following the majority opinion in Blott 's case it was held that the High Court was in error in the view it took in the present case.
There is no foundation for proceeding on the basis as if the bonus shares had been acquired by the assessee at their face value.
Its profits cannot be computed on that basis.
Commissioner of Inland Revenue vs Blott (1921)2 A.C. 171, relied on.
Swan Brewery Co. Ltd. vs King , disapproved.
Osborne (H.M. Inspector of Taxes) vs Steel Barrel Co. Ltd., , inapplicable.
Commissioner of Inland Revenue vs Fisher 's Executors, ; and Commissioner of Income tax, Bengal vs Mer cantile Bank of India Ltd., , referred to.
Commissioner of Income tax vs Maneklal Chunilal and Sons Ltd., I.T. Ref.
No. 16 of 1948 and Emerald and Co. Ltd. vs Commissioner of 1ncome tax, Bombay City, , referred to.
(ii) Bai Shirinbai Kooka 's case is the authority for the proposition that where it cannot be shown what was paid for the acquisition of a trading asset by a trader, it has for tax purposes to be deemed to have been acquired at the market value of the date when it was acquired.
On the basis of this authority the Bonus shares must in the present case be deemed to have been acquired at the market value of the date of their issue.
(iii) On the basis of the same authority, it would not be correct to say that the bonus shares had been acquired for nothing.
212 The view taken by the Appellate Commissioner and the Tribunal cannot be supported.
Commissioner of Income tax vs Bai Shirinbai K. Kooka, [1962] Supp.
3 S.C.R. 391, relied on.


judgement:
125 135, and 233 of 1963.
Petition under article 32 of the Constitution of India for enforcement of Fundamental Rights.
A. V. Vishwanatha Sastri, T. A. Ramachandran, B. Par thasarathy, 0.
C. Mathur, J. B. Dadachanji and Ravinder Narain, for the petitioner (in W. P. Nos.
125 135 1963).
H. N. Sanyal, Solicitor General, N. section Bindra and R. N. Sachthey, for the respondents (in W. P. Nos.
125 135 / 63).
O. C. Mathur, J. B. Dadachanji and Ravinder Narain for the petitioner (in W. P. No. 233 / 1963).
R. N. Sachthey, for the respondents (in W.P. No. 233/ 63).
187 March 12, 1964.
The Judgment of the Court was delivered by GAJENDRAGADKAR, C. J.
This group of 12 writ petitions raises a common question about the validity of the( Orissa Sales Tax Validation Act, 1961 (Act No. 7 of 1961) (hereinafter referred to as the Act).
The facts on which the petitioners rely are similar, and so, we shall mention the facts in the first group consisting of writ petitions Nos.
125 135 of 1963.
The petitioner in this group is Shri Epari Chinna Krishna Moorthy, Proprietor, Epari Chinna Krishna Moorthy & Sons, Berhampur, Orissa.
He is a merchant who carries on business in "bullion and specie" and gold and silver ornaments at Berhampur and as such merchant, he has been registered as 'dealer ' under the Orissa Sales Tax Act, 1947 (Act No. 14 of 1947).
After the said Act came into force, the Government of Orissa purporting to exercise its authority under section 6 of the said Sales Tax Act issued a notification exempting certain articles from the operation of the charging section of that Act.
Under this notification, gold ornaments were ordered to be exempted from sales tax 'when the manufacturer selling them charges separately for the value of gold and the cost of manufacture. ' This notification was issued on July 1, 1949 Durinh the course of his business, the petitioner manufactures gold ornaments by supplying the gold to the artisans and getting ornaments prepared by them under his supervision and when the ornaments are so prepared, he sells them in his shop and has been showing the value of gold and the cost of manufacture separately.
That is why the petitioner alleges that he is entitled to claim the benefit of the exemption notification.
Consistently with this plea, the petitioner filed his returns before the Sales tax Officer at Berhampur and had been claiming exemption of Sales tax on the sales as being entitled to exemption under the said notification.
Upto June, 1952, the claim for exemption made by him was upheld and the amount represented by sales of the said gold ornaments was deducted from the taxable turnover shown by the petitioner in his returns.
Subsequently, however, these assessments were re opened under section 12(7) of the Act and it was claimed that the deductions made on certain sales transactions of gold ornaments were not justified and to that extent, the petitioner had escaped assessment.
The petitioner resisted this attempt to re open the assessment and he pleaded that he was entitled to claim exemption under the notification, because he belonged to the class of manufacturers to which the notification referred.
The Sales tax Officer, however, disallowed the petitioner 's contention and proceeded to levy tax on the sales transac tions in question.
The petitioner then challenged the said 188 decision by preferring appeals, but the said appeals were also dismissed.
While the appeals were pending similar assessments made in respect of other dealers including the petitioner were challenged by them by writ petitions before the High Court of Orissa.
(Nos. 151, 161, 162, 204 209 and 110 of 1957 respectively).
The Division Bench of the Orissa High Court which heard the writ petitions upheld the petitioner 's case and issued appropriate writs directing the Sales tax Officer to allow the petitioner 's claim for exemption 'under the notification in question.
The main controversy before the High Court was about the precise denotation of the word 'manufacturer ' used in the notification.
The High Court hold that the expression manufacturer ' meant the first owner of the finished products for whom it was mad(.
either by his paid employee or even by independent artisans on receipt of raw materials and labour charges from him.
According to this view, the petitioners before the High Court were found to be manufacturers and as such entitled to claim exemption in respect of sale of old ornaments made by them.
This judgement was pronounced on March 13, 1959.
Against this judgement the State of Orissa has filed appeals to this Court and they are numbered as Civil Appeals Nos. 92 to 94 of 1963.
These appeals are till pending disposal.
After the Orissa High Court pronounced its judgement in the writ petitions to which reference has been made, the impugned Act was passed by the Orissa Legislature on August 1, 1961.
This Act received the assent of the Governor on September 10, 1961, and was published on September 18, 1961.
It contains one operative provision in section 2.
Section 2 provides that notwithstanding anything contained in any judgment, decree or order of any court, the word 'manufactu rer ' occurring against item 33 in the schedule to the notification of the Government of Orissa dated July 28, 1947 as amended by another notification of the 1st July, 1949 shall mean and shall always be deemed to have meant a, person who by his own labour works up materials into suitable forms and a person who owns or runs a manufactory for the purpose of business with respect to the articles manufactured therein.
It is the validity of this section which is challenged before us by the petitioners in the present writ petitions.
It is clear that the object of section 2 of the impugned Act is to make it clear that the legislature 's intention was not, as the High Court had held, to, include within the notification all persons who are first owners of the finished product of gold.
Section 2 shows that the legislative intention was to give benefit of the said exemption only to persons who themselves work and produce gold ornaments or who run or own a manufactory for the purpose of business with respect to the articles manufactured therein.
In other words, the intention of the Government in issuing the notification was not to give the benefit of the exemption to traders or shop keepers who were no more than commission agents and who did not personally, work for making gold ornaments or who did not own a manu factory employing artisans for that purpose.
If this section is valid, it is common ground that the petitioners are not entitled ,to claim the exemption.
On the other hand, if this section is invalid, the petitioners would be the first owners of gold ornaments and may be entitled to claim exemption.
The first argument which has been urged before us by Mr. Sastri is that since the exemption was granted by the State Government by virtue of the powers conferred on it by section 6, it was not open to the legislature to take away that exemp tion retrospectively.
Section 4 of the parent Sales tax Act is the charging section and section 6 is the section which confers on the State Government power to issue a notification exempting from the tax the sale of any goods or class of goods and likewise withdraw any such exemption subject to such conditions and exceptions as it may deem fit.
The argument is, the power to grant exemption having been conferred on the State Government, it was validly exercised by the State Government and though the legislature may withdraw such exemption, it cannot do so retrospectively.
It is obvious that if the State ,Government which is the delegate of the legislature can withdraw the exemption granted by it, the legislature cannot be denied such right.
But it is urged that once exemption was validly granted, the legislature cannot withdraw it retrospectively, because that would be invalidating the notification itself.
We are not impressed by this argument.
What the legislature has purported to do by section 2 of the impugned Act is to make the intention of the notification clear.
Section 2 in substance declares that the intention of the delegate in issuing the notification granting exemption was to confine the benefit of the said exemption only to persons who, actually produce old ornaments or employ artisans for that purpose.
We do not see how any question of legislative incompetence can come in the present discussion.
And, if the State Government was given the power either to grant or withdraw the exemption that cannot possibly affect the legislature 's competency to make any provision in that behalf either prospectively or retrospectively.
Therefore, there is no substance in the argument that the retrospective operation of section 2 of the impugned Act 'is invalid.
Then Mr. Sastri contends that this provision is discrimina tory and as such, contravenes the equality before the law, guaranteed by article 14.
This argument is also misconceived, is not seriously disputed that the petitioners belong to the 190 class of traders or shopkeepers who are like commission agents.
They give gold to the artisans, paying the artisans their labour charges and when the ornaments are thus produced, they charge commission before they are sold to the customers.
In such a case, it is not easy to understand how this class of traders can be said belong to same class of persons who produce gold ornaments themselves or run manufactories where artisans are engaged for producing them.
The counter affidavit filed on behalf of the respondent State has also averred that the petitioners sometimes sell goods manufactured by firms outside the State of Orissa and in no case had they manufactured ornaments themselves.
Whether the gold which they give to the artisans is their own or is supplied to them by customers is not a matter of any significance, because what is important in this connection is that they are not directly concerned with the production of ornaments, and admittedly, they do not produce the said ornaments themselves.
Therefore, the persons who get the benefit of the exemption notification as a result of the provisions of section 2 of the impugned Act cannot be said to belong to the same class as that of the petitioners, and if that is so, the main argument on the basis of article 14 does not subsist.
Besides, one of the objects of the impugned Act appears to be to make it clear that the legislature intends to benefit the goldsmiths who actually make gold ornaments and that object can be carried out only if exemption is granted to persons who keep in their continuous employment artisans who produce gold ornaments.
If a person produces gold ornaments himself and if a person employs artisans to produce gold ornaments for him, they fall within the protection of the exemption.
In the case of the petitioners, however, they do not keep any artisans in their continuous employment, and so, if the legislature thought it was not necessary to give them the benefit of the exemption, it cannot be said that the classification made by the legislature has no rational connection with the object intended to be achieved by it.
This argument assume,,, that the petitioners belong to the same class as the persons to whom the benefit of the exemption is available.
But as we have already stated, these two categories are distinct and there is no sameness or similarity between them.
It was also suggested by Mr. Sastri that the result of the impugned provision is to deny the benefit of the exemption to the poorer classes of persons who are engaged in the business of manufacturing gold ornaments, and in that con nection, he has commented on the fact that the notification gives the benefit of the exemption to persons who run manu factories but it denies that benefit to persons who carry on the work of producing gold ornaments on a smaller scale, and 191 so, are unable to run a manufactory.
This argument is fal lacious.
The notification as interpreted by section 2 of the impugned Act benefits the artisans who produce ornaments themselves and that obviously covers a very large section of independent artisans engaged in the trade.
The notification also benefits persons who run manufactories and that ensures the continuous employment of artisans.
That is why it seems to us that the main object of ranting exemption can be said to be achieved by holding that 'manufacturer, means either a, manufacturer properly so called or one who engages artisans lo manufacture gold ornaments.
Mr. Sastri also argued that the retrospective operation ,of the impugned section should be struck down as unconsti tutional,, because it imposes an unreasonable restriction on the petitioners ' fundamental right under article 19(1)(g).
It is true that in considering the question as to whether legislative power to pass an Act retrospectively has been reasonably ,exercised or not, it is relevant to enquire how the retrospective operation operates.
But it would be difficult to accept the argument that because the retrospective operation may operate harshly in some cases, therefore, the legislation itself is invalid.
Besides, in the present case, the retrospective operation does not spread over a very long period either.
Incidentally, it is not clear from the record that the petitioners did not recover sales, tax from their customers when they sold the gold ornaments to them.
The counter affidavit filed by the, respondent State alleges that even where sales tax has not been charged separately, the price charged included sales tax because it was the usual practice of every registered dealer ,doing similar business to collect sales tax either by showing it as such separately and thereby claiming deduction of the, ,sales tax from the gross turnover to arrive at the taxable turn , ,over shown separately or by including it in the price and thereby collecting it as a part of the price charged.
In any event, we do not think that in the circumstances of this case it would be possible to hold that by making the provision of section 2 of ' the impugned Act retrospective the legislature has imposed a restriction on the petitioners ' fundamental right under article 19(1)(g) which is not reasonable and is not in the interest of the general public.
The result is, the petitions fail and are dismissed with costs.
One set of hearing fees.
Petitions dismissed.

dataset_name: IN-Abs

summary:
The petitioner, a merchant, carrying on business in "bullion and specie" and gold and silver ornaments was a registered 'dealer ' under the Orissa Sales Tax Act, 1947.
The Government purporting to exercise its authority under section 6 of the said Act issued a notification on July 1, 1949 exempting certain articles from the operation of the charging section of that Act.
Under the notification gold ornaments were ordered to be exempted from sales tax when the manufacturer selling them charges separately for the value of gold and the cost of manufacture.
The petitioner filed his returns before the Sales tax Officer and claimed exemption of sales tax under the said notification.
Up to June 1952, the claim for exemption was upheld.
Subsequently, however, these assessments were reopened under section 12(7) of the Act and it was claimed that the deductions made on certain sale transactions of gold ornaments were not justified and the petitioner had escaped assessment.
The petitioner pleaded that lie was entitled to exemption, because he belonged to the class of manufacturers to which the notification referred.
The Sales tax Officer disallowed the petitioner 's contention.
The petitioner then challenged the said decision by preferring appeals, but the said appeals were also dismissed.
Pending these appeals, similar assessments made in respect of other dealers including the petitioner were challenged by writ petitions before the High Court.
The High Court upheld the petitioner 's case and issued writs directing the Sales tax Officer to allow the petitioners ' claim for exemption.
After this judgement was pronounced, the impugned Act was passed by the legislature on August 1, 1961 and was published on September 18, 1961, containing one operative provision in section 2.
It provided that notwithstanding anything contained in any judgement, decree or order of any court, the word 'manufacturer ' occuring against item 33 in the schedule to the notification of the Government dated July 28, 1947 as amended by another notification of the 1st July, 1949 shall mean and shall always be deemed to have meant a person who by his own labour works up materials into suitable forms and a person who owns or runs a manufactory for the purpose of business with respect to the articles manufactured therein.
The validity of this section was challenged in the present writ petition.
186 It was urged (i) that since the exemption was granted by the State Government by virtue of the Powers conferred on it by section 6, it was not open to the legislature to take away that exemption retrospectively; (ii) that the provision in section 2 of the impugned Act was discriminatory and as such contravened the equality before the law guaranteed by article 14 and (iii) that the retrospective operation of the impugned section should be struck down as unconstitutional, because it imposes an unreasonable restriction on the petitioner 's fundamental right under article 19 (1) (g) Held: (i) What the legislature had purported to do by section 2 of the impugned Act, was to make the intention of the notification clear.
And, if the State Government was given the power either to grant or withdraw the exemption, that could not possibly affect the legislature 's competence to make any provision in that behalf either prospectively or retrospectively.
(ii) The notification as interpreted by section 2 of the impugned Act benefits the artisans who produce ornaments themselves and who run manufactories.
That is why the main object of granting exemption can be said to be achieved by holding that ,manufacturer ' means either a manufacturer properly so called or one who engages artisans to manufacture gold ornaments.
In the present case the petitioners were not directly concerned with the production of ornaments, and admittedly, they did not produce the said ornaments themselves.
Therefore, the persons who get the benefit of the exemption notification as a result of the provisions of section 2 of the impugned Act cannot be said to belong to the same class as that of the petitioners.
The two categories are distinct and there is no sameness or similarity between them, and if that is so, the main argument on the basis of article 14 does not subsist.
(ii) It would be difficult to accept the argument that because the retrospective operation may operate harshly in some cases, therefore, the legislation itself is invalid.
In the circumstances of the present case it would not be possible to hold that by making the provision of section 2 of the impugned Act retrospective the legislature has imposed a restriction on the petitioner 's fundamental rights under article 19(1) (g) which is not reasonable and is not in the interest of the general public.


judgement:
iminal Appeal No. 6 of 1962.
Appeal by special leave from the judgment and order dated June 1, 1961 of the Judicial Commissioner 's Court for Manipur in Criminal Appeal Case No. 7 of 1961.
O. P. Rana and R. N. Sachthey, for the appellant.
section C. Agarwal, for the respondent.
March 11, 1964.
The judgment of the Court was delivered by AYYANGAR, J.
This appeal which comes before us by special leave is directed against the judgment and order of the Judicial Commissioner of Manipur acquitting the respondent and setting aside the conviction and sentence passed against him by the learned Sessions Judge.
This appeal was originally heard before a Bench of two Judges but has been directed to be placed before this Bench by reason of the learned Counsel for the appellant seeking 125 to question the correctness of the judgment of this Court in the case of Pritam Singh vs The State of Punjab(1) in view of the decision of the English Court of Criminal Appeal in R. vs Connelly(2) and the subsequent decision of this Court in Gurcharan Singh vs State of Punjab(3).
The facts giving rise to the appeal are in brief as follows:There was an agitation by certain political parties and groups in Manipur in April, 1960 for establishing res ponsible Government in the Manipur area.
The agitation took the form of picketing of Government offices and the residences of Government servants and blocking roads in order to paralyse the administration.
After this form of agitation continued for some time, the District Magistrate of Manipur promulgated orders under section 144, Criminal Proce dure Code on the morning of April 25, 1960 banning public meetings and processions and these orders were proclaimed and communicated to the public through loudspeakers.
Not withstanding this order, crowds continued to collect and move on the streets shouting slogans.
Bira Singh the res pondent was said to have been leading this mob.
A lathi charge by the police took place but it is stated that because of this the crowd moved a little away and began to pelt stones.
The crowd was thereupon directed to disperse, its attention being drawn to the promulgation of the order under section 144, Criminal Procedure Code and to the fact that the gathering in a public place in violation of the order made it an unlawful assembly; but this command was not heeded and the stone throwing continued.
There was firing by the police which resulted in injuries to certain persons including some of the police personnel.
The first information report in regard to the incident and the offences committed during its course was lodged at the Imphal Police station at about 7 p.m. that day in which the informant specified the name of the respondent Bira Singh as the leader of this mob.
On this a case was registered under sections 114/149/332/342 and 307 of the Indian Penal Code and section 7 of the Criminal Law Amendment Act, and a few days later the respondent was arrested.
Charges were framed against the respondent who was placed before the Magistrate and the charge sheet stated that the respondent was in the crowd between 3 and 5 p.m. on that day, that the crowd was an unlawful assembly, that he was among those who pelted stones which caused grievous hurt to one person and simple hurt to others and also caused damage to the Inter State Police Wireless Station.
Along with (1) A.I.R. 1956 S.C. 415.
( 2) (3) ; 126 the respondent certain others were included as accused but we are now concerned only with the respondent.
The learned Sessions Judge convicted all of them of the offences with which they were charged and sentenced them to varying terms of imprisonment but into the details of these it is not necessary to enter.
The question of law that arises in this case is by reason of a prior prosecution of the respondent in which he was acquitted.
That prosecution was founded on a complaint against him filed on May 12, 1960 under section 188, Indian Penal Code in connection with his participation is a member of the same crowd in regard to which the charge which is the sub ject matter of the present proceedings is concerned.
In that complaint the District Magistrate alleged that the respondent had disobeyed the order passed under section 144 by forming himself along with 2,000 other persons into an unlawful assembly between the hours of 3 and 5 p.m. on April 25, 1960 by shouting slogans and pelting stones at police officers and this was stated to be oil the road in front of the Police Wireless station.
This complaint by the District Magistrate was registered and taken cognizance of by the Magistrate.
The respondent pleaded in his defence that he was not present at the scene of the occurrence at all and that he had been falsely implicated by the police.
The Magistrate rejected the defence and accepting the prosecution case that the respondent was present as the head of the mob on that occasion convicted him of the offence charged and sentenced him by his order dated July 8, 1960 to rigorous imprisonment for six months.
Ten days thereafter on July 18, 1960 the charge sheet in the present case was filed.
During the pendency of the prosecution from which the present appeal arises the respondent appealed to the learned Sessions judge against his conviction by the Magistrate on the charge under section 188, Indian Penal Code.
The learned Sessions Judge allowed the appeal holding that the prosecu tion had not established that the respondent was present at the place and at the time where the occurrence took place at which he was said by the prosecution to have been present or that he disobeyed the order under section 144, Criminal Procedure Code.
In the course of his judgment delivered on July 30, 1960 the learned Sessions Judge observed after referring to the delay in the filing of the complaint after the occur rence: "This delay: in the filing of the complaint and in the naming of the appellant. . . throws con siderable doubt on the presence of the appellant among the agitators on 25 4 60. . . if the P. Ws. did not know the appellant from before no 127 reliance can be placed on their identification of the appellant during the trial because that identification was not tested in a test identification parade.
This also confirms my suspicion that the appellant might not have been present in the incident of 25 4 60. .
The important position which the appellant had in organising the agitation in my opinion, afforded sufficient motive for the P.Ws. to come to a conclusion that the appellant might have been present in the agitation.
But that erroneous impression on conclusion would not prove the presence of the appellant among the agitators on 25 4 60. .
For reasons given above the appeal is allowed and the conviction and sentence of the appellant under section 188 I.P.C. are set aside and he is acquitted.
" This acquittal was confirmed by the Judicial Commissioner on April 29, 1961.
Meanwhile, to proceed with the narrative of the proceedings which has given rise to the present appeal, the learned Magistrate committed the respondent and 5 others to take their trial before the Sessions Judge, Manipur on a charge in respect of the offences we have set out earlier.
Before the learned Sessions Judge an objection was raised on behalf of the respondent that the trial was barred by section 403, Criminal Procedure Code by reason of the acquittal of the accused under section 188, Indian Penal Code on July 30, 1960.
The learned Sessions Judge, however, held, that the terms of the section were not satisfied, in that the ingredients of the two offences with which the accused was charged in the two prosecutions were different and rejected that submission.
On the evidence adduced before him be found that it had been established to his satisfaction that the respondent as well as the others were present at the scene of the occurrence and held the accused guilty of the offences under sections 333, 323 and 440 all read with section 149, Indian Penal Code and sentenced him to 4 years R.I.
All the six accused filed appeals against their conviction and sentences before the Judicial Commissioner, Manipur and the learned Judicial Commissioner after making some variations in the sentences as regards certain of the accused directed the acquittal of the respondent on the ground that the finding of fact recorded by the learned Sessions Judge in his trial for the offence under section 188, Indian Penal Code that he was not present at the scene of the occurrence on April 25, 1960 between the hours of 3 and 5 p.m. was final and conclusive and binding upon the prosecution and that no evidence could be led to 128 establish a contrary state of affairs in the present proceedings.
In so holding the learned the Judicial Commissioner followed the decision of this Court in Pritam Singh vs State of Punjab(1) and certain other decisions and held that the principle of res judicata applicable to criminal proceedings was not confined to cases falling within the bar of section 403, Criminal Procedure Code but was of wider application.
It is the correctness of this view of the law that calls for consideration in this appeal.
Before referring to the decision of this Court in Pritam Singh vs State of Punjab(1) it would be convenient to refer to and put aside one point for clearing the ground.
Section 403, Criminal Procedure Code embodies in statutory form the accepted English rule of autre fois acquit.
This section runs: "403 (1) A person who has been once tried by a Court of competent jurisdiction for an offence and convicted or acquitted of such offence shall, while such conviction or acquittal remains in force, not be liable to be tried again for the same offence, nor on the same facts for any offence for which a different charge from the one made against him might have been made under section 236, or for which he might have been convicted under section 237.
(2) A person acquitted or convicted of any offence may be afterwards tried for any distinct offence for which a separate charge might have been made against him on the former trial under section 235, sub section (1).
(3) A person convicted of any offence constituted by any act causing consequences which, together with such act, constituted a different offence from that of which he was convicted may be afterwards tried for such last mentioned offence, if the consequences had not happened, or were not known to the Court to have happened, at the time when he was convicted.
(4) A person acquitted or convicted of any offence constituted by any acts may, notwithstanding such acquittal or conviction, be subsequently charged with, and tried for, any other offence constituted by the same acts which he may have committed if the Court by which he was first tried was not competent to try the offence with which he is subsequently charged.
(1) A.T.R. (5) Nothing in this section shall affect the provisions of section 26 of the , or section 188 of this Code.
129 Explanation The dismissal of a complaint, the stopping of proceedings under section 249, the discharge of the accused or any entry made upon a charge under section 273, is not an acquittal for the purposes of this section.
" Section 26 of the which is referred to in section 403 enacts: "26.
Where an act or omission constitutes an offence under two or more enactments, then the offender shall be liable to be prosecuted and punished under either or any of those enactments, but shall not be liable to be punished twice for the same offence.
" We might also, in this connection, refer to article 20(2) of the Constitution since it makes provision for a bar against a second prosecution in an analogous case.
That provision reads: "20(2).
No person shall be prosecuted and punished for the same offence more than once.
" As has been pointed out by this Court in State of Bombay vs section L. Apte(1), both in the case of article 20(2) of the Consti tution as well as section 26 of the to operate as a bar the second prosecution and the consequential punishment thereunder, must be for "same offence" i.e., an offence whose ingredients are the same.
It has been pointed out in the same decision that the V Amendment of the American Constitution which provides that no person shall be subject, for the same offence, to be twice put in jeopardy of life or limb, proceeds on the same principle.
It is common ground that the respondent cannot bring his case within the provisions of sub section
(1) of section 403 and it was also common ground that the trial of the respondent would be permitted by sub section
It should, however, be noticed that sub sections
(1) to (3) of this section deal with the trial of an accused for an offence and his conviction therefor.
The question raised for decision in Pritam Singh 's(2) case however was different and was whether where an issue of fact has been tried by a competent court on a former occasion and a finding has been reached in favour of an accused, such a finding would constitute an estoppel or res judicata against the prosecution not as a bar to the trial and conviction of the accused for a different or distinct offence but as (1) ; (2) A.I.R. 1956 S.C. 415.
L/P(D)1SCI 5 130 precluding the reception of evidence to disturb that finding of fact when the accused is tried subsequently even for a different offence which might be permitted by the terms of section 403(2).
As Pritam Singh 's(1) case was based wholly on the decision of the Privy Council in Sambasivam vs Public Prosecutor, Federation of Malaya(2) it would be necessary to examine the basis of the latter decision.
The appellant an Indian Tamil was travelling on foot in the company of two Chinese.
They met a party of three Malays.
A fight ensued between the two groups in the course of which one of the Chinese was killed.
The Malays alleged that they had been fired on by the Chinese and that the appellant had with him a revolver which he had held out and pointed at one of them.
In connection with this incident the appellant was charged with carrying a fire arm and being in possession of ten rounds of ammunition.
Two charges were framed against the appellant: (1) of carrying a fire arm, and (2) of being in possession of ammunition.
He was acquitted of the second charge of being in possession of ammunition and that acquittal became final.
He was, later convicted of the offence of carrying a fire arm and the appeal before the Privy Council related to the legality of this conviction.
Diverse objections branching into several fields of law were raised before the Privy Council in support of the appeal but what is, however, of relevance now, is the one which related to the admissibility of the evidence of the prosecution witnesses who spoke of the revolver carried by the appellant being loaded with bullets and of the appellant carrying four more bullets in a bag.
Their Lordships rejected all the other contentions raised on behalf of the appellant but allowed the appeal on the ground that this evidence regarding the revolver being loaded and of the appellant carrying a bag containing some bullets was inadmissible in law.
In dealing with this Lord MacDermott speaking for the Board said: "The effect of a verdict of acquittal pronounced by a competent court on a lawful charge and after a lawful trial is not completely stated by saying that the person acquitted cannot be tried again for the same offence.
To that it must be added that the verdict is binding and conclusive in all subsequent proceedings between the parties to the adjudication." After pointing out that the prosecution witnesses were permitted to depose regarding the possession of ammunition by the appellant and that it was not possible to exclude the (1) A.I.R. 1956 S.C. 415. (2) 131 effect of this evidence on the prosecution case, their Lord ships held that the appellant was seriously prejudiced by the reception of this evidence and therefore allowed the appeal and directed his acquittal.
The point in regard to which the observations in Sambasivam 's(1) case was applied by this Court related to the use of the recovery of a revolver from the accused to sustain his conviction of the offence of murder.
Previous to the prosecution for an offence under section 302, Indian Penal Code the appellant before this Court had been tried before the Additional Sessions Judge, Faridpur under section 19(f) of the Indian Arms Act `of an offence for possession of that revolver and had been acquitted.
This Court speaking through Bhagwati, J. extracted the observations we have quoted from the judgment of Lord MacDermott and pointed out that on the basis of this decision the evidence relating to the recovery of the revolver from the accused should have been excluded.
It was not contended by learned Counsel for the appellant that if the principle laid down by this decision was correct, the acquittal of the respondent by the learned Judicial Commissioner by the order now under appeal was erroneous.
The argument, however, was that the observations in Pritam Singh 's(2) case required reconsideration.
This submission was rested on two separate lines of reasoning: (1) That the rule in Sambasivam 's(1) case on which Pritam Singh IS (2) case was based had been dissented from by the English Court of Criminal Appeal in R. vs Connelly(3) and that, similarly that principle had been departed from by this Court in Grcharan Singh vs State of Punjab(4).
(2) That the principle of Common law which was applied by the Privy Council in Sambasivam 's(1) case could have no application in a jurisdiction like ours where the principle of autre fois acquit is covered by a statutory provision framed on the lines of section 403 occurring in a Code which is exhaustive.
As regards the first ground, it must be pointed out that learned Counsel for the State admitted that there was noth ing a Gurcharan Singh 's(4) case which militated against the acceptance of the rule laid down in Pritam Singh 's (2) case.
Coming next to the point made regarding the decision of the English Court of Criminal Appeal in R. vs Connelly(3), we should make it clear that the decisions of the English Courts being merely of persuasive authority, decisions of such a (1) (2) (3) A.I.R. 1956 S.C. 415.
(4) ; L/P(D)1 SCI 5(a) 132 court even if at variance with one of this Court do not by themselves justify an application to reconsider an earlier decision of this Court.
Besides, a close examination of the judgment in R. vs Connelly(1) through which learned Counsel for the State has taken us, does not disclose any dissent from the principle stated by Lord MacDermott.
The entire case before the Court turned upon whether there had been a specific finding on an issue of fact an issue directly raised regarding an ingredient of the offence charged at the later trial, when the accused was acquitted by the Court of Criminal Appeal in the former proceeding.
Except that the Court did not expressly rule that the principle of issue estoppel applied in England, no exception was taken to its soundness and the decision proceeded on the basis of the facts not justifying the application of the principle, the conditions not being fulfilled.
Learned Counsel is, therefore, not well founded in his submission that the principle underlying Sambasivam 's(2) case was dissented from in R. vs Connelly(1).
Besides, it should be pointed out that the principle underlying the decision in Pritam Singh 's(3) case did come up for consideration before this Court on several occasions, but it was never dissented from though in some of them it was distinguished on facts.
(See Banwari Godara vs The State of Rajasthan(4), Mohinder Singh vs State of Punjab(5) and Kharkan vs The State of Uttar Pradesh(6).
These two decisions in R. vs Connelly(1) and Gurcharan Singh vs State of Punjab(7) being out of the way, we shall address ourselves to the question as to whether what is termed "issue estoppel" which has been held by this Court in Pritam Singh 's(3) case to be applicable to criminal proceedings is excluded by reason of the provisions of the Criminal Procedure Code.
For this purpose learned Counsel invited our attention to section 5(1) which enacts: "All offences under the Indian Penal Code shall be investigated, inquired into, tried, otherwise dealt with according to the provisions hereinafter contained.
" This, however, in our opinion, does not afford any assistance to the argument because Pritam Singh 's(3) case did not introduce any variation in the Code as regards either (3) A.I.R. 1956 S.C. 415.
(4) G.A. No. 141 of 1960, d/February 7, 1961.
(5) A.I.R. 1965 S.C. 79.
(6) A.I.R. 1965 S.C. 83.
(7) ; 133 investigation, enquiry or trial.
As we have pointed out earlier, issue estoppel does not prevent the trial of any offence as does autre fois acquit but only precludes evidence being led to prove a fact in issue as regards which evidence has already been led and a specific finding recorded at an earlier criminal trial before a court of competent jurisdiction.
Learned Counsel next drew our attention to the observations of the Privy Council in Yusofalli Mulla vs The King(1) at page 169 where the following observations occur: "The last point urged by Mr. Page was that even if the case did not fall within the terms of section 403 of the Code of Criminal Procedure the appellant could nonetheless rely on the common law rule that no man should be placed twice in jeopardy." After stating that even for the application of the Common Law rule of double jeopardy the earlier order had to be by a court competent to pass a valid order of acquittal or conviction the judgment proceeded: "This argument therefore fails on the facts, and it is not necessary for their Lordships to consider whether section 403 of the Code of Criminal Procedure constitutes a complete code in India on the subject of autre fois acquit and autre fois convict, or whether in a proper case the common law can be called in aid to supplement the provisions of the section." As we have pointed out, we are not now concerned with any extension of the principle of autre fois acquit but as to the admissibility of evidence which is designed to upset a finding of fact recorded by a competent court at a previous trial.
The reasoning of Lord MacDermott in Sambasivam 's(2) case was not the first occasion when this rule as to issue estoppel in a criminal trial was formulated or given effect to.
That it is not the same as the plea of double jeopardy or autre fois acquit is also clear from the statement of the law by Lord MacDermott himself.
The distinction between autre fois acquit and the objection to the reception of evidence to prove an identical fact which has been the subject of an earlier finding between the parties is brought out in the following passage from the judgment of Wright, J. in The Queen vs Ollis(3): "The real question is whether this relevant evidence of the false pretence on July 5 or 6 ought to have been excluded on the ground that it was part of (1) 176 I.A. 158.
( 2 ) (3) , 768 769.
134 the evidence given for the prosecution at the former trial, at which the prisoner was charged with having obtained money from Ramsey on that false pretence, and was acquitted of that charge.
" The learned Judge then went on to point out that if the acquittal at the first trial was based on the negativing of this fact the evidence would be inadmissible but if that acquittal was based on other circumstances the evidence would be admissible.
That is why he said: "An objection in the nature of a plea of "autre fois acquit" cannot of course be maintained, because on either indictment the prisoner could not have been convicted of the offences, or any of them, which were alleged in the other indictment.
Nor can there be an estoppel of record or quasi of record, unless it appears by record of itself, or as explained by proper evidence, that the same point was determined on the first trial which was in issue on the second trial.
" Speaking of this type of estoppel Dixon, J. said in The King vs Wilkes(1): "Whilst there is not a great deal of authority upon the subject, it appears to me that there is nothing wrong in the view that there is an issue estoppel, if it appears by record of itself or as explained by proper evidence, that the same point was determined in favour of a prisoner in a previous criminal trial which is brought in issue on a second criminal trial of the same prisoner.
That seems to be implied in the language used by Wright, J. in R. vs Ollis which in effect I have adopted in the foregoing statement. . .
There must be a prior proceeding determined against the Crown necessarily involving an issue which again arises in a subsequent proceeding by the Crown against the same prisoner.
The allegation of the Crown in the subsequent proceeding must itself be inconsistent with the acquittal of the prisoner in the previous proceeding.
But if such a condition of affairs arises I see no reason why the ordinary rules of issue estoppel should not apply.
Such rules are not to be confused with those of res judicata, which in criminal proceedings are expressed in the pleas of autre fois acquit and autre fois convict.
They are pleas which are (1) C.L.R. 511 at pp.
518 519.
135 concerned with the judicial determination of an alleged criminal liability and in the case of conviction with the substitution of a new liability.
Issue estoppel is concerned with the judicial establishment of a proposition of law or fact between parties.
It depends upon well known doctrines which control the relitigation of issues which are settled by prior litigation.
" This decision was rendered in 1948.
The matter was the subject of consideration by the High Court of Australia after the decision in Sambasivam 's(1) case in Marz vs The Queen (2) .
The question concerned the validity of a convic tion for rape after the accused had been acquitted on the charge of murdering the woman during the commission of the act.
In an unanimous judgment by which the appeal of the accused was allowed, the court said: "The Crown is as much precluded by an estoppel by judgment in criminal proceedings as is a subject in civil proceedings. .
The law which gives effect to issue estoppels is not concerned with the correctness or incorrectness of the finding which amounts to an estoppel, still less with the process of reasoning by which the finding was reached in fact. .
It is enough that an issue or issues have been distinctly raised or found.
Once that is done, then, so long as the finding stands, if there be any subsequent litigation between the same parties, no allegations legally inconsistent with the finding may be made by one of them against the other.
" It is, therefore, clear that section 403 of the Criminal Proce dure Code does not preclude the applicability of this rule of issue estoppel.
The rule being one which is in accord with sound principle and supported by high authority and there being a decision of this Court which has accepted it as a proper one to be adopted, we do not see any reason for discarding it.
We might also point out that even before the decision of this Court this rule was applied by some of the High Courts and by way of illustration we might refer to the decision of Harries, C. J. in Manickchand Agarwala vs The State(3).
Before parting, we think it proper to make one observation.
The question has sometimes been mooted as to whether the same principle of issue estoppel could be raised (1) (2) ; , 68 69.
(3) A.I.R. 1952 Cal.
136 against an accused, the argument against its application being that the prosecution cannot succeed unless it proves to the, satisfaction of the Court trying the accused by evidence led before it that he is guilty of the offence charged.
We prefer to express no opinion on this question since it does not arise for examination.
As stated earlier, if Pritam Singh 's(1) case was rightly decided, it was conceded that the decision of the Judicial Commissioner was right.
The appeal, therefore, fails and is dismissed.
Appeal dismissed (1) A.I.R. 1956 S.C. 415.

summary:
In the present case.
the trial court held the respondent guilty of the offences under sections 333, 323 and 440 all read with section 149, Indian Penal Code.
It was alleged by the prosecution that 'the respondent Bira Singh was a member of the unlawful assembly which was formed between 3 and 5 p.m. on 25th April 1960, in contravention of the promulgation of the order under section 144 of the Code of Criminal Procedure.
As a member of the mob he was alleged to have pelted Stones at police officers.
The respondent pleaded, in his defence that the present trial was barred by section 403, Criminal Procedure Code by reason of the acquittal of the accused under section 188, Indian Penal Code on July 30, 1960.
The Trial court did not accept his defence and convicted him.
On appeal, the Judicial Commissioner accepted the defence of the respondent and acquitted him on the bases of the decision of this court in Pritam Singh vs State of Punjab.
Before the trial of the present case, a complaint was filed against the respondent on May 12, 1960 under section 188 I.P.C.
In that complaint the District Magistrate alleged that the respondent had disobeyed the order passed under section 144 by forming himself alongwith other persons into an unlawful assembly between the hours of 3 and 5 p.m. on April 25, 1960.
In that case the trial court convicted him of the offence charged and sentenced him to rigorous imprisonment for 6 months.
On appeal the Sessions Judge by his judgment dated July 30, 1960 acquitted the respondent, on the ground that the prosecution had failed to establish that the respondent was present at the place and at the time where the occurrence took place.
This acquittal was confirmed by the Judicial Commissioner.
Held Sub sections
(1) to (3) of section 403 of the Code of Criminal Procedure deal with the trial of an accused for an offence and his conviction therefor.
The question raised for decision in Pritam Singh 's case however was different and was whether where an issue of fact has been tried by a competent court on a former occasion and a finding has been reached in favour of an accused, such a finding would constitute an estoppel or res judicata against the prosecution not as a bar to the trial and conviction of the accused for a different or distinct offence but as precluding the reception of evidence to disturb that finding of fact when the accused is tried subsequently even for a different offence which might be permitted by the terms of section 403 (2).
It would not be correct to say that the principle underlying in Sambasivan 's case was dissented from in R. vs Connelly.
Besides, it should be pointed out that the principle 124 underlying the decision in Pritam Singh 's case did come up for consideration before this Court on several occasions, but it was never dissented from though in some of them it was distinguished on facts.
Pritam Singh vs State of Punjab, A.I.R. 1956, S.C. 415, R. vs Connelly, and Sambasivam vs Public Prosecutor, Federation of Malaya, , relied on.
Gurcharan Singh vs State of Punjab, A.I.R., , referred to.
State of Bombay vs section L. Apte, ; , Banwari Godara vs The State of Rajasthan, Cr. A. No. 141 of 1960 dated February 7, 1961, Mohinder Singh vs State of Punjab, A.I.R. 1965 S.C. 79, Kharkan vs The State of Uttar Pradesh, A.I.R. 1965 S.C. 83, Yusofalli mulla vs The King.
76 I.A. 158, referred to.
(ii) The rule of issue estoppel does not prevent the trial of an offence as does author fois acquit but only precludes evidence being led to prove a fact in issue as regards which evidence had already been led and a specific finding recorded at an earlier criminal trial before a court of competent jurisdiction.
The rule of issue estoppel is not the same as the plea of double jeopardy or autre fois acquit is also clear from the statement of the law by Lord Mac Dermott in Sambasivam 's case.
(iii) It is clear that section 403 of the Criminal Procedure Code does not preclude the applicability of this rule of issue estoppel.
The rule being one which is in accord with sound principle and supported by high authority and there being a decision of this court in Pritam Singh 's case which has accepted it as a proper one to be adopted, there is no reason for discarding it.
The Queen vs Ollis, The King vs Wilkes, ; , Marz vs The Queen, ; and Manick chand Agarwall vs The State, A.I.R. 1952 Cal.
730 relied on.