judgement:
Appeals Nos. 436 to 438 of 1961.
Appeals by special leave from the judgment and order dated December 9, 1959, of the Punjab 886 High Court in Letters Patent Appeals Nos. 407, 408 and 409 of 1959.
Achhru Ram and B. D. Jain, for the appellants.
Gian Singh Vohra, for the respondents.
October 4.
The Judgement of the Court was delivered by GAJENDRAGADKAR, J.
What is the effect of the retrospective operation of section 31 introduced by the Punjab Pre emption (Amendment) Act, 1960 (X of 1960) in the parent Act of Pre emption (No. 1 of 1913).
That is the short question which arises for our decision in these three appeals which have been ordered to be consolidated for the purpose of hearing by this Court.
These appeals arise from three pre emption suits instituted by the respondents against the respective appellants.
The respondents ' case was that the properties in suit had been sold by Aftab Rai on May 31, 1956, for Rs. 10,000/ to the appellants and it is these sales which they wanted to preempt.
They alleged that they are the owners of agricultural land in Patti Aulakli and Patti Rode, in Mauza Marahar Kalan, and as such, they had the statutory right to claim pre emption, under section 15(c) (ii) and (iii).
The appellants resisted this claim on the ground that the respective vendees from Aftab Rai had transferred by exchanges about 2 kenals out of the lands purchased by them and as a result of the said exchanges the appellants had themselves become entitled to preempt the said sales under the same statutory provision.
Since the appellants had acquired equal status with the respondents who claimed to be the preemptors, their claim for pre emption cannot be sustained.
That, in brief, was the nature of the contest between the parties.
887 The trial Court held that the exchanges on which the appellants relied bad not been proved and so, it gave effect to the respondents ' right to preempt under section 15(c) (ii) & (iii).
The appellants took the matter before the Addl.
District Judge in appeal.
The lower appellate Court was pleased to admit additional evidence under 0.41, r. 27, of the Code of Civil Procedure and held that the exchanges in question had in fact been proved and were, in law, valid.
It, therefore came to the conclusion that the appellants acquired equal status with the respondents and so, the respondents ' claim for pre emption must fail.
That is why the appeals preferred by the appellants were allowed and the respondents ' suits were dismissed.
The dispute was then taken up before the High Court of Panjab by the respondents by second appeals.
Mahajan, J., who heard these appeals held that the property acquired by exchange in lieu of the part of the property purchased by the vendees did not give the appellants a right to preempt.
He referred to the fact that exchange of lands was sometimes recognised as conferring on the party the right to preempt, but that was where the land exchanged did not form part of the land sold and preempted.
In the result, the High Court held that the plea made by the appellants was not well founded in law and so, the respondents were entitled to pre empt.
As a result of this finding, the decrees passed by the lower appellate Court were reversed and the respondents ' suits were decreed.
The appellants then moved the Division Bench by Letters Patent appeals, but these appeals were dismissed.
It is against the decrees thus passed by the Division Bench in Letters Patent appeals that the appellants have come to this Court by special leave.
We have already noticed that both the appellants and the respondents are claiming a right to 888 preempt under section 15(c) (ii) and (iii) of the Parent Act of 1913.
On February 4, 1960, the amending Act No. 10 of J960 was passed.
Section 4 of the amending Act has substituted anew s.15 of the old s.15 after making substantial changes in the provisionsof the earlier section.
Clauses (ii) and (iii) of theoriginal s.15(c) have been deleted, with the result that the claims for preemption made both by the appellants and the respondents have ceased to be recognised by the amended provisions.
The appellants contend that since the respondents have got a decree for pre emption in their favour on the provisions of the unamended s.15, that decree can no longer be sustained because of the provisions of s.31 of the amending Act.
Section 31 provides that no Court shall pass a decree in a suit for pre emption whether instituted before or after the commencement of the Punjab Pre emption (Amendment) Act, 1959(1960) which is inconsistent with the provisions of the said Act.
In support of his argument that s.31 being retrospective in operation the respondents ' title to claim pre emption can no longer be entertained.
Mr. Achhru Ram for the appellants has invited our attention to a recent decision of this Court in the case of Ram Sarup vs Munshi (1) pronounced on August 30, 1962.
In that case, Ayyangar, J., who spoke for the Constitution Bench considered the question about the retrospective operation of section 31 and has observed that the said provision is retrospective and that the language used in the said section is "plain the comprehensive so as to require an appellate Court to give effect to the substantive provisions of the amending Act whether the appeal before it is one against a decree granting preemption or one refusing that relief," It was no doubt urged before the Court in that case that the words used in section 31 did (1) ; 889 not justify the application of the amended provisions to proceedings pending before the appellate Court; them said words showed that the said provisions could be invoked only in cases which were pending before the trial Court.
This contention was rejected and so, it must be taken to be settled that the provisions of section 31 are retrospective and can be relied upon by the appellants in their present appeals before this Court.
This position would undoubtedly have helped the appellants but for another complication which has been introduced by the relevant provisions of the amended section 15 enacted by the amending Act.
We have already noticed that some persons whose right to preempt was recognised by the corresponding provisions of the parent Act, have been omitted by the amended section.
The amended section has also introduced another class of persons on whom the right to claim pre emption has been conferred.
These persons are the tenants who hold under tenancy of the vendors the land or property sold or a part thereof.
This class of tenants has been introduced in clauses (a), (b) and (c) of amended section 15.
Clause four of section 15(1) (c) provides that the right of pre emption in respect of agricultural land and village immovable property shall vest in the tenants who hold under tenancy of the vendors or any one of them the land or property sold or a part thereof.
Similar provisions are made in clauses (a) & (b) of the said section.
For the respondents Mr. Vohra contends that they are the tenants who hold under tenancy of the vendor the lands in question and as such, they are now clothed with the right to claim pre emption.
In other words, the respondents argument is that though the right to preempt which they possessed under clauses (ii) and (iii) of the unmended section 15(c) of the parent Act have been taken ,way retrospectively by the amending Act, they have been clothed with the same right by virtue of 890 the fact that they fall under the fourth clause of the amended s, 15 (1) (c) and the conferment of this right like the destruction of their right under the deleted provisions of the unamended section must operate retrospectively.
He, therefore, suggests that the respondents ought to be given an opportunity to prove their case under the fourth clause of section 15(c) as amended.
In this connection, he has referred us to the fact that this plea has been specifically taken by the respondents in their statement of the case before this Court.
It is on this plea that the question about the effect of the retrospective operation of section 31 arises.
Mr. Achhru Ram contends that though section 31 is retrospective and in that sense the rights to preempt which vested in the respondents at the time when they instituted the present suits have been retrospectively taken away from them, it cannot be said that the right to preempt to which the respondents lay claim in the present appeals has been retrospectively created.
His argument is that by the amending Act, the Legislature has no doubt provided that certain classes of persons who were entitled to preempt under the old Act should not be given that right and the extinction of the said right should operate retrospectively, but that cannot be said to be the policy of the legislature in regard to the rights which have been created for the first time by the amending Act.
The argument thus presented may prima facie appear to be attractive; but a close examination of the words used in section 31 shows that it is not well founded.
Section 31, in substance, requires the appellate Court to pass a decree in a preemption matter which is not inconsistent with the provisions of the amending Act.
In the present appeals, if we were to uphold the respondents ' right to claim preemption on the strength of the provisions of section 15(c) 891 as they stood prior to the amendment, that would be inconsistent with the provisions of the amending Act, and so, the change made by the amending Act has to be given effect to and the right which once vested in the respondents must be deemed to have been retrospectively taken away from them.
On this point there is no dispute.
Would it make any difference in the legal position when we are dealing with rights which are created for the first time by the amending Act on the date when this Court will pass a decree in the present appeals? If the rights created in favour of the tenants are not recognised and a decree is passed ignoring the said rights, that decree would be inconsistent with the relevant provisions of the amending Act, and section 31 has clearly enjoined that no Court shall pass a decree which is inconsistent with the provisions of the amending Act.
The position, therefore, appears to be clear that when a decree is passed in a preemption matter pending before the appellate Court, that Court must refuse to recognise the right to preempt which was recognised by the unamended Act but has been dropped by the amending Act just as much as it must recognise rights which were not recognised by the unamended Act but have been created by the amending Act.
The retrospective operation of s.31 necessarily involves effect being given to the substantive provisions of section 15 retrospectively and that will apply as much to the extinction of the old rights as to the creation of new ones.
The retrospective operation of section 15 which is consequential on the retrospective operation of s.31 is not affected by the fact that the right of preemption prescribed by section 15 if; referred to as a right which shall vest in the persons specified in subsections (a), (b) and (c) of section 15(1).
It is, however, urged that the law of preemption requires that the preemptor must possess the right to preempt at the date of the sale, at the 892 date of the suit and at the date of the decree.
This position cannot be disputed.
But when it is suggested that the respondents cannot claim that they had the right when they brought the present suit or when the sales were effected, the argument ignores the true effect of the retrospective operation of section 31 and section 15.
If the inevitable consequence of the retrospective operation of s.31 is to make the substantive provisions of section 15 also retrospective, it follows that by fiction introduced by the retrospective operation, the rights which the respondents claim under the amended provisions of section 15 must be deemed to have vested in them at the relevant time.
If the relevant provisions are made retrospective by the legislature, the retrospective operation must be given full effect to, and that meets the argument that the right to preempt did not exist in the respondents at the time when the sale transactions in question took place.
Therefore, we are satisfied that the respondents are entitled to claim that they should be given an opportunity to prove their case that as tenants of the lands in suit they have a right to claim preemption.
Incidentally, when the respondents filed the present suits, they had a right to preempt under the relevant provisions of the Act as they stood at that time; by the amendment, that right has been taken away, but instead they claim another right by virtue of their status as tenants of the lands, and this right is, by the retrospective operation of section 31, available to them.
We must accordingly set aside the decrees passed by the High Court and send the matters back to the trial Court with a direction that it should allow the respondents an opportunity to amend their claims by putting forth their right to ask for preemption as tenants under the amended provision of 8. 15.
After the amendments are thus made, the appellants should be given an opportunity 893 to file their written statements and then appropriate issues should be framed and the suits tried and disposed of in the light of the findings on those issues in accordance with law.
Under the unusual circumstances in which the litigation has thus secured a further lease of life, we direct that the costs incurred so far should be borne by the parties.

summary:
The properties in suit had been sold by A to the appellants on May 31; 1956, but the respondents, as the owners of certain agricultural land in the patti claimed that they had a right of preemption under section 15 (c) (ii) and (iii) of the Punjab Preemption Act, 1913.
In the suit instituted by the respondents for this purpose the appellants resisted the claim on the ground that the vendees from A had transferred by exchanges some of the items out of the lands purchased by them and that as a result of the said exchanges the appellants themselves had become entitled to preempt the said sales under the same statutory provision.
The suit was, however, decreed by the trial court and the decision was confirmed by the High Court of Punjab.
The appellants obtained special leave to appeal to the Supreme Court and during the pendency of 885 the appeal the Act was amended by Punjab Act 10 of 1960, by which, inter alia, (1) cls.
(ii) and (iii) of section 15 (c) of the original Act were deleted, (2) cl.4 of section 15 (1)(c) provided that the right of preemption in respect of agricultural land and village immoveable property shall vest in the tenants who held under tenancy of the vendors or anyone of them the land or property sold or a part thereof, and (3) section 31 provided that no court shall pass a decree in a suit for preemption whether instituted before or after the commencement of the amending Act of 1960 which was inconsistent with the provisions of the said Act.
In view of the new provisions introduced by the amending act the respondents raised a new contention that they were tenants who held under tenancy of the vendor of the lands in question and, as such, they were entitled to the right of preemption under cl.4 of s.15 (1)(c) of the Act, as amended, even if it be held that the right to claim pre emption under cls.
(ii) and (iii) of s.15 (c) of the unmended Act was taken away retrospectively by the amending Act.
The appellants pleaded that even assuming that cl.4 of s.15 (1)(c) was applicable, the respondents could not get a decree on the bassis of the new right of pre emption inasmuch as they had no such right on the date on which the suit was filed or when the sales were effected.
Held, that (1 the provisions of s.31 of the Punjab Pre emption Act, 1913, as amended by Punjab Act 10 of 1960, are retrospective in operation and, therefore, the decree passed in favour of the respondents by the trial court and affirmed by the High Court under the unmended section could not be sustained.
Ram Sarup V.Munshi [1963] 3 S.C.R. 858 followed.
(2) The retrospective operation of s.31 necessarily involves effect being given to the substantive provisions of amended s.15 retrospectively, and hence the rights which the respondents now claim under the amended provisions must be deemed to have vested in them at the relevant time, with the result that they are entitled, on remand, to ask for a decree passed on the basis of the said rights,


judgement:
iminal Appeal No. 12 of 1961.
Appeal from the judgment and order dated April 26 1960, of the Madhya Pradesh High Court Jabalpur in Criminal Appeal No. 388 of 1958.
B. Sen and I. N. Shroff, for the appellant.
The respondent did not appear.
September 28.
The Judgment of the Court was delivered by GAJENDRAGADKAR, J.
A charge sheet was presented by the appellant the State of Madhya Pradesh against the respondents Peer Mohammad and his wife Mst.
Khatoon under section 14 of the (hereinafter called the Act) read with cl. 7 of the Foreigners Order, 1948 (hereinafter called the Order) in the Court of the Magistrate 1st Class, Burhanpur.
The case against the respondents was that they had entered India on May 13, 1956, on the strength of a Pakistani passport and a visa issued in their favour on.
May 8, 1956, and reached Burhanpur on May 15, 1956.
Even after the period of the 431 visa had expired, they continued to stay in India.
Consequently, the district Magistrate, Burhanpur, served a notice on them on May 14, 1957 calling upon them to leave India on or before May 28, 1957.
The respondents did not comply with the notice and by their unauthorised and illegal over stay in India, they rendered themselves liable under section 14 of the Act and cl. 7 of the Order.
The respondents pleaded that they were not foreigners but were citizens of India.
They were born in India at Burhanpur and had been permanent residents of the said place; and so the present criminal proceedings instituted against them were misconceived.
The prosecution, however, urged that the respondents had left India for Pakistan some time after January 26, 1950, and under article 7 of the Constitution they cannot be deemed to be citizens of India.
In the alternative, it was urged that since the respondents had obtained a Pakistani passport, they have acquired the citizenship of a foreign country and that has terminated their citizenship of India under section 9 of the (LVII of 1955).
It appears that before the learned Magistrate, only this latter plea was pressed and the learned Magistrate held that the question as to whether the respondents had lost their citizenship of India under section 9 (2) of the has to be decided by the Central Government and cannot be agitated in a court of law.
Therefore, the learned Magistrate passed an order under section 249 of the Code of Criminal Procedure, directing that the respondents should be released, and the passport seized from them should be returned to them after the period of appeal, if any.
Against this order, the appellant preferred an appeal in the High Court of Madhya Pradesh, and before the High Court it was urged by the appellant that on a fair and reasonable construction of article 7 432 it should be held that the respondents cannot be deemed to be citizens of India *and so, they were liable under section 14 of the Act and cl. 7 of the Order.
This appeal was heard by Shrivastava and Naik, JJ.
Shrivastava, J., took the view that article 7 did not apply to the case of the respondents who had left India for Pakistan after January 26, 1950, and so, they could not be held to be foreigners on the ground that they had left India as alleged by the prosecution.
Naik,J., however, came to a contrary conclusion.
He took the view that since it was proved that the respondents had left India for Pakistan after January 26, 1950, article 7 was attracted and so, they must be deemed to be foreigners.
Since there was a difference of opinion between the two learned judges who heard the appeal, it was referred to Newaskar.
J. Newaskar, J., agreed with the conclusion of Shrivastava, J., and so, in the light of the majority opinion, it was held that under article 7, the respondents could not be held to be foreigners.
In regard to the alternative case of the prosecution that the respondents had obtained a Pakistani passport and so, had lost their citizenship under section 9(2) of the , the High Court held that it was a matter which had to be determined by the Central Government and it is only after the Central Government decides the matter against the respondents that the appellant can proceed to expel them from India.
It, however, appears that the High Court read the order passed by the trial Magistrate as amounting to an order of acquittal, and so, quashed the said order with liberty to the appellant to institute fresh proceedings against the respondents if and when considered necessary by it.
In fact, as we have already mentioned, the order passed by the trial Court was one under section 249 Cr.
It is.
against this decision of the High Court that the appellant has come to this Court with a certificate granted by the High Court.
At this stage, we may add that there were eleven 433 other cases of a similar nature which were tried by the Magistrate along with the present case and considered by the High Court at the appellate stage.
Appeals against the companion matters are pending before this Court, but their fate will be decided by our decision in the present appeal.
Section 14 of the Act provides, inter alia, that if any person contravenes the provisions of this Act or of any order made thereunder, he shall be punished in the manner prescribed by the section.
Clause 7 of the Order issued under the said Act prescribes that every foreigner who enters India on the authority of a visa issued in pursuance of the Indian Passport Act, 1920 shall obtain from the Registration Officer, specified therein, a permit indicating the period during which he is authorised to remain in India and shall, unless the period indicated in the permit is extended by the Central Government, depart from India before the expiry of the said period.
The prosecution case is that the respondents having entered India with a visa have overstayed in India after the expiration of the visa and the period indicated in the permit and so, they are liable to be punished under section 14 of the Act and cl. 7 of the Order.
It would be noticed that in order that the respondents should be liable under the said provisions, it must be shown that when they entered India, they were foreigners.
In other words, cl. 7 of the order applies to every foreigner who enters India in the manner therein indicated ; and that raises the question as to whether the respondents were foreigners when they entered India.
The prosecution contends that the respondents were foreigners at the relevant date on two grounds.
It is urged that they left India for Pakistan after January 26, 1950, and so, under article 7 they cannot be deemed to be citizens of India at the relevant time.
The alternative ground is that they have acquired a passport from the Pakistan 434 Government and as such they lost the citizenship of this country under section 9(2) of the citizenship Act.
It is common ground that the latter question has to be decided by the Central Government, and so, this J. Court is not concerned with it.
The only question which falls for our decision, therefore, is: can the respondents be said to be foreigners at the relevant date under article 7, because they left India for Pakistan after January 26, 1950 ? The answer to this question would depend on the construction of article 7.
In construing article 7, it would be necessary to examine briefly the scheme of the seven Articles that occur in Part 11.
These Articles deal with the question of citizenship.
Article 5 provides that at the commencement of the constitution, every person who has his domicile in the territory of India and who satisfies one or the other of the three tests prescribed by cls.
(a), (b) and (c), shall be a citizen of India.
Article 6 deals with persons who have migrated to the territory of India from Pakistan and it provides that they shall be deemed to be citizens of India at the commencement of the Constitution if they satisfy the requirements of clauses (a) & (b).
In other words, article 6 extends the right of citizenship to persons who would not satisfy the test of article 5, and so, persons who would be entitled to be treated as citizens of India at the commencement of the Constitution are covered by articles 5 and 6.
Article 7 with which we are concerned provides that notwithstanding anything in articles 5 and 6, a person who has after March 1, 1947, migrated from the territory of India to the territory now included in Pakistan shall not be deemed to be a citizen of India.
The proviso deals with persons who having migrated to Pakistan have returned to the territory of India under a permit for resettlement or permanent return, but with that class of persons we are not concerned in the present appeal.
Article 8 deals with the 435 rights of citizenship of persons of Indian origin who reside outside India.
Article 9 provides that no person shall be a citizen of India by virtue of articles 5, 6 or 8, if he has voluntarily acquired the citizenship of any foreign State.
Articles 10 and 11 then lay down that the rights of citizenship prescribed by articles 5 and 6 shall be subject to the provisions of any law that may be made by Parliament; that is to say, the said rights will continue unless they are otherwise affected by any law made by Parliament in that behalf.
Article 11 makes it clear that the provisions of Part 11 Will Dot derogate from the power of Parliament to make any provision with respect to the acquisition and termination of ' citizenship and all other matters relating to citizenship.
That, in brief, is the scheme of Part 11.
It is urged by Mr. Sen on behalf of the appellant that where the Constitution wanted to limit the scope of the Article by reference to the date of the commencement of the Constitution, it has used appropriate words in that behalf, and in that connection, he relies on the use of the words "at the commencement of the Constitution" which occur in articles 5 and 6.
Article 7 does not include such a clause, and so, the migration from the territory of India to the territory included in Pakistan to which it refers should not be construed to be limited to the migration prior to the commencement of the Constitution.
Just as a person who has migrated to Pakistan from India prior to January 26, 1950 shall not be deemed to be a citizen of India by virtue of such migration, so should a person who has migrated from India to Pakistan even after the commencement of the Constitution be denied the right of citizenship.
That is the appellant 's case and it Is based substantially on the ground that the clause "at the commencement of the Constitution" is not used by 436 This argument, however, cannot be accepted because it is plainly inconsistent with the material words used in the Article.
It will be noticed that a person who shall not be deemed to be a citizen of India is one "who has, after the first day of March, 1947, migrated from the territory of India to the territory of Pakistan.
" It is true that migration after January 26, 1950, would be migration after March 1, 1947, but it is clear that a person who has migrated after January 26, 1950, cannot fall within the relevant clause because the requirement of the clause is that he must have migrated at the date when the Constitution came into force. "Has migrated" in the context cannot possibly include cases of persons who would migrate after the commencement of the Constitution.
It is thus clear that it is only persons who had migrated prior to the commencement of the Constitution that fall within the scope of article 7.
The use of the present perfect tense is decisive against the appellant 's contention and so, the absence of the words on which Mr. Sen relies has no significance.
Besides, as the article is worded, the use of the said words would have been inappropriate and having regard to the use of the present perfect tense, such words were wholly unnecessary.
The proviso to article 7 which deals with cases of persons who having migrated to Pakistan have returned to India under a permit for resettlement, also supports the same conclusion.
The migration there referred to appears to be migration prior to the commencement of the Constitution.
It is relevant to refer to article 9 in this connection.
This Article deals with cases of persons who have voluntarily acquired the citizenship of any foreign State and it provides that such persons shall not be deemed to be citizens of India by virtue of articles 5, 6 or 8.
Now, it is clear that the acquisition of the citizenship of any foreign State to which this Article refers is acquisition made prior to the commencement, 437 of the Constitution. "Has voluntarily acquired" can have no other meaning, and so, there is no doubt that the application of article 9 is confined to the case of acquisition of citizenship of foreign State prior to the commencement of the Constitution.
In other words, the scope and effect of article 9 is, in a sense, comparable to the scope and effect of article 7.
Migration to Pakistan which is the basis of article 7 like the acquisition of citizenship of any foreign State which is the basis of article 9, must have taken place before the commencement of the Constitution.
It will be noticed that migration from Pakistan to India as well as migration from India to Pakistan which are the subject matters of articles 6 and 7 deal with migrations prior to the commencement of the Constitution.
The Constitution makers thought it necessary to make these special provisions, because migrations both ways took place on a very wide scale prior to January 26, 1950, on account of the partition of the country.
Migrations to Pakistan which took place after January 26, 1950, are not specially provided for.
They fall to be considered and decided under the provisions of the ; and as we will presently point out, citizens migrating to Pakistan after the said date would lose their Indian citizenship if their cases fall under the relevant provisions of the said Act.
It is true that as article 7 begins with a non obstante clause by reference to articles 5 & 6, and there is a little overlapping.
The non obstante clause may not serve any purpose in regard to cases falling under article 5 (c), but such overlapping does not mean that there is any inconsistency between the two Articles and it can, therefore, have no effect on the construction of article 7 itself.
Therefore, we are satisfied that article 7 refers to migration which has taken place between March 1, 1947, and January 26, 1950.
That being so, it cannot be held that the respondents fall within article 7 by virtue of the fact that they migrated from India to Pakistan some time after 438 January 26, 1950, and should, therefore, be deemed not to be citizens of India.
In this connection, it is necessary to add that cases of Indian citizens acquiring the citizenship of any foreign State are dealt with by article 9, and the relevant provisions of the .
If the foreign citizenship has been acquired before January 26, 1950, article 9 applies; if foreign citizenship has been acquired subsequent to January 26, 1950, and before the came into force, and thereafter, that is covered by the provisions of the , vide Izhar Ahmed Khan vs Union of India(1).
It is well known that the has been passed by the Parliament by virtue of the powers conferred and recognised by articles 10 and 11 of the Constitution and its relevant provisions deal with the acquisition of citizenship of India as well as termination of the said citizenship.
Citizenship of India can be terminated either by renunciation under section 8, or by naturalisation, registration or voluntary acquisition of foreign citizenship in any other manner, under section 9, or by deprivation under section IO.
The question about the citizenship of persons migrating to Pakistan from India after January 26, 1950, will have to be determined under these provisions of the .
If a dispute arises as to whether an Indian citizen has acquired the citizenship of another country it has to be determined by such authority and in such a manner and having regard to such rules of evidence as may be prescribed in that behalf That is the effect of section 9(2).
It may be added that the rules prescribed in that behalf have made the Central Government or its delegate the appropriate authority to deal with this question, and that means this particular question cannot be tried in courts.
The result is that the respondents cannot be said to be foreigners by virtue of their migration to Pakistan after January 26, 1950, and that is the only question (1) [1962] Supp.
2 S.C.R. 235. 439 which can be tried in courts.
If the State contends that the respondents have lost their citizenship of India under section 9 (2) of the , it is open to the appellant to move the Central Government to consider and determine the matter, and if the decision of the Central Government goes against the respondents, it may be competent to the appellant to take appropriate action against the respondents.
So far as the appellant 's case against the respondents under article 7 is concerned, the High Court was right in holding that the respondents were not foreigners within the meaning of cl. 7 of the Order and cannot, therefore, be prosecuted under section 14 of the Act.
The appeal accordingly fails and is dismissed.
Appeal dismissed.

dataset_name: IN-Abs

summary:
The respondents who were citizens of India left India for Pakistan sometime after January 26, 1950.
They returned to India in 1956 on the strength of a Pakistani passport and visa.
They continued to stay in India even after the period of the visa had expired and were prosecuted under section 14 , read with cl. 7 Foreigner 's Order, 1948, for unauthorised and illegal overstay in India.
The High Court acquitted them holding that they had not become foreigners on.account of their leaving India after January 26, 1950, and the question whether they had lost their Indian citizenship on account of acquisition of Pakistani citizenship could not be agitated before a court of law.
The appellant contended that in view of article 7 of the Constitution the respondents could 430 not be deemed to be citizens of India as they had migrated to Pakistan after March 1, 1947, within the meaning of article 7.
Held, that article 7 was applicable only to persons who had migrated to Pakistan between March 1, 1947, and January 26, 1950, and under this Article the respondents had not ceased to be citizens of India.
The words "has migrated" in article 7 could not include cases of persons who would migrate after the commencement of the Constitution, they refer only to persons who had migrated at the date when the Constitution came into force.
The absence of the words "at the commencement of the Constitution" in article 7 has no significance.
Cases of acquisition of foreign citizenship after January 26, 1950, were covered by the provisions of the , and of the rules made thereunder.
The Central Government or its delegate was the appropriate authority to deal with such questions and they could not be tried in courts.
Izhar Ahmad Khan vs Union of India, referred to.


judgement:
Appeal No. 545 of 1961.
Appeal from the judgment and order dated October 23, 1958, of the Bombay High Court in Income tax Reference No. 23 of 1958.
K. N. Rajagopal Sastri and R. N. Sachthey, for the appellant.
Purushottam Trikamdas, section N. Andley, Rameshwar Nath and P. L. Vohra, for the respondent.
611 1962.
October 12.
The following judgments were delivered.
The judgment of Kapur and Hidayatullah, jj. was delivered by Hidayatullah, J., Sarkar, J., delivered a separate judgment.
HIDAYATULLAH J. This is an appeal by the Commissioner of Income tax, Bombay., against the judgment and order of the High Court of Bombay dated October 23, 1958, by which the High Court answered two questions referred to it under section 66 (2) of the Income tax Act in favour of the respondent jadavji Narsidas & Co. The High Court certified this case as fit for appeal to the Supreme Court and hence this appeal.
The facts are simple.
The year of account is the section Y. 2001 corresponding to October 10, 1944, to November 4, 1945, and the assessment year is 1946 47.
The respondent is a firm consisting of four partners and was registered under section 26A of the Income tax Act for the relevant year.
The assessee firm carries on business which is mainly speculation.
In the year of account it claimed inter alia a loss of Rs. 1,05,641 which it was said, arose in speculation in a venture of the assessee firm with one Damji Laxmidas.
This venture was carried on in the name of Damji Laxmidas on behalf of an alleged firm in which Damji was said to have a share of /6/ and the assessee firm the balance.
A deed of partnership dated November 14, 1944, was also produced before the Income tax Officer.
The sum of Rs. 1,05,641 represented half the losses of the joint venture, the other half being claimed by Damji in his own individual assess ment.
The so called firm of Damji Laxmidas and the assessee firm was an unregistered one.
The Income tax Officer.
, Bombay, disallowed these losses and added back this amount along with some others to convert a loss of Rs. 55,931 declared by the assessee firm into a profit of Rs. 1,88,575.
This profit was carried by him in accordance with the share of the partners into their individual assessment.
612 In the assessment of Damji, it may be stated here, the loss was not allowed on the ground that having arisen in an unregistered partnership, it could only be considered in the assessment of the unregistered partnership.
In rejecting the evidence of the loss of Rs. 1,05,641 in the assessment of the assessee firm the Income tax Officer gave three reasons (i) that the ankdas were in the name of Damji Laxmidas and not in the name of the unregistered firm or the assessee firm, (ii) that the assessee firm claimed only 18/ of the losses and riot /10/ according to its share and (iii) that the assessee firm which was a well known firm doing extensive business was said, surprisingly enough, to have entered into a partnership wit an insignificant person like Damji Laxmidas to carry on this vast business.
He held that the assessee firm had purchased these losses from Damji Laxmandas to be able to set them off against its profits to avoid tax.
The Appellate Assistant Commissioner dismissed the appeal filed by the assessee firm and so also the Appellate Tribunal.
The two members of the Appellate Tribunal gave different reasons.
The judicial Member (Mr. A. R. Aggarwal) observed: "So far as the last item No. (3) is concerned we are not satisfied that really the loss of Rs. 1,05,641/ was the loss of the assessee.
It is admitted by the assessee that the ankdas are in the name of Damji Laxmidas.
By no evi dence we are satisfied (sic) that really the assessee did business in the joint account.
Consequently, this claim of the assessee is disallowed.
" The Accountant Member (Mr. P. C. Malhotra) observed : "I agree with my learned brother in the order which he has passed.
I would, however, like to add a few words.
It is not even the assessee 's case that loss of Rs. 1,05,641/ was suffered by it.
613 According to the assessee it did some joint venture transactions with Damji Laxmidas.
Damji Laxmidas came in appeal to the Tribunal in respect of his share of the loss.
It was held that the loss arising to a person in a joint venture cannot be allowed in his personal assessment as the loss is suffered by an unregistered partnership.
It can only be carried forward in the account of the unregistered firm.
" The assessee firm applied to the Tribunal asking that a case be stated to the High Court but failed.
The assessee firm then moved the High Court under section 66 (2) of the Income tax Act and under the High Court 's direction the Tribunal stated a case on the following questions "(1) Whether there was any legal, admissible evidence to justify the Tribunal 's finding that the transaction in question was not the transaction of the assessee.
(2) If not, whether the assessee can claim the set off of such loss although it is the loss of an unregistered partnership.
" The first question arises out of the observations of the judicial Member and the second question from those of the Accountant Member.
The High Court answered both the questions against the Department.
It held that there was no legal admissible evidence to justify the finding that the transactions in question were not those of the assessee firm and further that the assessee firm could claim a set off in respect of the share of loss in the unregistered firm "if the Income tax Authorities do not proceed to determine the losses of the unregistered firm and do not bring it to tax as permitted by section 23(5)(b).
" On the first question the appellant argues that the High Court has decided the case as an Appeal 614 Court which it was not entitled to do.
This is not a true representation of what the High Court did.
Whenever the question propounded is whether there is any material on which a finding can be given the discussion savors of an appellate approach but it is not so.
The High Court noticed that the Tribunal had picked up only one reason from the order of the Income tax Officer and held that the assessee firm had " 'purchased losses" from Damji Laxmidas but said nothing about the other reasons which had influenced the Income tax Officer.
The High Court, however, examined all the reasons given by the Income tax Officer and reached the conclusion that there was no evidence to justify the finding which had been given in the case.
Before examining the evidence ourselves to see which conclusion is justified, we wish to make a few general observations.
In a reference under section 66, a finding given by the Tribunal is considered final and the High Court accepts it without examination of the material.
The High Court does not hear an appeal but answers certain questions of law in the light of the facts proved.
If a finding is final in this way, one does expect that the reasons for reaching it will at least be stated with sufficient fullness to inform all concerned what they were.
Even if the reasons given by an inferior Tribunal are not restated, at least a general approval of them, or such of them as are acceptable, should appear.
In the present case, all that is stated is "It is admitted by the assessee that the ankdas are in the name of Damji Laxmidas.
By no evidence we are satisfied (sic) that really the assessee did business in the joint account.
" This, by itself, is hardly a fair disposal of the question whether the assessee firm did business in a joint account with one Damji Laxmidas.
The solitary ground for rejecting the claim is too indefinite to 615 warrant this conclusion.
It is contended that we should take into account also the reasons given by the Income tax Officer which were before the Income tax Tribunal and which have also been mentioned in the statement of the case.
The High Court did so and we allowed those reasons to be brought before us.
We would, however, have preferred if the order of the Tribunal in the appeal filed by the assessee firm had even briefly expressed their approval of those reasons and not left them to be mentioned in the statement of the case.
The question, then, is whether there was evidence to justify the Tribunal 's finding that the transactions with Damji Laxmidas were not the transactions of the assessee firm.
In such an inquiry the Court looks not to the sufficiency of the evidence but whether any evidence exists at all.
Even if there be slight evidence which was believed by the Tribunal and on which the conclusion can be rested, such question must be answered in the affirmative.
But the finding must not proceed upon conjecture, suspicion or surmise.
If there is not a scintilla of evidence, the finding cannot be sustained because the proved facts would not then support the inference.
In this connection, the Income tax Officer gave three reasons.
The most important of which being the ankdas were in the name of Damji.
According to the deed of partnership, which has been produced in the case, the four partners of the assessee firm and Damji had entered into a partner ship to do business together, specifying the shares of the partners of the assessee firm which shares inter se are in the same proportion as their interest in the assessee firm.
The new firm was not given a trade name.
This is no doubt an unusual feature.
But if no name was given then business could be carried can only in the name or names of one or more partners.
That Damji 's name was chosen, and not any other, does not lead to the inference that business was not done, If Damji 's 616 name was used then it is reasonably clear that the ankdas would be in his name and that is how the matter stood.
The next reason is that the losses were claimed on the basis of half and half by the assessee firm and Damji, in their respective assessments contrary to the proportion of /10/ and /6/ as in the deed.
What ever may be said of the losses claimed by Damji which were in excess of the agreed share the same cannot be said of the assessee firm which is claiming a share of losses which is less than the a greed rate.
But sometimes additional responsibility is shouldered by a partner because of some action taken by him not meeting with the approval of the others.
Often enough the shares are readjusted by agreement.
There may be many reasons why the loss claimed by the assessee firm was less than what it could have really claimed but this hardly leads to the inference that no business was done.
This circumstance also does not lead to the inference which has been drawn from it.
The third reason is that it is unlikely that the partners of a big firm like the assessee firm would enter into an agreement with a comparatively small ' man for doing such vast business.
It is pointed out that Damji had at no time paid Income tax in excess of Rs,.
1,300.
The accounts of the new partnership have been exhibited in the case.
They show a long course of business.
The total business done was to the tune of Rs. 9 lacs odd.
As speculative business is made up, almost always, of either loss or profit we should also look to the extent of the profits made and not merely the losses.
In this case, but 'for one or two transactions which miscarried, Damji would have made a huge profit.
It is possible that he was chosen as a partner In view of his acumen in these matters rather than his ability to finance the projects.
This is not to say that buying of losses ' is not common or that men of straw are not taken on as partners to give up 617 their losses to equalise profits elsewhere.
The fact remains, as pointed out by the High Court, that losses can only be bought if they have been incurred and in the present case there is a long course of business which at certain stages was profitable though ultimately it showed a loss.
it is impossible to say in this case that the assessee firm took over losses without actually having done business in company with Damji.
There is no foundation, whatever, for the inference that the losses were purchased by the assessee firm from Damji whether we take the reasons given by the Income tax Officer individually or collectively.
We are of the opinion that the High Court did not exceed its powers in examining the evidence in support of the inference of the Income tax Officer that no business was done in company with Damji but the assessee firm took over some of his losses.
The answer of the High Court to the first question is therefore upheld.
This brings us to the second question and it is whether the assessee firm can set off the loss of Rs. 1,05,641 against its other profits from its other business? The High Court has held that it can do so.
In our opinion, and we say it with great respect, the High Court was in error in reaching this conclusion.
To begin with the assessee firm as a firm could not enter into a partnership with Damji.
Damji could be admitted into the assessee firm or the members of the assessee firm could enter into a partnership with Damji in their individual capacity.
The assessee firm however could not do so as a firm.
This was held by this Court in Dulichand vs Commissioner of Income tax(1).
There was thus a partnership between Damji and the four members of the assessee firm acting for themselves and indeed the deed which has been produced in this case shows as much.
In the affairs of the unregistered firm, the assessee firm had no locus standi.
There were thus two distinct (1) 618 partnerships.
One was the assessee firm which was registered COnsisting of four partners and the second was an unregistered firm consisting of five partners of whom the fifth was Damji.
The provisions which bear upon the question are many and need not be set out at length.
The gist of the relevant sections will be stated by us in this judgment.
Under section 24(1) an assessee sustaining a loss of profits 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.
From April 1, 1953, loss sustained in speculative transactions can only be set off against profits arising in the same kind of business.
In the present case, both the profits of the assessee firm and the loss in the transactions with Damji arose out of speculation and no difficulty arises.
By assessee in the section is meant the person by whom tax is paid and in every instance it is necessary to find out who that assessee is.
In this case the assessee is a registered firm of four partners and these partners did business resulting in profits as members of the assessee firm and also as members of another unregistered firm which led to a loss.
Now the 'assessment of firms is done differently accordingly as they are registered or unregistered.
Section 23 (5) states that when the assessee is a firm the total income of the firm must be assessed but if the firm is a registered firm the tax payable by the firm is not to be determined but the total income is to be carried to the assessment of the partners in accordance with their shares and the profits or losses, as the case may be, must be assessed as part of their other income.
But when the assessee is an unregis tered firm, the assessment is of the firm itself unless the Income tax Officer finds that by assessing the unregistered firm as a registered firm more tax is likely to result.
The assessment otherwise is of the unregistered firm and not of the partners in their 619 private assessment.
This is the gist of the rule contained in the fifth sub section of section 23.
There are, however, other provisions which must also be noticed.
The first provision to notice is section 16 (1) (b) which says that when the assessee is a partner of a firm, then whether the firm has made a profit or loss, his share (whether a net profit or a net loss) is to be computed in the stated manner and if his share so computed is a loss, such loss may be set off or carried forward and set off in accordance with the provisions of section 24.
Section 24 then provides for the set off of the loss as well as the carrying forward of the loss.
The second proviso deals with the question of set off in relation to both registered and unregistered firm.
It says that when the assessee is an unregistered firm (not assessed as a registered firm) the loss can only be set off against the income.
, profits and gains of the firm and not those of partners, but if the assessee is a registered firm, the loss which cannot be set off against the income, profits and gains of the firm shall be apportioned among the partners and they alone shall be entitled to have the amount of loss set off under the section.
Shortly stated, the losses incurred by an unregistered firm can be set off only against its own profits while the net losses of a registered firm are apportioned among the shareholders and they alone are entitled to set them off.
Then come the provisions with regard to the carrying forward of the losses under section 24 (2).
Here also there is a difference between registered and unregistered firms.
The difference continues the distinction made by the proviso to sub section
(1) which we have just noticed.
Proviso (c) deals with a registered firm and partners in unregistered firms in the same manner as the proviso to sub section
(1) above analysed.
It says that (a) a registered firm is not entitled to carry forward and set off any loss apportioned between the partners and (b) partners in unregistered firms assessed as such are likewise not entitled to carry forward and set off against their own income losses sustained by the firm.
An unregistered firm assessed as a registered firm comes under (a) above.
What then is the position here ? The unregistered firm has not been assessed.
The assessee firm alone has been assessed and on its own assessment it has shown a profit.
It seeks to set off against its profits a loss of Rs. 1,05,641 which, it is said, was incurred by it in partnership with Damji.
We have shown above that there can be no partnership between the assessee firm and Damji.
There was however a partnership between Damji and the four partners of the assessee firm in their individual capacity .
Now under section 24 (1) 2nd Proviso the losses of the unregis tered firm of Damji and these four partners can only be set off against the income, profits and gains of the unregistered firm and not those of its partners.
The loss of Rs. 1,05,641 could be set off against the income, profits and gains (if any) of the unregistered firm of five persons and not of the partners.
In the same manner the loss, if not absorbed, could be carried forward to be set off against further income, profits and gains of the same unregistered firm of five persons.
The High Court was thus in error in holding that those losses could be set off against the income of the assessee firm.
It makes no difference that the Department has not assessed the unregistered firm or taken action under section 23 (5) (b).
What the High Court has ordered just cannot be done as it is against the provisions of section 24.
Whether the partners in their individual assessments would be able to take advantage of section 16 (1) (b) and the decision of the Privy Council in Arunachalam Chettiar vs Income tax Commissioner (1) (a point almost conceded before us), is not a matter on which we need pronounce our opinion.
That question does not arise for our consideration.
The answer of (1) (1936) L. R. 63 I. A. 233.
621 the High Court to the second question is set aside and the question is answered in the negative.
In view of the equal success parties will bear their own costs here and in the High Court.
SARKAR.
, J. The respondent, a firm registered under the Income tax Act, 1922, claimed in its assessment to that tax for the year 1946 47, a set off for a sum of Rs. 1,05,641/ as its share of the loss of another partnership said to exist between it and one Damji Laxmidas and which, for convenience, I will call the bigger partnership.
The Income tax Officer refused to allow the set off on the ground that the existence of the bigger partnership had not been established.
The respondent firm 's appeals, first to the Appellate Commissioner and then to the Appellate Tribunal from the order of the Income tax Officer failed.
Thereafter pursuant to an order obtained by the respondent firm from the High Court of Bombay, two questions were referred by the Tribunal to that Court for decision.
Both these questions were.
answered by the High Court against the Department and the Commissioner of Income tax has thereupon filed the present appeal.
The first of these questions is, "Whether there was any legal admissible evidence to justify the Tribunal 's finding that the transaction in question was not the transaction of the assessee".
Now it has been held by this Court in Dulichand Lakshminarayan vs The Commissioner of Income tax, Nagpur (1) that eta firm as such is not entitled to enter into partnership with another firm or individuals".
The respondent firm, therefore, as a firm could not in law have entered into any partnership with Damji.
It would hence be to no purpose to enquire whether there was evidence to justify the finding that such a partnership existed or in other words, to enquire whether the evidence showed that an agreement of partnership (1)[1956] S.C.R. 154,163.
622 which in law could not be made had in fact been made.
That which the law does not recognise does not for a court of law exist.
I think therefore that the first question does not really arise and no answer to it need be given.
The second question which was referred to the High Court was, "If not, whether the assessee can claim the set off of such loss, although it is the loss of an unregistered partnership." As framed, this question is posed only if the first question is answered in the negative.
As in my view the first question does not arise at all, I will consider this question independently of the first.
The High Court , s answer to this question was that the respondent firm can claim the set off and this answer was based on the assumption that a partnership between a firm and an individual is permissible, an assumption which must be held to be unwarranted in view of the decision in Dulichand 's case.(1) It must be held that no partnership in which the respondent firm as such is a partner, exists.
If the partnership does not exist, the respondent firm cannot have suffered any loss as a partner in it and there is therefore no loss for which it can claim a set off.
The sections of the Act dealing with set off would not justify a set off in such circumstances.
Thus under section 10 an assessee is entitled to set off the loss incurred by him in one business against the profits made by him in another business : see Anglo French Textile Co. Ltd. vs Commissioner of Income tax (2).
It is hardly necessary to point out that in the case of a single business its profits can only be ascertained after its losses have been taken, into account.
If this also is to be called a set off, I suppose it may also be justified under section 10.
It is clear that the set off contemplated by this section is of a loss suffered by the assessee himself.
That is not the position in the present case.
The assessee, the respondent firm, has no interest in the bigger partnership (1) [1956] section C. R. 154, 163.
(2) ,453. 623 and, therefore, no concern with its losses.
Sub section (1) of section 24 also provides for set off by an assessee of a loss suffered by him under one head of income against the profits earned by him under another head.
This section would not assist the respondent firm or the same reason as in the case of. 10 and also because it applies when two heads of income are being considered while in the present case we have only one head of income, namely., business.
The second proviso to sub sec.
(1) of section 24 provides for certain rights of set off in the case of assessment of unregistered and registered firms.
That part of this proviso which deals with an unregistered firm cannot obviously apply to the present case which is one of the assessment of registered firm.
The other part of the proviso dealing with a registered firm would not assist the respondent firm either though it is a registered firm, because the right of set off that it gives is only to the partners of a registered firm and not to the registered firm itself and in the present case we are not concerned with a claim of set off by any partners of the respondent firm.
No other section of the Act dealing with set off has been brought to our notice.
The second question should therefore be answered in the negative.
Strickly speaking, this question also does not arise.
As the bigger partnership does not exist, no question of its being registered or otherwise can arise.
Learned counsel for the respondent firm however contended that the bigger partnership was really between Damji and the partners of the respondent firm.
I will assume that to have been so.
It may be that in such a case the individual partners of the respondent firm in their respective assessments may claim a set off of their shares of the loss of the bigger partnership but with such assessments of individual partners this case is not concerned.
The question here is whether the respondent firm can claim a set 624 off in its own assessment.
I venture to say that it does not follow that because the partners of the respondent firm may in their individual assessments be able to claim the set off, the respondent firm itself can do so they are different assessees each with a separate and independent right of set off.
One cannot claim a set off basing such claim on the other 's right to it, But it was said that in the present case the real assessees were the partners of the respondent.
I am entirely unable to accept that contention.
Section 23(5) of the Act contemplates a registered firm as an assessee though it did not have to pay any tax itself as the law stood prior to April 1, 1956.
The whole proceedings in the present case have been conducted on the basis that the respondent firm was the assessee.
The questions raised in this case were framed on that basis and we are not called upon by them to say whether the partners of the respondent firm had any right of ' set off.
The assessees in the present case were not the partners of the respondent firm.
If they were, we would have found the respective incomes of the individual partners from other sources being considered but this was not what had happened.
It seems to me to be impossible to contend in the present case that the assessees were the partners of the respondent firm.
I would allow the appeal with costs here and below.
By COURT : In view of the opinion of the majority the answer of the High Court to the first question is upheld and the answer to the second question is set aside.
The parties will bear their own costs here and in the High Court.

summary:
The respondent, a firm consisting of four partners, was registered under the Indian Income tax Act, 1922.
For the assessment year 1946 47 it claimed to set off a sum of Rs. 1,05,641, as its share of the loss in respect of certain transactions said to have been carried on in the name of D by another partnership between it and D, which was not registered.
The income tax authorities rejected the claim and the Appellate Tribunal agreed with their decision on the grounds (1) that it being admitted that the ankdas were in the name of D, there was no satisfactory evidence that the assessee did business in the joint account, and (2) that, in any case, the assessee could not claim the set off as the loss was suffered by an unregistered firm.
610 On a reference, the High Court held (1) that there was no legal admissible evidence to justify the Tribunal 's finding that the transactions in question were not those of the assessee, and (2) that the assessee firm could claim a set off in respect of the share of loss in the unregistered firm "if the income tax authorities did not proceed to determine the losses of the unregistered firm and did not bring it to tax as permitted by section 23 (5) (b).
" Held, that the High Court erred in its view that the asses see firm could claim a set off in respect of the loss incurred in the unregistered firm.
Held, further (per Kapur and Hidayatullah,.
JJ.) : (1) that if under section 66 of the Indian Income tax Act, 1922, a finding given by the Appellate Tribunal is to be considered final, it is necessary that the reasons for reaching it should be stated by the Tribunal with sufficient fullness to inform all concerned what they are.
(2) that there could not be a partnership between D and the registered firm.
If there was a partnership it was between D and the four partners of the assessee firm in their individual capacity, and under the provisions of section 24 of the Act the loss of Rs. 1,05,641 could not be set off against the profits of the registered firm.
Per Sarkar, J.
In view of the decision in Dulichand Laksh minarayan vs The Commissioner of Income tax, Nagpur, [1956] section C R. 154, that a firm as such is not entitled to enter into partnership with another firm or individuals, the assessee firm could not in law enter into partnership with D, and the questions answered by the High Court did not really arise in the present case.


judgement:
Appeal No. 21.
of 1962.
Appeal by special leave from the judgment and order dated September 23, 1958, of the Bombay High Court in I.T. Reference No. 87 of 1957.
H.N. Sanyal, Additional Solicitor General of India, N. D. Karkhanis and R. N. Sachthey, for the appellant.
A.V. Viswanatha sastri, J. B. Dadwhanji, O. C. Mathur and Ravindra Narain, for the, respondent, 768 1962.
October 25.
The judgment of the Court was delivered by SHAH, J.
For the year of account ending March 31, 1955, Afco Private Ltd. a private limited company earned a total income which was finally computed in assessment proceedings by order of the Income tax Tribunal, at Rs. 49,843/ .
The company declared a dividend of Rs. 11,7121 on July 13, 1955, and before the close of the year of assessment 1955 56 declared an additional dividend of Rs.5,612/ , thereby distributing in the aggregate dividend which was not less than 60% of the total income, reduced by the income tax and super tax payable by it.
The company then claimed rebate at the rate of one anna in the rupee on the amount computed according to Schedule 1, Part 1, Item B read with section 2 of the Finance Act 15 of 1955.
The Income tax Officer and the Appellate Assistant Commissioner rejected the claim because in their view the claimant was a company to which the provisions of section 23A of the Income tax Act could not be made applicable.
In appeal, the Income tax Appellate Tribunal, Bombay ', reversed the order of the Income tax authorities.
The Tribunal opined that the expression "cannot be made applicable" in Item B of Part 1 of Schedule 1 of Finance Act 15 of 1955 must be read in conjunction with section 23A of the Income tax Act, and the benefit of rebate provided by the Finance Act, 1955, cannot be denied to a Private Company if the conditions prescribed in section 23A(1) are fulfilled.
The following question referred by the Tribunal to the High Court of judicature at Bombay was answered in the affirmative : "Whether on the facts and in the circumstances of the case, the assessee company having distributed dividends of over 60% of the company 's total income less income tax and super tax payable thereon is entitled to the rebate of 769 1 anna per rupee on the undistributed balance of profits as provided in clause (1) of the proviso to item B of Part 1 of the 1st Schedule to the Finance Act of 1955 ?" By the Finance Act 15 of 1955 Schedule 1 Item B read with section 2 of the Act rates of tax were prescribed in the case of companies.
Item B providedthat "in the case of every company Rate surcharge on the whole of total income Four annas one twen in the tieth of rupee the rate specified in the pre ceeding column.
Provided that in the case of a company which, in respect of its profits liable to tax under the Income tax Act for the year ending on the 31st day of March, 1956, has made the prescribed arrangements for the declaration and payment within the territory of India, of the dividends payable out of such profits., and has deducted super tax from the dividends in accordance with the provisions of sub section (31) of section 18 of that Act (i) where the total income, as reduced by seven annas in the rupee and by the amount, if any, exempt from income tax, exceeds the amount of any dividends (including dividends payable at a fixed rate) declared in respect of the whole or part of the previous year for the assessment for the year ending on the 31st day of March, 1956, and the company is a corn any to which the provisions of section 23A of the Income tax Act cannot be made applicable, a rebate 770 shall be allowed at the rate of one anna per rupee on the amount of such excess ; (ii)x x x x" By section 23A(1) of the Income tax Act at the material time the Income tax Officer was authorised to order a company to pay super tax, at the rate of eight annas in the rupee in the case of a company whose business consisted wholly or mainly in the dealings in or holding of investments, and at the rate of four annas in he rupee in the case of any other company, on the undistributed balance of the total income of the previous year, that is to say, on the total income reduced by the amounts of income tax and super tax and any other tax payable under any law in excess of the amounts allowed in computing the income, and in the case of Banking companies in addition to the taxes, funds actually transferred to a reserve fund, and the dividends actually distributed, if any, where in respect of any previous year the profits and gains distributed as dividend by the company within the twelve months immediately following the expiry of that previous year were less than 60% of the total income of the company of that year as reduced by the amounts aforesaid, unless the Income tax Officer was satisfied that having regard to losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable.
It is manifest that the order under section 23A(1) would (excluding certain procedural conditions) be ordinarily made if the company has distributed by way of dividend within the twelve months immediately following the expiry of the accounting year less than the prescribed percentage of the total income as reduced by the, amount of taxes paid in the case of non Banking Companies and reserve fund in addition thereto in the case of Banking Companies 771 By the first paragraph of sub section
(9) of section 23 A it is provided that "Nothing contained in this section shall apply to any company in which the public are substantially interested or to a subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year.
" This clause is followed by two explanations.
Explanation 1, in so far as it is material to this case, provides : "Explanation 1 For the purposes of this section, a company shall be deemed to be a company in which the public are substantially interested (a) x x x x (b) if it is not a private company as defined in the Indian Companies Act, 1913 (VII of 1913), and (i) x x x x (ii) x x x x (iii) x x x x Explanation 2. x x x x" Section 23A was enacted to prevent evasion of liability to pay super tax by shareholders of certain classes of companies taking advantage of the disparity between the rates of super tax payable by individuals and by the companies.
The rates of super tax applicable to companies being lower than the highest rates applicable to individual assessees, to prevent individual assessees from avoiding the higher incidence of super tax by the expedient of transferring to companies the sources of their income, and thereby securing instead of dividends the benefit of the profits of the company, the Legislature had by Act XXI of 1930, as modified by Act VII of 1939, enacted a special 772 provision in section 23A investing the Income tax Officer with power, in certain contingencies prescribed in the section to order that the undistributed balance of the assessable income reduced by the amount of taxes and the dividends shall be deemed to have been distributed at the date of the general meeting.
By the Finance Act 15 of 1955 section 23A (1) was amended and the Income tax Officer was directed to make an order that the Company shall be liable to pay super tax oil the undistributed balance at the rates prescribed under the section.
But by virtue of sub.
section (9) of section 23A the or der can be made only in respect of a company in which the public are not substantially interested or of a subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year, and by cl.
(b) of the first explanation thereto a private company as defined in the Indian Companies Act, 1913, is not a company in which the ' public are substantially interested.
It is, therefore, competent to the Income tax Officer to pass an order under section 23A (1) if the conditions thereof are fulfilled directing payment of super tax by a private company at the rates prescribed by the Finance Act 15 of 1.955 on its undistributed balance.
To reduce the rigour of this provision the Legislature has provided for inducement in the form of rebate on the difference between nine annas in every rupee of the total net income, and the amount of dividend declared, to companies which have declared dividends so as not to attract the application of an order under section 23A.
But that benefit is admissible only in favour of companies to which the provisions of section 23A of the Act cannot be made applicable.
The Income tax authorities held that the expression company to which the provisions of section 23A of the Income tax Act cannot be made applicable ' is descriptive of a class of companies against which in no circumstances can an order under section 23A of the 773 Indian Income tax Act be made, and private limited companies being companies in respect of which an order under section 23A of the Income tax Act can be made if the conditions prescribed relating to distribution of dividend are fulfilled, the benefit of rebate is not admissible in their favour.
The Tribunal and the High Court held that the expression " 'cannot be made applicable" only refers to a state of affairs in which having regard to the circumstances an order under section 23k of the Indian Income tax Act cannot be made.
In our judgment the Income tax Appellate Tribunal and the High Court were right in so holding.
The Legislature has used the expression "cannot be made applicable" which clearly means that the applicability of section 23A depends upon an order to be made by the Income tax Officer, and not upon any exclusion by the provisions of the Act.
Before an order can be made under section 23A of the Income tax Act, the Income tax Officer has to ascertain (i) whether the company conforms to the description in sub section
(9) of section 23A; if it does ' the lncome tax Officer has no power to make an order ; and (ii) if the company is not one which falls within cl.
(9) of section 23A whether having regard to inadequacy of the declaration of dividend, an order for payment of super tax should not, because of the losses incurred by the company in the earlier years, or to the smallness of the profits in the previous year, be made.
Satisfaction of the Income tax Officer as to the existence of several conditions prescribed thereby even if the company is one which does not fall within sub section
(9) of section 23A is a condition of the making of the order.
The language used by the Legislature clearly indicates that it is only when an order under section 23A will not, having regard to the circumstances ' be justified that the right to obtain rebate under the Finance Act 15 of 1955 is claimable.
The Legislature has not enacted that the benefit of rebate is admissible only to companies against which the order under sub section
(1) of section 23A can never be made.
774 The Legislative history as disclosed by the earlier Finance Acts supports this interpretation of the relevant provision.
In the Finance Acts prior to 1955 rebate under Part I of the 1st Schedule Item B was admissible if the company had in respect of profits liable to tax under the Indian Income tax Act made the prescribed arrangements for declaration and payment of dividends payable out of the profits and had deducted super tax from the dividends in accordance with section 18(3D) & (3E), where the total income reduced by seven annas in the rupee ' and the amount exempt from income tax exceeded the amount of any dividends declared and no order had been made under sub section
(1) of section 23A of the Income tax Act.
The right to rebate arose under those Finance Acts if no order under section 23A was made.
The Income tax Officer had therefore to decide even before completing the assessment of the company whether the circumstances justified the making of an order under section 23A, and unless an order under section 23A was made the assessee became entitled automatically to the rebate of one anna in the rupee.
Such a provision led to delay in the disposal of assessment proceedings and caused administrative inconvenience.
It appears that the Legislature modified the scheme of granting rebate in enacting the Finance Act of 1955 with a view to simplify the procedure and avoid delays, and not with the object of depriving the private limited companies as a class, of the benefit of rebate which was permissible under the earlier Acts.
Counsel for the Income tax Commissioner invited our attention to the Finance Acts of 1956 and 1957 and contended that the Legislature in dealing with the right to rebate under Part II relating to the rates of super tax used phraseology which restricted the right of rebate only to public companies.
Ie must be noticed that even under the Finance Act of 1955 by Part II of Schedule 1, item D, a rebate of three annas per rupee of the total income was to bf 775 allowed to companies in respect of profits liable to tax under the Income tax Act for the year ending March 31, 1956, if the company had made prescribed arrangements for payment of dividend payable out of profits and for reduction of super tax from dividends in accordance with the provisions of sub section
3D of section 18 of the Act and the company was a public company with a total income not exceeding Rs. 25,000/ .
This provision was slightly modified in the Finance Act of 1956 where the rebate admissible was at the rate of five annas in the rupee, (other condition being fulfilled) if the company was a public company with total income not exceeding Rs. 25,000/to which the provisions of section 23A could not be made applicable.
Under the Finance Act of 1957 rebate was admissible in favour of companies "referred to in sub section
(9) of section 23A of the income tax Act with total income not exceeding Rs. 25,000/ .
" All these provisions about rebate were enacted in prescribing the rates of super tax.
In the Finance Act of 1955 the Legislature in dealing with the right of rebate under Part I prescribing rates of income tax, made it admissible in respect of companies to which provisions of section 23A of the Income tax Act could not be made applicable, whereas under Part II prescribing rates of super tax, rebate was made admissible in respect of public companies having income not exceeding the prescribed amount and rebate at a lower rate where the income exceeded the prescribed limit.
If it was intended by the Legislature to exclude private limited companies from the benefit of rebate the Legislature would have adopted the same phraseology as was used in that Act in dealing with the rebates in prescribing rates of super tax.
The legislative history instead of supporting the case of the Income tax Department yields inference against their interpretation.
We are therefore of the view that the High Court was right in holding that the company was 776 entitled to the rebate claimed by it.
The appeal therefore fails and is dismissed with costs.
Appeal dismissed.

summary:
For the year of account ending March 31, 1955, the appellant, a private limited company, earned a total income of Rs. 49,843.
The company declared a ' dividend of Rs. 11,712 on July 13, 1955, and before the close of the year of assessment 1955 55 declared an additional dividend of Rs. 5,612, thereby distributing in the aggregate dividend which was not less than 767 60% of the total income, reduced by the income tax and supertax payable by it.
The company then claimed rebate at the rate of one anna in the rupee on the amount computed according to Sch. 1, Part 1, Item B, read with section 2 of the Finance Act, 1955.
The Income tax authorities rejected the claim on the ground that the expression "company to which the provisions of section 23A of the Income tax Act cannot be made applicable" in the provision of law aforesaid in the Finance Act, 1955, on which the appellant company relied, referred to a company against which in no circumstances could an order under section 23A be made, and private limited companies being companies in respect of which an 'order under section 23A could be made if the conditions prescribed relating to distribution of dividend were fulfilled, the benefit of rebate was not admissible in favour of the appellant company.
The Appellate Tribunal and the High Court took the view that the benefit of a rebate provided by the Finance Act could not be denied to a private company if the conditions prescribed in section 23.A(1) of the Income tax Act were fulfilled, because, according to their view, the expression "can not be made applicable" only refers to a state of affairs in which having regard to the circumstances an order tinder section 23A could not be made.
Held, that the appellant company was entitled to the rebate claimed by it.
The expression "to which the provisions of section 23A of the Income tax Act can not be made applicable" in Sch. 1, Part 1, Item B, of the Finance Act, 1955, meant that the appli cability of section 23A of the Income tax Act depended upon an order to be made by the Income tax Officer, and not upon any exclusion by the provisions of the Act.
It was only when an order under section 23A would not, having regard to the circumstances, be.justified that the right to obtain rebate under the Finance Act was claimable.