judgement:
Appeal No. 1533 of 1971.
Appeal by special leave from the judgment dated September 18, 1971 of the S.D.O./Arbitrator, Muzaffarnagar in Election Petition No. 140 of 1970.
AND Civil Appeals Nos.
1797 and 1798 of 1971.
, Appeals by spe cial leave from the judgments dated September 18, 1971 of the District Magistrate/Registrar, Co operative Societies, Saharanpur in Appeals Nos. 6 and 8 of 1971 under section 98 (i) (h) U.P. Co Societies Act.
AND Special Leave Petition (Civil) No. 3254 of 1971 From the judgment dated September 16, 1971 of the Registrar, Co operative Societies/District Magistrate Saharanpur in Appeal 'No. 5 of 1971 under section 98 (i) (h) Co operative Societies Act.) J. P. Goyal and V. C. Parashar, for the appellants (in C.As.
1533 and 1797 of 1971) and the petitioners (in S.L.P. No. 3268 of 1971) R. K. Garg, S.C. Agrawal and R. K. Jain, for the appellants ,(in C.A. No. 1798 of 1971) and the Petitioners (in S.L.P. No. 3254 of 1971) C. B. Agarwal and P. P. Juneja, for respondents Nos. 7, 8 and 1 to 13 (in C.A. 1533 of 1971) 151 O. P. Rana, for respondents Nos. 7 and 12 (in C.A. No. 1797 of 1972) and respondent No. 7 (in C.A. No. 1798 of 1971).
M. C. Setalvad, R. K. Garg, section C. Agarwal and R. K. Jain, for the intervener.
The Judgment of the Court was delivered by Ray, J.
These three appeals are by special leave.
Civil Appeal No. 1533(N) of 1971 is by special leave against the judgment dated 18 September, 1971 of the Arbitrator setting aside the election of the Management Committee of the Co operative Cane Development Union, Shamli in an election petition filed under rule 229(2) of the Co operative Societies Rules, 1967 framed under the Uttar Pradesh Co operative Societies Act, 1965.
Civil Appeal No. 1797 of 1971 is by special leave against the order of the District Magistrate and Registrar, Co operative Societies Sharanpur dismissing an appeal filed under section 98(i)(h) of the U.P. Cooperative Societies Act, 1965 against an order of the Arbitrator under section 70 and 71 of the U.P. Co operative Societies Act.
1965 setting aside the election of the Sahkari Ganna Vikas Samiti Ltd., Iqbalpur, District Saharanpur.
Civil Appeal No. 1798 of 1971 is against the order and judgment dated 16 September, 1971 of the District Magistrate, Saharanpur dismissing an appeal under section 98(i)(h) of the U.P. Co operative Societies Act, 1965 against the order of the Arbitrator under sections 70 and 71 of the U.P. Co operative Societies Act, 1965 setting aside the election of ,the Sahkari Ganna Vikas Samiti Ltd., Lhaksar, District Saharanpur.
Special Leave Petition (Civil) No. 3254 of 1971 is for leave to appeal against the order of the Registrar, Co operative Societies in appeal under section 98(i)(h) against the order of the Arbitrator under sections 70 and 71 of the U.P. Co operative Societies Act, 1965 setting aside the election of Sahkari Ganna Vikas Samiti, Sarsawa.
Special Leave Petition (Civil) No. 3268 of 1971 is for leave to appeal against the order of the District Authority, Bulandsbahr setting aside the election of the Committee of Management of the Co operative Cane Development Union Ltd. on an application under rule 229 of the U.P. Co operative Societies Rules, 1968.
These matters raise a common question.
These Co operative 'Societies held their annual general meeting under the provisions of section 32 of the Uttar Pradesh Co operative Societies Act, 1965 (hereinafter called the Act).
At the general meetings the members of the Committee of Management of the Society were elected by members of the Society.
The, Registrar of the U.P. Co operative Societies issued a circular dated 5 November, 1969 interpreting rule 409 of the U.P. Co operative Societies Rules, 1968 (hereinafter called the Rules) and laid down the principle that all the members of the general body "of the Co operative 152 Society would" exercise their right of vote in filling all the seats of elected Directors.
" The question in the present appeals is whether the Registrar had power to issue the circular interpreting rule 409 and secondly whether that interpretation is correct in terms of the Act and the Rules.
The Act deals with Co operative Societies and inter alia their members and their Committee of Management.
The relevant sections for the purpose of present appeals and special leave petitions are sections 20, 29 and 32 of the Act.
Section 20 of the Act speaks of vote of members.
Under that section, a member of a Co operative Society shall notwithstanding the quantum of his interest in the capital of the Society have one vote in the affairs or the Society.
There are four provisos to section 20.
Proviso (a) deals with nominal or associate members who have no right of vote.
Proviso (b) deals with a co operative society, the State Warehousing Corporation or a body corporate being a member of such society in which case each delegate of such co operative society, State Warehousing Corporation or body corporate shall have one vote.
Proviso (c) deals with the State Government or the Central Government being a member of such society in which case a nominee of the State Government or the Central Government shall have one vote.
Proviso (d) deals with a group of members or any class of members partaking in the affairs of the society through a delegate or delegates each delegate having one vote.
Section 29 of the Act deals with the Committee of Manage ment.
The management of every co operative society shall vest in a committee of management.
The term of the election members of the committee of management shall be such as may be provided in the rules and the bye laws of the society.
After the expiry of the term the co operative society shall at the annual general meeting elect members for the committee of management as provided in section 32(i)(b) of the Act.
If a society fails to elect members for the committee of management the Registrar shall call upon the society by order in writing to elect such members within three months from the date of the communication of the order.
If the society still fails to elect the members for the committee of management, the Registrar may himself nominate such persons as under the rules and the bye laws are qualified for being elected as members of the committee of management.
Within six months from the date of nomination made by the Registrar, the Registrar shall call a general meeting for electing members of the committee of management.
Section 32 of the Act speaks of annual general meeting which shall be held once in 'a co operative year.
A co operative year means the year commencing the first day of July and ending on the 30th June of next following.
One of the purposes of the annual 153 general meeting is election of the members of the committee of management in accordance with the provisions of the rules and of the bye laws of the society.
Rule 409 is as follows "For the purposes of election to the membership of the committee of management a co operative society may, with the previous sanction of the Registrar (a) divide its membership into different groups on territorial or any other rational basis, and (b) also specify the number or proportion of the member of the committee of management in such a manner that different areas or interests, as the case may be, in the society may, as far as may be, get suitable representation on the committee or management." In order to appreciate as to how rule 409 comes up for consideration in the present case it is necessary to refer to facts in Civil Appeal No. 1533 (N) of 1971 as a typical case.
The Shamli Cane Development Union Ltd., Shammli, U.P. was registered under the .
It was deemed to be registered under the Act.
The society had its bye laws with regard to the formation of the committee of management and its election including the election of the Chairman and the Vice Chairman.
The bye laws provided for a committee of management consisting of 14 members.
The committee of management elects a Chairman and a Vice Chairman.
The delegates constituting the general body of the society are divided into 14 constituencies.
Each constituency elects one Director.
The delegates of the members of the society in a constituency elect a member of each single member constituency.
The 14 members of the committee are elected on that basis whereby each delegate of each constituency exercises one vote for electing a member of that constituency.
The Secretary of the society fixed 13 October, 1970 as the date for filing the nomination for the office of the committee of management.
17 October, 1970 was the date for scrutiny of nomination papers.
19 October, 1970 was the date for withdrawal of nomination papers.
28 October, 1970 was the date of poll.
By a letter dated 14 October, 1970 the Registrar, Cooperative Societies directed that "the election of the members of the managing committee shall be done by all the representatives of the area of the society and not by the representatives of the related constituencies alone.
This means that every representative L864Sup.
CT/72 154 shall have as many votes as the members are to be elected".
In short, the Registrar 's interpretation of rule 409 as well as the letter stated that each delegate would vote for 14 members of the committee of management and thus each delegate would exercise 14 votes.
The rival contentions which fall for determination are whether the right of vote for election of a member of the committee of management is confined to the delegates of the members of that particular constituency or whether a delegate would have the right to vote for all the constituencies constituting the committee of management.
As to the power of the Registrar to interpret rule 409 it win appear that the rule does not confer any power on the Registrar to interpret or to express views to guide the rights of members to vote at the annual general meeting for the purposes of election of the committee of management.
On the contrary, under rule 409 the Co operative Society may with the previous sanction of the Registrar (i) divide its membership into different groups on territorial or any other rational basis and (ii) also specify the number or proportion of the members of the committee of management in such a manner that different areas or interests, as the case may be, in the society may, as far as may be, get suitable representation on the committee of management.
Therefore, under rule 409 a co operative society can divide its membership into different groups on territorial or any other rational basis for the purposes of election of the members of the committee.
The rule also empowers the society to apportion the membership of the committee of management amongst different groups into which the membership is divided.
The number or proportion of members of the com mittee of management will have to be apportioned in such a manner that the different areas or interests into which the membership of the society are divided may obtain suitable representation on the committee of management.
The entire purpose of division of membership into different groups and specifying suitable representation of such group on the committee of management is to emphasise the, right of the particular group to send its representative to the committee.
To illustrate if a society is divided into 14 separate groups on a territorial.
basis and one member of the committee of management is allotted to each group and if delegates of one group have the right to cast 14 votes two consequences will follow.
First, the right of choosing a representative of the constituency will be not confined to that constituency but will be enlarged to outsiders in other constituencies.
Secondly, a member of the committee from one constituency may be elected by a majority of votes from delegates of other constituencies.
If delegates residing outside a territorial constituency 155 take part at the election for member of a committee from territorial constituency within which he is not a resident it will not only amount to enlarging the right of representation beyond ones territorial basis but also deny the delegates within the constituency the right of electing their own representative.
It was said on behalf of the appellants that section 20 of the Act speaks of a member of the co operative society having one vote in the affairs of the society with the result that each member is entitled to exercise as many votes as the members of the committee of management.
Accent was placed on the words 'affairs of the society ' and it was said that the constitution of the committee of management was one of the principal affairs of the society and therefore each member would entitled to cast as many votes as the strength of the committee of management.
The fallacy lies in overlooking the significant words in section 20 of the Act that a member shall have one vote.
It may also be noticed that if each member exercises by way of illustration 14 votes in regard to 14 members of the committee each member shall be "exercising 14 votes in the affairs of the society.
Under rule 409 the principal matters to be kept in the fore front are these.
First, the society will divide the constituencies on territorial basis or any other rational basis.
By territorial basis is meant territory where the member will reside.
Residence is therefore the relative requirement of territorial basis.
If any other rational basis like occupation or vocation is determined to be the basis of a constituency the persons falling within the cons tituency will satisfy that test.
Secondly, the society will specify the proportion of members of the committee in such a manner that different areas or interests may get suitable representation.
The inherent idea is that such areas or interests will obtain representation.
If membership is on territorial basis, the different areas will get representation according to the interest of such territories.
Again, if occupational or vocational or professional tests are created for dividing groups such interests will have to be given suitable representation Representation is therefore with reference to areas or interests.
Judged by these principles the impeached circular of the Registrar suffers from the vice of giving the members the right of 'casting vote in constituencies to which they do not belong.
This strikes at the basic root of right of representation.
This also reads as under the principle of one member one vote which is made into a rule of law in the Act.
[155 E G] The words 'affairs of the society ' cannot be equated with the Constituencies to give each member a right to vote for each constituency.
That would defeat the purpose of section 20 and rule 409.
The basic idea of a representative for each constituency 156 depends on the mandate of the respective constituency and not of other constituencies.
That is why section 20 of the Act speaks of, one member having one vote irrespective of shareholding.
It means equality of votes, of members.
The constitution of the committee of management is indisput ably one of the affairs of the society.
If each member exercises franchise with respect to the representation from his constituency he is not in any manner prevented from having a right to partake in the affairs of the society through a member elected from the constituency.
Some reliance was placed by counsel for the appellants on rule 105 in support of the contention that every member would have one vote for each member of the committee of management.
Rule 105 occurs in Chapter VII relating to meetings and speaks of matters before a committee being decided by a majority of votes of the members present.
That rule obviously has no reference to election but only to passing of resolution by majority at meetings.
It is obvious that members of the committee of management will have the right to vote at all matters at the meeting and matters will be decided by a majority of votes.
The impeached circular of the Registrar is illegal and unwarranted Registrar has no power to interpret rule 409.
The Registrar has equally no power to express view with regard to conduct of the election and regulate the voting rights by giving the members more than one vote.
The society is to frame rules for elections.
Rules require the sanction of the Registrar.
The rules and the bye laws cannot be in derogation of the statute and statutory rules.
At an election of members of the committee of management one member will have only One vote for the constituency to which he belongs.
The result is that the elections which were held following the circular of the Registrar are bad.
For these reasons the three appeals fail and are dismissed.
The two special leave petitions are also dismissed.
Parties will pay and bear their own costs.
G.C. Appeals dismissed.

summary:
Under section 32 of the U.P. Cooperative Societies Act, 1965 the business to be conducted at the annual general meeting of a society includes inter alia election of the committee of management of the society.
Under Rule 409 of the Act namely the Cooperative Societies Rules, 1967 a Cooperative society may, for the purpose of the election of the Committee of management, with the previous sanction of the Registrar of Cooperative Societies (a) divide its membership into different groups on territorial or any other rational basis, and (b) also specify the number or proportion of the members of the committee of management in such a manner that different arm or interests, as the case may be, in the society may, as far as may be, get suitable representation on the committee of management.
On 5 November 1969 the Registrar issued a circular interpreting Rule 409 and laid down the principle that "all the members of the general body" of the cooperative society would "exercise their right of vote in filling all the seats of elected Directors".
The elections in the cooperative societies concerned in the present appeals were held according to the aforesaid directions given by the Registrar.
The elections were challenged and set aside in proceedings under the Act.
On the question whether the circular interpreting Rule 409 issued by the Registrar was valid, this Court, HELD : Under rule 409 the principal matters to be kept in the forefront are these.
First, the society will divide the constituencies on territorial basis or any other rational basis.
By territorial basis is meant territory where the member will reside.
Residence is therefore the relative re quirement of territorial basis.
If any other rational basis like occupation or vocation is determined to be the basis of a constituency the persons falling within the constituency will satisfy that test.
Secondly, the society will specify the proportion of members of the committee in such a manner that different areas or interests may get suitable representation.
The inherent idea is that such areas or interest will obtain representation.
If membership is on territorial basis the different areas will get representation according to the interest of such territories.
Again, if occupational or professional tests are created for dividing groups such interests will have to be given suitable representation.
Representation is therefore with reference to areas or interests.
Judged by these principles the impeached circular of the Registrar suffered from the vice of giving the members the right of casting vote in constituencies to which they did not belong.
This strikes at the basic root of the fight of representation.
This also reads as under the principle of one member one vote which is made a role of law in the Act.
[155 E G] 150 The words 'affairs of the society ' in section 20 cannot be equated with the constituencies to give each member a right to vote for each constituency.
That would defeat the purpose of section 20 and rule 409.
The basic idea of representation for each constituency depends on the mandate of the respective constituency and not of other constituencies.
That is why section 20 of the Act speaks of one member having one vote irrespective of shareholding.
It means equality of votes of members.
[155 H] The impeached circular of the Registrar was illegal and unwarranted.
The Registrar has no power to interpret rule 409.
The Registrar has equally no power to express view with regard to the conduct of the election and regulate the voting rights by giving members more than one vote.
The society is to frame rules for elections.
The rules and the bye laws cannot be in derogation of the statute and statutory rules.
At an election of members of the committee of management one member will have only one vote for the constituency to which he belongs.
[156 E] The result was that the elections which were held following the circular of the Registrar were bad.


judgement:
Appeal No. 1308 of 1970.
Appeal by special leave from the order dated September 8.
1970 of the Calcutta High Court in Income Tax Reference No. 50 of 1971.
N. A. Palkhivala, Veda Vyasa, T. A. Ramachandran and D. N. Gupta, for the appellant.
Y. section Desai, section K. A iyar and H. D. Sharma, for the respondent.
The Judgment of the Court was delivered by Grover, J.
This is an appeal by special leave from an order of the Calcutta High Court directing the Income tax Appellate Tribunal, 'B ' Branch, Calcutta, to draw a statement of case relating to four questions of law which, it was stated, arose out of the order of the Tribunal in the matter of assessment of the appellant which was the assessee in respect of the assessment year 1962 63.
The Appellate Tribunal had rejected the application of the Commissioner of Income tax requiring it to refer those questions to the High Court.
The High Court, on being moved, issued a rule nisi and then made it absolute after full arguments without giving any reasons, whatsoever.
140 The assessee is a 100% subsidiary of Imperial Chemical In dustries Ltd., incorporated in the United Kingdom (hereinafter referred to as I.C.I. for convenience).
I.C.I. advanced large amounts by way of loans to the assessee from time to time.
This, it was claimed, was done for subscribing to shares in three Indian Companies called Indian Explosives Ltd., Alkalai & Chemical Corporation of India and Atic Industries Private Ltd., (hereinafter called as I.E.L., A.C.C.I and ATIC respectively).
Subsequently the assessee transferred the shares in the aforesaid companies at par to I.C.I. in satisfaction of the loans advanced by that company.
The Income tax Officer applied section 52 of the Income tax Act, 1961 (hereinafter called the 'Act ') and assessed the assessee to capital gains.
The Appellate Assistant Commissioner took the contrary view and held that on the facts which had been established, the assessee was not liable to capital gains under the aforesaid section.
The Tribunal upheld the decision of the Appellate Assistant Commissioner by a detailed and well reasoned order.
Broadly, the case of the assessee was that I.C.I. wanted to make investments in India in sterling currency.
The assessee was already in existence but the other three companies which have been mentioned, were incorporated later.
I.C.I. devised a scheme by which it could make the investment as desired by it and by which it could also take advantage of the tax relief which could be availed of by the new enterprises under section 15(C) and 56.(A) of the Income tax Act, 1922.
The scheme in short was that I.C.I. would arrange to let the assessee hold shares in the three com panies by investing the money which was to be given by I.C.I. to the assessee.
The modus operandi was that I.C.T. would give that money by way of loans to the assessee who agreed that the shares in the three companies would be transferred to I.C.I. in satisfaction of the loans at par or issue price as and when desired by I.C.I. All this was done after negotiations with the concerned Department of the Government of India at the highest level and with the approval of the Reserve Bank of India.
The entire scheme was conceived and was put into operation prior to 30th November 1956 when the Finance Bill was introduced reimposing capital gains tax which had remained abolished for certain years.
There was a provision for charging interest by the I.C.I. from the assessee at a rate not exceeding 1/2% above the Indian Bank rate which came to 51% per annum but the interest was not to exceed in any case the dividends received by the assessee from those shares.
It was claimed on behalf of the assessee that this arrangement was advantageous both to I.C.I. and the assessee, I.C.I. having taken the risk (of depreciation in shares or otherwise) attached to the new business pioneering adventures, ensured that capital appreciation of the shares, if 'any, also went 141 to itself.
The assessee did not suffer any disadvantage because it had to pay no interest if no dividend was received and it could keep and get the benefit of any dividend in excess of 5 1/2%.
As a result of I.C.I. investments being held through the assessee instead of directly, I.C.I. achieved an advantage of saving tax in U.K. amounting to pound 68,000 in the relevant years.
In 1959 the structure of Indian taxation regarding the grossing up of dividends was radically changed and by the Finance Act 1959, the system of grossing up of dividends (under section 16(2) and 18(5) of 1922 Act) was abolished and intercorporate dividends became liable to income tax at each stage.
Thus, the dividends passing from the three companies through the assessee to I.C.I. became liable to tax stages.
This affected the net return of I.C.I. on its investments in the three companies substantially.
In these circumstances, it was decided by I.C.I. that the investments in the three companies should 'he held by it directly.
For that reason it called upon the assessee in February 1961 to transfer to it the aforesaid shares in the three companies at the issue price in satisfaction of the sterling loans in accordance with the previous agreements.
The approval of the Reserve Bank to these transfers was received in February 1961 and the transfers were made in March/April 1961.
According to the assessee there was no question of the transfer of shares having been affected with the object of avoidance or reduction of the liability of the assessee to capital gains which alone could attract the applicability of section 52 of the Act.
Section 52 is in the following terms "Consideration for transfer in cases of under statement: Where the person who acquires a capital asset from an assessee is directly or indirectly connected with the assessee and the Income tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 45, the full value of the consideration for the transfer shall, with the previous approval of the Inspecting Asstt.
Commissioner, be taken to be the fair market value of the capital asset on the date of the transfer".
The necessary ingredients of the section are (i)there should be a direct or indirect connection between the person who acquires a capital asset and the assessee; (ii) the Income tax Officer should have reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee to capital gains; (iii) if the first two conditions are satisfied then the full value of consideration for the 142 transfer can be taken to be the fair market value of the capital asset on the date of the transfer.
As regards the first requirement, that was admittedly satis fied in the present case.
The second requirement could be satisfied only if there was any cogent material on which the Income tax Officer could have reason to believe that the transfers were effected with the object of avoidance and reduction of liability to capital gains.
It is abundantly clear that the intention with which a particular transfer is made and the object which is to be achieved by such transfer is essentially a question of fact the conclusion relating to which is to be arrived at on a consideration of the relevant material.
In other words, before the Income tax Officer can have any reason to believe that a transfer was effected with the object mentioned in the section facts must exist showing that the object was to avoid or reduce the liability to capital gains.
The Tribunal examined fully the correspondence and the other material with regard to each of the three Indian companies in which the investment had been made of the money advanced by I.C.I. to the assessee.
We may briefly notice the discussion relating to each company.
It was in or about 1949 that I.C.I. was asked by the Government of India to consider the manufacture of commercial Lasting High Explosives in India.
Negotiations advanced more towards October 1953 when the representatives of I.C.I. met the officials of the Government of India.
The Tribunal referred to the minutes of the meeting held on October 1, 1953 as also on the 6th October 1953.
In the final draft of the Declaration of Intention dated November 5.
1953, it was mentioned that the Government had agreed that if T.C.I. made a loan to the assessee the latter would hold the shares in I.E.L. and that the loan "may be repaid by a transfer of the shares to I.C.I. at any time".
On 21st December 1954, the assessee applied to the Reserve Bank of India for formal sanction for borrowing Rs. 160 lakhs from I.C.I. for the purchase of shares in I.E.L. in terms of the agreement dated November 5, 1953.
It was stated in the letter that I.C.I. would charge no interest until such time as the shares began to yield dividends.
The loans were advanced from 30th September 1954 to 30th June 1957 by the I.C.I. to the assessee of the equivalent of Rs. 160 lakhs in Sterling.
The other correspondence relating to the aforesaid amount was also noticed by the Tribunal.
In 1958 there was a Rights Issue by I.E.L. I.C.I. agreed to give a loan of Rs. 80 lakhs to the assessee to cover the Sterling requirement of I.E.L. The assessee was to take up shares of that amount.
The terms of the loan were that I.C.I. had the right to acquire at any time the shares held by the assessee in I.E.L. 143 at par in satisfaction of the loan and the rate of interest payable on the loan was to be I% above the Indian Bank rate.
This was followed by other correspondence and a resolution which was recorded on 30 9 1958 containing terms of the second loan of Rs. 80,00,000/ .
It is not necessary to refer to the other correspondence looked into by the Tribunal with regard to that loan.
On 15 2 1961 the assessee was called upon by I.C.I. to transfer the investments in satisfaction of the loans.
After the sanction was obtained from the Reserve Bank of India, the shares were transferred at par.
The Tribunal referred to the undisputed facts relating to the circumstances in which the scheme for advancing the loan to the assessee for investment in I.E.L. came to be mooted and was ultimately approved by the Government.
This is what the Tribunal said : "The above background would show that the idea was not to make the assessee the real beneficial owner of the shares.
The fact that the shares should be held only for a time beneficially by the assessee is clear from the "Declaration of Intention" dated 5 11 1953".
Before the Tribunal the counsel for the Department had accepted the position that if there was an arrangement or agreement before the reintroduction of capital gains tax he would have no case.
According to him, until the transfers were actually made of the shares, there was no agreement on which the parties could have gone to court in order to obtain the share transfers at par in favour of I.C.I.
The Tribunal proceeded first to examine whether there was any kind of understanding between the assessee and I.C.I. regarding the transfer of shares at par.
After recapitulating the correspondence and the relevant facts, the Tribunal came to the following conclusion: "Taking this along with the minutes of the meeting with the officials of the Government of India, in October 1953, it is clear that the whole idea of I.C.I. throughout was to make some funds available to the assessee so that the shares could be acquired in its name and that the shares could be transferred to I.C.I. as and when it demanded".
It was, however, stated by the Tribunal that taking into account the correspondence and the documents referred to earlier it was satisfied with the assessee 's case that the transfer of shares to London at issue price or at par was throughout the basis of the advances of loans to the assessee.
It is necessary to reproduce paragraph 31 of the order of the Tribunal : "In October 1953, there was no mention of any capital gains tax being revived.
At that time the asses 144 see could not have had any idea of avoiding or reducing any liability to capital gains tax.
The learned counsel for the department laid some emphasis on the fact that there was no enforceable arrangement.
The question as to whether there was an enforceable arrangement or not is not really material.
What we have to find out is whether the object in putting through these transactions of taking over the shares at par or at issue price was one of avoidance or reduction of liability to capital gains tax.
That object does not get established by the mere absence of an enforceable arrangement.
Having regard to the assessee being the subsidiary of I.C.I., there is nothing surprising about the arrangement not being so formal or not being put through after complying with all the necessary legal formalities.
The absence of formal agreement is thus understandable in this context and cannot by itself suggest anything in favour of the department.
Businessmen are not always motivated by legalistic considerations.
Even taking that the arrangement was only binding morally and not legally, still so long as the assessee wanted to fulfil a moral obligation and had not the capital gains tax in mind, it cannot be said that the transaction was entered into with the object of avoidance or reduction of liability to capital gains tax".
The Tribunal proceeded to say "We have to find out the object of the, transaction.
It is removed in point of time from the result.
In such a case one cannot try to infer the object from the results.
We really have to put ourselves at a point of time when the transaction was conceived.
Taking the materials before us, we consider that there is nothing to suggest that the parties had the capital gains tax in their mind in 1953 and later when they put through the aforesaid transactions.
We have, therefore, to hold that the factual requisites of section 52 have not been established here".
In dealing with the second Company, namely, A.C.C.I it was pointed out by the Tribunal that the scheme for manufactur ing Polythene was placed before the Government of India by a letter of the assessee dated 13 12 1955 addressed to Mr. H. V. R. lengar, Secretary, Minister of Commerce & Industry, in which it was specifically stated that to enable the assessee to subscribe for the new shares I.C.I. would lend the subscription monies to the assessee on the understanding that at a later date I.C.I. could acquire at the issue price these new shares in satisfaction of its 145 loan.
The Tribunal dealt with all the relevant facts relating to the loan advanced to A.C.C.I. including those stated in the affidavits of P. T. Manzies dated 17 8 1966 and U. R. Newbery dated 10 1 1967 and considered that the transaction relating to this Company was not in any way different from those relating to the I.P. L. ATIC, the third Company was incorporated primarily for the manufacture of certain Dye stuffs.
On 29 12 1955 I.C.I. agreed to advance Rs. 25 lakhs as loan to the assessee.
The shares acquired under the loan could be transferred to I.C.I. on request by the latter at the issue price.
I.C.I. waived its right to interest on the loan until the commencement of the period in respect of which ATIC paid the dividend.
There was a further loan of Rs. 35,00,000 on the same terms.
These shares were age subsequently required to be transferred to I.C.I. in February 1961.
The Appellate Assistant Commissioner had referred to the affidavits which had been filed on behalf of the assessee and had mentioned that the Department had not cross examined the deponents.
Before the Tribunal the counsel for the Department stated that he accepted the affidavits as correct in so far as facts were concerned but he only disputed the inferences therefrom.
The Tribunal in this connection observed: "In our opinion, once the facts mentioned therein are taken as correct, the inference that the transaction was not for *he purpose of avoiding or reducing liability to capital gains tax has to follow".
Finally the Tribunal, as stated before, confirmed the decision of the Appellate Assistant Commissioner that the material on record did not justify the conclusion of the Income tax Officer that the object of the transfer of the shares of all the three Companies by the assessee to I.C.I. was the avoidance of liability to capital gains which would attract the applicability of section 52 of the Act.
The Commissioner of Income tax asked for a reference on six questions.
The Tribunal again examined the further contentions of the Department in its order dated 28 7 1969 by which it declined to make the reference on the ground that no question of law arose out of the order of the Appellate Tribunal, Only four questions appear to have been pressed for being referred.
As regards question No. 1 (which was No. 3 before the Tribunal) it was pointed out that it proceeded on the basis that there was some dispute about the construction of the correspondence or documents.
The Tribunal observed that there was no such dispute and it had not been suggested that a particular expression in any letter or document had been wrongly construed.
Regarding question No. 2 (which was No. 4 before the Tribunal), the Departmental representative was asked to particularise the docu 146 ments or evidence omitted from consideration.
He referred to certain documents and evidence which according to him had not been considered by the Tribunal.
The Tribunal made it cleat that all the relevant materials which had been referred to had been considered by it.
These materials were distributed over four bulky volumes of typed records and, therefore, each document could not have been mentioned in the order.
Nothing relevant was actually over looked.
At any rate the documents on which particular reliance was placed on behalf of the Department were considered and the Tribunal observed that the grievance of omission of materials from consideration related to irrelevant matters.
As regards (the other two questions, the Tribunal observed that the charge of perversity was only a disparate attempt at extracting a question of law where, none existed and that the object or intention of an assessee was always a question of fact.
It was a factual inference to be drawn from other facts.
It was pointed out that on the construction of section 52, the parties had not joined, any issue.
We may now mention the four questions which the High Court directed to be referred : 1. "whether on the facts and in +he circumstances of the case and on a proper construction of the documents referred to and/or considered by it the Tribunal was right in arriving at the finding that the transfer of the shares to Imperial Chemical Industries Ltd., London at the issue price or par was throughout the basis of the advance of loans to the assessee ? 2.
Whether, in arriving at the said finding the Tribunal misdirected itself in law in basing the said finding on evidence covering some matters only and ignoring, evidence on other essential matters ? 3.
Whether, on the facts and in +,he circumstances of the case and particularly in view of the finding that there was no enforceable agreement making it obligatory upon the assessee to transfer the shares to Imperial Chemical Industries Ltd., London, at par or issue price the conclusion of the Tribunal that the transfer of the shares by the assessee to the latter company at par was not effected with the object of avoidance or reduction of the liability of the assessee to capital gains tax was unreasonable or perverse ? 4.
Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding, that 147 section 52 of the Income tax Act, 1961, was not applicable to the facts of the case ? On the analysis of section 52 of the Act made by us at a previous stage and the clear, cogent and precise findings and conclusions of the Appellate Tribunal, we are wholly unable to comprehend, how any question of law of the nature sought to be referred arose; or arises from the order of the Appellate Tribunal.
It is unfortunate that in a case of this nature and magnitude, the High Court did not choose to record a speaking order to enable us to appreciate the reasons which prevailed with it for directing the four questions to be referred.
The jurisdiction in the matter of reference can be exercised (i) when the point for determina tion is a pure question of law such 'as construction of a statute or document of title; (ii) when the point for determination is a mixed question of law and fact.
While the finding of the Tribunal on the facts is final its decision as to the legal effect of those findings is a question of law, (iii) a finding on a question of fact is open to attack as erroneous in law when there is no evidence to support it or if it is perverse.
Where, however, the finding is one of fact, the fact that it is an inference from other basic facts will not alter its character as one of fact (See Sree Meenakashi Mills Ltd. vs, Commissioner of Income tax, Madras(1).
In that case it was held that there was no question of construction of any statutory provision or document of title.
The issues which arose for determination, whether the sales entered in books of the ap pellant in the names of the intermediaries were genuine, and if not, to whom the goods were sold 'and for what price, were all questions of fact.
Their determination did not involve the application of any legal principles to facts established by the evidence.
The findings of the Tribunal were amply supported by evidence and were eminently reasonable.
It, therefore, followed that there was no question which could be referred to the Court under section 66(1) of the Income tax Act 1922.
The same principles will apply when a reference is sought under section 256 of the Act.
We are altogether unable to see how findings of the Appellate Tribunal that the transfer of shares in the present case was not made with the intention or object of avoidance or reduction of liability to capital gains were not questions of fact and did not depend on inference of facts from the evidence or the material before the Tribunal.
It can well be said that the determination of the question whether the object of the assessee was to avoid or reduce its liability to capital gains by making the transfers in question did not involve the application of any legal principles to the facts established by the evidence.
The findings of the Tribunal were amply supported by evidence and were eminently reasonable.
It (1) 148 is true that the amount involved is very large but that cannot Justify a reference as under section 256 of the Act neither the Appellate Tribunal could make a reference nor could the High Court direct the reference to be made to it by the Tribunal on pure questions ,of fact.
The learned counsel for the Commissioner has sought to invite our attention to certain parts of the order of the Tribunal and, in particular, to the statement extracted by us at an earlier stage about the question whether the assessee had held the shares beneficially and the point which was debated before the Tribunal whether there was any binding legal agreement between the assessee and I.C.I. for transfer of the shares at par.
We are unable to see how these matters were relevant for the purpose of determining the intention or object under lying the transfer of the shares to I.C.I. by the assessee.
Once the Tribunal came to the conclusion which was purely one of fact that before there was any proposal to reimpose capital gains tax which came to be embodied in the Finance Bill towards the end of November 1956, the scheme had been fully evolved between the assessee and I.C.I. of making the loans by the latter to the former for being invested in the three companies and that the shares would be transferred at par by the assessee to I.C.I. whenever desired, the applicability of section 52 could not be attracted as the same depended on certain facts which must exist or must be found and which had not been so found by the Tribunal.
In the result the appeal is allowed and the order of the High ,Court is hereby set aside.
The assessee shall be entitled to its costs in this Court.
V.P.S. Appeal allowed.

dataset_name: IN-Abs

summary:
After negotiations in 1953 with the concerned Department of the Government of India and the Reserve Bank, a Company, incorporated in U.K. advanced large sums by way of loans to its subsidiary in India, namely the assessee, for subscribing for shares in some Indian Companies.
The correspondence showed that the U.K. Company had the right to acquire at any time the shares at par, in satisfaction of the loans.
In 1961, the assessee transferred the shares when called upon by the U.K. Company to do so.
The Income tax Officer applied section 52 of the Income tax Act, 1961, and assessed the assessee to capital gains tax, which was not in existence in 1953 but was Reintroduced in the Finance Bill of 1959.
The Income tax Officer held that the object of the transfer was to avoid or reduce the assessee 's liability to capital gains tax.
The Appellate Assistant Commissioner however, held that the assessee was not liable to capital gains tax, and the Appellate Tribunal, after an elaborate discussion of the correspondence, confirmed the order, holding that the transfer was not effected with that object.
The Department applied to the Tribunal to refer the questions, (i) whether certain documents were not properly construed, (ii) whether the Tribunal ignored evidence on essential matters, (iii) whether the finding of the Tribunal was perverse, and (iv) whether section 52 was not applicable, as arising out the Tribunal 's order.
The Tribunal rejected the application.
The Department then moved the High Court and the High Court directed the Tribunal to state a case in relation to the four questions, but the High Court did not give any reasons for doing so.
Allowing the appeal to this Court, HELD : The High Court can exercise its jurisdiction in the matter of reference, (a) when the point for determination is a pure question of law, such as, the construction of a statute or a document of title; (b) when the point for determination is a mixed question of law and fact (While the findings of the Tribunal on the facts are final, its decision as to the legal effect of the findings is a question of law.
Where, however, the finding is one of fact, the fact that it is an inference from other basic facts will not alter its character as one of fact); and (c) when a finding on a question of fact is perverse.
[147C E] The necessary ingredients of section 52 are : (i) there should be a direct or indirect connection between the person who acquires a capital asset and the assesee; (ii) the income tax officer should have reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee to capital gains; and (iii) if the first two conditions 139 are satisfied then the full value of consideration for the transfer may be taken to be the fair market value of the capital asset on the date of the transfer.
The intention with which a particular transfer is made and the object which is to be achieved by such transfer are essentially questions of fact, the conclusion relating to which, are to be arrived at on a consideration of relevant material; that is, before the income tax officer can have any reason to believe that a transfer was effected with the object mentioned in the section facts, must exist showing that the object was to avoid or reduce the liability to capital gains.
[141 H; 142 A D] In the present ease, the orders of the Tribunal show that there was no dispute as to the construction of any expression in any letter or document, that no relevant evidence was overlooked, that the inference was drawn from other facts and, that no question was raised on the construction of section 52.
When the Tribunal found, as a fact, that before there was any proposal to reimpose the capital gains tax which had remained abolished for some time, the scheme between the assessee and the U.K. Company bad been fully evolved, the applicability of section 52 could not be attracted.
The findings of the Tribunal that the object mentioned in the section could not be held to be established from the mere absence of a formal agreement between the assessee and the U.K. Company, is not perverse, but is supported by evidence and is eminently reasonable.
in view of the clear, cogent and precise findings and conclusions of the Tribunal, the High Court, should at least have recorded a speaking order showing how the questions of law of the nature sought to be referred arose from the order of the Tribunal.
[146 B D; 141 A C, F; 148 C.D] Shree Meenakshi Mills Ltd. vs C.I.T., Madras, , followed.


judgement:
minal Appeal No. 123 of 1968.
Appeal by special leave from the judgment and order dated May 3, 1968 of the Patna High Court in Criminal W.J.C. No. 17 of 1968 and Criminal Miscellaneous Case No. 447 of 1968.
B. C. Ghose, section N. Misra and A. K. Nag, for the appellant.
D. Goburdhun, for the respondent.
The Judgment of the Court was delivered by Shelat, J.
This appeal, by special leave, is.
against the dismissal by the High Court of Patna of the Writ Petition and an application under section 561A of the Code of Criminal Procedure, for a writ of habeas corpus and an order of a like nature.
filed by the appellant.
Both of them were heard together as they contained common allegations and both were dismissed by a common judgment.
In the two aforesaid proceedings, the case of the appellant was that he was arrested on February 18, 1968, that since then he had been detained in custody without being informed of the grounds for his arrest and detention and also without having been produced before a Magistrate either within 24 hours after his detention as required under the Code, or even thereafter.
On February 21, 1968, he was removed to Darbhanga jail where he was threatened that he would be falsely involved in several cases of dacoity unless he made certain incriminating statements which the police wanted him to make.
He made two applications from jail one on February 25, 1968, and the other on February 28, 131 1968 to the Sub Divisional Magistrate.
The first was not received at all by the Magistrate, while the second was received but after 'a long time, and was rejected.
He also alleged that thereafter he made two further applications, one dated March 22.
1968 and the other dated March 27, 196,8 wherein he applied for directions to the police to 'furnish him with particulars of offences charged against him and for bail, but that he received no order on either of them.
On these allegations, he claimed release forthwith from detention and the quashing of the criminal proceedings against him.
In the counter affidavit filed by the State before the High Court, it was stated that one Bilat Sahni and one Baleshwar Paswan made confessions before the Magistrate at Samastipur on 23rd and 24th January, 1968 confessing their own guilt and implicating the appellant and certain other persons, in about eight dacoity cases, all having been committed in that locality, Thereupon, the appellant was arrested on February 17, 1968 He was produced before the Sub Divisional Magistrate of Samastipur on February 18, 1968, but was remanded to police custody by the said Magistrate for four days on an application by the police therefore.
On February 21, 1968, the appellant was once again produced before the same magistrate and on an application by the police he was remanded to jail custody.
The affidavit alleged that the appellant was involved in as many as nine dacoity case; wherein remand orders had been passed from time to time and that that was how he had, since February 21, 1968, been detained as an under trial prisoner.
On April 19, 1968, an identification parade was held in connection with one, of the said nine cases whereat the relevant complainant identified the appellant.
The case of the State was that the appellant was one of the three leaders engaged with certain hardened criminals in the aforesaid several dacoity cases, that it Was not true that he was unaware of the case against him or that he was not produced before the magistrate or that he was kept in prison without proper remand orders having been passed by the Magistrate.
Five contentions were raised before the High Court, viz., (1) that the appellant was never produced before any magistrate within 24 hours after his arrest or even thereafter; hence his detention was in breach of article 22 of the Constitution, (ii) that although the order sheet, in respect of Laheriasarai Police Station Case No. 1 of 1968, records that the appellant had been produced before the Magistrate on several days set out therein, that order sheet had been falsely made; (iii) that the magistrates had no power to detain the appellant in jail in excess of 15 days in all, (iv) that even if he had the power to remand him in excess of 15 days in all, the condition for passing such orders was not 13 2 satisfied, and (v) that no remand order was factually ever passed.
None of these contentions was accepted by the High Court, and the High Court, therefore, dismissed, as aforesaid, both the applications on May 3, 1968.
Mr. Ghose, who appeared for the appellant before the High Court and who appeared before us also raised the following points: (1) that the appellant was not produced before any magistrate either on February 18, 1968 or on any other date thereafter, (2) that the appellant was never informed of the ,,rounds for his arrest, and detention thereafter, (3) that no custody warrant was ever issued warranting the jail authorities to keep the appellant in jail custody, and (4) that assuming that the said remand orders were passed, the appellant could not be kept in jail custody for more than 15 days in the whole.
On the basis of these four points he urged that the appellant 's arrest .and detention were illegal and that therefore he was entitled to be released forthwith and the criminal proceedings instituted against him by the police quashed.
Mr. Ghose also made a point that the jail Superintendent did not produce before the High Court the jail records which would show his having been taken out of the jail for being produced before the Magistrate when the magistrate decided the applications for remand by the police and passed the remand orders said to have been passed by him and that instead the jail Superintendent produced his report, thus disabling the appellant from establishing his case as laid in his writ petition.
We may at this stage dispose of Mr. Ghose 's last point in regard to the non production of the jail record before the High ,;Court.
It is true that the appellant did ask for production of that record first in the writ petition, and then on April 22, 1968 to which date the hearing of the writ petition was adjourned.
But the order sheet maintained by the High Court in connection with the writ petition and the said application under section 561A of the Code shows that when the writ petition came up for admission, the learned Judges called for the record of the Magistrate 's Court and report from the jail superintendent regarding the dates on which the appellant was said to have been produced before the Magistrate for the purpose of the hearing of the remand applications.
It appears that on April 22, 1968, to which date the writ petition was made returnable, neither the record of the Magistrate 's Court nor the report of the jail Superintendent had arrived.
On that day, the appellant made an application for his production in Court at the time of the hearing and for the production of the jail record.
The High Court, how ever, rejected the prayer for his production in Court and as regards the jail record ordered as follows: 133 so far as the production of the record of the jail is concerned, an express reminder by telegram may be sent to the Superintendent of jail to send the report already called for immediately, if possible by a special messenger.
A reminder may also be sent to the Court concerned to send the records immediately, if possible, by a special messenger.
" The High Court does not seem to have pressed for the produc tion of the jail record as it presumably thought that the Court 's record would show the dates when the appellant was produced before it and the Superintendent 's report would make that point clear.
It 'appears from that order that the appellant also was content with the production of the Superintendent 's report and did not press for the calling of jail record.
The judgment of the High Court also shows that that was also the case when the High Court heard the writ petition and the said section 561A application.
Neither the order sheet nor the judgment of the High Court seems to warrant the allegations made in para 28 of the Special Leave Petition that repeated prayers were made for the production of the jail record.
In any event, no prejudice appears to have been caused to the appellant 's case since the jail record could not have proved anything more than what the jail Superintendent 's report proved.
The report, which was before the High Court, clearly pointed out that the appellant was remanded to jail custody on February 21, 1968 by the Sub Divisional Magistrate, Sadar in the case under section 395 of the Penal Code.
The next date for his appearance was fixed on March 5, 1968, but the appellant refused to go to the Magistrate 's Court on that day as also on March 20, 1968 and April 4, 1968, on the ground that the identification parade for him had not yet been held and his going to and appearing in the Court would expose him to possible witnesses. 'Me Magistrate, therefore, had to postpone his production before him to April 18, 1968 when the appellant was produced and once again remanded to jail custody till the, next date, that is, May 2, 1968.
The report of the jail Superintendent, thus, frankly conceded that the appellant could not be produced on the dates above stated and that the Magistrate, therefore, had to pass remand orders in his absence.
It is clear from the report that the appellant himself had refused to appear and be present before the Magistrate when he heard the remand applications.
therefore, cannot legitimately make a grievance that those orders were passed in his absence.
Those orders could be passed validly in his absence if his presence at the time could not be secured.
This has been held by the majority judgment of this 134 Court recently in Rai Narain vs Superintendent, Central jail, New Delhi.
(1) We now proceed to consider the remaining points in the order in which Mr. Ghose raised them.
The first point urged before us was that the appellant was not produced before a magistrate within 24 hours after his arrest as required by section 167 of the Code of Criminal Procedure, or even later and that therefore his arrest and the detention were bad in law.
The order sheet of the Laheriasarai Police Station Case No. 1(i)68 produced before the High Court shows that the appellant was produced before the Magistrate on February 18, 1968, that is, within 24 hours after his arrest and that the Magistrate remanded him to jail custody on the application by the police until March 5, 1968.
So far there is no difficulty because these entries in the order sheet are corroborated by the report of the Superintendent of jail.
The order sheet, however, has entries dated March 5, 1968, March 20, 1968 and April 4, 196 8 when remand orders are shown to have been made, each for a period of 15 days, and further that the appellant was produced before the Magistrate on each of those three occasions.
That, as the High Court has rightly observed, was not correct as the jail Superintendent 's report clearly showed that the appellant had refused to go from the jail for fear that he would be seen or be shown to probable witnesses.
No reason has been shown as to why we should not agree with the aforesaid observation of the High Court, viz., that the Magistrate had wrongly recorded that the appellant was produced before him and that the remand orders were passed in his presence.
The wrong entries made by him, however, do not mean that the remand orders were not in fact passed by him though he did so in the absence of the appellant.
Such orders, as already pointed out, can be lawfully passed if ail accused person cannot for some reason or the other be brought before the Magistrate.
It is, therefore, not possible to say that remand orders were not passed or that consequently his detention in the jail was without a valid basis.
In the High Court no such contention, viz., that remand orders were not passed on those three dates appears to have been raised.
Indeed, the allegation that the appellant was never produced before the Magistrate is belied by an elaborate order made by the Magistrate on March 28, 1968 when the appellant was represented by counsel.
At that stage his counsel did not argue that the appellant was never produced before the Court or that no remand orders were ever, passed.
The argument urged at that time was that the proceedings at that stage attracted section 167 of the Code, that the stage had not yet reached when section 344 would operate and that therefore the Magistrate bad no power to remand the appellant to jail custody for more than 15 days in the whole.
That contention was (1) Writ Petition No. 330 of 1970, dcc.
on September 1, 1970.
135 rejected by the Magistrate holding that there was an inquiry before him, and that therefore, section 344 applied and he was competent, therefore, to pass remand orders from time to time so long as each of those orders was not for a period in excess of 15 days.
By that very order, the Magistrate rejected the bail application made by the appellant 's advocate holding that the investigation in the cases of dacoity in which the appellant was concerned was going on at that stage and that release of the appellant on bail would hinder its progress.
The next contention was that the appellant was never informed of the grounds of his detention and that that being so, his detention was invalid.
Paras 3, 4 and 35 of his writ petition did not charge that at the time of his arrest he was not informed of the grounds for his arrest and that even when he filed his writ petition he was not informed of those reasons, and that that constituted breach of article 22(1).
This allegation is without any foundation.
All throughout, his case was that the police had tortured him and threatened to involve him in a number of dacoity cases unless he made certain incriminating statements which they wanted from him.
What were those incriminating statements which the police were trying to get from him ? From the fact that the police were wanting him to make those statements, he must have realised that those statements were related to the cases for which he had been arrested.
Next, in the application he made from jail to the Magistrate on February 28, 1968, he alleged that the senior Sub Inspector of Police came to him on February 19, 1968, first abused him and then later on asked him "to admit that offence and promised that by doing so I would be discharged".
According to that application he refused to admit the offence whereupon he was assaulted by the police.
It also appears that he knew that an identification parade was going to be held and therefore had refused to be taken out of jail for being produced before the Magistrate.
All these facts negative the suggestion of his being kept in ignorance of the reasons for his arrest or the cases charged against him.
The third contention was that no valid custody warrant was issued by the Magistrate enabling the jail authorities to detain the appellant in the Darbhanga jail and licence the detention must be held to be without any legal authority.
In support of the argument, counsel pointed out the custody warrant dated February 18, 1968 which according to him must be deemed to have been cancelled is at the foot of it there is the Magistrate 's endorsement that the appellant was instead remanded to police custody.
Assuming that to be so, there is nothing to show that on February 21, 1968 when the Magistrate ordered the appellant to be taken into jail custody, a fresh custody warrant had not been issued by him.
The Magistrate, while passing that order, must have known that the 136 jail authorities would not accept the appellant in jail unless the police taking him there produced a custody warrant.
There is no reason to think first that the Magistrate had not issued such, a warrant, and secondly, that the jail Superintendent inducted the appellant in the jail without such a warrant.
The contention, in our view is wholly without any basis.
The last contention of Mr. Ghose was, firstly, that the remand orders passed by the Magistrate were under section 167 and not section 344, as the latter section did not apply at that stage, and secondly, that even if section 344 applied, the Magistrate could not order detention for more than 15 days in the whole.
167 appears in Ch.
XIV which deals with information and investigation.
As its language shows, it deals with the stage when a person is arrested by the police on information that an offence has been committed.
In providing that such a person must, in terms of section 61, be produced before a magistrate within 24 hours after his arrest, the section reveals the policy of the legislature that such a person should be brought before a magistrate with as little delay as possible.
The object of the section is two fold, one that the law does not favour detention in police custody except in special cases and that also for reasons to be stated by the magistrate in writing, and secondly, to enable such a person to make a representation before a magistrate.
In cases falling under section 167, a magistrate undoubtedly can order custody for a period at the most of 15 days in the whole and such custody can be either police or, jail custody.
Sec. 344, on the other hand, appears in Ch.
XXIV which deal with inquiries and trials.
Further, the custody which it speaks of is not such custody as the magistrate thinks fit as in section 167, but only jail custody, the object being that once an inquiry or a trial begins it is not proper to let the accused remain under police influence.
Under this section, a magistrate can remand an accused person to custody for a term not exceeding 15 days at a time provided that sufficient evidence has been collected to raise a suspicion that such an accused person may have committed an offence and it appears likely that further evidence may be obtained by granting a remand Thus, section 167 operates at a stage when a person is arrested and either an investigation has started or is yet to start, but is such that it cannot; be completed within 24 hours.
Sec. 344, on the other hand, shows that investigation has already begun and sufficient evidence has been obtained raising a suspicion that the accused person may have committed the offence and further evidence may be obtained, to enable the police to do which, a remand to jail custody is necessary.
The fact that section 344 occurs in the Chapter dealing with inquiries and trials does not mean that it does not apply to cases in which the process of investigation and 137 collection of evidence is still going on.
That is clear from the very language of sub section
1 A under which the magistrate has the power to postpone the commencement of the inquiry or trial.
That would be the stage prior to the commencement of the inquiry or trial which would be the stage of investigation.
(see A. Lakshamanrao vs Judicial Magistrate(1).
Therefore, it is not as if the stage at which the Magistrate passed the remand orders was still the stage when section 167 applied and not section 344.
The decision of the Orissa High Court in Artatran vs Orissa(2), to the effect that section 344 does not apply at the stage of investigation and can apply only after the Magistrate has taken cognizance of and issued processes or warrant for the production of the accused if he is not produced before him cannot, in view of A. Lakshamanrao 's case(1) be regarded as correct.
The power under section 344 can be exercised even before the submission of the charge sheet, (cf.
Chandradip vs State(3) and Ajit Singh vs State(4), that is, at the stage when the investigation is still not over.
If the view we hold is correct that section 344 operated, the Magistrate, provided he complied with the condition in the Explanation, was competent to pass remand orders from time to time subject to each order being not for a period exceeding 15 days.
There can be no doubt that the Magistrate had satisfied that condition.
The judgment of the High Court in para 11 points out that the prosecution case was that the appellant had himself made a confession before the police.
That was in addition to a confession by two others which implicated the appellant in the commission of offences under section 395 of the Code.
In our view none of the contentions raised on behalf of the appellant can be sustained.
The appeal, therefore, fails and has to be rejected.
K.B.N. Appeal dismissed.
(1) ; (2) A.I.R. 1956 Orissa 129.
(3)(1955)Bihar Law Journal Reports, 323.

summary:
In the appeal against the order of the High Court dismissing the appellant 's petition for a writ of habeas corpus the appellant urged that he was not produced before a magistrate within 24 hours after his arrest as required by section 167 of the Code of Criminal Procedure or even later; that he was never informed of the grounds for his arrest; that no custody warrant was ever issued warranting the jail authorities to keep the appeal]ant in jail custody; that the remand orders passed by the magistrate were tinder section 167 and not under section 344 of the Code, as the latter section did not apply at the stage of investigation and that even if section 344 applied the magistrate could not order detention for more than 15 days in the whole.
He also urged that the Jail Superintendent did not produce before the High Court the jail records but only produced his report, thus disabling the appellant from establishing his case.
Dismissing the appeal, HELD : (1) The order sheet produced before the High Court showed that the appellant was produced before the magistrate within 24 hours after his arrest and that the magistrate remanded him to jail custody.
Though the order sheet had entries showing that on subsequent occasions when remand orders were made the appellant was produced before the magistrate, the High Court has found that the Magistrate had wrongly recorded that the appellant was produced before him on those occasions.
However, the wrong entries made by him do not mean that the remand orders were not in fact passed by him though he did so in the absence of the appellant.
Such orders can be lawfully passed if an accused person cannot for some reason or the other be brought before the magistrate.
[134 E F] Rai Narain vs Superintendent, Central Jail, New Delhi, Writ Petition No. 330 of 1970, decided on Sept. 1, 1970, referred to.
(ii) The facts negative the suggestion of the appellant being kept in ignorance of the reasons for his arrest.
[135 F] (iii) There is no reason to think that the magistrate ordered the appellant to lie taken into jail custody without custody warrant.
[136 A] (iv) section 167 operates at a stage when a person is arrested and either an investigation has started or is yet to start, but is such that it cannot be completed within 24 hours.
Section 344, on the other hand, shows that investigation has already begun and sufficient evidence has been obtained raising a suspicion that the accused person may have committed the offence 130 and further evidence may be obtained, to enable the police to do which a remand to jail custody is necessary.
The fact that section 344 occurs in the Chapter dealing with inquiries and trials does not mean that it does not apply to cases in which the process of investigation and collection of evidence is still going on.
Therefore, it is not as if the stage at which the Magistrate passed the remand orders was still the stage when section 167 applied and not section 334.
The Magistrate, provided he complied with the condition to the Explanation, was competent to pass remand orders from time to time subject to each order being not for a period exceeding 15 days.
The Magistrate had satisfied that Condition.
[136 G] View contra in Artatran vs ATR 1956 Orissa 129 disapproved.
A Lakshamanrao vs Judicial Magistrate, ; , Chanaraatn vs State, and Ajit Singh vs State, (1970) 76 Crl.
L.H. 1075, referred to The appellant was content with the production of the superintendent 's report.
No prejudice was caused to the appellant 's case since the jail record could not have proved anything more than what the jail superintendent 's report proved.


judgement:
Appeal No. 1166 of 1971.
Appeal by special leave from the Award dated December 19, 1970 of the Central Government Industrial Tribunal, Jaipur in Case No. CIT 10 of 1968.
M. C. Setalvad, K. K. Jain, C. N. Sharma, C. section Patel and Bishamber Lal, for the appellant.
M. K. Ramamurthi and J. Ramamurthi, for the respondent.
The Judgment of the Court was delivered by Mitter, J.
This is an appeal by special leave from an award of the Central Government Industrial Tribunal, Rajasthan directing the reinstatement of one Bhisham Verma in the service of the appellant with full back wages.
The facts are as follows.
The appellant is a public limited company with its registered office at Sawaimadhopur in the State of Rajasthan.
It has a cement factory at the said place besides a limestone quarry at Phallodi situate at a distance of 24 kms.
from the cement factory.
It has two separate sets of Standing Orders for the workmen employed in the factory and in the quarries.
Both sets of Standing Orders were certified in accordance with the provisions of the Industrial Employment (Standing Orders) Act,1946.
The Standing Orders applicable to the workmen employed in the factory were certified in the year 1954 while those applicable to the workmen of the quarries were certified in the year 1961.Up to April 1967 both sets of Standing Orders provided for superannuation of the workmen at the age of 55 with a stipulation for extension up to 60 years if a workman was found fit to work.
On a dispute having been raised for the raising of the age of superannuation of the workmen at the cement factory, a settlement was arrived at between the appellant and the respondent (a registered trade union of the employees) on 16th December 1966 whereby it was agreed that Standing Order No. 21 applicable to the cement factory be amended by raising the age of superannua(ion from 55 to 58 years without making any provision for further 298 extension.
A joint application following upon the agreement was moved by the appellant and the respondent for modifying the, Standing Order No. 21 with respect to the age of superannuation which was accordingly done.
Nothing was however done with regard to the age of superannuation of the, employees at the quarry, the relevant clause in the Standing Order remaining unaltered.
On April 3, 1968 the appellant intimated the said Bhisham Varma, incline driver at the quarry, that he "had exceeded the age of retirement on 3 4 1968" and as such he was given "notice of retirement in accordance with clause 21 of the Standing Orders of the quarries with effect from the close of work on 2 5 1968".
On April 30, 1968 the said workman wrote to the appellant that although according to the service file he had completed the age of 55 years as indicated, his proper age according to his horoscope was about 50 years and his service record should be amended accordingly.
The appellants ' reply to the above dated July 9, 1968 was to the effect that his case had been reexamined and that his retirement, as already intimated on 3 4 1968 would stand.
The Union took up the cause of the worker and addressed a letter on July 18, 1968 to the Regional Labour Commissioner requesting that arrangements may be made to put the worker back to work and take proper legal proceedings.
On behalf of the workman it was represented that he had been working in the company since October 11, 1957, that the Personnel Manager of the, quarry had, given orders dismissing him from service on April 3, 1968 and that in spite of objections made by the workman that there was a mistake in the papers of the company with regard to his age which was 50 as supported by his horoscope and doctor 's certificates the action of the quarry manager was illegal and contrary to service contract.
The record does not show what if any other steps were taken by the parties when the Central Government made an order of reference under section 10(1) (d) of the Industrial Disputes Act ,reading : "Whether the action of the management of the Jaipur Udyog Limited, P.O. Phallodi Ouarry, Sawaimadhopur in terminating the services of Bhisham Varma, incline driver, with effect from 9th July 1968, on grou nds of superannuation was legal and justified ? If not to what relief is he entitled ? Before the Tribunal, the respondent Union filed a statement of claim wherein after reciting the action taken by the appellant and the representation made by the workman it was stated that the quarry and the cement factory were under one and the same management and there was complete financial integrality between the activities of the company at both the places.
It was also said 299 that workmen could be transferred from one place to another and that a,.
a result of the settlement mentioned, the company could not retire any workman before he attained the age of 58 years.
The settlement was said to apply to the workmen employed.
at both the places.
The Union further submitted that the company could not insist on two sets of conditions of service covering different sections of the same workmen in the same establishment, that the age of retirement was not a subject mentioned in the Schedule to the Industrial Employment (Standing Orders) Act and as such.
no Standing Order could be certified on this topic.
In its reply to the above, the company took the stand that the settlement arrived at in respect of the cement works Karmachari Sangh, Sawai Madhopur was not ipso facto applicable to the quarry inasmuch as the proper authority under the in respect of the cement works was the Government of Rajasthan whereas the appropriate Government in respect of the quarries was the Government of India.
It was said further that in pursuance of the settlement arrived at in 1966 the Standing Orders were amended by the Certifying Officer of the Government of Rajasthan as a result whereof the age of superannuation in the works at Sawai Madhopur was raised to 58.
This however did not alter or modify the position prevailing in the quarries which were governed by a separate set of orders certified by the Certifying Officer of the Government of India.
The Tribunal took the view that the cement factory and the quarries were two units of the same establishment and that consequently there should be a uniform set of rules for the workmen of the company as a whole and it was immaterial that in the case of one unit the Standing Orders had to be certified by the Certifying Officer of the Government of India and in the other by the Officer appointed by the Government of Rajasthan.
The Tribunal was further of the view that the clause as to superannuation could not be provided in the Standing Orders under the relevant Act and certification could not attach enforceability to them even on the ground that the workers did not challenge such provision before the Certifying Officer.
In the result the Tribunal held that there could not be a lower age limit of superannuation for workmen at the Phallodi Quarry specially in view of the fact that workmen were admittedly transferable from one place to the other.
As a consequence of the above finding, the Tribunal quashed the order and directed the reinstatement of the workman with full back wages.
On behalf of the company the first contention raised by Mr. Setalvad was that the Tribunal had gone wrong in construing the order of reference to include a dispute as to whether it was open to the company to have two sets of Standing Orders providing for 300 different ages of superannuation.
Mr. Setalvad argued that in view of the correspondence terminating with the representation by the Union to the Conciliation Officer, it was abundantly clear that the dispute between the parties was whether or not the company was justified in coming to the conclusion +hat the workman concerned had reached the age of 55 on April 3, 1968 and as such was to be superannuated in terms of the Standing Orders.
The letter of the 9th July 1968 by the Company to the workman reads as follows Please refer to your application dated 30 4 1968 received by us on 8 5 1968 along with a copy of your horoscope in Hindi.
The Management has reexamined your case and come to a final conclusion that your retirement from the service of the company as intimated to you vide our memo No. Pq/B/186 dated 3 4 68 should stand.
You are, therefore, directed to collect your dues, if any, from our Accounts Department on any working day after producing necessary clearance certificate.
" Of necessity, reference had to be made by the Tribunal to ,the application of the workman dated April 30, 1968 with a copy of his horoscope.
The said latter expressly complained of the alleged inaccuracy in the service record pertaining to him according to which the writer had not completed the age of 55 years on the 3rd April.
The workman 's representation was that his age had been inaccurately recorded, , ',hat his proper age was 50 and that the records should be corrected accordingly.
In our view, if the Tribunal had taken care to examine what was the dispute between the parties when the Government made ,the order of reference it would have had no difficulty in realising that no dispute was raised either by the workman or the Union that the age of superannuation governing the workman was not 55 years.
It was certainly open to the workman to contend that his age of superannuation should be fixed at 58 and not 55 years and it would have been equally open to the Union to raise the point in their representation to the Conciliation Officer.
If that had been done, the Government of Rajasthan could have property made a reference of a dispute between the parties regarding the correct age of superannuation and the adjudication of the dispute regarding the superannuation of the workman concerned on that basis.
Nothing was however shown to us, apart from the documents already referred to, to enable us to find that any question had been raised before the Government of Rajasthan relating to the age of superannuation of the workmen at the quarries or that there was any basis for apprehension of such a dispute and it was therefore not open to the Tribunal to enlarge the ambit of the dispute between the parties by reference to the difference in the 301 age of superannuation under the two sets of Standing Orders.
Mr. Setalvad drew our attention to the judgment of this Court in Tile Sindhu Resettlement Corporation Ltd. V. The Industrial Tribunal of Gujarat & Ors.(1) for the proposition that unless a dispute was raised by the workman with their employer it could not become an industrial dispute.
Respondent No. 3 before this Court in that case was employed by the appellant as an accounts Clerk at Gandhidham in the year 1950.
Some years thereafter his services were placed at the disposal of the subsidiary.
company of the appellant.
The respondent was appointed in the said subsidiary company on a different set of conditions of service.
He worked with that company up to February 1958 when his services were terminated after payment of retrenchment compensation and other dues by the said subsidiary company.
The respondent then went to the appellant and requested that he might be given posting orders.
The appellant declined to do so on the ground that the post which he was occupying in 1953 had been permanently filled up.
Thereupon the respondent demanded retrenchment compensation from the appellant also.
As the representations of the respondent were not fruitful, conciliation proceedings were started and ultimately, on the report of the Conciliation Officer, the State of Gujarat referred the dispute to, the Industrial Tribunal.
The matter referred for adjudication was, "whether the said respondent should be reinstated in the service of the appellant and be paid back wages from 21st February, 1958.
" The Tribunal directed reinstatement and payment of back wages.
In allowing the appeal, this Court observed that the respondent workman had only asked for payment of retrenchment compensation and did not raise any dispute for reinstatement.
According to this Court (see p. 522): ".
the evidence produced clearly showed that no such dispute (i.e. relating to reinstatement) had ever been raised by the respondent with the management of the appellant.
If no dispute at all was raised by the respondents with the management, any request sent by them to the Government would only be a demand by them and not an industrial dispute between them and their employer.
Relying on the above decision Mr. Setalvad argued that in order that a reference can be construed to embrace a particular dispute it must be shown that a demand had been made by the workman and not accepted by the employers so as to give rise to a dispute which in the view of the Government required adjudication.
Mr. Ramamurty on behalf of the respondents drew our attention to the provisions of section 10(1) of the and in particular to clauses (c) and (d) thereof.
He argued that it was open to the appropriate Government in an appropriate case to (1) ; 302 refer a dispute along with any matter appearing to be connected with or relevant to the dispute and no objection could be taken to the award of a Tribunal where the Tribunal had not transgressed the limits of cls.
(c) and (d) of section 10(1) of the Act.
It was further contended that the proper age of superannuation applicable to the company as a whole was so intimately connected with or relevant to the dispute which actually arose between the parties prior to the order of reference as to lead us to hold that the Tribunal had not gone beyond its jurisdiction in construing the order of reference to embrace an adjudication as to proper age of superannuation of a workman like Bhisham Verma.
In our view, the finding of the Tribunal that the Company could not fix a lower age limit of superannuation for workmen at the quarries went beyond the scope of reference which had to be gathered from the circumstances preceding the Government Order.
The Tribunal never addressed itself to the point of view of the workman that his proper age was only 50 and not 55; nor did it come to a finding that the true age of the workman being 50 years in 1968 there was no question of his superannuation in that year.
Mr. Setalvad raised a further point that so, long as the quarried, had a different set of Standing Orders prescribing a different age of superannuation from that fixed under,the Standing Orders relating to the cement works, the tribunal could not have disregarded the Standing Orders as it had purported to do and lay down that the age of superannuation of all workmen should be 58 as found" by it.
Our attention was drawn to section 2 (g) of the Industrial Employment (Standing Orders) Act and to section 3(2) of the said Act under which provision had to be made in Standing Orders for all matters set out in the Schedule to the Act.
According to Mr. Setalvad, item 8 of the Schedule reading: "Termination of employment, and the notice thereof to be given by employer and workmen." allowed the framing of Standing Orders with regard to age of superannuation.
Mr. Ramamurty on the other hand contended that this item could not possibly embrace such a matter as the age of superannuation but was limited to voluntary acts of the employer or the workmen to put an end to the employment without any question of superannuation.
Arguments were advanced at some length by counsel on either side on this point, but in the view which we have taken on the first point as to the jurisdiction of the Tribunal, we find it unnecessary to decide this point.
in the result we hold that the award of the Tribunal was in competent as the dispute which it sought to adjudicate upon was not the one referred.
The award will therefore be set aside, but in the circumstances of the case, we make no order as to costs.
S.C. Award set aside.

summary:
The appellant, a public Limited Company, had a Cement Factory and at a distance, a limestone quarry.
it had two standing orders for the workman employed in the factory and in the quarries.
Upto April, 1967, both sets of standing orders provided for superannuation of the workmen at the age of 55 with a stipulation for extension upto 60 years if a workman was found fit to work.
After a dispute at the Cement Factory, a settlement was arrived at by which it was agreed that the standing order applicable to the Cement Factory be amended by raising the age of superannuation from 55 to 58 without making any provision for further extension and accordingly, the amendment was made.
Nothing was, however, done with regard to the superannuation age of the employees at the quarry.
On April 3, 1968, the appellant intimated the incline driver at the quarry that he had reached the age of retirement on 3 4 68 and accordingly he was given notice of retirement in terms of the standing order.
On April 30, 1968, the said workman wrote to the appellant that although service records showed him to be 55 years of age, his proper age according to his horoscope, was about 50 years and so his service records should he amended accordingly, but the appellant refused.
The Union took up the cause of the worker and requested the Regional Labour Commissioner to put the worker back to work.
On a reference under section 10(1) (d) of the Industrial Disputes Act, the Tribunal took the view that the Cement Factory and the quarries were two units of the same establishment and so, there should be a uniform set of rules for the workmen of the Company as a whole.
In the result, the Tribunal held that there could not be a lower age limit of superannuation for workmen at the quarry specially in view of the fact that workmen were admittedly transferred from one unit to the other.
As a consequence, the Tribunal quashed the order of dismissal and directed the reinstatement of the workman with full back wages.
It was contended by the Company before this Court that the Tribunal was wrong in construing the order of reference to include a dispute as to whether it was open to the Company to have two sets of standing orders providing for different ages of superannuation.
According to the appellant, the dispute between the parties was whether or not the Company was justified in coming to the conclusion that the workman concerned had reached the age of 55 on April 3, 1968, and as such, was to be superannuated in terms of the standing orders, Setting aside the award, HELD : The Tribunal had not taken care to examine what was the dispute between the parties when the government made the order of reference.
No dispute was ever raised either by the workman or the Union that the age of superannuation governing the workman was not 297 55 years.
The finding of the Tribunal that the Company could not fix a lower age limit of superannuation for the workman at the quarries went beyond the scope of reference.
The Tribunal never addressed itself to the point of view of the workman that his proper age was only 50 and not 55; nor did it come to a finding that the true age of the workman being 50 years in 1968, there was no question of his superannuation in that year.
[302 C] The Sindhu Resettlement Corporation Ltd. vs The Industrial Tribunal, Gujarat & Ors. ; referred to.