judgement:
Civil Appeal No. 3435 of 1984 etc.
From the Order dated 24.7.1984 of the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal No. ED/SB/A.664/84 D. K.K. Venugopal, Soli J. Sorabji, Bishambar Lal, H.K. Kochar I.L. Beri, P.K. Chatterjee, Rajesh Agarwal and Arun Kr Sinha for the Appellants.
G. Das, A. Subhashini, P.P. Singh, C.V. Subba Rao and Sushma Ratha for the Respondents.
130 The Judgment of the Court was delivered by PATHAK, J.
The question raised in the appeal filed by Atul Glass Industries (Pvt.
) Ltd. (C.A. No. 3435 of 1984) under section 35L(b) of the is whether glass mirrors fall under Tariff Item No. 23A(4) or Tariff Item No. 68 of the First Schedule to the .
That is also the question raised in the Transferred Cases Nos. 349, 350 and 355 of 1983 filed by the Hindustan Safety Glass Works Ltd., with an additional question whether the glass screens fitted in motor vehicles as wind screens, rear screens and window screens fall under Tariff Item No. 23A(4) or Tariff Item No. 34A or Tariff Item No. 68.
The Appellant, Atul Glass Industries (Pvt.) Ltd., carries on the business of manufacturing and selling glass mirrors.
It purchases duty paid glass sheets from the manufacturers of glass, and either in their original size or after reducing them to smaller sizes puts the glass sheets through a process of treatment.
The glass pieces are buffed with the aid of buffing machines in order to improve the surface of the glass and prepare it for mirror processing.
The glass is fed into an automatic silvering conveyor line where it passes through a stage of mechanical cleaning and polishing with the aid of nylon bristle brushes so that the glass surface is rendered free of scratches, dust particles and carbohydrates.
The glass is then washed mechanically with the aid of cylindrical brushes using distilled water as a washing medium.
Thereafter the glass surface is sensitised by chemical compounds such as stannous chloride, and rinsed with distilled or demineralised water to remove excess of chemicals.
The sensitised glass is passed through a chamber where silver in liquid form with the aid of reducing solutions is applied as a very thin and uniform adherent reflective film on the surface of the glass.
The silver coating, being of malleable metal, is protected by a coating of copper in the form of a thin metal deposit with the aid of an electromagnetic spray system.
The excess of copper and acidic solutions are rinsed away with the distilled or demineralised water.
Subsequently hot air is employed for the purpose of drying, and the humidity is removed completely with the aid of an infra red heating system.
After thorough drying, the silver and copper coatings are protected with four coats of special mirror backing paint applied with the aid of a roller coating machine in four stages.
The paint is baked in the baking conveyor after thorough drying.
The other side of the mirror is 131 mechanically cleaned.
The mirror thus produced is finally sent for quality control inspection.
Cut glass is employed in the case of decorative mirrors.
The cut glass is shaped with the aid of cutting lathemachines before subjecting it to the silver process.
Edge grinding or bevelling and hole drilling is done, if required, after the mirror has been manufactured.
Before the budget of 1979, Tariff Item No. 23 relating to 'glass and glass ware ' prescribed the different rates of duty in respect of (1) sheet glass and plate glass, (2) laboratory glass ware, (3) glass shells, glass globes and chimney for lamps and lantern, and (4) 'other glassware including table ware '.
During the period following the budget of 1979 which is the period which concerns us, Tariff Item No. 23A relating to glass and glass ware specified the rates of duty in respect of (1) flat glass, which included sheet glass, wired glass and rolled glass whether in the form of plate glass, figured glass or in any other form, (2) laboratorty glass ware, (3) glass shells, glass globes and chimney for lamps and lantern and (4) 'other glass and glass ware including table ware '.
Tariff Item No. 68 is of residuary character and relates to "all other goods not elsewhere specified," but excluding alcohol, opium and certain other goods specified therein.
The rate of duty is higher if the product falls under Tariff Item No. 23A(4) than if it fell under Tariff Item No. 68.
The appellant submitted a classification list showing glass mirror as covered by duty under Item No. 68.
Before March 1, 1979 glass mirrors were treated as exempt from duty as they were manufactured from duty paid glass.
The exemption was cancelled from March 1, 1979.
Simultaneously Tariff Item No. 23A(4) underwent an amendment, as mentioned earlier, by the substitution of words 'other glass and glass ware ' for the words 'other glass ware '.
On January 28, 1980 the Excise Authorities issued a notice calling upon the appellant to take out an L 4 Licence on the ground that glass mirrors were classifiable as 'other glass ' within the meaning of Tariff Entry No. 23A(4) as a product now dutiable from March 1, 1979.
The appellant filed a writ petition in the Delhi High Court and simultaneously preferred an appeal before the Collector (Appeals).
The High Court disposed of the writ petition without deciding the question of liability to duty on its merits, observing that the appellant should pursue its appeal before the Collector (Appeals).
On January 24, 1984 the appeal was allowed by the Collector (Appeals).
He held that Tariff Item No. 68 applied to glass mirrors.
The Revenue appealed to the Customs, Excise and Gold (Control) Appellate Tribunal.
132 The Appellate Tribunal allowed the appeal and reversed the decision of the Collector (Appeals) holding that Tariff Item No. 23A(4) was attracted.
The Appellate Tribunal held that glass mirrors should be classified as 'glass ware '.
And now this appeal.
It appears from the record before us that the true classification of glass mirrors has been the subject of fluctuating opinion among the higher echelons of the Revenue.
Opinion has varied from time to time.
Tariff Advice No. 60 of 1979 dated December 18, 1979 issued by the Central Board of Excise and Customs took the stand that glass mirrors could be described as glass ware and therefore, merited classification under Tariff Item No. 23A(4).
Subsequently on doubts being raised regarding such classification, the Central Board of Excise and Customs considered the matter further, and by Tariff Advice No. 61 of 1980 dated September 27, 1980 opined that glass mirrors would fall under Tariff Item No. 68 in as much as while glass sheets were used as raw material the subsequent processing applied thereto gave rise to a different commercial product altogether, the utility of the glass being reduced to a mere medium.
This was, of course, subject to the condition that the glass sheets, out of which the glass mirrors were prepared, had paid appropriate duty under Tariff Item No. 23A before being employed in the manufacture of mirrors.
The controversy was re opened later, and the Central Board of Excise and Customs reverted to its original understanding of the classification for the product.
By Tariff Item No. 41 of 1981 dated May 7, 1981 it pointed out that glass mirrors had been classified under the Brussels Tariff Nomenclature as "glass and glass ware" and taking the view that after undergoing silvering a glass mirror still remained glass it advised that glass mirrors should be treated as liable to excise duty under Tariff Item No. 23A(4) as 'other glass and glass ware '.
It has been noticed that the Superintendent of Central Excise called upon the appellant to take out an L 4 Licence on the footing that glass mirrors fell under Tariff Item No. 23A(4), that on appeal, the Collector (Appeals) reached the conclusion that it was not open to such classification but fell under the residuary Tariff Item No. 68, and that the Appellate Tribunal thereafter reversed the Collector (Appeals) and upheld the Superintendent of Central Excise.
It is in this uncertain climate of opinion that the question calls for decision by this Court.
A broad description of the process through which a glass sheet passes has been detailed earlier.
It indicates clearly to our mind that the original glass sheet undergoes a complete transformation when it 133 emerges as a glass mirror.
What was a piece of glass simpliciter has now become a commercial product with a reflecting surface.
Into the process of transformation have gone successive stages of processing with the aid of chemicals such as stannous chloride, silver nitrate and copper coating besides an entire range of physical proscesses involving polishing, washing, coating, drying, varnishing, evaporation and cooling.
The evolved product is completely different from the original glass sheet.
What was once a glass piece in its basic character has no longer remained so.
It has been reduced to a mere medium.
That is clear if regard is had to the fundamental function and qualities of a glass mirror.
The power to reflect an image is a power derived not from the glass piece but principally from the silvering and other processes applied to the glass medium.
If any part of the coating is scratched and removed, that particular area of the glass mirror will cease to be glass mirror.
That simple test demonstrates the major importance attributable to the chemical deposit and coating which constitute a material component of a glass mirror.
It is not mandatory that a mirror employed for the purpose of reflecting an image should have a glass base.
Copper mirrors have been known from the dawn of history.
In the modern age, acrylic sheets are sometimes used instead of glass for manufacturing mirrors.
It is apparent, therefore, that a glass mirror cannot be regarded as a glass.
For the same reason, it cannot be classified as 'glass ware ', for 'glass ware ' means merchandise made of glass and understood in its primary sense as a glass article.
A glass bowl, a glass vase, a glass tumbler, a glass table top and so on are all articles in which the primary component is glass.
They are nothing more and nothing less.
Any treatment of an ornamental nature applied to such articles does not derogate from their fundamental character as glass articles.
It is quite the contrary in the case of a glass mirror.
The case is more akin to that of carbon paper.
A sheet of paper with a carbon coating thereon is employed for the purpose of producing copies of the original.
The paper is a mere base while the function is performed by the carbon coating.
This Court held in State of Uttar Pradesh vs M/s Kores (India) Ltd. ; , that carbon paper could not be described as paper.
It referred to the functional difference between the two, and pointed out that while paper would be understood as meaning a substance which was used for writing or printing or drawing on or for packing or decorating or covering the walls, carbon paper, which is manufactured by coating the tissue paper with a thermosetting ink based mainly on wax, non drying oils, pigments and dyes could not be so described.
134 The test commonly applied to such cases is: How is the product identified by the class or section of people dealing with or using the product? That is a test which is attracted whenever the statute does not contain any definition.
Porritts and Spencer (Asia) Ltd. vs State of Haryana [1978] (42) S.T.C. 433.
It is generally by its functional character that a product is so identified.
In Commissioner of Sales Tax, U.P. vs Macneill & Barry Ltd., Kanpur ; This Court expressed the view that ammonia paper and ferro paper, used for obtaining prints and sketches of site plans could not be described as paper as that word was used in common parlance.
On the same basis the Orissa High Court held in State of Orissa vs Gestetner Dluplicators (P) Ltd. [1974] (33) S.T.C. 333 that stencil paper could not be classified as paper for the purposes of the Orissa Sales Tax Act.
It is a matter of common experience that the identity of an article is associated with its primary function.
It is only logical that it should be so.
When a consumer buys an article, he buys it because it performs a specific function for him.
There is a mental association in the mind of the consumer between the article and the need it supplies in his life.
It is the functional character of the article which identified it in his mind.
In the case of a glass mirror, the consumer recalls primarily the reflective function of the article more than anything else.
It is a mirror, an article which reflects images.
It is referred to as a glass mirror only because the word glass is descriptive of the mirror in that glass has been used as a medium for manufacturing the mirror.
The basic or fundamental character of the article lies in its being a mirror.
It was observed by this Court in Delhi Cloth and General Mills Co. Ltd. vs State of Rajasthan & Ors.
; Which was a case under the Sales Tax law: "In determining the meaning or connotation of words and expressions describing an article or commodity the turnover of which is taxed in a sales tax enactment, if there is one principle fairly well settled it is that the words or expression must be construed in the sense in which they are understood in the trade, by the dealer and the consumer.
It is they who are concerned with it, and it is the sense in which they understand it that consitutes the definitive index of the legislative intention when the statute was enacted.
" That was also the view expressed in Geep Flashlight Industries Ltd. vs Union of India and Others.
[1985]) (22) E.L.T. 3.
Where the goods are not marketable that principle of construction is not attract 135 ed.
Indian Aluminium Cables Ltd.v.
Union of India and Others.
[1985]) (3) S.C.C. 284.
The question whether thermometers, lactometers, syringes, eye wash glasses and measuring glasses could be described as 'glass ware ' for the purpose of the Orissa Sales Tax Act, 1947 was answered by the Orissa High Court in State of Orissa vs Janta Medical Stores [1976]) (37) S.T.C. 33.
In the negative.
To the same effect is the decision of this Court in Indo International Industries vs Commissioner of Sales Tax, Uttar Pradesh, ; Where hypodermic clinical syringes were regarded as falling more accurately under the entry relating to "hospital equipment and apparatus" rather than under the entry which related to "glass wares" in the U.P. Sales Tax Act.
Reliance was placed by the Revenue on Commissioner of Sales Tax, U.P. vs Banaras Bead Manufacturing Co. [1970])(25) S.T.C. 100.
Where the Allahabad High Court held that glass beads could be described as 'glass ware for the purpose of a Notification issued under the U.P. Sales Tax Act.
The decision of the High Court rested on the manner in which the contextual setting was altered in successive and different Notifications promulgated under the U.P. Sales Tax Act, indicating the content of the expression as developed through successive Notifications.
Our attention has been drawn on behalf of the Revenue to the circumstance that glass mirrors have been classified as 'glass and glass ware ' in Chapter 70 of the Brussels Tariff Nomenclature.
It seems to us that this circumstance can hardly advance the case of the Revenue, because the First Schedule to the Central Execises and Salt Act does not appear to have been modelled on the Brussels Tariff Nomenclature.
There is nothing to show that the Tariff Items were classified in the Schedule on the basis of the Brussels Tariff Nomenclature.
It was when the was enacted that the First Schedule to that Act was framed in accordance with the Brussels Tariff Nomenclature, evidently because the progress made in industrial growth and economic development, and the substantial changes in the composition and pattern of India 's external trade called for the need to modernise and rationalise the nomenclature of India 's Tariff in line with contemporary conditions.
The glass mirrors were still not specifically mentioned under the .
They are now being brought in as such by the Customs Tariff Bill, 1985.
136 It is pointed out that glass mirrors have been classified by the Indian Standards Institution as "glass and glass ware" in the glossary of terms prepared by it in respect of that classification.
That, to our mind, furnishes a piece of evidence only as to the manner in which the product has been treated for the purpose of the specifications laid down by the Indian Standards Institution.
It was a test employed by this Court in Union of India vs Delhi Cloth & General Mills, [1963] Supp.
(1) S.C.R. 586, but was regarded as supportive material only of the expert opinion furnished by way of evidence in that case.
The considerations to which we have adverted should, in our opinion, have greatly weighed in deciding the question raised in this appeal.
So also in Union Carbide Co. Ltd. vs Assistant Collector of Central Excise and Others, , the description set forth in the publications of the Indian Standards Institution was regarded as a piece of evidence only.
There were other more tangible considerations which weighed with the Court in reaching its conclusions.
We are firmly of the view that glass mirrors cannot be classified as 'other glass and glass ware ' set forth in Tariff Item No. 23A(4), and must therefore fall under the residuary Tariff Item No. 69.
An additional point arises in M/s Hindustan Safety Glass Works Ltd. (Transfer Cases Nos. 349, 350 and 355 of 1983).
The manufacturers of motor vehicles place orders with the appellant for the manufacture of screens for fitting in motor vehicles.
They are commonly known as wind screens, rear screens and door screens.
The screens are manufactured according to the specific shape and measurements indicated in the orders, for different vehicles require screens of different shapes and measurements.
The screen is manufactured from sheet glass.
It is first given shape and size according to the specifications contained in the order and thereafter subjected to the process of toughening.
It is a fabricated article.
The Superintendent of Central Excise called upon the petitioner to pay excise duty on the basis that the screens fell under Tariff Item No. 23A(4) relating to 'glass and glass ware '.
The petitioner filed writ petitions in the Allahabad High Court challenging the view taken by the Excise authorities.
The question in these cases is whether the screens manufactured by the petitioners can be classified under Tariff Item No. 23A(4) or Tariff Item No. 34A or Tariff Item No. 68.
Prior to February 28, 1979 Tariff Item No. 34A, which was 137 headed Item No. 34A Motor Vehicle Parts, related to "Parts and accessories not elsewhere specified, of Motor vehicles and Tractors, including Trailers", and the rate of duty prescribed was 20% ad valorem.
Under Rule 8 of the Central Excises and Salt Rules, the Central Government issued Notification No. M.F. (D.R.I) 99/71 dated May 29, 1971, as amended by a subsequent Notification, exempting parts and accessories of motor vehicles and tractors falling under Tariff Item No. 34A other than those specified in the Schedule annexed to the Notification, from the whole of the duty of excise leviable thereon.
The Schedule annexed to the Notification did not mention the screens manufactured for motor vehicles.
The parts and accessories specifically mentioned in the Notification to the Schedule were covered by a Notification No. 101/71 C.E. dated May 29, 1971 as amended subsequently, by which the Central Government exempted under Rule 8 parts and accessories of motor vehicles, provided it was establishd to the satisfaction of the Collector of Central Excise that the parts were intended to be used as original equipment parts by the manufacturers of motor vehicles and tractors falling under Tariff Item No. 34A. The Finance Bill of 1979 introduced changes in Tariff Item No. 34A. Tariff Item No. 34A now spoke of 'parts and accessories of motor vehciles and tractors, including trailers, the folowing namely '. and here followed 15 parts and accessories.
The screens manufactured by the petitioner did not figure in that list.
Until the enactment of the Finance Bill of 1979, the commodities manufactured by the petitioner would have fallen within the ambit of Tariff Item No. 34A.
But after the introduction of the Finance Bill 1979 the Central Government issued Notification No. 76 of 1979 C.E. dated March 1, 1979 under Rule 9, whereby parts and accessories of motor vehicles and tractors which had not been specified in Tariff Item No. 34A but which fell under that Tariff Item were exempted from so much duty of excise leviable thereon as was in excess of 8% ad valorem.
Two more Notifications were issued, No. 74/79 C.E. dated March, 1 1979 and No. 75/79 C.E. dated March 1, 1979.
By these Notifications parts and accessories of motor vehicles and tractors falling under Tariff Item No. 34A were exempted from the whole of the duty of excise leviable thereon provided the said parts or accessories were intended to be used in the manufacture of assembled components of motor vehicles and tractors and such assembled components were used as original equipment parts by the manufacturers of those vehicles and such parts and accessories which were intended to be used as original equipment parts by such manufacturers.
On the enforcement of the Finance Act 1979 the ambit of Tariff Item No. 34A became restricted to the 15 specified commodities.
The 138 commodities manufactured by the petitioner did not fall within the ambit of Tariff Item No. 34A.
It is case of the petitioner that the commodities manufactured by it fall within the ambit of the residuary Item No. 68 of the First Schedule to the .
Prior to the enforcement of the Finance Act, 1979 the Central Government had, under Rule 8, issued Notification No. 166 C.E. dated April 19, 1979 whereby all excisable goods on which the duty of excise was payable and in the manufacture of which parts and accessories of motor vehicles falling under Item No. 34A had been used were exempted from so much of the duty of the excise leviable thereon as was equivalent to the duty of excise paid by the said parts and accessories.
Another Notification No. 167/79 dated April 19, 1979 was issued under Rule 3 whereby parts and accessories of motor vehicles falling under Item No. 34A and intended for use in further manufacture of excisable goods were exempted from the whole of duty leviable thereon provided that the intended use was in a factory of a manufacturer different from the factory in which the said parts and accessories had been manufactured.
The Notifications did not apply to the 15 specified items.
Subsequently the two Notifications were amended by Notification No. 187/79 C.E. dated May 10, 1979 by deleting the reference to Tariff Item No. 34A and substituting for it Tariff Item No. 68.
According to the petitioner the result of these successive Notifications is that the parts and accessories of motor vehicles fall under Tariff Item No. 34A prior to the enforcement of Finance Act 1979 and after the enforcement of that Act they fall under Tariff Item No. 68 provided that the parts and accessories of motor vehicles do not find mention in Tariff Item No. 34A as amended by the Finance Act, 1979.
Upon the tests and having regard to the foregoing considerations which have appealed to us when considering the proper classification of glass mirrors, we have no hesitation in holding that the screens cannot be described as "glass or glass wares" under Tariff Item No. 23A(4).
No one dealing in or using the screens would consider them as "glass or glass ware".
They can only be considered as motor vehicle parts.
Even if we assume that they could fall under Tariff Item No. 23A(4) relating to 'glass and glass ware ' also, inasmuch as Tariff Item No. 34A is a special entry and Tariff Item No. 23A(4) is a general entry, the special must exclude the general and therefore also it is Tariff Item No. 34A which prevails and is attracted.
It is clear, however, that after the amendment of Tariff Item No. 139 34A by the Finance Act 1979 the scope of that Tariff Item is restricted to the 15 commodities specified therein.
That being so the screens manufactured by the petitioner merit classification in the residuary Tariff Item No. 68.
In the result, Civil Appeal No. 3435 of 1984 is allowed, the order dated July 24, 1984 of the Customs, Excise and Gold (Control) Appellate Tribunal is set aside and the Order dated January 24, 1984 of the Collector (Appeals) is restored.
In the Transfer Cases, we allow the writ petitions and direct that the glass mirrors and screens manufactured by the petitioner be treated to excise duty in the light of the observations made by us.
The parties shall bear their own costs.
A.P.J. Appeal and Petitions allowed.

summary:
The appellant carries on the business of manufacturing and selling glass mirrors.
Before March 1, 1979 glass mirrors were treated as exempt from duty as they were manufactured from duty paid glass.
This exemption was cancelled from March 1, 1979 and in Tariff Item 23A(4) the words 'other glass and glass ware ' were substituted for the words 'other glass ware '.
On January 28,1980, the Excise Authorities issued a notice calling upon the appellant to take out an L 4 Licence on the ground that glass mirrors were classifiable as 'other glass ' within the meaning of Tariff Entry No. 23A(4) of the First Schedule to the , as a product dutiable from March 1, 1979.
The appellant filed a writ petition in the High Court and simultaneously preferred an appeal before the Collector (Appeals).
The High Court disposed of the writ petition with the observation that the appellant should pursue its appeal before the Collector (Appeals).
The appeal was allowed by the Collector (Appeals) holding that Tariff Item No. 68 applied to glass mirrors.
On appeal by the Revenue, the Customs, Excise and Gold (Control) Appellate Tribunal reversed the decision of the Collector (Appeals)and held that Tariff Item No. 23A(4) was attracted, and that the glass mirrors should be classified as 'glass ware '.
In the transferred cases, the manufacturers of motor vehicles place orders with the petitioner for the manufacture of screens for fitting in motor vehicles, commonly known as wind screens, rear 127 screens, door screens, and these were to be manufactured according to the specific shapes and measurements indicated in the orders for the different vehicles.
The Superintendent of Central Excise called upon the petitioner to pay excise duty on the basis that these screens fell under Tariff Item No. 23A(4) relating to 'glass and glass ware '.
The petitioner filed writ petitions in the High Court challenging the view taken by the Excise Authorities.
On the questions: "Whether glass mirrors fall under Tariff Item No. 23A(4) or Tariff Item No. 68 and whether glass screens fitted in motor vehicles as wind screen, rear screens and window screens fall under Tariff Item No. 23A(4) or Tariff Item No. 34A or Tariff Item No. 68 of the First Schedule to the ", allowing the Appeal and the Writ Petitions in the transferred cases, the Court, ^ HELD: (1) Glass mirrors cannot be classified as 'other glass and glass ware ' set forth in Tariff Item No. 23A(4), and must therefore fall under the residuary Tariff Item No. 68.
[132F G] (2) The original glass sheet undergoes a complete transformation when it emerges as a glass mirror.
What was a piece of glass simpliciter has now become a commercial product with a reflecting surface.
Into the process of transformation have gone successive stages of processing.
The evolved product is completely different from the original glass sheet.
What was once a glass piece in its basic character has no longer remained so.
It has been reduced to a mere medium.
That is clear if regard is had to the fundamental function and qualities of a glass mirror.
The power to reflect an image is a power derived not from the glass piece but principally from the silvering and other processes applied to the glass medium.
If any part of the coating is scratched and removed, that particular area of the glass mirror will cease to be glass mirror.
That simple test demonstrates the major importance attributable to the chemical deposit and coating which constitute a material component of a glass mirror.
It is not mandatory that a mirror employed for the purpose of reflecting an image should have a glass base.
Copper mirrors have been known from the dawn of history.
Now acrylic sheets are sometimes used instead of glass for manufacturing mirrors.
Therefore, a glass mirror cannot be regarded as a glass.
For the same reason, it cannot be classified as a 'glass ware ', for 'glass ware ' 128 means merchandise made of glass and understood in its primary sense as a glass article.
A glass bowl, a glass vase, a glass tumbler, a glass table top and so on are all articles in which the primary component is glass.
They are nothing more and nothing less.
Any treatment of an ornamental nature applied to such articles does not derogate from their fundamental character as glass articles.
It is quite the contrary in the case of a glass mirror.
[132H; 133A F] (3) It is a matter of common experience that the identity of an article is associated with its primary function.
It is only logical that it should be so.
When a consumer buys it, it is because it performs a specific function for him.
There is a mental association in the mind of the consumer between the article and the need it supplies in his life.
It is the functional character of the article which identifies it in his mind.
In the case of a glass mirror, the consumer recalls primarily the reflective function of the article more than anything else.
It is a mirror, an article which reflects images.
It is referred to as a glass mirror only because the word glass is descriptive of the mirror in that glass has been used as a medium for manufacturing the mirror.
The basic or fundamental character of the article lies in its being a mirror.
[134C E] State of Uttar Pradesh vs M/s. Kores (India) Ltd. ; , Porritts and Spencers (Asia) Ltd. vs State of Haryana [1978] (42) S.T.C. 433, Commissioner of Sales Tax U.P. vs Macneill & Barry Ltd. Kanpur, ; , Delhi Cloth and General Mills Co. Ltd. vs State of Rajasthan & Ors.
[1980] (3) S.C.R.1109, Geep Flashlight Industries Ltd. vs Union of India and Others [1985] (22) E.L.T.3, Indian Aluminium Cables Ltd. vs Union of India and Others.
; and Indo International Industries vs Commissioner of Sales Tax.
Uttar Pradesh, ; relied upon.
State of Orissa vs Gestetner Duplicators (P) Ltd. [1974] (33) S.T.C. 333 and State of Orissa vs Janta Medical Stores [1976] (37) S.T.C. 33 approved.
Commissioner of Sales Tax, U.P. vs Banaras Bead Manufacturing Co. [1970] (25) S.T.C. 100 distinguished.
(4) Classification of glass mirrors as 'glass and glass ware ' in Chapter 70 of the Brussels Tariff Nomenclature, does not advance the case of the Revenue, because the First Schedule to the Central Excises 129 and Salt Act was not modelled on the Brussels Tariff Nomenclature.
There is nothing to show that the Tariff Items were classified in the Schedule on the basis of the Brussels Tariff Nomenclature.
It was when the was enacted that the First Schedule to that Act was framed in accordance with the Brussels Tariff Nomenclature.
The glass mirrors were still not specifically mentioned under the .
They are now being brought in as such by the Customs Tariff Bill 1985.
[135E H] (5) Classification of glass mirrors by the Indian Standards Institution as "glass and glass ware" in its glossary of terms furnishes a piece of evidence only as to the manner in which the product has been treated for the purpose of the specifications laid down by the Indian Standard Institution.
[136A B] (6) The screens used in motor vehicles cannot be described as "glass or glass wares" under Tariff Item No. 23A(4).
No one dealing in or using the screens would consider them as "glass or glass ware".
They can only be considered as motor vehicle parts.
Even if it is assumed that they could fall under Tariff Item No. 23A(4) relating to "glass and glass ware" also, in as much as Tariff Item No. 34A is a special entry and Tariff Item No. 23A(4) is a general entry, the special must exclude the general and therefore also it is Tariff Item No. 34A which prevails and is attracted.
[138F H] (7) After the amendment of Tariff Item No. 34A by the Finance Act 1979 the scope of that Tariff Item is restricted to the 15 commodities specified therein.
That being so the screens manufactured by the petitioner merit classification in the residuary Tariff Item No. 68.
[138H; 139A B]


judgement:
N: Criminal Appeal No. 320 of 1986 193 From the Judgment and order dated 12 11.1984 of the Delhi High Court in Crl Revision No 228 of 1982 section Rangarajan, Miss Asha Rani Jain and Sanjay Parikh, for the Appellant.
K.N. Chitkara and R.C. Verma for the Respondent.
The Judgment of the Court was delivered by BALAKRISHNA ERADI, J.
Special leave granted.
Heard both sides.
The five appellants were tried by the court of Additional Sessions Judge, Delhi on a charge of murder under Section 302 read with Section 34 of the Indian Penal Code.
After a very detailed consideration of the evidence adduced in the case, the learned Additional Sessions Judge acquitted the appellants giving them the benefit of doubt The respondent herein, who is a son of the deceased victim of the murder preferred a criminal revision petition before the High Court of Delhi under Section 397/401 Cr.
P.C. challenging the order of acquittal passed by the learned Additional Sessions Judge.
A learned Single Judge of the High Court allowed that revision petition, set aside the acquittal of the appellants and remitted the case to the trial court for re trial Aggrieved by the said judgment of the High Court the appellants have come up to this Court with this appeal and the main contention raised by them is that the learned Single Judge of the High Court has transgressed the bounds of his revisional jurisdiction in reappreciating the evidence and setting aside their acquittal.
After hearing counsel appearing on both sides we have unhesitatingly come to the conclusion that the aforesaid contention of the appellants is well founded and has to be upheld.
Briefly stated, the prosecution case was that on the mid night of 3rd and 4th June, 1980 while Laxman Singh (P.W. 1) was sleeping on the terrace of his house in the DESU Colony, Delhi along with his cousin Moti Lal (P.W. 7), they heard the noise of a quarrel and loud shouting from the lane below and on looking down from the terrace they found that deceased Ram Chander was being beaten by accused 194 Nos. 1 and 4 (Appellant Nos. 1 and 4).
Thereupon they rushed to the place of the incident.
One Babu Lal who was residing in the adjoining quarter also came there and when all the three tried to intervene and separate deceased Ram Chander and the two accused, the first accused called out to Bhagwat (second accused), who was looking down from his adjacent quarter asking him why he was just watching while Ram Chander was assaulting them.
In response to the said call it is alleged that Bhagwat along with the remaining accused came there carrying lathis in their hands.
There appears to have been a free for all fight.
It is said that Ram Chander wielding an iron handle of a hand pump was giving blows to the accused and he in turn was being beaten by lathis by the remaining persons.
It is the case of the prosecution that Ram Chander was administered lathi blows on his head by accused Nos. 1 and 2, as a result of which he fell down bleeding and died on the spot.
Thereafter all the five accused are said to have run away from the scene with their lathis.
In support of the prosecution story, three persons were examined as eye witnesses namely, P.W 1, P.W. 2 and P.W. 7.
P W. 2, however, turned hostile and did not support the prosecution version in his deposition before the trial court.
The learned Additional Sessions Judge discussed at length the testimony given by P.W 1 and P W. 7 as well as the medical evidence adduced in the case.
He found that there were serious discrepancies and glaring inconsistencies between the versions spoken by P.W. 1 and P.W. 7 and that the medical evidence also did not support their version of the incident.
In the result he found that the testimony of these eye witnesses could not be safely relied on and the prosecution had failed to prove its case beyond reasonable J doubt.
The learned Single Judge of the High Court has thought it fit to re appreciate the evidence of the two eye witnesses as well as the testimony given by the medical doctor who conducted the postmortem on the body of the deceased Ram Chander.
By such a process of elaborate re examination of the evidence the learned Single Judge was inclined to reach a conclusion different from that recorded by the learned Additional Sessions Judge regarding the acceptability of the testimony of P.W 1 and P.W. 7.
It is on this basis that the learned Judge has proceeded to set aside the acquittal of the appellants and order a retrial of the case after virtually recording findings in regard to the credibility of the evidence given by the witnesses relied on by the prosecution.
195 Even in an appeal against an order of acquittal no interference will be made with the judgment of the trial court except in rare and exceptional cases where there has been some manifest illegality in the approach to the case or the appreciation of the evidence or where the conclusion of fact recorded by the Trial Judge is wholly unreasonable so as to be liable to be characterised as perverse and there has been a resultant miscarriage of justice The revisional jurisdiction of the High Court while dealing with an order of acquittal passed by the trial court is more narrow in its scope.
It is only in glaring cases of injustice resulting from some violation of fundamental principles of law by the trial court, that the High Court is empowered to set aside the order of the acquittal and direct a retrial of the acquitted accused.
From the very nature of this power it should be exercised sparingly and with great care and caution.
In K.C. Reddy vs State of Andhra Pradesh, ; , this Court had occasion to consider the scope of the revisional jurisdiction conferred on the High Court in relation to orders of acquittal passed by the trial court and after referring to two earlier decisions of this Court reported in D. Stenbens vs Nosibolla, [1951] S R. 284 and Jogendranath Jha vs Polailal Biswas, ; the legal position was explained thus: "These two cases clearly lay down the limits of the High Court 's jurisdiction to interfere with an order of acquittal in revision; in particular, Jogendranath Jha 's case stresses that it is not open to a High Court to convert a finding of acquittal into one of conviction in view of the provisions of section 439(4) and that the High Court cannot do this even indirectly by ordering re trial.
What had happened in that case was that the High Court reversed pure findings of facts based on the trial court 's appreciation of evidence but formally complied with sub section
(4) by directing only a re trial of the appellants without convicting them, and warned that the court retrying the case should not be influenced by any expression of opinion contained in the judgment of the High Court.
In that connection this Court observed that there could be little doubt that the dice was loaded against the appellants of that case and it might prove difficult for any subordinate judicial officer dealing with the case to put aside altogether the strong views expressed in the judgment as to the credibility of the prosecution witness and the circumstances of the case in general.
" 196 This decision was subsequently followed by this Court in Akalu Ahir and others vs Ramdeo Ram, ; where this Court observed: "The unrestricted right of appeal from acquittal is specifically conferred only on the State and a private complainant is given this right only when the criminal prosecution was instituted on his complaint and then also subject to special leave by the High Court.
It is further provided in section 439(S), Cr.
P.C. that where no appeal is brought in a case in which an appeal is provided, no proceedings by way of revision would be entertained at the instance of the party who could have appealed.
The State Government, therefore, having failed to appeal, cannot apply for revision of an order of acquittal.
Again on revision, the High Court is expressly prohibited from converting an acquittal into a conviction.
Considering the problem facing the Court in this case in the background of this scheme, the High Court when approached by a private party for exercising its power of revision from an order of acquittal, should appropriately refrain from interfering except when there is a glaring legal defect of a serious nature which has resulted in grave failure of justice.
It is not expected to act under sections 435/439, Cr.
P.C. as if it is a hearing on appeal in spite of the wide language under section 435 which empowers it to satisfy itself as to the correctness, legality or propriety of a finding, sentence or order and as to the regularity of any proceeding and also in spite of the fact that under section 439 it can exercise inter alia the power conferred on a court of appeal under section 423, Cr.
The power being discretionary, it has to be exercised judiciously, and not arbitrarily.
Judicial discretion, as has often been said, means a discretion which is informed by tradition, methodised by analogy and disciplined by system.
In Amar Chand Aggarwal vs Shanti Bose, A.I.R.1973 S.C. 799, this Court said that normally the jurisdiction of the High Court under section 439, Cr.
P.C. is to be exercised only in exceptional cases when there is a glaring defect in the procedure or there is a manifest error on point of law and there has consequently been flagrant miscarriage of justice.
In the background of the position just stated a private complainant can only claim a right, in common with all aggrieved parties in a criminal proceedings, to 197 invoke the revisional jurisdiction of the High Court for redress against miscarriage of justice arising from an erroneous order of acquittal." The same position has been reiterated by this Court in Satyendra Nath Dutta and Anr.
vs Ram Narain, [1975] 2 S.C.R. 743.
It is unfortunate that the High Court did not keep in mind the principles laid down in the aforesaid rulings regarding the limits of its revisional powers while dealings with an order of acquittal passed by the subordinate court.
The mere circumstance that a finding of fact recorded by the trial court may in the opinion of the High Court be wrong, will not justify the setting aside the order of acquittal and directing a re trial of the accused.
In the present case the judgment of the learned Additional Sessions Judge did not suffer from any manifest illegality.
The dominant justification of the order of acquittal recorded by the trial court is the view it took of the evidence of the two eye witnesses.
Having carefully gone through the records of the case we are satisfied that it was a possible view and it cannot be characterised as illegal or perverse.
It may well be that the learned Single Judge of the High Court was not inclined to agree with the said view on the basis of his independent scrutiny and appreciation of the evidence adduced in the case but that would not furnish any justification for interference in revision with the order of acquittal passed by the learned Additional Sessions Judge.
Even in an appeal the Appellate Court would not have been justified in interfering with an acquittal merely because it was inclined to differ from the findings of fact reached by the trial court on the appreciation of the evidence.
The revisional power of the High Court is much more restricted in its scope.
We accordingly hold that the High Court has clearly transgressed the limits of its revisional jurisdiction under Section 439(4) of Cr.
P.C. in setting aside the order of acquittal passed by the Additional Sessions Judge and directing a re trial of the case.
The appeal is therefore allowed, the judgment of the High Court is set aside and the order of the acquittal passed by the trial court will stand restored.
A.P.J. Appeal allowed.

dataset_name: IN-Abs

summary:
The appellants, after trial by the Court of Additional Sessions Judge on a charge of murder under section 302 read with section 34 of the Indian Penal Code, were acquitted giving them the benefit of doubt.
The respondent, a son of the deceased victim, preferred a criminal revision petition before the High Court under section 397/401 Cr.
P.C. challenging the order of acquittal.
A Single Judge allowed the revision petition, set aside the acquittal of the appellants and remitted the case to the trial Court for re trial.
The appellants appealed to this Court, inter alia, contending that the Single Judge of the High Court has transgressed the bounds of his revisional jurisdiction in reappreciating the evidence and setting aside their acquittal.
Allowing the appeal, ^ HELD: 1.
The High Court has clearly transgressed the limits of its revisional jurisdiction under section 439(4) of Cr.
P.C. in setting aside the order of acquittal passed by the Additional Sessions Judge and directing a re trial of the case.
[197F] 2.
Even in an appeal against an order of acquittal no interference will be made with the judgment of the trial Court except in rare and exceptional cases where there has been some manifest illegality in the approach to the case or in the appreciation of the evidence or where the conclusion of fact recorded by the Trial Judge is wholly unreasonable so as to be liable to be characterised as perverse and there bas been a 192 resultant miscarriage of justice.
The revisional jurisdiction of the High Court while dealing with an order of acquittal passed by the trial court is more narrow in its scope.
It is only in glaring cases of injustice resulting from some violation of fundamental principles of law by the trial court, that the High Court is empowered to set aside the order of the acquittal and direct a re trial of the acquitted accused.
From the very nature of this power it should be exercised sparingly and with great care and caution.
[195A C] K.C. Reddy vs State of Andhra Pradesh, ; ; D. Stenbens vs Nosibolla, ; ; Jogendranath Jha vs Polailal Biswas, ; ; Akalu Ahir and Ors.
vs Ramdeo Ram, [1974] I SCR 130; Amar Chand Aggarwal vs Shanti Bose; , ; and Satyendra Nath Dutta and Anr.
vs Ram Narain, ; followed.
The mere circumstance that a finding of fact recorded by the trial court may in the opinion of the High Court be wrong, will not justify the setting aside of the order of acquittal and directing a re trial of the accused.
[197C] In the instant case, the High Court did not keep in mind the principles regarding the limits of its revisional powers while dealing with the order of acquittal passed by the Additional Sessions Judge, which did not suffer from any manifest illegality.
The dominant justification of the order of acquittal recorded by the trial court is the view it took of the evidence of the two eye witnesses.
Having carefully gone through the records of the case, this Court is satisfied that it was a possible view and it cannot be characterised as illegal or perverse.
It may well be that the Single Judge of the High Court was not inclined to agree with the trial Court 's finding on the basis of his independent scrutiny and appreciation of the evidence adduced in the case but that would not furnish any justification for interference in revision with the order of acquittal passed by the Additional Sessions Judge.
Even in an appeal the Appellate Court would not have been justified in interfering with an acquittal merely because it was inclined to differ from the findings of fact reached by the trial court on the appreciation of the evidence.
The revisional power of the High Court is much more restricted in its scope.
[ 197B F]


judgement:
ivil Appeal Nos.
1350 51 (NT) of 1974 From the Judgment and order dated 19th October.
1973 of the Delhi High Court in Income Tax Reference Nos 46 and 52 of 1970 Dr. V. Gauri Shankar and Miss A. Subhashini for the Appellant.
Bishambar Lal, R.P. Gupta, S.K. Gupta and V.K. Jain for the Respondent.
153 The Judgment of the Court was delivered by PATHAK, J.
These appeals by certificate granted by the Delhi High Court are directed against a common judgment of that High Court disposing of two income tax references relating to the assessment years 1956 57 and 1957 58 on the question whether the assessee 's dividend income from a Pakistan company was deductible against its business loss in India.
The assessee is a public limited company carrying on the business of manufacturing and selling sugar.
During the relevant period it also held some shares in the Premier Sugar Mills & Distillery Co. Ltd Mardan, West Pakistan.
The Pakistan company also carried on the business of manufacturing and selling sugar.
In the previous year relevant to the assessment year 1956 57 the assessee earned a dividend income of Rs.2,30,832 from its holdings in the Pakistan company.
It sustained a loss of Rs.20,30,006 from the business in India.
Likewise, in the previous year relevant to the assessment year 1957 58 the asses see received a dividend income of Rs.3,30,868 from the holdings in the Pakistan company, but sustained a loss of Rs.9,11,728 from the business in India.
The assessee claimed that the entire loss sustained by it in India in each year should be carried forward and set off against its business profits in India in future years.
It contended that the dividend income derived by it from the Pakistan company was not liable to tax in India as it was wholly taxed in Pakistan, and therefore, it could not be set off against the business loss in India.
The Income tax officer rejected the contention and deducted the dividend income received from the Pakistan company from the business loss in India disclosed by the assessee and after making certain other adjustments he determined the total loss of the assessee for the assessment year 1956 57 at p Rs.16,51,129 and for the assessment year 1957 58 at Rs.3,78,661.
The assessee appealed to the Appellate Assistant Commissioner of Income tax in respect of each assessment year, but the appeals failed, except that in the case for the assessment year 1957 58 the Appellate Assistant Commissioner determined the dividend income from the Pakistan company at Rs.2,27,472 and reduced the net loss accordingly.
In second appeal the Income tax Appellate Tribunal confirmed the orders of the Appellate Assistant Commissioner.
Thereafter, at the instance of the assessee the Appellate Tribunal referred the following questions in the two cases to the Delhi High Court for its opinion: 154 "1.
Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the net dividend income of Rs.2,30,832 received from a Pakistan Company and the capital gains of Rs.5,120 were not deductible in arriving at the total world loss under section 24(1)?" 2.
Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the net dividend income of Rs.2,27,472 received from a Pakistan company and the capital gains of Rs.50,829 were not deductible in arriving at the total world loss under section 24(1)?" The High Court answered the questions relating to the Pakistan dividend in favour of the assessee and against the revenue.
So far as the question in each case refers to the deduction of capital gains against the total world loss for the year, learned counsel for the parties jointly state that it is not subject matter of these appeals.
It is necessary to mention at the outset that the Dominion of India and the Dominion of Pakistan concluded an Agreement for the Avoidance of Double Taxation of Income chargeable in the two Dominions in accordance with their respective laws, and in exercise of the powers conferred by section 49AA of the Indian Income tax Act 1922 and the corresponding provisions of the Excess Profits Tax Act, 1940 and the the Government of India directed by Notification No. 28 dated December 10, 1947 that the provisions of the Agreement would be given effect to in the Dominion of India.
As the scope and effect of the Agreement is intimately involved in the resolution of the controversy between the parties, the material provisions may be set forth immediately: "Article IV Each Dominion shall make assessment in the ordinary way under its own laws; and, where either Dominion under the operation of its laws charges any income from the sources or categories of transaction specified in column I of the Schedule of this Agreement (hereinafter referred to as the Schedule) in excess of the amount calculated according to the percentage specified in columns 2 155 and 3 thereof, that Dominion shall allow an abatement equal to the lower amount of tax payable on such excess in their Dominion as provided for in Article VI.
Article V Where any income accruing or arising without the territories of the Dominions is chargeable to tax in both the Dominions, each Dominion shall allow an abatement equal to one half of the lower amount of tax payable in either Dominion on such doubly taxed income.
Article VI(a) For the purposes of the abatement to be allowed under Article IV or V, the tax payable in each Dominion on the excess or the doubly taxed income, as the case may be, shall be such proportion of the tax payable in each Dominion as the excess or the doubly taxed income bears to the total income of the assessee in each Dominion.
(b) Where at the time of assessment in one Dominion, the n tax payable on the total income in the other Dominion is not known, the first Dominion shall make a demand without allowing the abatement, but shall hold in abeyance for a period of one year (or such longer period as may be allowed by the Income tax officer in his descretion) the collection of a portion of the demand equal to the estimated abatement.
If the assessee produces a certificate of assessment in the other Dominion within the period of one year or any longer period allowed by the Income tax officer, the uncollected portion of the demand will be adjusted against the abatement allowable under this Agreement; if no such certificate is produced the abatement shall cease to be operative and the outstanding demand shall be collected forthwith.
Article VII(a) Nothing in this Agreement shall be construed as modifying or interpreting in any manner the provisions of relevant taxation laws in force in either Dominion (b) If any question arises as to whether any income falls within any one of the items specified in the Schedule and if so under which item, the question shall be decided without 156 any reference to the treatment of such income in assessment made by the other Dominion.
xxx xxx xxx The Schedule (See Article IV) ____________________________________________________________ Source of Income Percentage of Remarks or nature of Income which each transaction from Dominion is en which income is titled to charge derived.
under the Agreement.
(1) (2) (3) (4) ____________________________________________________________ xxxx xxxx xxxx xxxx section Dividends By each (As in Relief in respect of Dominion preceding any excess income tax in pro column) deemed to be paid by portion to the shareholder shall the profits be allowed by each of the Dominion in proportion company to the profits of the chargeable company chargeable by by each each under this Dominion Agreement.
under this Agreement.
xxx xxxx xxx xxx" ___________________________________________________________ It is apparent that in the case of dividend income the percentage of income which each Dominion is entitled to charge under Agreement is in proportion to the profits of the company chargeable by each Dominion under that Agreement.
The relevant entry in the Schedule indicates that as the factory is situated in Pakistan the Dominion of Pakistan is entitled to charge 100 per cent of the income and that the Dominion of India is not entitled to charge any percentage of the Income.
Therefore, the dividend income derived from the Pakistan Company by the assessee is, by virtue of the Agreement, liable to charge wholly by the Dominion of Pakistan, and the Dominion of India is not entitled to charge the dividend income at all.
But this, it must be noted, is the position obtaining pursuant to the Agreement.
If regard be had to the provisions of the Indian Income tax Act, without reference to the Agreement, the dividend income, even though accruing or arising abroad, is liable to tax under the Indian law.
157 The High Court held that because of the operation of the aforesaid Agreement dividend income derived by the assessee in Pakistan was not assessable under the Income tax Act in India and, therefore, could not be set off under sub section (1) of section 24 of the Indian Income tax Act 1922 against the business loss suffered by the assessee.
Now there can be no doubt that under sub section
(1) of section 24 an assessee who has sustained a loss of profits or gains in any year under any of the heads mentioned in section 6 is entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year, and that the income, profits or gains against which the loss is set off must be such income, profits or gains as is assessable under the Indian Income tax Act.
The statute does not contemplate a setting off of loss against income which is not assessable at all under the Act.
But in order to determine whether the income in question is assessable under the Act regard must be had to the provisions of the Act itself.
The High Court erred in taking into consideration the circumstance that the Agreement between the two Dominions prohibited the Dominion of India from charging income tax on dividend income earned in Pakistan and treating it as exempt from the process of assessment to tax under the Act.
It will be apparent from Article IV of the Agreement that each Dominion is entitled to make assessments in the ordinary way under its own laws.
The process of determining the assessable income of the assessee is not effected by the Agreement.
What the Agreement does is to give relief against double taxation, and as is clear, from Article lV, V and VI it is the charge levied by a Dominion on the income of an assessee that is involved in the relief.
For Article IV goes on to say that where either Dominion under the operation of its laws charges any income from the sources or categories of transactions specified in column 1 of the Schedule to the Agreement in excess of the amount calculated according to the percentage specified in columns 2 and 3 thereof, that Dominion shall allow an abatement equal to the lower amount of tax payable on such excess in the Dominion as provided for in Article VI.
The Agreement was considered by this Court in Ramesh R. Saraiya vs Commissioner of Income tax Bombay City I, [1965] 55 lTR 699 and the position was summed up clearly as follows.
"It seems to us that the opening sentence of Article IV of the Agreement that each Dominion is entitled to make assessment in the ordinary way under its own laws clearly shows that each Dominion can make an assessment regardless of the Agreement.
But a restriction is imposed on 158 each Dominion and the restriction is not on the power of assessment but on the liberty to retain the tax assessed Article IV directs each Dominion to allow abatement on the amount in excess of the amount mentioned in the Schedule.
The scheme of the Schedule is to apportion income from various sources among the two Dominions In the case of dividends each Dominion is entitled to charge "in proportion to the profits of the company charge able by each Dominion under this agreement.
" This refers us back to the other items For instance, in respect of goods manufactured by the assessee partly in one Dominion and partly in the other, each Dominion is entitled to charge on 50% of the profits But the Schedule does not limit the power of each Dominion to assesss in the normal way all the income that is liable to taxation under its laws.
The Schedule has been inserted only for the purpose of calculating the abatement to be allowed Article VI also leads to the same conclusion For if no assessment could be made on the amount on which abatement is to be allowed, there could be no question of making a demand without allowing the abatement and holding in abeyance for a period the collection of a portion of the demand equal to the estimated abatement.
" On the basis of Agreement the High Court came to the conclusion that the dividend income was not liable to charge by the Dominion of India The High Court omitted to note that the Agreement functions on a different plane altogether.
It enjoys no role in the application of the Indian law for the purpose of determining the total income of an assessee and the tax liability consequent upon such assessment.
On the contrary, the provisions of the Agreement clearly envisage that full effect must be given to the operation of the tax law of each Dominion All that the Agreement does is to permit a Dominion to retain the tax recovered by it pursuant to an assessment under its law to the extent that an abatement is not allowed under the provisions of the Agreement Article IV, it may be reiterated, specifically provides that each Dominion shall make assessment in the ordinary way under its own laws.
Such assessment includes the determination of the consequential tax liability.
Thereafter, the Agreement takes over the Dominion must allow an abatement in the degree mentioned in Article IV.
It will also be noticed that clause (b) of Article VI permits the 159 Dominion to make a demand without allowing the abatement if the tax payable on the total income in the other Dominion is not known, but the collection of the tax has to be held in abeyance for a period of one year at least to the extent of the estimated abatement.
If the assessee produces the certificate of assessment in the other Dominion within the period of one year or any longer period allowed by the Income tax officer, the uncollected portion of the demand has to be adjusted against the abatement allowable under the Agreement.
But if no such certificate is produced, the abatement ceases to be operative and the outstanding demand can be collected forthwith.
Clause (a) of Article VII makes absolutely clear that nothing in the Agreement can be considered as modifying or incorporating in any manner the provisions of the relevant tax laws in force in either Dominion.
Therefore, having regard to what is expressly stated in Article IV of the Agreement, and re emphasised in cl.
(a) of Article VII, there can be no escape from the conclusion that for the purposes of the assessment under the Indian Income tax Act, the income of the assessee must be determined in the ordinary way under the Indian law, and in no way can the Agreement be construed as modifying or superseding in any manner the provisions of the Indian law in that regard.
The High Court has proceeded on the basis that for the purpose of giving abatement of tax in India the dividend income from the Pakistan Company can be excluded from the taxable income of the assessee.
It has reasoned that by requiring the dividend profits accruing or arising in Pakistan to be set off against the business loss of the assessee in India there is, in the result, a taxing of the dividend income from the Pakistan company.
The High Court has fallen into the fallacy of treating the setting off of the dividend income against the business loss as an infringement of the Agreement.
It has lost sight of the provisions of the Agreement itself which provide that the Indian Income tax Act must be applied without regard to the Agreement for the purpose of determining the total income and the consequential tax liability of the assessee.
Once it is accepted that the Agreement preserves the right of each Dominion to determine the assessable income in accordance with the operation of its own laws and it is concerned only with the question of the degree of retention of the tax charged by it consequent upon such assessment, it becomes abundantly clear that the dividend income, inasmuch as it is taxable under the Indian Income tax Act, by virtue of sub cl.
(ii) of d. (b) of sub.
section (1) of section 4, must be brought into the net 160 of income for assessment under the Indian law.
It has not been shown to us by learned counsel for the assessee that it constitutes the subject of exemption under any provision of the Indian Income tax Act Subs.
(3) of section 4 sets forth the cases in which income is not includible in the total income of the person receiving it.
And sections 14 to 16 detail the cases where the statute grants exemption from tax.
No provision in the Act has been pointed out from which we may infer that the dividend income in question is not liable to inclusion in determining the total income of the assessee.
Learned counsel for the assessee has placed a number of cases before us which deal with the application of the Indian Income tax Act, and where it has been held that for the purpose of sub section
(t) of section 24 of that Act income which does not fall within the purview of the Act at all cannot be set off against a loss arising under the Act.
These are cases which are wholly inapposite, and have no bearing, at all upon the role played by the Agreement.
It is also urged that it is open to the assessee to claim or not to claim the benefit of section 24 of the Act, and that if he does not do so no question arises of applying section 24.
In the first place, a perusal of the assessment orders for the two years shows clearly that the assessee did claim a set off of the Pakistan dividend against the losses of the Indian business.
In the second place there is a duty cast on the Income tax officer to apply the relevant provisions of the Indian Income tax Act for the purpose of determining the true figure of the assessee 's taxable income and the consequential tax liability.
Merely because the assessee fails to claim the benefit of a set off cannot relieve the Income tax officer of his duty to apply section 24 in an appropriate case.
In the result the appeals are allowed, the judgment of the High Court is set aside and the questions referred by the Income tax Appellate Tribunal to the High Court are answered in favour of the Revenue and against the assessee in so far that we hold that the dividend income received from the Pakistan company is deductible in arriving at the total world loss of the assessee under sub s (1) of section 24 of the Indian Income tax Act, 1922.
The Revenue is entitled to its costs.
S.R. Appeals allowed.

summary:
The respondent assessee is a public limited company carrying on the business of manufacturing and selling sugar.
During the assessment years 1956 57 and 1957 58 the company also held shares in the Premier Sugar Mills and Distillery Co. Ltd., Mardan, West Pakistan.
The Pakistan company also carried on the business of manufacturing and selling sugar.
The assessee company earned dividend income of Rs.2,30,832 and Rs.3,30,868 from the holdings in the respective previous years relevant to the assessment years aforesaid, while it incurred a business loss of Rs.20,30,006 and Rs.9,11,728 respectively from its business in India.
The assessee claimed that the entire loss sustained by it in India in each year should be carried forward and set off against its business profits in India in future years in as much as the dividend income derived by it from the Pakistan company was not liable to tax in India by virtue of the Agreement for the Avoidance of Double Taxation between India and Pakistan.
The Income Tax Officer rejected the said contention and determined the total loss in the relevant assessment years by making certain adjustments.
The appeals before the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal failed.
However, in the reference made at the instance of the assessee the Delhi High Court answered the questions relating to the Pakistan dividend in favour of the assessee and against the revenue.
Hence the appeals by certificate.
Allowing the appeals, the Court, 151 ^ HELD: 1.1 The dividend income received from the Pakistan company is deductible in arriving at the total world loss of the assessee under sub section (1) of section 24 of the Indian Income Tax Act, 1922.
[160F G] 1.2 Under sub section (1) of section 24 of the Indian Income Tax Act, 1922 an assessee who has sustained a loss of profits or gains in any year under any of the heads mentioned in section 6 is entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year.
The income, profits or gains against which the loss is set off must be such income, profits or gains as is assessable under the Indian Income Tax Act.
The statute does not contemplate a setting off of loss against income which is not assessable at all under the Act.
[157A C] 1.3 For the purposes of the assessment under the Indian Income Tax Act, the income of the assessee must be determined in the ordinary way under the Indian law.
Having regard to the relevant entry 8 of the Schedule to the Agreement for the Avoidance of Double Taxation between the two Dominions of India and Pakistan, the Dominion of India is not entitled to charge the dividend income at all.
Article IV of the Agreement makes it clear that each Dominion is entitled to make assessments in the ordinary way under its own laws.
The process of determining the assessable income of the assessee is not affected by the Agreement.
What the Agreement does is to give relief against double taxations.
[156F G; 157D E] Ramesh R. Saraiya vs Commissioner of Income Tax, Bombay City 1 referred to.
1.4 The agreement for the Avoidance of Double Taxation functions in a different plane altogether.
It enjoys no role in the application of the Indian law for the purpose of determining the total income of an assessee and the tax liability consequent upon such assessment.
On the contrary, the provisions of the Agreement clearly envisage that full effect must be given to the operation of the tax law of each Dominion.
All that the Agreement does is to permit a Dominion to retain the tax recovered by it pursuant to an assessment under its law to the extent that an abatement is not allowed under the provisions of the Agreement.
Article IV specifically provides that each Dominion shall make assessment in the ordinary way under its own laws.
Such assessment includes the determination of the consequential tax liability.
Thereafter, the Agreement takes over and the Dominion must allow an abatement in the degree mentioned in Article IV.
Clause (b) of Article VI permits the 152 Dominion to make a demand without allowing the abatement if the tax payable on the total income in the other Dominion is not known, but the collection of the tax has to be held in abeyance for a period of one year at least to the extent of the estimated abatement.
If the assessee produces the certificate of assessment in the other Dominion within the period of one year or any longer period allowed by the Income Tax officer, the uncollected portion of the demand has to be adjusted against the abatement allowable under the Agreement.
But if no such certificate is produced, the abatement ceases to be operative and the outstanding demand can be collected forthwith.
Clause (a) of Article VII makes absolutely clear that nothing in the Agreement can be considered as modifying or incorporating in any manner the provisions of the relevant tax laws in force in either Dominion.
Therefore, the Agreement cannot be construed as modifying or superseding in any manner the provisions of the Indian law in that regard.
[158F H;159A D] 1.5 So long as it does not constitute the subject of exemption under any of the provisions (Sections 14 to 16) of the Indian Income Tax Act, the dividend income, in as much as it is taxable under the Indian Income Tax Act by virtue of sub clause (ii) of clause (b) of sub section I of section 4, must be brought into the net of income for assessment under the Indian law.
[159G H; 160A ] 1.6 Merely because the assessee fails to claim the benefit of a set off cannot relieve the Income tax officer of his duty to apply section 24 in an appropriate case for the purpose of determining the true figure of the assessee 's taxable income and the consequential tax liability.
How ever in the instant case a perusal of the assessment orders for two years shows clearly that the assessee did claim a set off of the Pakistan dividend against the losses of the Indian business.
[160D E]


judgement:
Civil Appeal No. 1689 Of 1974 From the Judgment and Order dated 31st August, 1972 of the Madras High Court in Appeal No. 357 of 1965.
B.B. Ahuja and Ms. A. Subhashini for the Appellant.
A.T.M. Sampath and P.N. Ramalingam for the Respondents.
The Judgment of the Court was delivered by 177 PATHAK, J.
This appeal by special leave arises out of a suit instituted by the appellant for a declaration that a sale deed of immoveable properties and the transfer of moveables belonging to the respondent limited company in favour of the respondent firm are invalid, inoperative and not binding on the appellant and other creditors of the respondent limited company.
A suit was instituted by the Union of India, the appellant before us, alleging that the Krishna Oil Mills and Industries Ltd., a public limited company registered under the Indian Companies Act, 1913 was carrying on business in the manufacture and sale of tin cans and aerated water.
It entered into a partnership in September 1952 with Rajeswari and Co., which was carrying on business in the pressing of cotton bales.
Under the partnership agreement Rajeswari & Co. was to install a cotton baling press in the buildings of the Company and the business would be carried on under the name Rajapalayam Cotton Pressing Factory, with the profits being divided between the Company and Rajeswari & Co. in the ratio of 7 to 9 respectively.
This was replaced by another agreement in 1954, but the business was carried on in the same name and the profits divided in the same shares.
It was alleged that the Company incurred losses in its own business year after year and from 1954 the only income derived by it flowed from the shares held by it in the partnership business.
It was alleged that the Company had in fact ceased to carry on its own business, but in computing the income of the Company from the assessment year 1956 57 to the assessment year 1959 60 the losses suffered during the previous years from the Company 's own business were allowed to be carried forward and set off against its share of income from the partnership Firm.
Subsequently the Income tax authorities decided to reopen the assessment proceedings under section 34 of the Indian Income tax Act, 1922 and, it is said, this was communicated to the Company.
The processing of the case took time and the notices under section 34 were issued for the different assessment years on March 6, 1961 and March 7, 1961.
It was alleged that meanwhile, the Company, having come to know of the proposed re opening of its income tax assessments, began to dispose of its moveable and immoveable assets with a view to defeat the claim of the Union of India and to place the properties beyond the reach of the creditors of the company.
The assets of the company were transferred in favour of Rajeswari & Co. and the sale proceeds were employed for paying off the debts due to various creditors who, it is said, included also the close relations and friends of the Directors of the Company.
In the result, there was nothing left for paying off the tax arrears of the Company.
178 The suit was resisted by the Company, which in its written statement, admitted that it was working at a loss for some years and was obliged to replace its original business of seed crushing and oil extraction by a more modest business activity, and in its circumstances it entered into a partnership with Rajeswari & Co. for carrying on the business of pressing cotton bales.
It denied that when disposing of its assets it was aware of the intention of the income tax authorities to reopen its assessments.
It pleaded that because of action threatened by the Registrar of Joint Stock Companies in 1959 it was compelled to consider its position and to decide in a General Body meeting in June 1960 to dispose of the assets of the company.
It was also stated that the partnership agreement of 1954 between the Company and Rajeswari & Co. stipulated that Rajeswari & Co., should have first preference if the Company proposed to sell its assets.
The right of pre emption was pressed by Rajeswari & Co. and, therefore, a resolution was passed in February 1961 at another Extraordinary Meeting of the Company to sell the lands and buildings at a valuation to be fixed by expert opinion.
It was asserted that the assets were sold to Rajeswari & Co. and the sale proceeds were distributed to the creditors so that all the creditors were paid off.
Rajeswari & Co. also filed a written statement in opposition to the suit and besides asserting that it had installed cotton bale presses in the buildings of the Company pursuant to the partnership agreement between them it denied any fraudulent intent in purchasing the assets of the Company.
It asserted that it acted in good faith and paid value for the properties.
The trial court decreed the suit on Appril 27, 1965.
Rejeswari & Co. appealed to the High Court of Madras, and the High Court allowed the appeal, set aside the trial court decree and dismissed the suit.
The High Court held in substance that the Union of India had failed to satisfy the provisions of section 53 of the inasmuch as the evidence showed that the Company had utilised the sale proceeds arising upon the transfer of its assets in paying off all its other creditors, and that even if the Company had done so in order to avoid payment of its income tax dues no relief could be granted to the Union of India.
In this appeal it is urged for the Union of India that the transfer of assets was effected in favour of a person who was not a creditor, that the assets had been under valued and that there was evidence to show 179 that the benefit of the sale proceeds was enjoyed by the Directors of the Company who were also partners of Rajeswari & Co. Section 53 of the provides that every transfer of immoveable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated or delayed.
A long line of cases has held that the preference by a debtor of one creditor over the others is not ipso facto deemed fraudulent, and reference may be made to Musahar Sahu and Another vs Hakim Lal and Another, L.R. 43 Indian Appeals 104 where the Judicial Committee of the Privy Council quoted Palles C.B., who said in In re Moroney , 62: "The right of the creditors, taken as a whole, is that all the property of the debtor should be applied in payment of demands of them or some of them, without any portion of it being parted with without consideration or reserved or retained by the debtor to their prejudice.
Now it follows from this that security given by a debtor to one creditor upon a portion of or upon all his property (although the effect of it, or even the interest of the debtor in making it, may be to defeat an expected execution of another creditor) is not a fraud within the statute; because notwithstanding such an act, the entire property remains available for the creditors or some or one of them, and as the statute gives no right to rateable distribution, the right of the creditors by such act is not invaded or affected.
" The Judicial Committee explained that "the transfer which defeats or delays creditors is not an instrument which prefers one creditor to another; but an instrument which removes property from the creditors to the benefit of the debtor.
The debtor must not retain a benefit for himself.
He may pay one creditor and leave another unpaid: Middleton vs Pollock. , 108.
So soon as it is found that the transfer here impeached was made for adequate consideration in satisfaction of genuine debts, and without reservation of any benefit to the debtor, it follows that no ground for impeaching it lies in the fact that the plaintiff who also was a creditor was a loser by payment being made to this preferred creditor there being in the case no question of bankruptcy.
" This proposition of law was re affirmed by the Judicial Committee subsequently in MA PWA MAY and another vs S.R.M.M.A Chettyar Firm, 56 Indian Appeals 379.
180 It seems clear that it is open to a debtor to prefer one or more creditors over the others in the payment of his debts, and so long as he retains no benefit in the property the mere circumstance that some creditors stand paid while others remain unpaid does not attract the provisions of section 53 of the .
It is not disputed that the debts satisfied by payment of the sale proceeds are genuine.
A faint attempt was made to show that some of the debts discharged were owed to persons who were also Directors of the Company.
There is no findings by the High Court in support of that contention.
It was also urged that the consideration which passed for the sale of the assets was inadequate and that the assets had been undervalued.
Here again there is no finding to support the submission.
The questions raised are questions of fact, and this Court will not permit such questions to be raised unless there is material evidence which has been ignored by the High Court or the finding reached by the Court is perverse.
A point was sought to be made by learned counsel for the appellant that the transfer of the assets was effected in favour of Rajeswari & Co. which was not one of the creditors.
It has been found by the High Court that the sale was effected for the purpose of discharging the debts payable by the Company.
Once it is also found that the consideration was not inadequate it is immaterial, as the High Court has observed, that the transfer was effected in favour of a person who was not a creditor.
It has been clearly found that the sale proceeds were employed for paying off the creditors of the Company.
It appears that in consequence of the impugned transfer effected by the Company the appellant has been unable to recover a sum of Rs.28,240 assessed as income tax in October 1961.
It rested its suit on section 53 of the .
Having regard to the findings rendered by the High Court on the consideration of material on the record and upon an interpretation of section 53 which that provision has uniformly received this appeal cannot be sustained.
The appeal fails and is dismissed with costs.
P.S.S. Appeal dismissed.

summary:
A public limited company, working at a loss, having come to know of the proposal of the Department to reopen its income tax assessments for the previous years, disposed of its assets to the respondent firm, with which it had a partnership business, and employed the proceeds in paying off the debts due to various creditors, with the result that nothing was left for paying off the tax arrears of the company.
A suit under section 53 of the was instituted by the Union of India appellant for a declaration that the sale deed in favour of the respondent firm was invalid, inoperative and not binding on the appellant and other creditors of the transferor company and alleging fraudulent intent to defeat legitimate claims, which was decreed by the trial court.
The High Court, however, allowed the appeal holding that the appellant had failed to satisfy the provisions of section 53 inasmuch as the evidence showed that the company had utilised the proceeds arising upon the transfer of its assets in paying off all its other creditors, and that even if the company had done so in order to avoid payment of its income tax dues no relief could be granted to the appellant.
In this appeal by special leave it was urged for the appellant that the transfer was effected in favour of a person who was not a creditor, that the assets had been undervalued and that there was evidence to show that the benefit of the sale proceeds was enjoyed by the directors 176 of the company, who were also partners of the respondent firm.
Dismissing the appeal, the court, ^ HELD: It is open to a debtor to prefer one or more creditors over the others in the payment of his debts, and so long as he retains no benefit in the property the mere circumstance that some creditors stand paid while others remain unpaid, does not attract the provision of section 53 of the .
[180A B] Musahar Sahu and Another vs Hakim Lal and another, L.R. 43 Indian Appeals 104, In re Moroney, , 62, Middleton vs Pollock, , 108 and MA PWA MAY and another vs S.R.M.M.A. Chettyar Firm, 56 Indian Appeals 379, referred to.
In the instant case, there was no finding by the High Court in support of the contention that some of the debts discharged were owed to persons who were also directors of the company or that the consideration which passed for the sale of the assets was inadequate and that the assets had been undervalued.
This Court will not permit such questions of fact to be raised unless there is material evidence which has been ignored by the High Court or the finding reached by the Court is perverse.
[180B C] It has been found by the High Court that the sale was effected for the purpose of discharging genuine debts payable by the company and that the sale proceeds were really employed for paying off the creditors of the company.
Once it was also found that the consideration was not inadequate, it was immaterial that the transfer was effected in favour of a person who was not a creditor.
[180D E]