judgement:
Appeal No. 37 of 1952.
Appeal from the Judgment and Decree dated the 24th September, 1948, of the High Court of Judicature at Madras (Menon and Mack, JJ.) in A.A.O.No.
688 of. 1945 arising out of Judgment and Decree dated the 1st October 1945 of the Court of the ' District Judge of Anantapur in Original Petition No. 15 of 1945.
D. Munikanniah (J. B. Dadachandji" with him) for the appellant.
section P. Sinha(M. O. Chinnappa Reddi and K. B. Chowdhury withhim) for the respondents.
October 29.
The Judment of the Court was delivered by BHAGWATI J.
The plaintiff filed 0.
P. No. 15 of 1945 in the Court of the District Judge of Anantapur for setting aside an award the ground inter alia of legal misconduct of the arbitrator.
The trial Court set aside the award.
The High Court appeal reversed the judgment of the trial Court and dismissed the plaintiffs suit.
This appeal has been filed by the plaintiff with the certificate of the High Court against that decision.
One P.Narayanappa died in 1927 leaving him surviving the plaintiff his widow, the defendant I his undivided brother, the defendant 2 a son of his another pre deceased brother, and defedant 3 his son by his pre deceased wife. 'The deceased had purported to make a will dated 1st May, 1927 under which he had made certain provision for her maintenance , and residence, The plaintiff stayed with the family for 121 some time but had to leave the family house owing to disputes which arose between her and the senior wife of defendant 1.
She lived with her mother for eleven years and ultimately filed a suit in forma pauperis 0.
section No. 19 of 1943 in the Court of the District Judge of Anantapur, for maintenance, arrears of maintenance, residence and household utensils as also recovery of some jewels and clothes as her stridhanam properties.
The defendants contested the claim of the plaintiff contending that sufficient arrangement bad been made for her maintenance and residence under the will dated the 1st May, 1927, that she had accordingly been in possession and enjoyment of the property and that her claim was unsustainable.
The defendants also denied her claim for jewels and clothes.
The suit came for hearing and final disposal before the Subordinate Judge of Anantapur.
When the plaintiff was being examined as P.W. 1, in the suit the 27th February, 1945, all the parties filed a petition under section 21 of the Arbitration Act agreeing to appoint Sri Konakondla Rayalla Govindappa Garu as the 'sole arbitrator ' for settling the disputes in the suit and to abide by his decision, and asking the Court to send the plaint, written statement and other records to the arbitrator for his decision.
A reference to arbitration was accordingly made by the Court.
The arbitrator entered upon the reference and the 6th March, 1945, examined the plaintiff and got from her a statement which is Exhibit No. 4 in the record.
He similarly examined the defendant I the 10th March, 1945, and got from him the statement which is Exhibit No. 5 in the record.
After obtaining the two statements, the arbitrator made and published his award the 12th March, 1945.
It was this award that was challenged by the plaintiff.
The legal misconduct which was alleged against the arbitrator was that he examined each party in the absence of the other.
It was contended behalf of 122 the plaintiff that even though the petition for reference to arbitration as also the statements Exhibits Nos. 4 & 5 authorised the arbitrator to settle the disputes according to law after perusing the plaint and the written statements, the arbitrator examined defendant I in the absence of the plaintiff and also perused what was called the settlement of the 1st May, 1927, without giving an opportunity to the plaintiff to have her say in the matter and was thus guilty of legal misconduct.
It was contended the other hand by the defendants that what was done by the arbitrator was merely to obtain from the parties a reiteration of their request contained in the petition that he should give his award the basis of the pleadings, that not a single fact was recorded by the arbitrator from the defendant 1 which did not find a place in his written statement and that therefore the arbitrator was not guilty of legal misconduct.
The petition filed by the parties the 27th February, 1915,did not give any special powers to the arbitrator.
The arbitrator was appointed for settling the disputes in the suit and the parties agreed to abide by his decision.
The plaint, the written, statement and the other records were agreed to be sent to him for his decision, and if the arbitrator was thus directed to make his award after perusing the plaint and the written statements which were give to him by the Court along with the order, we do not see why the arbitrator went to the plaintiff and defendant 1 and recorded their statements.
The statement given by the plaintiff to the arbitrator did not mention anything beyond the request that be should peruse the plaint and written statement and give his decision according to law and justice.
The statement which was obtained from the defendant 1 however did not merely repeat this request but contained several statements of facts, which did not find a place in his written statement.
These statements were as follows: (1)"She felt glad with what was given to her by her husband.
" 123 (2)"It is seen from the Government accounts that as per the settlement made by her husband, the lands given to her have been in her possession." (3)"Just like the plaintiff has her jewels in her possession, the other females in the house have their jewels in their respective possession only.
The undivided family has no manner of right therein." and (4) "Considering the domestic circumstances our elder brother provided maintenance for the third wife, the plaintiff, just as he had provided maintenance for his second wife.
" These statements constituted evidence given by the defendant I in addition to the averments contained in his written statement and it is futile for the defendant 1 to contend that in obtaining the statement Exhibit No. 5 from him the arbitrator merely obtained from him a narration of what was already found in his written statement: This position is confirmed when one turns to the award.
The arbitrator stated that the Court had directed him to make the award after perusing the plaint and the written statements of the plaintiff and the defendants and that it had given him the plaint and the written statements along with the order.
He however proceeded to state that in pursuance of the order he took statements from the plaintiff as well as the defendant I who was the manager of the defendant 's family.
He further stated that he bad perused the settlement which the defendant 1 alleged as having been made Ist May, 1927, in favour of the plaintiff and proceeded to award to the plaintiff 8 acres 17 cents of land bearing Survey No. 507 in addition to the 40 acres of land already given by the deceased to her.
It is clear from the terms of this award that the arbitrator took into consideration not only the plaint and the written statements of the parties but also the statement which he had obtained from the defendant I and the will dated 1st May, 1927.
There is thus no doubt that the arbitrator heard the defendant 1 in the absence of the, plaintiff.
No 124 notice of this hearing was given by the arbitrator to the plaintiff nor had she an opportunity of having the evidence of the defendant I taken in her presence so that she could suggest cross examination or herself cross examine the defendant I and also be able to find evidence, if she could, that would meet and answer the evidence given by the defendant 1.
As was, observed by Lord Langdale M. R. in Harvey vs Shelton(1), "It is so ordinary a principle in the administration of justice, that no party to a cause can be allowed to use any means whatsoever to influence the mind of the Judge, which means are not known to and capable of being met and resisted by the, other party, that it is impossible, for a moment, not to see, that this was an extremely indiscreet mode of proceeding, to say the very least of it.
, It is contrary to every principle to allow of such a thing, and I Wholly deny the difference which is alleged to exist between mercantile arbitrations and legal arbitrations.
The first principles of justice must be equally applied in every case.
Except in the few cases where exceptions are unavoidable, both sides must be heard and each in the presence of the other.
In every case in which matters are litigated, you must attend to the representations made both sides, and you must not, in the administration of justice, in whatever form, whether in the regularly constituted Courts or in arbitrations, whether before lawyers or merchants, permit one side to use means of influencing the conduct and the decisions of the Judge, which means are not known to the other side.
This case of Harvey vs Shelton(1) is the leading case this point and it has been followed not only in England but in India.
(See Ganesh Narayan Singh vs Malida Koer(2).
She had also no opportunity to have her say in the matter of the settlement of the 1st May, 1927.
The course of proceeding adopted by the arbitrator was obviously contrary to the principles of ,natural justice.
(i) ; at P. 462.
(2) (1911) 13 c.
L. J. 399 at pages 401, 402, 125 Shri section P. Sinha however urged before us that no prejudice was caused to the plaintiff by reason of the arbitrator having obtained the statement Exhibit No. 5 from defendant 1 and that therefore the arbitrator was not guilty of legal misconduct.
This contention is unsound.
The arbitrator may be a most respectable man; but even so, his conduct cannot be reconciled to general principles.
"A Judge must not take upon himself to say, whether evidence improperly admitted had or had not an effect upon his mind The award may have done perfect justice: but upon general principles it cannot be supported.
" Per Lord Eldon, Lord Chancellor, in Walker vs Frobisher(1).
To the same effect are the observations of Lord Justice Knight Bruce in Haigh vs Haigh(1): "It is true that he states in his affidavit that he did not allow those explanations to influence him in his report upon the accounts, and I have no doubt he honestly intended this to be the case; but it is impossible to gauge the influence which such statements have upon the mind.
We must hold, without meaning the least reflection the arbitrator, that he was guilty of legal misconduct and that was sufficient to vitiate the award.
Shri section P. Sinha then urged that the plaintiff had waived her right if any to challenge the award the ground of legal misconduct.
No waiver however was pleaded by the defendant I and it was not competent to him to urge this contention at this stage before us.
The result therefore is that the judgment of the High Court cannot stand.
Agent for the respondents M. section K. Aiyangar, (i) (18o1) at page 72.

dataset_name: IN-Abs

summary:
Where, in an arbitration under section 21 of the Indian Arbitration Act, the arbitrator took statements from each of the parties in the absence of the other and made an award: Held, that it is one of the elementary principles of the administration of justice, whether by courts or by arbitration by lawyers or merchants, that a party should not be allowed to use any means whatsoever to influence 120 the mind of the judge or arbitrator, which means, are not known to and capable of being met and resisted by the other party; the arbitrator was accordingly guilty of legal misconduct; and this was sufficent to vitiate the award, irrespective of the fact whether this misconduct bad caused prejudice to any one.
Harvey vs Shelton ; , Ganesh Narayan Singh vs Malida Koer , and Haigh vs Haigh ; , referred to.


judgement:
Appeal No. 303 of 1958.
Appeal from the judgment and order dated August 3, 1956, of the Bombay High Court in Incometax Reference No. 10 of 1956.
K. N. Rajagopal Sastri and D. Gupta, for the appellant.
N. A. Palkhivala, section N. Andley, J. B. Dadachanji and Rameshwar Nath, for the respondents.
May 4.
The Judgment of the Court was delivered by HIDAYATULLAH, J.
This is an appeal against the judgment and order of the High Court of Bombay dated August 3, 1956, in a reference under section 66 (1) of the Indian Income tax Act by the Appellate Tribunal, Bombay.
The Tribunal referred four questions for the decision of the High Court.
The High Court did not answer the first question because it was not pressed, and answered the remaining in the negative, after modifying them.
It has certified this case as fit for appeal to this Court, and hence this appeal.
The Com missioner of Income tax, Bombay City, is the appellant, and the Khatau Makanji Spinning and Weaving Co. Ltd., Bombay, (the assessee Company), is the respondent.
The assessee Company has its year of account ending June 30 every year.
At the close of the account year 1951, it carried forward profits amounting to Rs. 30,680.
In that year, it appears it had earned a rebate by declaring dividends below the limit fixed by the Finance Act.
For the account year 1952 its book profits were Rs. 28,67,235 less allowances for depreciation and tax.
After these and other sundry adjustments, the balance available for distribution was Rs. 5,02,915.
It may be pointed out that the Incometax Officer on processing the income found the total income to be Rs. 5,26,681.
For the account year 1952, the assessee Company declared dividends amounting to Rs. 4,78,950 and carried forward the balance of Rs. 23,965.
We are concerned with the assessment year 1953 54, and the Finance Act, 1953, is applicable.
That Finance 875 Act applied the Finance Act, 1951, with some changes.
The Finance Act, 1953, with the modifications will be referred to briefly, hereinafter, as the Finance Act.
The Income tax Officer found that the assessee Company had declared excess dividends amounting to Rs. 1,87,691.
He calculated additional income tax on it at 5 annas in the rupee after deducting income tax borne by the profits of the previous year at 4 annas per rupee, a surcharge of 5 per cent.
less rebate of one anna in the rupee as allowed by the Finance Act.
This additional tax amounted to Rs. 21,115 4 0.
The appeals of the assessee Company under the Income tax Act failed.
The Tribunal held that the excess dividends were deemed to be paid out of undistributed profits of earlier year ending June 30, 1951, amounting to Rs. 6,60,720 on which a rebate of 1 anna in the rupee was given in the assessment year, 1952 53.
Tile Tribunal observed that additional incometax was also a tax on income, and that the Finance Act could say that the tax would be payable on the income of any year preceding the previous year.
The Tribunal, however, referred four questions to the High Court, of which the first need not be quoted because it was abandoned before the High Court.
The other questions were: " (ii) If the answer to question No. 1 is in the negative whether the said provisions go beyond the ambit and scope of the Indian Income tax Act ? (iii) Whether additional income tax can be levied, assessed and recovered under the provisions of the Indian Income tax Act ? (iv) Whether at any rate the additional incometax has been legally charged under the Indian Finance Act, 1953, read with the Indian Incometax Act?" The High Court compressed the three questions into one, and it reads: " Whether additional income tax has been legally charged under clause (ii) of the proviso to paragraph B of Part 1 of the.
First Schedule to the Indian Finance Act, 1951, as applied to the assessment year 1953 54 by the Indian Finance Act, 1953, read with Section 3 of the Indian Income tax Act?" 876 This question was answered by the High Court in the negative.
In the opinion of the High Court, section 3 of the Indian Income tax Act lays down the liability to tax, and it puts the tax on the total income of the previous year.
The method of computing this total income is also to be found in the Finance Act.
The Finance Act merely provides the rate applicable to the income so found.
According to the High Court, the Finance Act in providing that additional income tax should be paid upon the accumulated profits of the previous years goes beyond the purpose for which the Central Act is passed every year, and cannot stand by itself without the support of section 3 of the Indian Income tax Act.
The High Court held that the Finance Act had ' misfired ', because it did not resort to legislation which would have conformed to the object for which the Finance Act was passed every year.
The learned Chief Justice, who delivered the judgment of the High Court, stated that there were several methods open to the legislature to achieve that purpose but that it had not resorted to any of them.
This is what the learned Chief Justice observed: " The Legislature could have achieved this object by one of three methods.
It could have treated the excess dividend declared by the company as a notional income and made it apart of the total income of the previous year.
It could have provided for rectification of the assessment of the year in which these profits were charged at a lesser rate, and we now find that Parliament has actually provided for this in the Finance Act, 1956.
Or, finally, it could have provided for a penalty imposed upon a company which transgressed the direction of Parliament that it should not pay dividend beyond a particular ceiling .
The ambit of Section 3 is clear and the ambit is that the tax to be levied must be a tax on income and the power of Parliament is equally clear and that is to fix the rate at which income tax is to be charged upon the total income of the previous year of the assessee.
In our opinion, the provision of the Finance Act travels beyond the ambit of Section 3, and if Parliament 877 has done so then no effective charge can be made on the total income of the previous year of the assessee under the provisions of the Finance Act which deals with additional tax on excess dividend.
" It may be pointed out that before the High Court it was conceded that in order that the provisions of the Finance Act might be effective, the Finance Act had to come within the scope of section 3 of the Incometax Act.
The point that was argued here was that it was not necessary to look only to section 3 of the Indian Income tax Act but also to the provisions of the Finance Act, through which Parliament could impose a new tax, if it so pleased.
Other arguments involved modifications of language suitable to sustain the tax independently of section 3 of the Indian Income tax Act, a procedure which we do not think is open, for reasons which we have given in Civil Appeal No. 427 of 1957, decided today.
These modifications, which were suggested, involve a recasting of the entire relevant paragraph of the Finance Act to make it independent of section 3 of the Indian Income tax Act, a course which is only open to a legislature and not to a Court.
We need not give all the modifications suggested, because, in our opinion, the words of the Finance Act must be given their due meaning, and must be construed as they stand.
The learned Chief Justice, with respect, very rightly pointed out that the Income tax Act puts the tax on income or something which it deems to be income.
In other words, the tax deals with income and income only.
It further provides that this tax shall be collected at a particular rate on the total income for which provision shall be made in an yearly Central Act.
The Finance Act also follows the same scheme, and lays down the rate at which the tax is to be collected.
In the Finance Act, the tax is laid on the total income, but two provisos modify the rate under certain circumstances.
We may at this stage read the relevant provision (Part 1, First Schedule): 878 B.
In the case of every company Rate.
Surcharge.
On the whole of Four annas One twentieth of total income.
in the rupee.
the rate specified in the preceding column: Provided that in the case of a company which, in respect of its profits liable to tax under the Income tax Act for the year ending on the 31st day of March, 1953, has made the prescribed arrangements for the declaration and payment within the territory of India excluding the State of Jammu and Kashmir, of the dividends payable out of such profits, and has deducted super tax from the dividends in accordance with the provisions of subsection (3D) or (3E) of section 18 of the Act (i) Where the total income, as reduced by seven annas in the rupee and by the amount, if any, exempt from income tax, exceeds the amount of any dividends (including dividends payable at a fixed rate) declared in respect of the whole or part of the previous year for the assessment for the year ending on the 31st day of March, 1953, and no order has been made under sub section (1) of section 23A of the Income tax Act, a rebate shall be allowed at the rate of one anna per rupee on the amount of such excess; (ii) Where the amount of dividends referred to in clause (i) above exceeds the total income as reduced by seven annas in the rupee and by the amount, if any, exempt from income tax, there shall be chargeable on the total income an additional income tax equal to the sum, if any, by which the aggregate amount of income tax actually borne by such excess (hereinafter referred to as ' excess dividend ') falls short of the amount calculated at the rate of five annas per rupee on the excess dividend.
For the purpose of clause (ii) of the above proviso, the aggregate amount of income tax actually borne by the excess dividend shall be determined as follows : 879 (i) the excess dividend shall be deemed to be out, of the whole or such portion of the undistributed profits of one or more years immediately preceding; the previous year as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover an excess dividend of a preceding year; (ii) such portion of the excess dividend as is deemed to be out of the undistributed profits of each of the said years shall be deemed to have borne tax, (a) if an order has been made under sub section (1) of section 23A of the Income tax Act, in respect of the undistributed profits of that year, at the rate of five annas in the rupee, and (b) in respect of any other year, at the rate applicable to the total income of the company for that year reduced by the rate at which rebate, if any, was allowed on the undistributed profits.
" By the first Proviso, a rebate of one anna per rupee is given to a company which pays dividends less than 9 annas in the rupee out of its profits.
By the second Proviso, the rebate disappears, and an additional income tax has to be paid on dividends in excess of that limit, paid in the year.
The explanation says that " the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years immediately preceding the previous year as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover an excess dividend of a preceding year ".
This fiction, as we have already pointed out, provides only that the dividends shall be deemed to be out of the profits not of the previous year under assessment but of some other years.
What the Finance Act fails to do is to make them " total income ", so as to take in the rate which is prescribed for the total income in the Proviso.
Unless the Finance Act stated that after the working out of the fiction the profits of the back year or years shall be deemed to be a part of the total income of the previous year under assessment, the purpose of the Act clearly fails.
Income tax is a tax on income 880 of the previous year, and it would not cover something which is not the income of the previous year, or made fictionally so.
The Finance Act could have gone further, as pointed out by the learned Chief Justice in the extract quoted, and made the profits a part of the total income of the previous year under assessment, but it did not do so.
The Finance Act could have also resorted to some other fiction, which might conceivably have met the case; but it has failed to do so.
Even if one considers the dividends as having come out of the profits of preceding years, they do not become the income of the relevant previous year, and unless the Finance Act expressly laid down that it should be taxed as part of the total income, the purpose is not achieved.
Indeed, the Finance Act continues to say that the tax shall be on the total income, as defined in the Indian Income tax Act and as determined under that Act.
It is impossible to say that the additional income tax was properly laid upon the total income, because what was actually taxed was never a part of the total income of the previous year.
For these reasons, we are of opinion that the High Court was right in answering the question which it had framed, in the negative.
In the result, the appeal fails, and is dismissed with costs.
Appeal dismissed.

summary:
The Income tax Officer found that in the assessment year 1953 54 the respondent assessee company had declared excess dividends amounting to Rs. 1,87,691 and he levied additional income tax on it at 5 annas in the rupee after deducting incometax borne by the profits of the previous year at 4 annas per rupee, a surcharge of 5 per cent.
less rebate of one anna in the rupee as allowed by the Finance Act, 1953.
The Income tax Tribunal held that the excess dividends were deemed to be paid out of undistributed profits of the earlier year ending June 30, 1951 on which a rebate of one anna in the rupee was given in the assessment year 1952 53.
It further observed that additional income tax was also a tax on income, and that the Finance Act could say that the tax would be payable on the income of any year preceding the previous year.
The Tribunal, however, referred three questions to the High Court which the High Court compressed into one as below : " Whether additional income tax has been legally charged under Clause (ii) of the proviso to paragraph B of Part 1 of the First Schedule :to the Indian Finance Act, 1951, as applied to the assessment year 1953 54 by the Indian Finance Act, 1953, read with section 3 of the Indian Income tax Act? " The High Court held that section 3 of the Indian Income tax Act put the liability to tax on the total income of the previous year or what can be deemed to be income.
The Finance Act provided the rate applicable to the income so found and a method of computing the total income.
The Finance Act in providing that additional income tax should be paid upon the accumulated profits of the previous years went beyond the purpose for which the Finance Act was passed every year, and the Finance Act could not stand by itself without the support Of section 3 of the Indian Income tax Act.
On appeal by the Commissioner of Income tax on certificate of the High Court: Held, that the High Court was right in answering the ques tion framed by it, in the negative.
The Finance Act provided that the tax should be levied on the " total income " as defined in and determined under the Indian Income tax Act.
The Additional income tax was not properly laid upon the total income because what was actually taxed was never a part of the total income of the previous year, nor deemed to be so. 874


judgement:
Appeal No. 312 of 1959.
Appeal from the judgment and order dated August 23, 1956, of the Bombay High Court in Income tax Reference No. 21 of 1956.
Hardyal Hardy and D. Gupta, for the appellant.
A.V. Viswanatha Sastri and I. N. Shroff, for the respondent.
December 6.
The Judgment of the Court was delivered by KAPUR, J.
This is an appeal by special leave brought by the Commissioner of Income tax against the judgment and order of the High Court of Bombay answering the question in favour of the assessee.
The question referred by the Tribunal was: "Whether on the facts and in the circumstances of the case the amount of Rs. 3,20,162 is an allowable deduction under Section 10(2)(xi) or 10(2)(xv) of the Income tax Act?" which was amended by the High Court as follows: "Whether on the facts and in the circumstances of the case the amount Rs. 3,20,162 is an allowable deduction" and was answered in the affirmative and against the appellant.
The facts of the case shortly stated are these: The respondent is a registered firm carrying on business as commission agents.
It was treated as the agent of a non resident principal Haji Mohamed Syed Ali Barbari of Port Sudan (hereinafter 'referred to as the nonresident principal.
It was carrying on the business of export of cloth and kariana (i.e., miscellaneous goods) to Aden, Saudi Arabia and sudan.
It used to supply goods from India to the nonresident principal, who on his part, was sending cotton to the respondent and other merchants for sale in India.
For the years 1942 43, 1943 44, 1944 45 and 1945 46, the respondent firm was treated as the agent of the nonresident principal under section 43 of the Income tax Act 951 (which will hereinafter be termed 'the Act ') for the purpose of income tax and Excess Profits Tax.
The respondent firm had to pay in all Rs. 3,78,491 under section 42(1) of the Act and after allowing for the amounts which were in its hands the account of the principal non resident showed a debit balance of Rs. 3,20,162.
For the year of assessment, 1953 54, the respondent firm treated this amount as a bad debt and claimed it as a deductible loss to be set off against profits.
The Income tax Officer treating this claim as one under section 10(2)(xv) of the Act, disallowed it.
The Appellate Assistant Commissioner treated it as one under section 10 (2)(xi) of the Act and he also disallowed it.
On appeal to the Income tax Appellate Tribunal it was held to be a bad debt and an allowable deduction as it was incurred as a result of the business activities which the respondent firm was carrying on with the nonresident principal.
At the instance of the Commissioner of Income tax, the case was stated to the High Court and the High Court modified the question and answered the same in the affirmative, i.e., against the appellant.
The High Court held that as the law imposed an obligation upon the respondent firm to discharge the liability and it was incidental to the business of the respondent the amount was a deductible loss; and even if it was not a debt, then also the amount could be claimed by the assessee as a business or trading loss, because in arriving at the true profit of the respondent 's business that loss had to be deducted.
The High Court thus applied section 10(1) of the Act to the amount claimed by the respondent.
The allowability of the amount in dispute depends upon the nature of the liability imposed upon the respondent firm.
The contention of the respondent 's counsel was that it was carrying on foreign trade and had dealings with a foreign merchant and in the course of the business there were imports and exports and therefore the interconnection between the respondent firm and the non ' resident principal was so intimate as to invite the application of section 42(1), i.e., the establishment of agency as 'contemplated in that section.
The liability to pay arises under a. 42(2) which provides 952 "Where a person not resident or not ordinarily resident in the taxable territories carries on business with a person resident in the taxable territories, and it appears to the Income tax Officer that owing to the close connection between such persons the course of business is so arranged that the business done by the resident person with the person not resident or not ordinarily resident produces to the resident either no profits or less than the ordinary profits which might be expected to arise in that business, the profits derived therefrom or which may reasonably be deemed to have been derived therefrom, shall be chargeable to income tax in the name of the resident person who shall be deemed to be, for all the purposes of this Act, the assessee in respect of such income tax." Relying on this provision it was argued that the nature of the respondent 's business was foreign trade which was inter connected with the business of the non resident principal.
Its nature was such as to attract the imposition of liability on the respondent firm under section 42(2) of the Act and therefore the loss so incurred must be taken to be incidental to and arising out of the business of the respondent.
"The thing to be taxed", said Lord Halsbury, L. C., "is the amount of profits and gains.
The word 'profits ' I think is to be understood in its natural and proper sense in a sense which no commercial man would.
misunderstand": Gresham Life Assurance Society V. Styles (1).
Hence even if a deduction is not specifically enumerated in sub section (2) of B. 10 it would still be a debatable item to reflect the taxable profits.
The Privy Council in Commissioner of Income tax vs Sir section M. Chitnavis (1) held that the Act nowhere authorises the deduction of bad debts of a business, such a deduction is necessarily allowable because what is chargeable to income tax in respect of a business are the profits and gains of a year and in assessing the amount of profits and gains of that, year account must necessarily be taken of all losses incurred, otherwise true profits and gains cannot be ascertained.
In order (1)(1892) , 188 (H.L.).
(2)(1932) L.R. 59 I.A. 290, 296. 953 that a loss may be deductible it must be a loss in the business of the assessee and not payment relating to the business of somebody else which under the provisions of the Act is deemed to be and becomes the liability of the assessee.
The loss becomes allowable if it "springs directly from and is incidental" to the business of the assessee.
The decision therefore mainly depends upon whether the loss claimed is a business loss of that nature.
In our opinion the amount which became payable by the respondent firm cannot be called its business loss.
In order to be deductible the loss must be in the nature of a commercial loss and, as has been said above, must spring directly out of it and must really be incidental to the business itself.
It is not sufficient that it falls on the trader in some 'other capacity or is merely connected with his business.
Counsel for the respondent relied upon a judgment of this Court in Badridas Daga vs The Commissioner of Income tax (1).
In that case an agent of the assessee engaged for the purpose of carrying on of the assessee 's business had authority to operate a bank account.
Acting under such authority the agent withdrew from the bank monies and put them to his personal use.
The assessee was able to recover from the agent only a part of the amount misappropriated and the balance was written off as irrecoverable debt and it was held that it was not allowable under section 10(2)(xi) or 10(2)(xv) of the Act but it was a loss deductible in computing the profits under section 10(1) of the Act as a loss incidental to the carrying on of his business.
Counsel relied on the following observation of Venkatarama Ayyar, J., at p. 695: "The result is that when a claim is made for a deduction for which there is no specific provision in section 10(2), whether it is admissible or not will depend on whether having regard to accepted commercial practice and trading principles it can be said to arise out of the carrying on of the business and to be incidental to it.
,, That passage has to be read in the circumstances of (1)[1959] S.C.R. 690.
954 that case where the employment of agents was incidental to the carrying on of the business and it was observed that it logically followed that the losses which were incidental to such employment were also incidental to the carrying on of the business.
At page 696, it was observed: "At the same time it should be emphasised that the loss for which a deduction could be made under section 10(1) must be one that springs directly from the carrying on of the business and is incidental to it and not any loss sustained by the assessee, even if it has some connection with his business." Reference may also be made to an English decision in Curtis vs J. & G. Oldfield Ltd. (1).
In that case the managing director of a company of wine and spirit merchants embezzled monies of the ' company and that.
was claimed as a loss as a bad debt and it was held that it was not a trading loss and was therefore not an admissible deduction.
In that case the contention of the Crown *as that the sum was not an ordinary trading debt and therefore could not be a bad debt and that the loss was not connected with, and did not arise out of the trade.
Rowlatt, J., said at p. 330: "When the Rule speaks of a bad debt it means a debt which is a debt that would have come into the balance sheet as a trading debt in the trade that is in question and that it is bad.
It does not really mean any bad debt which, when it was a good debt, would not have come in to swell the profit.
" In the present case the liability was imposed upon the respondent firm because it was treated as an agent within the meaning of section 42(1) of the Act and the liability was imposed because of the deeming provision in sub section
(2) of section 42 of the Act.
can it be said, in the present case, that the liability imposed upon the respondent firm was a business debt arising out of the business of the respondent or to use the words of Venkatarama Ayyar, J., "springs directly from the carrying on of the business and is incidental to it or is a trading debt in the business of the respondent firm.
" As we have said above, that condition has not (1)(1925) 955 been fulfilled and the loss which the respondent has incurred is not in its own business but the liability arose because of the business of another person and that is not a permissible deduction within section 10(1) of the Act.
It is not a loss which has to be deducted in respect of the business of the respondent from the profits and gains of the respondent 's business.
Counsel for the respondent also relied on Lord 's Dairy Farm Ltd. vs Commissioner of Income tax, Bombay(1).
That 'was a case of embezzlement by an employee and it was held that the loss directly arose from the necessity of employing cashiers and therefore the loss by embezzlement was a trading loss but in that very case it was held that before a claim could be made for deduction of a debt as bad debt it must be a debt in law.
That case is not applicable to the facts of the present case and is of little assistance in the decision of the question before us.
Counsel for the respondent next relied on Calcutta Co., Ltd. vs The Commissioner of Income tax (2).
It was held in that case that the expression "profits and gains" has to be understood in its commercial sense and that there could be no computation of profits and gains until the expenditure necessary for earning those profits and gains is deducted therefrom and that when there is no specific provision in section 10(2) in regard to claim made, its allowability will depend on accepted commercial practice and trading principles and it will be allowed if it can be said to arise out of the carrying on of the business and is incidental to it.
As a principle it is unexceptionable but it does not carry the matter any further.
It was next contended that the matter falls within section 10(2)(xi) of the Act, i.e., it is in respect of the busi ness.
This contention has even less substance than the claim of deduction under section 10(1).
Under cl.
(xi) also a debt is only allowable when it is a debt and arises out of and as an incident to the trade.
Except in money lending trade debts can only be so described (1) (2) [1959] 37 I.T.R. 956 if they are due from customers for goods supplied or loans toconstituents or transactions of a similar kind.
In every case the test is, was the debt due as an incident to the business; if it is not of that character it will be a capital loss.
Thus a loan advanced by a firm of Solicitors to a company in the formation of which it acted as legal adviser is not deductible on its becoming irrecoverable because that is not a part of the profession of a Solicitor: C. I. R. vs Hagart & Burn Murdoch (1).
In our opinion the High Court 'was in error in answering the question in favour of the respondent.
We therefore allow this appeal, set aside the judgment and order of the High Court and answer the question against the respondent.
The appellant will have his costs in this Court and in the High Court.
Appeal allowed.

summary:
The respondent was a registered firm carrying on business as commission agents, and for the purpose of income tax it was treated as the agent of a non resident principal doing business outside India.
Under section 42(1) of the Indian Income tax Act the respondent was deemed to be the assessee and had to pay Rs. 3,78,49r as income tax on behalf of the non resident principal.
After allowing for the amounts lying with the respondentfirm the account of the non resident principal showed a debit balance of RS.
3,20,162.
The respondent treated this amount as a bad debt and claimed it as a deductible loss.
The Incometax Officer and the Appellate Assistant Commissioner disallowed the respondent 's claim but the Income Tax Appellate Tribunal held it to be an allowable deduction being a bad debt incurred as a result of the respondent 's business activities with the nonresident principal.
The High Court treating the amount as a deductible business loss incurred by the respondent affirmed the decision of the Income tax Tribunal.
On appeal by the Commissioner of Income tax, Held, that the respondent was not entitled to the reduction claimed by it.
The liability to pay imposed upon it under section 42(2) of the Income tax Act did not arise directly from the carrying on of the business nor was it incidental to the business.
The loss was not a commercial loss incurred in the respondentfirm 's own business but it arose out of the business of another person and that was not a permissible deduction within section io(1) or section 10(2)(Xi) of the Act.
Gresham Life Assurance Society vs Styles, L.), referred to.
Commissioner of Income tax vs Sir section M. Chitnavis, (1932) L. R 59 I. A. 290, followed.
Badridas Daga vs Commissioner of Income tax, [1959] S.C.R. 690 and Curtis vs I. and G. Oldfield, Ltd., (1925) 9 T. C. 319, discussed.
Lord 's Dairy Farm Ltd. vs Commissioner of Income tax, Bom bay, , Calcutta Co., Ltd. vs Commissioner of Income tax, and C.I.R. vs Hagart and Burn Murdoch; ; , not applicable '.
120 950


judgement:
iminal Appeals Nos.
57 and 58 of 1960.
Appeals by special leave from the judgment and order dated November 5/6, 1958, of the Bombay High Court at Nagpur in Criminal Appeal No. 94 of 1958.
Jai Gopal Sethi and G. C. Mathur, for the appellant (in Cr. A. No. 57 of 1960).
G. C. Mathur, for the appellant (in Cr. A. No. 58 of 1960).
Gopal Singh and D. Gupta, for the respondent.
December 5.
The Judgment of the Court was delivered by SUBBA RAO, J.
These two appeals raise rather an important question on the interpretation of the provisions of section 207A of the Criminal Procedure Code (hereinafter referred to as the Code). ' The facts that have given rise to these appeals may be briefly stated.
The appeals arise out of an incident that took place on November 29, 1957, when one Sadashiv was murdered in the courtyard of his house in village Nimgaon.
The case of the prosecution was that the four appellants, armed with sticks, went to the house of the deceased, dragged him 'out of the house and beat him with sticks in the courtyard; and that as a result of the beating he died on the next day at about 5 p.m. at Bhandara Hospital.
After investigation, the police submitted their report to the Magistrate under 'section 173 of the Code along with the relevant documents.
After forwarding the report, the officer in charge of the; police station furnished 892 the appellants with a copy of the report forwarded under sub section
(1) of section 173, the First Information Report recorded under section 154 and all other documents or relevant extracts thereof on which the prosecution proposed to rely, including the statements recorded under sub section (3) of section 161 and also intimated them of the persons the: prosecution proposed to.
examine as its witnesses.
The Magistrate posted the case for inquiry on February 10, 1958 and on that date the prosecution intimated that it did not intend to examine any witnesses in the Magistrate 's Court., , On behalf of the appellants no objection was raised, to,that course.
But the Magistrate adjourned the inquiry to February 12, 1958, as he wanted to consider whether any evidence was necessary to be recorded before commitment.
On February 12, 1958, reexpressed his opinion that no witness need.
be examined at that stage; thereafter, he framed charges against accused appellants under section 302, read with section 34, of the Indian Penal Code, and also under section 448 thereof and committed the appellants to the Sessions Court.
Before the learned Sessions Judge the prosecution led four types of evidence, i.e. (1) eye witnesses, namely, P.Ws. 6, 11, 20 and 25; (2) dying declaration, exhibit P 15, supported by P. Ws. 18,22 and 19; (3) the identification of the appellants in jail by P.Ws. 20 and 25; and (4) recovery of various articles at, the instance of the accused appellants.
The defence examined four witnesses.
On a consideration of the entire evidence, the learned Sessions Judge held that,the prosecution, case had been amply borne out and that the four appellants entered into the house of the deceased and beat him in the manner described by the prosecution wit nesses.
no less than 12 confused wounds were inflicted on the deceased, which resulted in the fracture of his ribs and injury to the lung,.
and as the, doctor opined that the death was due to shock and haemorrhage resulting from said fracture, the learned Sessions Judge hold that the accused appellants were guilty of murder and convicted them under s.302, read with a. 34, Indian Penal Code,and he further convicted them, under section 448 of the Indian 893 Penal Code for trespassing into the house of the deceased.
On these findings the learned Sessions Judge sentenced the appellants to undergo imprisonment for life on the first count and for 3 months rigorous imprisonment on the second count.
The appellants preferred an appeal against their convictions and sentences to the High Court of Bombay at Nagpur.
The learned Judges of the High Court, on a resurvey of the entire evidence, agreeing with the learned Sessions Judge, accepted the prosecution case, but they held that the appellants were guilty only under section 304, Part 1, read with section 34, Indian Penal Code, and in the result they reduced the sentence from life imprisonment to 10 years ' rigorous imprisonment in regard to appellant 1 and to 7 years ' rigorous imprisonment in regard to appellants 2 to 4.
Against the said convictions and sentences, the appellants have preferred, by special leave, appeals to this Court.
Criminal Appeal No. 57 of 1960 has been preferred by the first appellant and Criminal Appeal No. 58 of 1960 by appel lants 2 to 4.
Learned counsel for the appellants raised before us the following two points: (1) The Sessions Court and, on appeal, the High Court have not properly appreciated the evidence and the circumstances of the case in holding that the appellants had committed the offences.
(2) The trial and conviction of the appellants by the Sessions Court were null and void, as the Magistrate had no jurisdiction to commit the appellants to Sessions without examining witnesses under sub section
(4) of section 207A of the Code and that, as the order of 'committal was without jurisdiction, the defect was not cured either under section 532 or section 537 of the Code.
The first question does not merit any consideration.
Both the courts below have, carefully considered the evidence adduced by the prosecution as well as the accused appellants and have accepted the prosecution case.
It is a well established practice of this Court not to interfere on questions of fact, particularly when they are concurrent findings, except under exceptional circumstances.
We find, no such exceptional 894 circumstances in this case.
We, therefore, reject the first contention.
The second contention turns upon the interpretation of the relevant provisions of section 207A of the Code.
Before attempting to construe the relevant provisions of the section it would be helpful to notice briefly the history of the said section.
Under the Criminal Procedure Code, as it originally stood, in the matter of committal proceedings there was no distinction between the proceeding instituated on a police report and that instituted otherwise than on police report.
The main object of the committal proceedings was to hold an inquiry to ascertain and record the case which was to be tried before the Court of Sessions.
It was primarily to give an opportunity to an accused to know in advance the particulars of evidence that would be adduced against him in the Court of Sessions so that he could be in a position to prepare his defence.
Another object, which was no less important, was to enable the Magistrate to discharge an accused if there was no prima facie case against him.
This procedure prevented unnecessary harassment to such accused and at the same time saved the valuable time of the Sessions Court.
In practice the committal proceeding, whether intended by the Legislature or not, served another purpose, namely, it gave an opportunity to the accused to test the credibility of witnesses by bringing out the discrepancies between their evidence in the committing court, the statements made by them to the police under section 161 of the Code and the evidence given by them in the Court of Sessions.
Though very often accused persons took full advantage of this additional opportunity to test the veracity of the witnesses, as often as not, it had turned out to be duplication of trials with the resultants long delays in the disposal of criminal cases.
The advantage of committal proceeding.
was not solely for the accused, for the.
prosecution by examining the witnesses before the committing Magistrate secured their testimony in the sense that though it was tampered subsequenty it is unfortunately a frequent phenomenon in criminal, cases it could use the said evidence as substantive 895 one under section 288 of the Code.
The Legislature, in its wisdom, presumably thought that undue delay in the disposal of sessions cases was due to the elaborate and ' prolonged committal proceedings and stepped in to amend the Code in that respect.
The whole of section 207A has been inserted by Act XXVI of 1955.
While the section simplified the procedure in regard to commitment proceedings instituted on a police report, it confined the existing procedure to proceedings initiated otherwise than on a police report.
This distinc tion between the two classes of cases had a reasonable factual basis.
In the case of a police report, a thorough inquiry would have been made and the investigating officer would have sent a report to the Magistrate under section 173 of the Code.
The amended section 173 of the Code also enjoins on the officer in charge of the police station a duty to furnish before trial, free of cost, to the accused copies of the report forwarded under that section to the Magistrate, the First Information Report recorded under section 154 and all other documents or relevant extracts thereof on which the prosecution proposes to rely, including the statements, if any, recorded under section 164 of the Code and those recorded under sub section
(3) of section 161 and a list of witnesses whom the prosecution proposes to examine as its witnesses.
The Magistrate in a proceeding instituted on police report would ordinarily be in a position, on the said material to understand the case of the prosecution and know the nature of the evidence that would be adduced on the basis of which the accused is sought to be proceeded against.
The accused also would have an opportunity to know beforehand the case he would have to meet and the evidence that would be adduced against him.
But in a proceeding instituted otherwise than on a police report, no such maternal would be available and therefore the old procedure continued to apply to such a case.
With this background let us look at the provisions of section 207A of the Code.
The relevant provisions of section 207A of the Code may now be read: Section 207A: (1) When, in any proceeding instituted on a police report, the Magistrate receives the 896 report forwarded under section 173, he shall, for the purpose of holding an inquiry under this section, fix a date which shall be a date not later than fourteen days from the date of the receipt of the report, unless the Magistrate, for reasons to be recorded, fixes any later date.
If, at any time before such date, the officer conducting the prosecution applies to the Magistrate to issue a process to compel the attendance of any witness or the production of any document or thing, the Magistrate shall issue such process unless, for reasons to be recorded, he deems it unnecessary to do so.
At the commencement of the inquiry, the Magistrate shall, when the accused appears or is brought before him, satisfy himself that the documents referred to in section 173 have been furnished to the accused and if he finds that the accused has not been furnished with such documents or any of them, he shall cause the same to be so furnished.
The Magistrate shall then proceed to take the evidence of such persons, if any, as may be produced by the prosecution as witnesses to the actual commission of the offence alleged, and if the Magistrate is.
of opinion that it is necessary in the interests of justice to take the evidence of any one or more of the other witnesses for the prosecution, he may take such evidence also.
The accused shall be at liberty to cross examine the witnesses examined under sub section (4), and in such case, the prosecutor may re examine them.
(6) When the evidence referred to in sub section (4) has been taken and the Magistrate has considered all the documents referred to in section 173 and has, if necessary, examined the accused for the purpose of enabling him to explain any circumstances appearing in the evidence against him and given the prosecution and the accused an opportunity of being heard, such Magistrate shall, if he is of opinion that such evidence and documents disclose no grounds for committing the accused person for trial, record his reasons ,and discharge him, unless it appears to the Magistrate 897 that such person should be tried before himself or some other Magistrate, in which case he shall proceed, accordingly.
When, upon such evidence being taken, such documents being considered, such examination (if any) being made and the prosecution and the accused being given an opportunity of being heard, the Magistrate is of opinion that the accused should be committed for trial, he shall frame a charge under his hand, declaring with what offence the accused is charged.
On the interpretation, of sub section
(4), which is the main sub section under scrutiny in the present case, the High Courts in India have expressed conflicting views.
It would not be necessary to consider the said decisions in detail, but it would be enough if we state the conflicting views, which areas follow: (1) Under sub section
(4) the prosecution is bound to examine all the eye witnesses indicated in the police report, and the discretion of the Magistrate to examine witnesses under the second part of the said sub section is only in respect of witnesses other than the eye wit nesses: vide M. Pavalappa vs State of Mysore (1), State vs Andi Betankar (2), Ghisa vs State (3 ) and Chandu Satyanarayana vs The State (4).
(2) The Magistrate 's power to examine eye witnesses under the first part of sub section
(4) is confined only to such witnesses as are produced in court by the officer conducting the prosecution and if he has not produced any such witnesses, the Magistrate cannot examine any eye witnesses under the second part of the said sub section, for, according to this view, the second part deals with only witnesses other than eye ,witnesses.
(3) If the prosecution has not produced any eye witnesses the court may not in its discretion examine any witness under the second part, but can, if satisfied, discharge or commit the accused to sessions on the basis of the documents referred to in section 178 of the Code: vide State vs Lakshmi Narain (5), State, of U. P. vs Satyavir (6).
(4) The first part confers a power on a Magistrate only to examine the eyewitnesses produced, but (1) A.I.R. (3) A.I.R. 1919 Raj.
(5) A.I.R. 1960 All. 237.
(2) A.I.R. 1958 Orissa 241.
(4) A.I.R. 1959 A.P.651.
(6) A.I.R. 1959 All.
898 the second part empowers him to examine any witness other than those produced, whether eyewitnesses or not, and in a case where the prosecution failed to discharge its duty to produce any witnesses or any important eye witnesses, the court would not be exercising its judicial discretion if it commits the accused to sessions on the basis of documents referred to under section 173 of the Code without examining at least the important witnesses: vide State vs Yasin (1), In re Pedda Amma Muttigadu (2), A. Ishaque vs The State (3) and Manik Chand vs The State (4).
We have gone through the judgments of the High Courts cited at the Bar and derived considerable assistance from them for deciding the question raised.
But as the question is to be primarily decided on the interpretation of the relevant provisions, we think, without any disrespect to the learned Judges, that it is not necessary to consider the said decisions in detail.
Now let us look at the relevant provisions of section 207A of the Code to ascertain its intendment.
Sub section
(4) is the most important section vis a vis the taking of evidence.
It is in two parts, the first part provides for the examination of witnesses produced by the prosecution and the second part for the examination of other witnesses.
One of the fundamental rules of interpretation is that if the words of a statute are in themselves precise and unambiguous "no more is necessary than, to expound those words in their natural and ordinary sense, the words themselves in such case best declaring the intention of the legislature".
The first part of the sub section reads: "The.
Magistrate shall then proceed to take the evidence of such persons, if any, as may be produced by the prosecution as witnesses to the actual commission of the offence alleged.
" The word "shall" imposes a peremptory duty on the Magistrate to take the evidence; but the nature of the said evidence is clearly defined thereafter.
The clause "as may be produced by the prosecution as witnesses to the actual commission of the offence alleged" governs the words "such persons"; (1) A.I.R. 1958 All.
(3) A.I.R. 1958 Cal.
(2) A.I.R. 1959 A.P. 469.
(4) A.I.R. 1958 Cal.
324. 899 with the result that the duty of the Magistrate to take evidence is only confined to the witnesses produced by the prosecution.
Learned counsel for the appellants contends that it could not have been the intention of the Legislature to permit the prosecution to keep back the eye witnesses in the committal court and therefore the word "produced" should be read as "cited".
To accept this interpretation is to substitute the word "cited" in place of the word "produced": such a construction is not permissible, especially, when the plain meaning of the word used by the Legislature is clear and unambiguous, and the acceptance of that meaning does not make the section otiose.
The phrase "if any" between the words "such persons" and the aforesaid clause emphasizes that the prosecution may not produce any such persons, in which case the obligation to examine such witnesses cannot arise.
The wording of the second part of the sub section is also without any ambiguity and it reads: "and if the Magistrate is of opinion that it is necessary in the interests of justice to take the evidence of any one or more of the other witnesses for the prosecution, he may take such evidence also.
" No doubt the word "may" in the clause "he may take evidence" imposes duty upon the Magistrate to take other evidence; but that duty can arise only if he is of opinion that it is necessary in the interests of justice to take the evidence.
The fulfilment of the condition that gives rise to the duty is left to the discretion of the Magistrate.
The duty to take evidence arises only if he is of the requisite opinion.
Doubtless the discretion being a judicial one, it should be exercised reasonably by the Magistrate.
If he exercises it perversely, it may be liable to be set aside by a superior court.
If so, what do the words "other.
witnesses" mean? Do they mean witnesses other than eyewitnesses or witnesses, eye witnesses or not, other than those produced before the Magistrate, by the prosecution? The witnesses who will depose to the prosecution case may be of different categories, namely, (i) witnesses who are eye witnesses to the actual commission of the offence alleged; (ii) witnesses who speak to the facts 900 which afford a motive for the commission of the offence; (iii) witnesses who speak to the investigation and to the facts unfurled by the investigation; and (iv) witnesses who speak to the circumstances and facts probablizing the commission of the offence, which is technically described as substantive evidence.
Sub section (4) enjoins on the Magistrate a duty to examine the first category of witnesses produced by the prosecution.
The word "actual" qualifying the word "commission" emphasises the fact that the said witnesses should be those who have seen the commission of the offence.
We have held in interpreting the first part that the Magistrate should examine only such witnesses who are produced before him by the prosecution; but there may not be eyewitnesses in a case, or, if there are, the prosecution may not have produced all of them before the Magistrate.
The second part of the sub section therefore confers a discretionary power on the Magistrate to examine any one or more of witnesses of all categories, including the eye witnesses who have not been produced by the prosecution within the meaning of the first part of the said sub section.
But it is said that sub sections
(6) and (7) indicate that taking of evidence by the Magistrate is a condition precedent for making an order of discharge or of committal and, therefore, the provisions of Sub section
(4) must be so construed as to impose a duty on the Magistrate to examine some witnesses.
Firstly, we cannot hold that the sub sections impose any such condition.
The argument is that the clause in subs.
(6), namely, "When the evidence referred to in subsection (4) has been taken" is a condition precedent for making an order of discharge.
The adverb "when" in the clause in the context denotes a point of time and not a condition precedent.
The clause means nothing more than that an order of discharge can be made under sub section (6) after the events mentioned therein have taken place.
Secondly, the two clauses necessarily refer to the corresponding or appropriate situations under the earlier sub sections.
The first clause will not come into play if the Magistrate has not taken any evidence.
So too, in sub section (7) also the 901 adverb "when" denotes the time when the Magistrate can make the order of committal.
If evidence has, not been taken, that sub section is not applicable a the Magistrate proceeds to make an order of committal on other material referred to in the sub section.
On the other hand ', if the said two sub sections are construed as imposing a condition precedent for making an order of discharge or commitment, as the case may be, the said two sub sections will directly, come into conflict with the provisions of sub section
When one.
sub section clearly confers a discretion on the Magistrate to take or not to take evidence, the other subsections take it away.
It is not permissible to create conflict by construction, when by an alternative construction all the three sub sections can be harmonized and reconciled.
If the construction suggested by learned counsel for the appellants be adopted, it would also lead to an anomaly in that the Magistrate, though the documents referred to in section 173 clearly pronounce the innocence of the accused, has to go through the pretence of examining one or more witnesses to satisfy the provisions of the sub section.
Reliance is placed upon section 251A of the Code relating to warrant cases whereunder the Magistrate is authorized, upon consideration of all the documents referred to in section 173 and upon making such examination of the accused as the Magistrate thinks necessary and after giving the prosecution and the accused an opportunity of being heard, to discharge the accused, if he considers the charge against the accused to be groundless; but if he is of opinion that there is ground that the accused has committed an offence alleged against him, he shall frame in writing a charge against the accused.
By contrasting this provision with section 207A, it is contended that if the construction put forward by learned counsel is not accepted, the obvious difference between the two.
procedures indicated by the Legislature would be obliterated.
We cannot agree with this contention.
The difference between the two procedures is that, in a case covered by section 207A, evidence will have to be taken under certain 902 contingencies, whereas under section 251A no evidence need be taken at all.
That distinguishes the different procedures under the two sections and it is not the province of the court to add any further conditions or limitations to those provided by the Legislature.
We are fortified in our view by a decision of this Court in Macherla Hanumantha Rao vs The State of Andhra Pradesh (1).
There the point in controversy was whether sa.
207 and 207A, inserted in the Code by the Amending Act XXVI of 1955, violated the provisions of article 14 of the Constitution.
In support of the contention that they violated article 14 of the Constitution, it was sought to be made out that the provisions of section 207A of the Code, in comparison and contrast with other provisions of Ch.
XVIII of the Code, prescribed a less advantageous position for the accused persons in a proceeding started under a police report than the procedure prescribed in other cases in the succeeding provisions of that chapter.
This Court held that there was a reasonable classification to support the difference in the procedures.
Sinha J., as he then was, who spoke for the Court, in order to meet the argument based on discri mination, considered the scope of the new section.
In doing so, the learned Judge observed thus at p. 403: "The magistrate then has to record the evidence of such witnesses as figure as eye witnesses to the occurrence, and are produced before him.
He has also the power ' in the interest of justice, to record such other evidence of the prosecution as he may think necessary, but he is not obliged to record any evidence.
Without recording any evidence but after considering all the documents referred to in section 1973 and after examining the accused person and after hearing the parties, it is open to the magistrate to discharge the accused person after recording his reasons that no ground for committing the accused 1 for trial has been made out, unless he decides to try the accused himself or to send him for trial by another magistrate.
If, on the other hand, he finds that the accused should be committed for trial, he is required to frame a charge (1) ; 903 disclosing the offence with which the accused is charged.
" Then the learned Judge proceeded to consider the scope of section 208 of the Code.
After having found that there was obvious difference in the procedure, the learned Judge came to the conclusion that "the Legislature has provided for a clear classification between the two kinds of proceedings at the commitment stage based upon a very relevant consideration, namely, whether or not there has been a previous inquiry by a responsible public servant whose duty it is to discover crime and to bring criminals to speedy justice".
It will thus be seen that the observations of the learned Judge at p. 403 cannot be said to be obiter, as learned counsel asks us to hold, for the construction of the provisions of section 207A was necessary to ascertain whether there was reasonable classification or not.
Assuming that the said observations are obiter, even then, they record the considered opinion of five learned Judges of this Court.
The view we have expressed also is consistent with the said observations.
Our view could now be expressed in the following propositions: (1) In a proceeding instituted on a police report, the Magistrate is bound to take evidence of only such eye witnesses as are actually produced by the prosecution in court.
(2) The Magistrate, if he is of opinion that it is in the interest of justice to take evidence, whether of eye witnesses or others, he has a duty to do so.
(3) If the Magistrate is not of that opinion and if the prosecution has not examined any eye witnesses, he has jurisdiction to discharge or commit the accused to sessions on the basis of the documents referred to in s, 173 of the Code.
(4) The discretion of the Magistrate under sub section (4) is a judicial discretion and, therefore, in appropriate cases the order of discharge or committal, as the case may be, is liable to be set aside by a superior court.
Before closing we would like to make some observations.
Rarely we come across cases where the prosecution does not examine important eye witnesses, for such a procedure would entail the danger of the said witnesses being tampered with by the accused, with 904 the result that there will not be any evidence taken by the committing Magistrate which could be used as substantive evidence under section 288 of the Code.
Even if the prosecution takes that risk, the Magistrate shall exercise a sound judicial discretion under the second part of sub section
(4) of section 207A in forming the opinion whether witnesses should be examined or not, and any perverse exercise of that discretion can always be rectified by a superior court.
Rut there may be a case where the Magistrate can make up his mind definitely on the documents referred to in section 173 without the aid of any oral evidence and in that event he would be within his rights to discharge or commit the accused, as the case may be.
In this view, it is not necessary to express our opinion whether even if the Magistrate acted illegally in committing an accused without taking any evidence, the said illegality is cured either by section 537 of the Code or any other section thereof.
In the result, the appeals fail and are dismissed.
Appeals dismissed.

summary:
On the date fixed for the inquiry the prosecution intimated to the Magistrate that it did not intend to examine any witness in the Magistrate 's Court.
The Magistrate adjourned the inquiry to consider whether it was necessary to record any evidence before commitment.
On the adjourned date he expressed his opinion that no witnesses need be examined, framed charges against the appellants and committed them to the Sessions Court.
The appellants contended that the Magistrate had ' no jurisdiction to commit them to Sessions without examining witnesses under sub section
(4) of section 207 A of the Code of Criminal Procedure.
Held, that the order of commitment was valid and the Magistrate had jurisdiction to make it 'Without recording any evidence.
The position under section 207 A of the Code is that: (i) the Magistrate is bound to take evidence of only such eye witnesses as are actually produced by the prosecution before the Committing Court; 891 (ii) the Magistrate if he is of opinion that it is in the interests of justice to take evidence whether of.
eye witnesses, or of others, he has a duty to do so; (iii). .the
Magistrate, if he is not of that opinion and if the prosecution has not examined any eye witnesses, he has jurisdiction to discharge or commit the accused on the basis of the documents referred to in section 173 of the Code; (iv).the discretion of the Magistrate is a judicial dis cretion which is liable to be corrected by a superior Court, Macherla Hanumantha Rao vs The State of Andhra Pradesh, ; , relied on.