judgement:
y of the view that the almost unanimous opinion of experts is that after the age of 15, bulls.
bullocks and buffaloes are no longer useful for breeding, draught and other purposes and whatever little use they may have then is greatly offset by the economic disadvantages of feeding and maintaining unserviceable cattle disadvantages to which we had referred in much greater detail in Md. Hanif Quareshi 's case (1).
Section 3 of the Bihar Act in so far as it has increased the age limit to 25 in respect of bulls, bullocks and she buffaloes, imposes an unreasonable restriction on the fundamental right of the petitioners, a restriction moreover which cannot be said to be in (1) ; 623 the interests of the general public, and to that extent it is void.
We may here repeat what we said in Chintaman Rao vs The State of Madhya Pradesh (1): "The phrase 'reasonable restriction ' connotes that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature, beyond what is required in the interests of the public.
The word 'reasonable ' implies intelligent care and deliberation, that is, the choice of a course which reason dictates.
Legislation which arbitrarily or excessively invades the right cannot be said to contain the quality of reasonableness and unless it strikes a proper balance between the freedom guaranteed in article 19(1)(g) and the social control permitted by clause (6) of article 19, it must be held to be wanting in that quality.
" As to r. 3 the grievances of the petitioners are these.
Under the rule the prescribed authority for the purpose of section 3 of the Act consists of the Veterinary Officer and the Chairman or Chief Officer of a District Board, Municipality etc.
Unless both of them concur, no certificate for slaughter can be granted.
It is pointed out that the Chairman or Chief Officer would be a layman not in a position to judge the age or usefulness of cattle.
The result would be that the animal in respect of which a certificate is required may have to be shown to the Veterinary Officer as also the Chairman or Chief Officer, who may not be staying at the same place as the Veterinary Officer.
If the two differ, the matter has to be referred to the Sub divisional Animal Husbandry Officer.
This procedure, it is contended, will involve the expenditure of so much money and time that it will not be worthwhile for the petitioners to ask for a certificate, or having got a certificate, to slaughter the animal.
An animal which is above 15 or which has become useless generally costs much less than a young, serviceable animal.
If the petitioners have to incur all the expenditure which the procedure laid down by r. 3 must necessarily cost them, then they must close down their trade.
As to the right of appeal from an order refusing to grant a (1) ; ,763.
624 certificate, it is contended that that right is also illusory for all practical purposes.
To take the animal to the Deputy Director of Animal Husbandry or the District Animal Husbandry Officer or the Sub divi sional Animal Husbandry Officer, as the case may be, and to keep and feed the animal for the period of the appeal and its hearing will cost more than the price of the animal itself.
We consider that these grievances of the petitioners have substance, and judged from the practical point of view, the provisions of r. 3 impose disproportionate restrictions on their right.
It is difficult to understand why the Veterinary Officer, who has the necessary technical knowledge, cannot be trusted to give the certificate and why it should be necessary to resort to a complicated procedure to resolve a possible difference of opinion between two officers, later followed by a still more expensive appeal.
We, therefore, hold r. 3 also to be bad in so far as it imposes disproportionate restrictions indicated above, on the right of the petitioners.
(2) We now proceed to consider the Uttar Pradesh Prevention of Cow Slaughter (Amendment) Act, 1958.
After the decision of this Court in Md. Hanif Quareshi vs The State of Bihar (1) an Ordinance was passed called the Uttar Pradesh Prevention of Cow Slaughter (Amendment) Ordinance, 1958.
This Ordinance was later repealed and replaced by the Act.
The petitioners say that in the Bill as originally drafted the age limit below which slaughter was not permissible was put at 15 years; but the Select Committee increased it to 20 years.
It will probably be best, for clearness sake, to set forth not the whole provisions of the Act, for that would be too lengthy, but those which form most directly the subject matter on which the controversy turns.
Section 3 of the Act reads (omitting portions not relevant for our purpose) "section 3(1) Except as hereinafter provided, no person shall slaughter or cause to be slaughtered or offer or cause to be offered for slaughter (a). . . . . . . (1) ; 625 (b) a bull or bullock, unless he has obtained in respect thereof a certificate in writing, from the competent authority of the area in which the bull or bullock is to be slaughtered, certifying that it is fit for slaughter. (2) No bull or bullock, in respect of which a certificate has been issued under sub section (1)(b) shall be ' slaughtered at any place other than the place indicated in the certificate or within twenty days of the date of issue of the certificate.
(3) A certificate under sub section (1)(b) shall be issued by the competent authority, only after it has, for reasons to be recorded in writing, certified that(a) the bull or bullock is over the age of twenty years; and (b) in the case of a bull, it has become permanently unfit and unserviceable for the purpose of breeding and, in the case of a bullock, it has become permanently unfit and unserviceable for the purposes of draught and any kind of agricultural operation: Provided that the permanent unfitness or unserviceability has not been caused deliberately.
(4) The competent authority shall, before issuing the certificate under sub section (3) or refusing to issue the same, record its order in writing.
Any person aggrieved by the order of the competent authority, under this section, may, within twenty days of the date of the order, appeal against it to the State Government, which may pass such orders thereon as it may deem fit.
(5) The State Government may, at any time, for the purposes of satisfying itself as to the legality or propriety of the action taken under this section, call for and examine the record of any case and may pass such orders thereon as it may deem fit.
(6) Subject to the provisions herein contained any action taken under this section, shall be final and conclusive and shall not be called in question.
" On behalf of the petitioners it has been argued that section 3 imposes a number of unreasonable restrictions.
Firstly, it is urged that the age limit with regard to bulls or bullocks is put too high, viz. at 20 years.
This is an 626 aspect which we have already considered in relation to the Bihar Act.
What we have said about the age s limit in that connexion applies equally to the Uttar Pradesh Act.
The 8th Live stock Census, 1956 shows that in Uttar Pradesh bulls and bullocks over 3 years of age, not in use for breeding or work, numbered as many as 126,201 in 1956 as compared to 162,746 in 1951.
The Municipal Manual, Uttar Pradesh, Vol. 1, contains a direction that for slaughter of animals, bullocks and male buffaloes in good state of health below ten years of age should be included.
Secondly, it is pointed out that not being content with fixing an unreasonably high age limit, the impugned provision imposes a double restriction.
It says that the animal must be over twenty years in age and must also be permanently unfit and unserviceable; and in the case of a bullock, the unfitness must be for "any kind of agricultural operation" and not merely for draught purposes.
The result of this double restriction, it is stated, is that even if the animal is permanently unserviceable and unfit at an earlier age, it cannot be slaughtered unless it is over twenty years in age.
Before a certificate can be given, the animal must fulfil two conditions as to (1) age and (2) permanent unfitness.
We consider this to be a demonstrably unreasonable restriction.
In Md. Hanif Quareshi 's case (1) this Court had said that a total ban on the slaughter of bulls and bullocks after they had ceased to be capable of breeding or working as draught animals was not in the interests of the general public.
Yet this is exactly what the impugned provision does by imposing a double restriction.
It lays down that even if the animal is permanently unserviceable, no certificate can be given unless it is more than 20 years in age.
The restriction will in effect put an end to the trade of the petitioners.
Thirdly, the impugned provision provides (1) that the animal shall not be slaughtered within 20 days of the date of the issue of the certificate and (2) that any person aggrieved by the order of the competent authority may appeal to the State Government within 20 days.
It is to be noted that the right of appeal is not (1) 627 confined to a refusal to grant a certificate as in the Bihar Act, but the right is given to any person aggrieved by the order of the competent authority.
In other words, even when a certificate is given, any person, even a member of the public, who feels aggrieved by it may prefer an appeal and hold up the slaughter of the animal for a long time.
From the practical point of view these restrictions really put a total ban on the slaughter of bulls and bullocks even after they have ceased to be useful, and we must hold, following our decision in Md. Hanif Quareshi 's case (1) that section 3 of the Uttar Pradesh Act in so far as it imposes unreasonable restrictions on the right of the petitioners as to slaughter of bulls and bullocks infringes the fundamental right of the petitioners and is to that extent void.
(3) Now, we come to the Madhya Pradesh Act.
Several provisions of this Act have been challenged before us as imposing unreasonable restrictions on the fundamental right of the petitioners.
Section 4 deals with prohibition of slaughter of agricultural cattle.
The expression 'agricultural cattle ' means an animal specified in the schedule: it means cows of all ages; calves of cows and of she buffaloes; bulls; bullocks; and male and female buffaloes.
As we have stated earlier, we are concerned in these cases with the validity of the restrictions placed on the slaughter of bulls, bullocks and buffaloes.
Now, section 4 is in these terms: "section 4(1) Notwithstanding anything contained in any other law for the time being in force or in any usage or custom to the contrary, no person shall slaughter or cause to be slaughtered or offer or cause to be offered, for slaughter (a) cows, calves of cows, or calves of she buffaloes, or (b) any other agricultural cattle unless he has obtained in respect of such cattle a certificate in writing issued by the Competent Authority for the area in which the cattle is to be slaughtered that the cattle is fit for slaughter.
(1) [1959] S.C.R.29.
628 (2) No certificate under clause (b) of sub section (1) shall be issued by the Competent Authority .unless the Veterinary Officer after examining the cattle certifies that (a) the cattle is over twenty years of age and is unfit for work or breeding or has become permanently incapacitated from work or breeding due to age, injury, deformity or an incurable disease; and (b) the cattle is not suffering from any disease which makes its meat unwholesome for human consumption.
(3) The Competent Authority shall, before issuing or refusing to issue a certificate under this section, record its order in writing.
Any person aggrieved by the order of the Competent Authority under this section, may, within ten days of the date of the order, prefer an appeal against such order to the Collector of the district or such other officer as may, by notification, be authorised in this behalf by the State Government, and the Collector or such other officer may pass such orders thereon as he thinks fit.
(4) Subject to the orders passed in appeal, if any, under sub section (3), the order of the Competent Authority shall be final and shall not be called in question in any Court.
" Section 5 places a restriction as to the place and time for slaughter and the objection taken before us relates to the time rather than to the place of slaughter.
It says in effect that no cattle in respect of which a certificate has been issued under section 4 shall be slaughtered within ten days of the date of issue of the certificate and where an appeal is preferred against the grant of such certificate, till the time such appeal is disposed of.
The provision of appeal is contained in sub section
(3) of section 4 of the Act which we have quoted earlier.
That sub section lays down that any person aggrieved by the order of the Competent Authority, may, within ten days of the date of the order, prefer an appeal against the order to the Collector of the district or such other officer as may, by notification, be authorised in this behalf by the State Government.
629 Section 6 imposes a restriction on the transport of agricultural cattle for slaughter and reads: "section 6.
No person shall transport or offer for transport or cause to be transported any agricultural cattle from any place within the State to any place outside the State, for the purpose of its slaughter in contravention of the provisions of this Act or with the knowledge that it will be or is likely to be, so slaughtered.
" Section 7 prohibits the sale, purchase or disposal otherwise of certain kinds of animals.
It reads .
"section 7.
No person shall purchase, sell or otherwise dispose of or offer to purchase, sell or otherwise dispose of or cause to be purchased, sold or otherwise disposed of cows, calves of cows or calves of shebuffaloes for slaughter or knowing or having reason to believe that such cattle shall be slaughtered.
" Section 8 relates to possession of flesh of agricultural cattle and is in these terms: "section 8.
Notwithstanding anything contained in any other law for the time being in force, no person shall have in his possession flesh of any agricultural cattle slaughtered in contravention of the provisions of this Act.
" Section 10 imposes a penalty for a contravention of section 4(1)(a) and section 11 imposes penalty for a contravention of any of the other provisions of the Act.
On behalf of the petitioners it has been pointed out, and rightly in our opinion, that cl.
(a) of sub section
(2) of section 4 of the Act imposes an unreasonable restriction on the right of the petitioners.
That clause in its first part lays down that the cattle (other than cows and calves) must be over 20 years of age and must also be unfit for work or breeding; and in the second part it says, "or has become permanently incapacitated from work or breeding due to age, injury, deformity or an incurable disease.
" It is a little difficult to understand why the two parts are juxtaposed in the section.
In any view the restriction that the animal must be over 20 years of age and also unfit for work or breeding is an excessive or unreasonable restriction as we have 80 630 pointed out with regard to a similar provision in the Uttar Pradesh Act.
The second part of the clause would not be open to any objection, if it stood by itself.
If, however, it has to be combined with the agelimit mentioned in the first part of the clause, it will again be open to the same objection; if the animal is to be over 20 years of age and also permanently incapacitated from work or breeding etc.
,then the agelimit is really meaningless.
Then, the expression 'due to age ' in the second part of the clause also loses its meaning.
It seems to us that cl.
(a) of sub section (2) of section 4 of the Act as drafted is bad because it imposes a disproportionate restriction on the slaughter of bulls, bullocks and buffaloes it is a restriction excessive in nature and not in the interests of the general public.
The test laid down is not merely permanent incapacity or unfitness for work or breeding but the test is something more than that, a combination of age and unfitness ' Learned Counsel for the petitioners has placed before us an observation contained in a reply made by the Deputy Minister in the course of the debate on the Bill in the Madhya Pradesh Assembly (see Madhya Pradesh Assembly Proceedings, Vol.
5 Serial No. 34 dated April 14, 1959, page 3201).
He said that the age fixed was very much higher than the one to which any animal survived.
This observation has been placed before us not with a view to an interpretation of the section, but to show what opinion was held by the Deputy Minister as to the proper agelimit.
On behalf of the respondent State our attention has been drawn to a book called The Miracle of Life (Home Library Club) in which there is a statement that oxen, given good conditions, live about 40 years.
Our attention has also been drawn to certain extracts from a Hindi book called Godhan by Girish Chandra Chakravarti in which there are statements to the effect that cows and bullocks may live up to 20 or 25 years.
This is an aspect of the case with which we have already dealt.
The question before us is not the maximum age upto which bulls, bullocks and buffaloes may live in rare cases.
The question before us is what is their average longevity and at what age 631 they become useless.
On this question we think that the opinion is almost unanimous, and the opinion which the Deputy Minister expressed was not wrong.
Section 5 in so far as it imposes a restriction as to the time for slaughter is again open to the same objection as has been discussed by us with regard to a similar provision in the Uttar Pradesh Act.
A right of appeal is given to any person aggrieved by the order.
In other words, a member of the public, if he feels aggrieved by the order granting a certificate for slaughter, may prefer an appeal and hold up for a long time the slaughter of the animal.
We have pointed out that for all practical purposes such a restriction will really put an end to the trade of the petitioners and we are unable to accept a restriction of this kind as a reasonable restriction within the meaning of cl.
(6) of article 19 of the Constitution.
Section 6 standing by itself, we think, is not open to any serious objection.
It is ancillary in nature and tries to give effect to the provision of the Act prohibiting slaughter of cattle in contravention of the Act.
Section 7 relates to the prohibition of sale, purchase etc., of cows and calves and inasmuch as a total ban on the slaughter of cows and calves is valid, no objection can be taken to section 7 of the Act.
It merely seeks to effectuate the total ban on the slaughter of cows and calves (both of cows and she buffaloes).
Section 8 is also ancillary in character and if the other provisions are valid no objection can be taken to the provisions of section 8.
Sections 10 and 11 impose penalties and their validity cannot be seriously disputed.
However, we must say a few words about section 12 of the Act which has also been challenged before us.
Section 12 is in these terms: "section 12.
In any trial for an offence punishable under section 11 for contravention of the provision of sections 5, 6 or 7 of this Act the burden of proving that the slaughter, transport or sale of agricultural cattle was not in contravention of the provisions of this Act shall be on the accused.
" The argument is that section 12 infringes the fundamental 632 right of the petitioners inasmuch as it puts the burden of proof on an accused person not only for his own knowledge or intention but for the knowledge or intention of other persons.
We do not think that this contention is correct.
The accused person, so far as sections 5 and 7 are concerned, must be the person who has slaughtered the animal or who has purchased, sold or otherwise disposed of the animal etc.
Therefore, the only question will be his knowledge and the legislature was competent to place the burden of proof on him.
So far as section 6 is concerned, it specifically refers to the knowledge of the person who has transported or offered for transport or caused to be transported any agricultural cattles from any place within the State to any place outside the State.
Therefore, when the section talks of knowledge, it talks of the knowledge of that person who has transported or offered for transport etc.
The knowledge of no other person comes into the purview of section 6.
We are, therefore, ' of the view that section 12 is not invalid on the ground sug gested by the petitioners.
Therefore, the result of our examination of the various provisions of the Act is that the impugned provisions in cl.
(a) of sub section
(2) of section 4, in sub section
(3) of section 4 relating to the right of appeal by any person aggrieved by the order, and in section 5 relating to the time of slaughter, impose unreasonable and disproportionate restrictions which must be held to be unconstitutional.
As to the Madhya Pradesh Agricultural Cattle Preservation Rules, r. 3 says "that an application for a certificate under section 4 shall be made to the competent authority," and r. 4 says that on receipt of the application, the competent authority shall by an order direct the person keeping the animal to submit it for examination by the Veterinary Officer Rule 5 reproduces the provisions of cls.
(a) and (b) of sub section
(2) of section 4 and in so far as we have held that the provision in el.
(a) of sub section
(2) of section 4 is unconstitutional, the rule must also fall with it.
There is one other aspect of these cases which has been emphasized before us, to which a reference must 633 now be made.
It is open to the legislature to enact ancillary provisions to give effect to the main object of the Act, namely, the prevention of slaughter of animals like bulls, bullocks or buffaloes which are still useful for the purposes for which they are generally used.
It is pointed out that acts innocent in themselves may be prohibited and the restrictions in that regard would be reasonable, if the same were necessary to secure efficient enforcement of valid provisions.
For example, it is open to the legislature, if it feels it necessary, in order to reduce the possibilities of evasion to a minimum, to enact provisions which would give effect to the main object of the legislation.
We have not ignored this aspect and have kept in mind the undisputed right of the legislature to decide what provisions are necessary to give effect to the main object of the legislation.
In these cases the petitioners have complained that the main object of the impugned provisions is not the prohibition of slaughter of animals which are still useful; the impugned provisions as they are worded really put a total ban on the slaughter of bulls, bullocks and buffaloes and for all practical purposes they put a stop to the profession and trade of the petitioners.
We have held that this complaint is justified in respect of the main provisions in the three Acts.
We, therefore, allow the three writ petitions and direct, as we directed in Md. Hanif Quareshi 's case (1) the respondent States not to enforce the Acts or the rules made thereunder in so far as they have been declared void by us.
The petitioners will be entitled to their costs of the hearing in this Court.
Petitions allowed.

summary:
In order to put the sugar industry on a stable footing, for which it was necessary to develop the cane area, the Ruler of the erstwhile Gwalior State by an order dated 27 7 1946 sanctioned the levy of cess of one anna per maund on all sugar cane purchased by the respondent company.
When the Government of Madhya Bharat, which was the successor state of the former Gwalior State, made a demand for payment of the cess, the respondent filed a petition before the High Court of Madhya ,Bharat challenging the legality of the levy on the grounds (1) that the order dated 27 7 1946 was only an executive order and not a law under article 265 of the Constitution of India and that, therefore, there was no authority for the imposition of the cess after January 26, 1950, and (2) that the levy was discriminatory and violated article 14 inasmuch as while the respondent was made liable to pay the cess the other sugar factories in the State were exempt.
It was found that at the time when cess was first levied there was no sugar factory in existence in the Gwalior State other than that of the respondent.
Held, that (i) the Ruler of an Indian State was an absolute monarch in which there was no constitutional limitation to act in any manner he liked, he being the supreme legislature, the supreme judiciary and the supreme head of the executive.
I Consequently, the order dated 27 7 1946 issued by the Ruler of Gwalior State amounted to a law enacted by him and became an existing law under article 372 of the Constitution of India.
The levy of cess was therefore by authority of law within the meaning of article 265; Madhaorao Phalke vs The State of Madhya Bharat, ; , followed.
(2) the levy of cess did not contravene article 14 because (a) the object was cane development in the particular area and a geographical classification based upon historical factors was a permissible mode of classification, and (b) a tax could not be struck down as discriminatory unless it was found that it was imposed with a deliberate intention of differentiating between 620 (ii) where the order is passed by the Sub divisional Animal Husbandry Officer, under sub rule (5), to the District Animal Husbandry Officer and (iii) where the order is passed by the authority prescribed under sub rule (1) to the Sub divisional Animal Husbandry Officer, if there is one; if not, to the District Animal Husbandry Officer; (b) The appeal shall not be decided against the appellant unless he has been given a reasonable opportunity of being heard.
" The argument on behalf of the petitioners is that they are "Kassais" by profession and they earn their living by slaughtering cattle only (not goats or sheep which are slaughtered by "Chiks"); that they have the fundamental right to carry on their profession and trade; and that section 3 of the Act read with r. 3 imposes unreasonable restrictions restrictions not in the interests of the general public on their fundamental right and therefore they are not saved by cl.
(6) of article 19 of the Constitution.
Some of these arguments were considered by this Court in Md. Hanif Quareshi vs The State of Bihar (1) and it was pointed out that the test of reasonableness should be applied to each individual statute impugned and no abstract standard, or general pattern, of reasonableness can be laid down as applicable to all cases.
It referred to the decision in State of Madras vs V. G. Row (2) and repeated what was said therein that "the nature of the right alleged to have been infringed, the underlying purpose of the restrictions imposed, the extent and urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing conditions at the time, should all enter into the judicial verdict." 'Another consideration which has to be kept in mind is that "the legislature is the best judge of what is good for the community,.
by whose suffrage it comes into existence. . . . (See The State of Bihar vs Maharajadhiraja Sir Kameshwar Singh of Darbhanga (3)).
But the ultimate responsibility for determining the validity of the law must rest with the (1) (2) ; (3) 621 Court and the Court must not shirk that solemn duty cast on it by the Constitution.
We must, therefore, approach the problem before us in the light of the principles laid down by this Court.
The most pertinent question is having regard to all the relevant circumstances, is the age of 25 years laid down in section 3 a reasonable restriction on the right of the petitioners in the interests of the general public ? We are unable to say that it is.
Apart from the affidavits made on behalf of the petitioners and the respondent State, a large volume of authoritative and expert opinion has been placed before us which shows beyond any doubt that a bull, bullock or she buffalo does not remain useful after 14 or 15 years and only a few of them live up to the age of 25.
In the Report of the Cattle Preservation and Development Committee, published by the Ministry of Agriculture, it is recommended by the Committee that the slaughter of animals over 14 years of age and unfit for work as also animals of any age permanently unable to work owing to injury or deformity, should be allowed.
In the Report on the Marketing of Meat in India (published by the Ministry of Food and Agriculture) there is a reference to a draft Bill circulated by the Ministry of Agriculture (page 112 of the Report) which contains a clause that animals over 14 years of age and unfit for work may be slaughtered on a certificate from a Veterinary Officer.
In the Report on the Marketing of Cattle in India, again published by the Ministry of Food and Agriculture, occurs the following passage as to the price of animals with reference to their age: "Young draught animals up to the age of 4 years being raw and untrained fetch comparatively low prices.
Between 4 and 8 years of age, the animals are in the prime of their youth and tender best service, and fetch maximum prices.
From the 8th year onwards old age sets in, and a graded decline is observed in their capacity to work and consequently prices depreciate considerably." .
In a Food and Agricultural Organisation study of cattle in India and Pakistan (Zebu Cattle of India and 79 622 Pakistan, page 94) it is stated that the active breeding life of a bull is estimated to be about 10 years.
In Black 's Veterinary Dictionary (edited by W. C. Miller and G. P. West, fifth edition) it is stated that pedigree ,bulls may reach 12 or 14 years of age before being discarded; and cattle seldom live longer than 15 or 16 years, and when they do, their age is usually of no immediate importance.
In another publication of the Ministry of Agriculture called 'Problems of Cattle Insurance ' under Indian conditions, it is stated that the life of cattle is comparatively much shorter, the maximum age being only about 15 years.
There is an interesting chart relating to the determination of age in cattle in a publication called 'Cattle Development in Uttar Pradesh ' by R. L. Kaura, Director of Animal Husbandry; that chart shows that at II years incisors appear smaller due to wearing out; at 12 years space appears between the teeth, and after 12 teeth wear out constantly and roots remain far apart from one another.
As against all this expert opinion the respondent State has relied on the chart embodying some useful data about domestic animals, prepared by Major A. C. Aggarwala, Director of Veterinary Services, Punjab, and R. R. Gulati, Superintendent, Veterinary Department, Jullandur, which shows the sterility age of a buffalo at 15 and average age at 25, and of a cow sterility at 15 and 16 years and average life 22 years.


judgement:
minal Appeal No. 126 of 1959.
Appeal by special leave from the judgment and order dated June 19, 1959, of the Punjab High Court in Criminal Revision No. 144 of 1959.
R. L. Kohli, for the appellant.
G. C. Mathur and P. D. Menon, for the respondent.
March 6.
The Judgment of the Court was delivered by KAPUR, J.
This is an appeal by special leave against the judgment and order of the High Court of the Punjab and raises the constitutionality of s.178A of the (Act 8 of 1878), which has been held by this Court to be constitutional in the Collector of Castoms, Madras vs Nathella Sampathu Chetty(1).
At the time, of arguments before us a further point was raised that in order that s.178A of the may become applicable, the prosecution must further prove that the goods which were sought to be affected by the order of the Customs Officer were goods of foreign origin and there must be evidence in support of the reasonableness of the belief of the Customs Officer that the goods were smuggled goods.
The question now sought to be raised was not agitated in any of the courts below.
The appellant on February 11, 1958, when he was sitting in a third class compartment of the Amritsa Kalka train standing on Platform No. 5 of the Amrsar Railway Station, was searched by a Customs Official and some bars of gold were found tied round his waist.
These gold bars were seized and a recovery memo wits prepared, Out of these gold (1) ; 615 bars four were of base metal and the rest were of pure gold some bearing the stamp of Johmon Mathey & Co. Ltd., 999 10 tolas and 2 1/4 bars bore marks of N.M. Rothschild & Sons 10 tolas (990 0).
No permit from the the Reserve Bank to import this gold was produced by the appellant.
Under the Foreign Exchange Regulation Act, 1917, the importation of gold without such permit is prohibited and such contravention is punishable under s.23 A of the said Act read with s.167(81) of the .
The appellant was prosecuted under s.23A of the Foreign Exchange Regulation Act and 167(81) of the and his defence was that he was not in possession of the gold bars which were taken from an attache case left by a stranger under the seat where he (the appellant) was sitting.
The Additional District Magistrate held the offence to be proved and convicted the appellant of the offence and sentenced him to one year 's rigorous imprison ment.
An appeal to the Sessions Judge resulted in the reduction of the sentence to 8 months ' rigorous imprisonment.
On revision to the High Court the sentence was reduced to six months ' rigorous imprisonment.
The appellant has come in appeal by special leave.
The trial court accepted the testimony of the Customs Officials and held that the defence of the appellant was false and that gold worth Rs. 14,000/ was found in his possession.
The learned Sessions Judge in appeal also accepted the testimony of the Customs Officials and held the defence to be false and came to the conclusion that the gold was found in possession of the appellant.
In the High Court the same plea was taken and was rejected.
For the first time in this Court it is contended that before the presumption under s.178A can be made applicable, it must be proved by the prosecution that the goods were of foreign origin, i.e. had beep 616 imported from abroad and only then does the presumption under section 178A arise which relates only to the question of Customs duty having been paid.
In other words the contention comes to this that the prosecution must first prove that the goods in dispute in a particular case have been imported from a foreign country and once that is proved the onus then will be on the person in whose possession the goods are found that he had paid the Customs duty.
Apart from the fact that this question has never been raised, that is not the effect of s.178A of the which provides: "178A. (1) Where any goods to which this section applies are seized under this Act in the reasonable belief that they are smuggled goods, the burden of proving that they are not smuggled goods shall be on the person from whose possession the goods were seized.
(2) This section shall apply to gold, gold manufactures, diamonds and other precious stones, cigaretters and cosmetics and any other goods which the Central Government may, by notification in the Official Gazette, specify in this behalf.
(3) Every notification issued under sub section (2) shall be laid before both Houses of Parliament as soon as may be after it is issued".
Two Customs officers appeared as witnesses, Inspector Satnam Singh and Deputy Superintendent A.N. Kapur, the former is an Inspector of Land Customs and the latter a Deputy Superintendent of Customs.
There is nothing to indicate in their cross examination that the officers did not have a reasonable belief that the goods were smuggled goods and the question that the officers did not have reasonable belief is not suggested either from the cross examination of these witnesses of from the findings 617 of the courts below.
Even in his statement of case it is contended that the mere existence of stamp of foreign companies on gold does not necessarily prove that the gold is of foreign origin.
It might be put on spurious gold which may be of Indian origin.
In our opinion apart from the fact that this question has not been raised, it is quite clear that what s.178A of the provides is that when the goods are seized in the reasonable belief that they are smuggled goods then the burden of proving that they are not smuggled goods is on the person from whose possession the goods are seized.
The onus is on him to show that the goods are not smuggled, that is, not of foreign origin on which duty is not paid.
The onus is not on the prosecution to show that the goods are not, of Indian origin.
That appears to be the view taken in the Collector of Customs, Madras vs Nathella Sampathu Chetty (1) where at the learned Judges observed : "We are therefore of opinion (1) that section 178A was constitutionally valid, (2) that the rule as to the burden of proof enacted by that section applies to a contravention of a notification under section 8(1) of the Foreign Exchanges Regulation Act 1947 by virtue of its being deemed to be a contravention of a notification on under section 19 of the , (3) that the preliminary require ment of section 178A that the officer seizing should entertain , 'a reasonable belief ' that the goods seized were smuggled" was satisfied in the present case.
" In our opinion there is no merit in this appeal and it is dismissed.
The appellant will surrender to his bail bonds.
Appeal dismissed.

dataset_name: IN-Abs

summary:
The appellant was searched by a Customs Official and some bars of gold were found tied round his waist.
Out of those bars some were of base metal and the rest of pure gold which borne foreign markes.
The appellant had no permit from the Reserve Bank of India to import the gold.
He was prosecuted and convicted under section 167(81) of the .
He brought an appeal to the Supreme Court by Special leave.
Held, that section 178A of the , is constitutional.
The contension that before the presumption under s.178A of the could be raised the prosecution had to prove that the gold was of foreign origin was rejected and held that section 178A provides that when the goods are seized in the reasonable belief that they are smuggled goods the onus is on the accused to show that they are not smuggled.
Collector of Customs, Madras vs Nathella Sampathu Chetty (1962) 3 S.C.R. p.786 followed.


judgement:
etition No. 19 of 1961.
Petition under article 32 of the Constitution of India for enforcement of Fundamental Rights.
A. V. Viswantha Sastri and D. N. Mukerjee, for the petitioners.
Bajrang Sahai and section P. Yarma, for the respondents.
833 1962.
March 14.
The Judgment of the Court was delivered by AYYANGAR J.
We consider that this petition under article 32 of the Constitution is entirely devoid of merits and deserves to be dismissed as misconceived as it does not involve any question of the infringement of any fundamental right.
The petition is substantially for the issue of a writ of prohibition directing the Collector of Hazaribagh not to proceed with an enquiry pending before him under section 4(h) of the, Bihar Land Act and a writ of cortical to quash the proceedings.
The property regarding which a tension is raised that the fundamental rights of the petitioner under Arts.19(1)(f) and 31(1) of the constitution are alleged to have been infringed, is a. plot of land within the municipal limits of Hazaribagh in Bihar together with certain buildings and structures thereon.
The property originally belonged to the Ramgarh Raj.
There is a dispute its to the manner in which this property was being enjoyed by the then proprietors and so we shall at this stage refrain from saying anything about it.
On January 16, 1948 the Raja of Ramgarh granted a lease of this property in favour of his younger brother Basant Narain for a term of 99 years.
On April 7, 1949 the Raja settled his reversionary interest in the property for the benefit of a, Trust under a registered deed of settlement The estate, of Ramgarh was notified under section 3 (1) of the, Bihar Land Reforms Act (Bihar I of 1950) for being taken over by the Government of Bihar and in consequence the estate statutorily vested in the State on and from November 3, 1951.
Section 4(h) of the Bihar Land Reforms Act enacts: "The collector shall have power to make inquiries in respect of any transfer including the settlement or lease of any land comprised in such estate or the transfer of any kind of 834 interest in any building used primarily as office or kutcbery for the collection of rent of such estate or tenure or part thereof, made at any time after the first (lay of January 1946 and if he is satisfied that such transfer was made with the object of defeating any provisions of this Act or causing loss to the State or obtaining higher compensation thereunder the Collector may, after giving reasonable notice to the parties concerned to appear and be heard and with the previous sanction of the State Government, annul such transfer, dispossess the person claiming under it and take possession of such.
property on such terms as may appear to the Collector.
to be fair and equitable.
" It will be noticed that the lease in favour of the Raja 's younger brother was dated January 16, 1948 and therefore was well within the period specified in the provision.
It was the contention of the State that the buildings on the property which were the subject of the lease dated January 16, 1948 were being used by the Raj primarily as an office or kutcheri for the collection of rent a fact which however was disputed and is a subject of contest in the proceedings now sought to be quashed.
On November 27, 1955 a notice was issued to Basant Narain to show cause why the lease executed in his favour on January 16, 1948 should not beset aside under the power conferred upon the Collector by section 4(h).
Basant Narain submitted his objections and stated that the leased properties were not covered by section 4(b).
Before however this enquiry was completed, Basant Narain surrendered his leasehold interest to the assignee of the reversion, viz., the Trust, by a registered deed dated January 1, 1957.
Subsequently on June 1, 1959 the Trust which thus became entitled to the entire interest in the property in its turn leased the property to one Bansidhar and about a month later, on July 3, 1959 835 Bansidhar assigned his leasehold interest in the property to the petitioner company and that is how the petitioner came upon the scene.
On November 13,1959 the Collector pawed an order cancelling the lease.
The petitioner who laid claim to a title to the property under the assignment in its favour dated July 3, 1959, applied to the Collector to set aside his order both on the merits and also on the ground that the order of November 13, 1959 had been passed to its prejudice without giving it an opportunity to make its objections even though by that date it had obtained title to the property and therefore a locus standi to be heard.
We are not now concerned with the correctness or otherwise of the contention raised by the petitioner, because the State of Bihar set aside the order of the Collector and directed a re enquiry and in this re enquiry the petitioner filed a petition before the Collector on August 9, 1960 setting out its case.
It was during the progress of this last enquiry that the petitioner moved this Court by the present petition for the reliefs which we have already set out.
Pausing here it is necessary to add that the constitutional validity of section 4(h) is not challenged and the case therefore turns on whether the property satisfies the conditions on which the section is attracted.
The relief sought in this petition is based on two allegations: (1) that the land on which the buildings stand is raiyati land and therefore could not be taken possession of by the State under the Bihar Land Reforms Act and (2) that the buildings standing thereon were previously used for the residential purpose of the ' Raja and his family and not as a kutcheri.
The enquiry has been proceeding before the Collector in regard to these two points and it may be mentioned that when the petitioner applied to this Court for a stay of proceedings before the Collector,, this Court passed an order permitting the enquiry to continue ' though it stayed the passing of 836 any order by the State Government.
It will thus be seen that if the contention of the State is correct as regards the tenure of the property and as regards the purpose for which the buildings were used, the title of the State to the property would be made out and the petitioner could have no legitimate grievance.
If, on the other hand, the petitioner establishes in the enquiry the case that it has put forward in the petition it is bound to succeed.
Thus the question whether petition has any right to the property which it claims depends wholly on questions of fact which are plainly within the jurisdiction of the authorities constituted under the Bihar Land Reforms Act.
Before a party can complain of an infringement of his fundamental right to hold property he must establish that he has title to that property and if his title itself is in dispute and is the subject of adjudication in proceedings legally constituted, he cannot obviously put forward any claim based on his title until as a result of that enquiry he is able to establish his title.
It is only thereafter that the question whether his rights in or to that property have been improperly or illegally infringed could arise.
In the circumstances we consider that the petitioner can complain of no infringement of its fundamental right, as to justify a petition under article 32.
The petition is dismissed with costs.
Petition dismissed.

summary:
The property regarding which the contention is raised that the fundamental rights of the petitioners under articles 19(1) (f) and 31 ( 1) of the Constitution are alleged to 832 have been infringed is a plot of land within the Municipal limits of Hazaribagli with certain buildings and structures thereon,which originally belonged to the Raja of Ramgarh.
On January 16, 1948, the Raja leased this property to N for a term of 99 years and sometime thereafter settled his reversionary interest of the property for the benefit of a Trust.
The estate of Ramgarh was notified under section 3(1) of the Bihar Land Reforms Act for being taken over by the Government of Bihar and in consequence, the estate statu torily vested in the State of Bihar.
A notice was issued to N to show cause why the lease executed in his favour should not be set aside under s.4(h) of the act as the lease was executed well within the period specified under section 4(h).
N submitted objections standing that these properties were not covered by section 4(h).
During the pendency of the enquiry N surendered his leasehold to the trust.
The trust leased the property to one 1, who assigned his household interest in the property to the petitioner Company.
The present sought to quas the said proceedings under section 4(h) pending before the Collector wherein an enquiry was having held as to the manner in which the property in, question was being enjoyed by tile Raja of Ramgarh prior to the transfer, by lease for 99 years.
The question is whether any fundamental rights of the petitioner have been infringed by the enquiry being held.
Held, that before a party could complain of an infringement of his fundamental rights to hold property he must establish that be has title to that property and if that title itself is in dispute and is the subject of adjudication in proceedings legally constituted,the cannot obviously put forward any claim based on such title until as a result of that enquiry his title established.
It is only thereafter that the question whether his rights in or to that property have been improperly or illegally infringed could arise.


judgement:
Appeal No. 407/61.
908 Appeal by special leave from the judgment and order dated August 23, 1960, of the Orissa High Court in O.J.C. No. 103 of 1959.
N.O. Chatterjee and P. K. Chatterjee, for the appellant, C. K. Daphtary, Solicitor General of India, B. R. L. Iyengar and P. D. Menon, for the respondents.
B.M. Patnaik, section N. Andley, Rameshwar Nath and P. L. Vohra, for the Intervener.
March 16.
The Judgment of the Court was delivered by WANCHOO, J.
This is an appeal by special leave against the judgment of the Orissa High Court.
The brief facts necessary for present purposes are these.
The appellant made an application to the State Government of Orissa in 1949 for grant of a mining lease for manganese ore over an area comprising 5400 acres situated in the district of Keonjhar.
The appellant was the first applicant for the lease of the aforesaid area, and subsequently other persons applied for lease of the same area including Messrs. Tata from and Steel Company Limited hereinafter referred to as Tatas), the intervener in the present appeal.
The Government of Orissa decided to grant the in favour of Tattas and in January 1956 referred the matter to the Central Government for its approval under r. 32 of the Mineral Concession Rules, 1949 hereinafter referred to as the Rules), which lays down that if more than one application regarding the same, land is received, preference shall be given to the application received first, unless the State Government, for any special reason, and with the prior approval of the Central Government decides to the contrary.
The appellant made a representation to the Central Government against the recommendation of the 909 State Government.
Eventually, on April 9, 1957, the Central Government turned down the recommendation of the State Government about the grant of the mining lease to Tatas.
It also directed that the applications received prior to the application of Tatas should be considered according to the Rules but added that in case the Government of Orissa desired to work the area on a departmental basis, the Central Government would have no objection to consider a proposal for that purpose.
Thereafter the State Government rejected the application of the appellant in December 1957 on the ground that the State Government proposed to arrange for the exploitation of the area in the public sector.
This was followed by an application for review to the 'Central Government under r. 57 of the Rules.
This application was rejected by the Central Government in June 1969.
Thereupon the appellant filed a petition under article 226 of the Constitution in the High Court in July 1959.
This petition was dismissed by the High Court on the ground that it had no jurisdiction to deal with the matter under article 226 as the final order in the case was passed by the Central Government which was located beyond the territorial jurisdiction of the High Court.
The appellant then applied to the High Court for a certificate to appeal to this Court, which was rejected.
He then asked for special leave from this Court, which was granted; and that how the matter has come up before us.
The main question raised before us is the limit of the jurisdiction of the High Court under article 226 in circumstances like those in the present case.
The contention on behalf of the appellant is that as the Central Government bad merely dismissed the review petition, the effective order rejecting the appellant 's application for the mining lease was that of the State Government and therefore the High Court would have jurisdiction to grant a writ 910 under article 226, and that the principle laid down in Election Commission India vs Saka Venkata Subba Rao(l) would not apply.
Reliance in this connection has been placed on the decision of this Court in The State of Uttar Pradesh vs Mohammed Nooh(2).
It is well settled by a series of decisions of this Court beginning with Saka Venkata Subba Rao 's case(1) that there is two fold limitation on the power of the High Court to grant a writ under article 226.
These limitation are firstly that the power is to be exercised throughout the territories in relation to which the High Court exercise jurisdiction, that is to say, the writs issued by the High Court cannot run beyond the territories subject to its jurisdiction, and secondly, that the person or authority to whom the High Court is empowered to issue such writs must be within those territories, which clearly implies that they must be amenable to its jurisdiction either by residence or location within those territories.
The view taken in this case has been recently reaffirmed by this Court in Lt. Col.
Khajoor Singh vs Union of India.
(3) Prima facie, therefore, as the final order in this case was passed by the Central Government which is not located within the territories over which the High Court has jurisdiction, the High Court will have no power to grant a writ in this case.
Learned counsel for the appellant however relies on the decision in Mohd. Nooh 's case (2) where it was held that it was not correct to say that an order of dismissal passed on April 20, 1948, merged in the order in appeal therefrom passed in May 1949, and the two orders in turn merged in the order passed in revision on April 22, 1,950, or that the original order of dismissal only became final on the passing of the order in revision.
It was further held that the order of dismissal was operative on its 1. ; 2. ; 3. ; 911 own strength and therefore no relief under article 226 could be granted against the order of dismissal passed in 1948 as article 226 was not retrospective in operation.
It is urged that if the order of dismissal in that case did not merge in the final order of revision which was passed in April 1950, after the Constitution came into force, there was no reason why the order of the State Government should be taken to have merged in the order of the Central Government in this case so as to deprive the appellant of his remedy in the High Court under article 226.
We are of opinion that the principle of Mohd. Nooh 's Case(1) cannot apply in the circumstances of the present case.
The question there was whether the High Court would have power to issue a writ under article 226 in respect of a dismissal which was effective from 1948, simply because the revision against the order of dismissal was dismissed by the State Government in April 1950 after the Constitution came into force.
It was in those circumstances that this Court held that the dismissal having taken place in 1948 could not be the subject matter of an application under article 226 of the Constitution for that would be giving retrospective effect to that Article.
The argument that the order of dismissal merged in the order passed in appeal therefrom and in the final order of revision was repelled by this Court on two grounds.
It was held (firstly) that the principle of merger applicable to decrees of courts would not apply to orders of departmental tribunals, and (secondly) that the original order of dismissal would be operative on its own strength and did not gain greater efficacy by the subsequent order of dismissal of the appeal or revision, and therefore the order of dismissal having been passed before the Constitution would not be open to attack under article 226 of the Constitution.
We are of opinion that the facts in Mohd. Nooh 's case (1) were of a special kind and (1) ; 912 the reasoning in that case would not apply to the facts of the present case.
Further, in A. Thangal Kunju Musaliar vs M. Venkitachalam Potti (1), though this Court was considering a matter in which the question which is before us was not directly in issue, it had occasion to consider certain decisions of certain High Courts which dealt with oases similar to the present case : (see p. 1213).
In those decisions orders had been passed by certain inferior authorities within the territories subject to the jurisdiction of the High Courts concerned, but they had been taken in appeal before superior authorities which were located out.
side the territories subject to the jurisdiction of the High Courts concerned.
In those circumstances the High Courts had held that the order of the inferior authorities had merged in the orders of the authorities.
This Court apparently approved of the view taken by the High Courts in those cases on the ground that a writ against the inferior authority within the territories could not be of any avail to the petitioners concerned in those oases and could give them no relief for the orders of the superior authority outside the jurisdiction would remain outstanding and operative against them.
Therefore, as no writs could be issued against the outside authorities, this Court was of the view that the High Courts were right in dismissing the petitions, as any writ against the inferior authority which is within the jurisdiction of the High Court, in view of the orders of the superior authority, would be infructuous.
The position in the present case is similar to that envisaged above.
The Orissa Government rejected the application of the appellant for grant of the mining lease.
The appellant being aggrieved by that order went in review to the Central Government under the Rules and that review petition was dismissed so that in effect the Central (1)[1955] 2 S.C.R. 1196, 913 Government also rejected the application of the ,appellant for grant of the mining lease to him.
It is not in dispute that if the Central Government was so minded it could have allowed the review and directed the Orissa Government to grant mining lease to the appellant.
Therefore when the Central Government rejected the review petition, it in effect rejected the application of the appellant for the grant of the mining lease to him.
This order of the Central Government in effect rejecting the application of the appellant for the grant of the mining lease to him and confirming the rejection of the application of the appellant by the Orissa Government is clearly not amenable to the jurisdiction of the High Court of Orissa under Art 226 in view of the fact that the Central Government is not located within the territories subject to the jurisdiction of the Orissa High Court.
It would therefore have been useless for the Orissa High Court to issue a writ against the Orissa Government for the Central Governments order rejecting the review petition and therefore in effect rejecting the application of the appellant for grant of the mining lease would still stand This is made clear by r. 60 of the Rules, which provides that "the order of the Central Government under Rule 59 and subject only to such order, any order of a State Government under these rules, shall be final".
Clearly therefore r. 60 provides that where there is a review petition against the order passed in the first instance by the State Government, the order of the Central Government passed in review would prevail and would be the final order dealing with an application for a mining lease under the Rules.
Therefore, quite apart from the theoretical question of the merger of the State Government 's order with the Central Government 's order, the terms of r.60 make it perfectly clear that whenever the matter is brought to the Central Government under r. 59, it is the order of the Central Government which is effective and final.
In these 914 circumstances we are of opinion that the High Court was right in holding that it had no jurisdiction to issue a writ under article 226 in the present case as the final order in this case was that of the Central Government which was not situate within the territories over which the High Court has jurisdiction.
Our attention in this connection was drawn to Shivji Nathubhai vs The Union of India (1).
In that case a mining lease had been granted by the State Government to a particular person and there was a review petition against the grant of that mining lease.
The order granting the mining lease was set aside on review without notice to the person to whom the lease had been granted.
In that connec tion a question arose whether the person to whom the State Government had granted the lease had any interest to enable him to make an application under article 226.
It was then pointed out by this Court that under the Rules the order of the State Government would be effective as there was no re quirement that it was not final until confirmation by the Central Government.
That case however is of no assistance to the appellant for where there is a review petition and the Central Government passes an order on such petition one way or the other it is the Central Government 's order that prevails and the State Government 's order must in those circumstances merge in the order of the Central Government.
The observations in that case on which the appellant relies were made in another connection and can have no bearing on the question before us, where an order has been passed by the Central Government on review and it is that order which is made final by r. 60 and which stands in the way of the appellant.
There is therefore no force in this appeal and it is hereby dismissed with costs.
Appeal dismissed.

summary:
The State Government of Orissa rejected the application of the appellant who had applied for grant of a mining lease in December 1957 on the ground that the State Government proposed to arrange for the exploitation of the area in the public sector.
The appellant made an application for review to the Central Government under r. 57 of the rules of Mineral Concession Rules, 1949.
This application was rejected by the Central Government in June 1959.
Thereupon the appellant filed a petition under article 226 of the Constitution in the High Court of Orissa.
This petition was dismissed by the High Court on the ground that it had no jurisdiction to deal with the matter under article 226 as the final order in the case was passed by the Central Govern ment, which was located beyond the territorial jurisdiction of the High Court.
The appellant came up by special leave to appeal to the Supreme Court.
The main question is as to the limit of the jurisdiction of the High Court under article 226.
The appellant contended that as the Central Government had merely dismissed the review petition, the effective 907 order rejecting the, appellant 's application for the mining lease was that of the State Government and therefore the High Court would have jurisdiction to grant a writ under article 226.
that the High Court was right in holding that it had no Jurisdiction to issue a writ under article 226 in the present case as the final order in this case was that of the Central Government which was not situate within the terri tories over which the High Court had jurisdiction.
This order of the Central Government in effect rejecting the application of the appellant.
for the grant of the mining lease to him and confirming the rejection of the application of the appellant by the Orissa Government is clearly not amenable to the jurisdiction of the High Court of Orissa under article 226 in view of the fact that the Central Government is not located within the territories subject to the jurisdiction of the Orissa High Court.
It would therefore have been useless for the Orissa High Court to issue a writ against the Orissa Government for the Central Government 's Order rejecting the application of the appellant for the grant of the mining lease would still stand.
Held, further that quite apart from the theoretical question of the merger of the State Government 's Order with the Central Government 's Order, the terms of r. 60 of the Mineral Concession Rule 1949 make it perfectly clear that whenever the matter is brought to the Central Government under r. 59, it is the order of the Central Government which is effective and final.
So where there is a review petition and the Central Government passes an order on such petition one way or the other it is the Central Government 's Order that prevails and the State Government 's Order must in those circumstances merge in the order of the Central Government.
Election Commission India vs Saka Venkata Subba Rao, ; , Lt. Col. Khajoor Singh vs Union of India, ; , A. Thangal Kunju Musaliar vs M. Venkitachalam Potti ; relied on.
Shivji Nathubhai vs The Union of India, ; , referred to.
The State of Uttar Pradesh vs Mohammad Nooh (1958) S.C.R. 595, not applicable.


judgement:
Appeal No. 286 of 1961.
Appeal from the judgment and order dated January 27, 1960, of the Kerala High Court in I. T. R. Case No. 14 of 1955.
K.N. Rajagopal Sastri and D. Gupta, for the Appellant.
S.P. Desai J. B. Dadachan , O. C. Mathur and Ravinder Narain, for the respondent.
March 20.
The Judgment of the Court was delivered by HIDAYATULLAH, J.
In this appeal by the Commissioner of Income Tax Kerala filed with 962 certificate of the High Court of Kerala, an important question of law was raised before the High Court, which was answered against the Department.
It arose in the following ,circumstances.
The respondent, the West Coast Chemicals and Industries, Ltd. (referred to as the assessee Company) was incorporated in 1937 primarily with the object of acquiring and working the rights, title and interest in a match factory belonging to one A. V. Thomas at Medical.
The Memorandum of Association of the asseesee Company, however, empowered the Company to manufacture and deal in acids, alkalis and other chemicals.
The assessee 'Company carried on its business of manufacturing matches till the account year ending, on April 30, 1941.
Thereafter, the profits from the business became less and less due to War conditions, and the assessee Company began to manufacture plywood chests for tea, paints and lemon grass oil.
These were contemplated by cl.
(3) of the ' Memorandum of Association.
On May, 9, 1943, the assessee Company entered into an agreement with one Rao Sahib Natesa Iyer for the sale of the lands, buildings, plant and machinery of its match factory for Rs. 5, 75,000.
It was agreed that the price would not include manufactured goods, chemicals and other raw materials or any other asset not shown in the agreement of sale.
The purchaser was allowed sixty days for the payment of the balance of the price, Rs. 57,500 having been already paid at the time the agreement was 'entered into.
The purchaser made a default in payment, and on August 9, 1943, a fresh agreement was entered .into by the parties, this time for a consideration of Rs. 7,35,000, and the sale included chemicals and paper for manufacture which had not been sold in the first instance.
In a confidential report made on August 1, 1944, to the shareholders, the 963 Directors stated that the price obtained had shown a capital appreciation of about six times the cost price, and the sale of chemicals had also resulted in a substantial profit.
Meanwhile, the assessment of the Company for the, account year ending April 30, 1944, bad been completed by the Deputy Commissioner of Income tax, and the assessee Company had been assessed on an income of Rs. 36,498 6 4.
The Deputy Commissioner of Income tax then issued a notice under section 25 of the Travancore Income tax Act to the Company 's Liquidator on the ground that the profits from the sale of the chemicals and paper for manufacture had escaped assessment.
The Official Liquidator took up the position that the match manufacturing had been stopped, and that business had been wound up, and there thus only an appreciation of the capital assets and not a business profit, which, was liable to assessment.
The Deputy Commissioner, however, relying, upon the Memorandum of Association, which allowed the assessee Company to manufacture and sell chemicals, and on the Directors report, held that the assessee Company was liable to income tax on a profit of Rs. 2 lakhs arising from this sale.
The Commissioner of Income tax on appeal, however, reduced the assessable profits to Rs. 1,15,259.
Before the Commissioner, the Liquidator admitted that the profit from the sale of the chemicals wits Rs. 1, 15,259.
An appeal was then filed before the Income tax Appellate Tribunal at Trivandrum, and the assessee Company contented that a stock in trade could only be that which was the subject of trade, and that the stock of raw material was not sold in the course of ordinary trading but in a reali sation sale after the Company had been wound up.
The Tribunal found that the business had not 964 completely ceased to exist, since the assessee Company was carrying on manufacturing, on behalf of the purchaser, and, the sale could not be regarded as a realisation sale after the Company was wound up, but had the characteristics of a trading sale.
At the request of the assessee Company, however, the Tribunal referred two questions to the High Court for its decision, and they were: "(1) whether the transaction of sale of the raw materials along with the business,including machinery, plant and premises is a revenue sale, and whether in the facts and circumstances of the case, the sum of Rs. 1,15,254has been rightly charged to income tax; and (2) whether the decision that the sale of match, machinery and premises, was distinct from the sale of chemicals is legally war ranted and whether there was legally a single, transaction of the entire match factory inclusive of raw materials?" It maybe pointed out that prior to the sale of chemicals to the purchaser, the only evidence of sale of chemicals by the assessee Company was of two transactions.
In the first transaction, there was a sale of chemicals on July 24, 1943,to an educational institution for Rs. 50 and another sale on October 30, 1943, to a stranger for Rs. 7 12 0.
The High Court held that by the sale no business was done, and that the amount obtained was only by way of realisation sale and was not, therefore, liable to tax. 'rho argument of the Department (also raised before the High Court) proceeds in this way.
The Department refers to the Memorandum of Association under which the assessee Company was to carry on the business of manufacturing and 965 selling chemicals, that in the past it bad sold chemicals, that in the first sale of its assets it had excluded chemicals and some other raw materials necessary for the manufacture of matches and had sold the concern for a lesser price, that later it included chemicals and raw materials and obtained a larger price, and that admittedly 'there was an identifiable profit of Rs. 1,15,259 on the sale of the chemicals and raw materials.
The Department, therefore, contends that the amount of Rs. 1, 15,259 was properly brought to tax as a trading profit.
The question, therefore, is whether there can be said to be a sale in the carrying on of the business in respect of the chemicals and other raw materials.
This question is not one easy to decide,specially with the assistance of rulings, in which the facts were different.
There is a great danger of extracting a principle from the reported cases, divorced from the facts.
In Halsbury 's; Laws of England, 3rd Edn., Vol. 20, pp. 115 117, there is a list in the footnotes of the cases which have been decided on one side or the other of the dividing line.
In the text, the law, as summarised from the cases, is stated as follows : "210.
Mere realisation of assets is not trading; but the completion of outstanding contracts after the dissolution of a firm, the commencement of liquidation of a company, or the winding up of the affairs of a trader, has been held to be trading. . 211 .
The cases illustrating the question arising in such circumstances can be divided into two categories, first, those where the sales formed part of trading activities, and, second, those where the realisation was not an act of trading".
This distinction, in our opinion, is a sound one.
The only difficulty is in deciding whether a particular 966 case belongs to one category or the other.
In this, much support cannot be derived from observations made by learned Judges pertaining to the facts of a case, but they do guide one in a true appraisement of the case in hand.
In the well known case of Californian Copper Syndicate vs Harris (1), the difference between the purchase price and the value of the shares for which the property was exchanged was considered as profit assessable to income tax.
There, the company was formed for the purpose of acquiring and reselling mining properties, and though what it had acquired had all been Bold or exchanged, the transaction was considered a business transaction failing within the avowed objects, of the Company.
The case has been accepted as decided on these narrow facts, in Tebrau (Johore) Rubber Syndicate Ltd. vs Farmer (2), in which a different conclusion was reached on slightly different facts.
There also, the Company was formed with the object of acquiring rubber estates and for developing them.
Under the Memo randum, the Company had the power to sell its properties.
Two properties having been acquired and the funds having run out, they were sold but at a profit.
This profit was considered as an appreciation of capital and not as assessable profit.
The difference between these two oases is that whereas in the former, though the whole of the property was sold, it was sold at; a part of trading, in the letter, the property was sold not as part of trading but on a winding up sale.
The Department relies upon Californian Copper Syndicate vs Harris (1),while the assesse Company relies upon Tebrau (Johore)Rubber Syndicate Ltd. vs Farmer (2) .
These cases were also considered and applied by the Privy Council in Doughty vs Commissioner of Taxes (3), which is relied upon by (1) (2) (3) 967 both sides, in view of certain observations of the Privy.
Council, to which we shall presently refer.
In that case, there were two partners carrying on business in New Zealand as general merchants.
They sold the partnership to a limited company, of which they were the only shareholders.
The sale was of the entire assets including the goodwill, and the price was payable in the shape of fully paid shares in the new company.
The nominal value of the shares was more then the capital account as shown in the last balance sheet, and the partners prepared a new balance sheet in which a larger value was placed upon the stock in trade.
The Income tax authorities in New Zealand treated the difference between the value placed on the stock in trade in the old balance sheet and that placed in the new balance sheet as a profit liable to tax.
The Privy Council held that this was wrong, pointing out that for profit to arise, there must be a trading, and that a mere alteration of a book keeping entry was not evidence that there was profit.
It also held that the sale was of the entire assets, and that the price represented a payment for the entire business without a separate sale or valuation of this stock in trade for purposes of sale.
It referred to two cases decided respectively by the Supreme Court of New Zealand and the, High Court of Australia, in which sales by pastora lists of their flock of sheep had taken place.
In the New Zealand case, the excess obtained over the book value was treated as assessable profit, but in the Australian case, it was not.
Both the sales were of the entire stock.
The Privy Council approved of the Australian case, and though it did not ex pressly dissent from the New Zealand case, it indicated that it found it difficult to appreciate the decision.
These two cases from New ' Zealand and Australia were, of course, relied upon by the rival parties before us, and we shall consider them.
968 The Australian case is Commissioner of Taxation (W. A.) vs Newman (II.
A person who carried on business in Western Australia as a pastoralist sold his property including all live stock and plant, as a going concern.
The Commissioner of Taxation for the State apportioned the purchase money in respect of the live stock, and assessed the amount which was received in excess, as income derived from carrying on a business.
The High Court held that the transaction was not during the carrying on of the business or even for the purpose of carrying on the business, but was for the purpose of putting an end to the business, and that thus the excess represented a capital appreciation and not a trading profit.
The Now Zealand case is Anson vs Commissioner of Taxes (2).
In that case also, a sheep farmer sold his entire stock of sheep.
He had the practice of placing on his sheep at the beginning and end of each year an arbitrary value without reference to the, actual market value.
When he sold his entire stock, a nominal profit of pound 5,000 odd appeared, and he was assessed on it.
The Supreme Court hold that it was not an accretion to capital but a profit on the sale of the appellant 's stock in trade.
Sir John Salmond, who delivered the judgment of Court, observed that the holding of a sheep farmer was not a capital holding, but his sheep represented a stock in trade, and since every appreciation of a stock in trade represented a profit assessable to income tax, it mattered not that the stock in trade was sold at once or from time to time.
Of this case, the Privy Council in Doughty 's case (3) did not say much, but enough to cast a doubt upon it.
This is what the Privy Council said at p. 335.
"It would be difficult to arrive at the profit in this way if it were the case of a (1) [1921] 2 (2) [1922] N.7.L.R. 330.
(3) [1927] A. C. 327.
969 farmer in England but the trade of a pastora list is one with which the New Zealand Courts would be familiar, and which it would be more easy for the New Zealand Judges than for their Lordships to appreciate.
" The Privy Council made a distinction between a sale of the entire stock as a part of trading and a sale of the same stock as a winding up sale.
It observed that if the business be one of purely buying and selling, "a profit made by the sale of the whole of the stock, if it stood by itself, might well be assessable to income tax".
It observed that in Dougherty 's case (1) the sale was a slump transaction, and was a winding up of the business rather than a trading.
The Privy Council further pointed out that there is a difficulty in deciding cases of a business, which involve breeding of sheep for the purpose of selling wool This is quite true, because the sheep may be regarded as the capital, with which the wool, which is sold, is produced, or the sheep with the wool on them may be regarded as the stock in trade.
Such a question, fortunately, does not arise in the present case, which can be decided on the narrow ground whether the business was being wound up and the sale, a realisation sale, or whether trading was going on in spite of the winding up, so as to attract tax on profits made.
Before we answer this question in relation to the facts of this case, we wish to refer to a ' few more cases, which were cited before us.
In J. & R. O 'Kane & Co. vs The Commissioners of Inland Revenue (2), the appellants carried on business as wine and spirit merchants.
They then wished to retire from the business and sent a circular letter to their customers.
During the year, they sold their *bole stock to diverse customers. , and the question was whether they were still carrying on their trade during that period, and whether the profits were thus made in the (1) [1927] A.C. 327.
(2) 970 ordinary course of trade.
It was held by the King 's Bench Division of the High Court of Justice in Ireland that the sales were not in the ordinary course of trade but were part of the realisation of the trading stock and winding up of the business, and thus not liable to tax.
The Court of Appeal in Ireland unanimously reversed the decision of the High Court.
Ronan, L. J., pointed out that though the taxpayer had retired from business and had decided not to purchase any more stock, he was still carrying on the business of trading in wines and spirits till his existing stocks were exhausted, and, therefore, the excess obtained by him represented profit.
On appeal to the House of Lords, it was held that there was evidence on which the Commissioners could arrive at their finding that trading was, in fact, being carried on.
Lord Buckmaster, speaking Of the facts in that case, observed as follows : "For in truth it is quite plain that right up to the en of 1917 they were engaged in trading which, so far as the external world is concerned, was the ordinary method of carrying on trade modified only by arrangements which were merely part of the machinery of business dealing adopted to effect their intention to retire.
It may well be accepted that they did so intend ; yet the intention of a man cannot be considered as determining what it is that his acts amount to; and the real thing that has to be decided here is what were the acts that were done in connection with this business and whether they amount to a trading which would 'cause the profits that accrued to be profits arising from a trade or business The case was, therefore, decided on the finding of the special Commissioners, for which there was enough material in evidence.
Similarly, the case 971 of The Commissioner of Inland Revenue vs "Old Bashmills" Distillery Co., Ltd. (in Liquidation) (1) was one decided on a finding, in support of which there was evidence.
The two cases relied upon by the Department and the assessee Company respectively do not shed any light upon the problem before us ' because the central decision in both of them was whether the Commissioners ' finding was justified or not.
In J. and M. Craig (Kilmarnock),Ltd.
vs Cowperthwaite(2), the question was how the opening .stock should have been valued, And whether any profit could be said to have resulted.
The Privy Council in Doughty 's case (3) remarked about this case as follows: "There, on a transference from one company to another, one third of the value of each item, other than stock in trade, as it stood in the books of the selling company, was treated as its value for transfer purpose, and the balance of a slump price, which, with an under taking to discharge liabilities, formed the consideration, was inferentially attributable to the stock.
It was held, however, in that case that no sum could be pitched upon as the actual price of the stock, and no claim to assess a profit could be based upon such a foundation.
" This case shows that where a slump price is paid and no portion is attributable to the stock iii trade, it may not be possible to hold that there is a profit other than what results from the appreciation of capital.
The essence of the matter however, is not that an extra amount has been gained by the selling out or the exchange but whether it can fairly (1) (2) (3) (1927) A.C. 327.
972 be said that there was a trading from which alone profits can arise in business.
If this test is applied to the present case, then the true answer would be the one given by the High Court in the judgment under appeal.
There is no doubt, in this case, that the assessee Company was wound up at least in so far as its match manufacture was concerned.
That the business of the Company was sold as a going concern, and was, in fact, worked by the assessee Company on behalf of the buyer till the entire consideration was paid, makes no difference, because the agreement clearly indicated that the, assessee Company was keeping the factory going, not on its own behalf but entirely on behalf of the buyer.
One cannot fairly say, therefore, that a sale of the chemicals and raw materials for match manufacture was anything more than a winding up sale, not with a view to trading in chemicals and raw material but to close down the business and to realise the assets.
There was, in fact, no identifiable price for the chemicals and raw materials except by comparing the two prices offered to be paid by the buyer, that is to say, the price without the chemicals and raw materials and the price with them.
From that alone, however, it is impossible to infer that the chemicals and raw materials were sold in the ordinary way of business or that the assessee Company was carrying on a trading busi ness.
The fact that the clause in the Memorandum gave power to the Company to Bell chemicals cannot be used in this connection, because the evidence clearly shows that that clause was never used and the two sales of chemicals through the years were too petty in themselves to afford evidence of a continued or sustained trading In chemicals.
In our judgment, this was a winding up sale with a view to realising the capital assets of the assessee 973 Company and not a sale in the course of business operations, which alone would had attracted tax, if profit resulted.
In the result, the appeal fails and is dismissed with costs.
Appeal dismissed.

summary:
The respondent company was incorporated in 1937 primarily with the object of acquiring and working a match factory.
Under the memorandum of association the company was also empowered, inter alia, to manufacture and deal in chemicals.
The business of manufacturing matches was carried on by the company till 1941.
Thereafter the profits became less and less due to war conditions.
On May 9, 1943, the company entered into an agreement with a third party for the sale of the lands, buildings, plant and machinery of its match factory for Rs. 5,75,000.
It was agreed that this price would not include manufactured goods, chemicals and other jaw materials or any other asset not shown in the agreement of sale.
Later, a fresh agreement was entered into on August 9, 1943, under which the sale included chemicals and paper for manufacture which had not been sold in the first instance and the price was Rs. 7,35,000.
In a report to the shareholders dated August 1, 1944, the Directors stated that the price obtained had shown a capital appreciation of about six times the cost price and that the sale of chemicals had resulted in ' substantial profit.
In proceedings for assessing income which had escaped assessment the income tax authorities, relying upon the memorandum of association which allowed the 961 company to manufacture and sell chemicals and on the Directors ' report, held that the profit from the sale of the chemicals and other raw materials was liable to income tax on a profit of Rs. 2,00,000 which was reduced later to Rs. 1, 15,259.
The company claimed that the stock of raw materials was sold not in the course of ordinary trading but only in a realisation sale after the company had been wound up.
The evidence showed that the clause in the memorandum of association giving power to the company to sell chemicals was seldom used and that prior to the sale of chemicals to the purchaser, two transactions of sale of chemicals for small amounts in 1943 were too petty in themselves to afford evidence of trading in chemicals.
Held, that though under the second agreement dated August 9, 1943, more price was paid, the transaction was still a winding up sale and no part of this slump price was identifiable as the price of the chemicals and other raw materials.
There was no evidence that before the winding up the company had sold chemicals as part of its business, and the two instances cited were too petty in themselves to afford evidence of a continued or sustained trading in chemicals.
A winding up sale is not "trading or doing business" and the sale of the raw materials including the chemicals was not part of any business done.
Accordingly, the sum of Rs. 1,15,259 was not liable to tax.
Doughty v Commissioner of Taxes, (1927) A. C. 327, di. ',Cussed and relied on.
Case law reviewed.