judgement:
Appeal No. 848 of 1971.
Appeal by special leave from the judgment and order dated December 7, 1970 of the Delhi High Court in S.A.O. No. 110 D of 1966, Hardev Singh, K. P. Kapur and H. L. Kapur, for the appel lant.
S.K. Mehta, K. L. Mehta and K. R. Nagaraja, for the res pondent.
936 The Judgment of the Court was delivered by Vaidialingam, J.
In this appeal, Mr. Hardev Singh, learned counsel on behalf of the tenant appellant, challenges the judgment and order dated December 7, 1970 of the Delhi High Court in S.A.O. No. 110 D of 1966.
Special leave has been granted by this Court limited to the question whether the High Court was justified, in view of section 39(2) of the Delhi Rent Control Act, 1958 (hereinafter called the Act) in setting aside the decisions of the two subordinate authorities, dismissing the application filed by the respondent landlord for evicting the appellant.
The facts leading up to this appeal may be briefly stated.
The appellant took on lease, the first floor of the premises in question from the respondent on January 22, 1964 on a monthly rent of Rs. 250.
The respondent who was the owner of the entire premises was then occupying the ground floor.
The landlord filed an application, before the Rent Controller on November 26.1964 for eviction of the appellant from the portion in his occupation as lessee, on two grounds; (a) that the tenant has sub let a part of the premises, and (b) that he required the premises bona fide for his occupation as a residence himself and his family members.
The latter claim was based under cl.
(e) of the proviso to sub section (1) of section 14 of the Act, which is as follows: "that the premises let for residential purposes are required bona fide by the landlord for occupation as a residence for himself or for any member of his family dependent on him, if he is the owner thereof, or for any person for whose benefit the premises are held and that the landlord or such person has no other reasonably suitable residential accommodation;" The tenant opposed the claim of the landlord on both the grounds.
He denied the allegation of sub letting.
He also contended that the landlord 's requirement for his occupation was not bonafide.
The tenant 's plea was that the portion of the premises in his occupation was sufficient for his purpose.
The Rent Controller accepted the plea of the tenant that there was no subletting.
He also accepted his plea that the requirement of the landlord for his occupation was not bona fide.
On these findings, the landlord 's application was dismissed.
These two findings were also confirmed in the appeal filed by the landlord before the Rent Control Tribunal.
The question.
regarding sub letting, having been decided against the landlord by both the Tribunals, no longer survives and it was also not agitated before the High Court.
It may be stated at this stage that the findings of both the tribunals on the question of bonafide requirement were recorded against the landlord, on the sole ground that the landlord must 937 have foreseen his requirement for additional accommodation even at the time when he let out a part of the premises on January 22, 1964 to the appellant and therefore he was not entitled to ask for eviction under cl.
(e) of the proviso to sub section (1) of section 14 of the Act.
It is the view of both the Tribunals that when eviction is asked for within about I I months of the letting, the claim of the landlord cannot be considered to be bonafide.
The landlord carried the matter in appeal before the High Court under section 39 of the Act.
That section runs as follows : "39(1) Subject to the provisions of sub section (2), an appeal shall lie to the High Court from an order made by the Tribunal within sixty days from the date of such order ; Provided that the High Court may entertain the appeal after the expiry of the said period of sixty days, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal in time.
(2)No appeal shall lie under sub section (1), unless the appeal involves some substantial question of law.
Before the High Court, counsel for both parties made a representation that the Rent Control Tribunal has not recorded a finding on the question whether the premises avaiable with the landlord can be considered to be "reasonably suitable residential accommodation" as contemplated by cl.
(e) of the proviso to section 14 (1).
Hence they made a joint request to remand the case to the Tribunal for a finding on the said question on the basis of the evidence already on record.
Accepting this joint request, the learned Judge remanded the case to the Tribunal.
The latter, after a consideration of the materials on record as well as the extent of the premises in the occupation of the landlord and also having due regard to the number of family members living with the latter, held, in his report dated May 4, 1970, that the portion of the premises in the occupation of the landlord was not reaso nably sufficient for a family consisting of the landlord, his wife, his son, son 's wife and their children.
On this basis, he recorded a finding that the premises in the occupation of the respondent were not reasonably suitable for his residence.
So far as we could see, the correctness of these findings recorded by the Rent Control Tribunal, in favour of the landlord, do not appear to have been challenged by the tenant before the High Court when the appeal came up for final hearing.
On the other band, we find that the same contentions that were raised regarding the bonafide requirement of the landlord and which found 938 acceptance at the hands of the Rent Controller and the Tribunal before remand were again raised by the tenant appellant before the High Court.
That is, in short, the appellant herein was contesting before the High Court, the appeal of the landlord, ignoring the findings of the Tribunal dated May 4, 1970.
The main point that was urged by the appellant before the High Court was that as the two subordinate Tribunals have recorded concurrent findings negativing the claim of the landlord regarding his bonafide requirement of the premises, the appeal filed by the landlord did not involve any substantial question of law.
On this basis the appellant pressed for the dismissal of the landlord 's appeal.
On the other hand, the respondent urged that both the subordinate Tribunals have not properly considered the question of the landlord 's requirement; and that the findings recorded against him were on irrelevant consideration.
According to the landlord the various material factors which have to be taken into account for adjudicating upon such a claim, have not been properly borne in mind by both the Tribunals.
Quite naturally the landlord placed considerable reliance on the findings recorded on May 4, 1970 in his favour by the Tribunal.
The High Court rejected the contention of the appellant that it has no jurisdiction to consider the correctness of the findings.
recorded by the two subordinate authorities especially when the relevant matters to be taken into account for deciding such a question have not been borne in mind by those authorities.
The High Court is of the view that the rejection by the Rent Controller and the Tribunal of the claim of the landlord on the sole ground that he should have anticipated his requirement for the, next 10 or II months when he let out the premises on lease on January 22, 1964, was erroneous.
The High Court has further observed that none of the subordinate authorities have held that after letting out the premises on January 22, 1964 and before filing the application for eviction on November 26, 1964, the landlord has made any demand from the tenant for payment of higher rent.
Finally, the High Court having due regard to the above circumstances and the size of the family of the landlord and the findings recorded by the Tribunal on May 4, 1970 held that the, decision of the two subordinate authorities dismissing the landlord 's application was erroneous.
On the other hand, the learned Judge held that the landlord has made out his claim under cl.
(e) of the proviso to section 14(1) of the Act.
On this reasoning the learned Judge reversed the decision of the Rent Controller and the Tribunal and allowed the application of the landlord for eviction of the appellant.
The appellant was given six months ' time for vacating the premises.
Mr. Hardev Singh, learned counsel for the appellant, has very strenously urged that in view of the concurrent findings" 939 recorded by the two subordinate tribunals, there was no question of law, much less a substantial question of law arising for consideration before the High Court in the appeal filed by the landlord.
Hence he urged that the interference by the High Court with the concurrent findings so recorded was not justified.
Learned counsel further pointed out that the landlord has not made out his claim under cl.
(e) of the proviso to section 14(1) of the Act.
Mr. Hardev Singh referred us to certain decisions of this Court dealing with the question, under what circumstances it can be con sidered that a substantial question of law arises.
We do not think it necessary, in the circumstances of this case, to refer to those decisions, as in our opinion they have no bearing on the short question that arises for consideration before us, namely, the power of the High Court under section 39, to consider the correctness of a finding regarding bonafide requirement under cl.
(e) of the proviso to section 14(1) of the Act.
As we have already pointed out, the sole question that has to be decided by us is whether the High Court in reversing the decisions of the Rent Controller and the Tribunal, in the circumstances of this case, can be considered to have exceeded its jurisdiction under section 39(2).
We are satisfied that the High Court has not exceeded its jurisdiction in any manner.
The argument of Mr. Hardev Singh that the High Court has exceeded its jurisdiction under section 39(2) of the Act when it reversed the finding of the two subordinate authorities on the question of bonafide requirement has, in our opinion, no substance.
In Smt.
Kamla Soni vs Rup Lal Mehra(1), this Court observed as follows: ".
Whether on the facts proved the requirement of the landlord is bona fide, within the meaning of section 14(1)(e) is a finding on a mixed question of law and fact. .
From the above observations it is clear that an inference drawn by the subordinate authorities that the requirement of the respondent was not bonafide, could not be regarded as conclusive.
The High Court, in proper cases, has ample jurisdiction to interfere with that finding and record its own conclusions on the basis of the materials on record.
We may also point out that in the case before us the position is made worse for the appellant in view of the finding recorded by the Tribunal in favour of the landlord on May 4, 1970.
We have already pointed out the circumstances under which a finding was called for by the High, Court.
The High Court has accepted those findings and held in favour of the landlord that he has (1) C. A. No. 2150 of 1966 decided on 26 9 1969.
940 made out a case under cl.
(e) of the proviso to section 14(1) of the Act.
Mr. Hardev Singh referred us to the decision of this Court reported in Bhagwan Dass and another vs section Rajdev Singh and another(1), wherein it has been observed : "A second appeal lies to the High Court against the decision of the Rent Control Tribunal under Section 39(2) of the Delhi Rent Control Act, 1958, only if the appeal involves some substantial question of law.
The Rent Controller and the Rent Control Tribunal, on a consideration of the relevant terms of the agreement and oral evidence and the circumstances found that a clear case of sub letting was established.
On that finding no question of law, much less a substantial question of law, arose.
" The first part of the above extract lays down the nature of the jurisdiction exercised by the High Court under section 39(2) of the Act.
In that decision, on facts, it was found both by the Rent Controller and the Tribunal, on a relevant consideration of the materials on record, that a case of sub letting was established.
On such a finding concurrently arrived at by both the authorities, it was held by this Court that no question of law, much less a substantial question of law arose for consideration before the High Court.
But the facts in the case before us are entirely different.
We have already pointed out that the question that fell to be considered by the High Court was whether the claim made by the landlord under cl.
(e) of the proviso to section 14(1) of the Act was bonafide.
As already pointed out, this Court, in Smt.
Kamla Soni vs Rup Lal Mehra(1), has held that a finding on such an issue is not one of fact alone but is a finding of mixed question of law and fact, and that it was open to the High Court when exercising its jurisdiction under section 39(2) of the Act, to consider the correctness or otherwise of such, a finding.
The findings recorded on such an issue by the subordinate tribunals are not conclusive.
From the above discussion, it follows that the High Court has not exceeded its jurisdiction under section 39(2) of the Act.
In consequence, the appeal fails and is dismissed.
In the circumstances of the case, parties will bear their own costs.
V.P.S. Appeal dismissed.
(1) A. I. R. (2) C. A. No 2150 of 1966 decided on 26 9 1969.

summary:
The respondent, who was the landlord of certain premises, filed an application under section 14(1)(e) of the Delhi Rent Control Act, 1958, for the eviction of the appellant, who was the lessee, on the ground inter alia, that the respondent required the premises bonafide for his occupation as a residence for himself and his family members.
The Rent Controller found that the requirement of the landlord was not bonafide and dismissed the application.
The order was confirmed in appeal by the Rent Control Tribunal.
The respondent filed an appeal to the High Court under section 39(2) of the Act.
Before the High Court both parties agreed that the case should be remanded to the Tribunal for a finding on the question whether the premises available with the respondent could be considered to be 'reasonably suitable residential accommodation ' as contemplated by section 14(1)(e).
On remand, the Tribunal reported that the premises in the occupation of the respondent were not reasonably sufficient for the respondent and his family.
The appellant however contended before the High Court, ignoring this finding of the Tribunal that on the concurrent findings of the two sub ordinate authorities that the landlord 's requirement was not bonafide, there was no question of law involved and so the High Court had no jurisdiction under section 39(2) to consider the correctness of those findings.
The High Court rejected the contention and held, that, in view of the finding on remand the decision of the subordinate authorities dismissing the respondent 's application was erroneous.
In appeal to this Court, HELD:This Court in Kamla Soni vs Rup Lal Mehra, C.A. No. 2150 of 1966 dated 26 9 1969 held that a finding on the issue whether the requirement of a landlord is bonafide is a finding on mixed questions of law and fact and not on facts only.
Therefore, it was open to the High Court, when exercising jurisdiction under section 39(2), to consider in proper cases the correctness of such a finding.
[939E G]


judgement:
l Appeals Nos. 1449 to 1454 of 1967.
Appeals by special leave from the judgments and orders dated December 15, 1966 of the Madhya Pradesh High Court in Misc.
Petitions Nos.
303 of 1966 etc.
I. N. Shroff, for the appellants (in all the appeals).
M. N. Phadke, K. L. Hathi and P. C. Kapur, for the respondents (in C.As.
1449, 1450 and 1452 of 1967).
V.S. Desai, K. L. Hathi and P. C. Kapur, for the respondents (in C.As.
1453 and 1454 of 1967).
The Judgment of the Court was delivered by Grover, J.
All these appeals arise out of writ petitions that were filed in the High Court of Madhya Pradesh challenging the notices of demand issued by the Deputy Transport Commissioner for payment of the amount of passenger tax said to be due under the Madhya Pradesh Motor Vehicles (Taxation of Passengers) Act, 1959, hereinafter referred to as the 'Act '.
By a common judgment dated November 8, 1966 the High Court allowed the petitions and quashed the demand notices.
The appeals may be divided into two categories.
In C. As. 1449 and 1453 of 1967 returns had been duly filed as contemplated by section 5 of the Act but no tax had been deposited as required by section 6.
Demand 9 85 notices were issued in respect of the tax payable pursuant to the returns some years later.
Proceedings were also taken as no payment was made for recovery of the tax as arrears of land revenue.
In the other four appeals the returns were never filed but it appears the authorities did take certain proceedings under section 7 of the Act and in some cases accounts of the respondents were checked and their liability determined.
When demand notices were sent and recoveries sought to be made the writ petitions were filed.
The High Court did not go in these matters fully ,and treated all the petitions as if the facts were similar.
Section 3 of the Act which is the charging section provides that there shall be levied and paid to the State Government a tax on all passengers carried by stage carriages at a rate equivalent to 15 % of the fare inclusive of the tax payable to the operator of a stage carriage.
The tax has to be collected by the operator of a stage carriage and paid to the State Government in accordance with the provisions of the Act.
Under section 5 the operator must deliver to the tax officer or to such prescribed officer as may be specified a return in the prescribed form and manner either daily or at such intervals as may be prescribed.
Section 6 lays down that the tax payable during any month in accordance with the return submitted under section 5 shall be paid into a Government treasury by the operator and the receipt evidencing such payment has to be forwarded to the Tax Officer.
Sections 8, 9 and 10 are in the following terms "(8) Fares escaping assessment.
If, for any reason, the whole or any portion of the tax leviable under this Act, for any month has escaped assessment, the Tax Officer may, at any time within, but not beyond, one year from the expiry of that month, assess the tax which has escaped assessment, after issuing a notice to the operator and making such inquiry as the officer may ,consider necessary.
(9)Penalty for non payment of tax.
Where the whole orany portion of the tax payable to the State Government in respect of any stage carriage for any month or portion thereof in pursuance of sections 6, 7 and 8 has not been paid to it in time the Tax Officer may, in his discretion, levy in addition to the tax so payable, a penalty not exceeding 25 per cent of the maximum tax which would have been payable to the State Government if the stage carriage had carried its full complement of passengers during such month or portion thereof.
(10)Recovery of tax, etc, (1 ) In the cases referred, to in sections 7, 8 and 9 the, Tax Officer shall serve on the operator a notice of demand for the sums payable 9 86 to the State Government and the sums specified in such notice may be recovered from the operator as arrears of land revenue.
(2)The tax shall be a first charge on the stage carriage in respect of which it is due as also on its accessories and such stage and the accessories thereof may be attached and sold for the recovery of the tax under the appropriate law relating to the recovery of arrears of land revenue.
" Section 12 provides for an appeal against a notice of demand ' served under section 10.
The scheme of the above provisions apparently is that the operator of a stage carriage has to submit a return in accordance with section 5 and pay tax into the Government treasury every month as provided by section 6.
No question can arise of any assessment order being made under section 7 by the Tax Officer where the returns are found to be correct and complete.
It is only where either no returns have been submitted or where the return submitted appear to the Tax Officer to be incorrect or incomplete that the Tax Officer has to follow the procedure laid down in section 7 and determine the tax payable by the operator.
The High Court was of the view that even where returns had been filed and accepted as correct the Tax Officer has to pass a proper assessment order holding the operator liable for payment of tax in accordance with the return submitted by him.
In other words no notice of demand can be issued until the Tax Officer makes such an order quantifying the amount of tax.
We are unable to accede to the contention which prevailed ' with the High Court that even where returns had been submit ted but the tax has not been paid the Tax Officer is bound to, make an order before serving a notice of demand even though the demand is strictly in accordance with the returns which have been submitted.
Section 7 rules out any such course to be followed by the Tax Officer.
It is only when the returns have not been submitted or when return submitted are found to be incorrect and incomplete that the Tax Officer has to make an inquiry, and determine the sum payable by the operator by way of tax.
Similarly if there has been escapement of tax proceedings have, to be taken under section 8 and an order has to be made after an enquiry.
The position would be same if penalty is sought to be levied, under section 9.
But where returns have been accepted as correct nothing more need be done except to recover the tax due which has not been paid and no asessment order need be passed in view of the express language of section 7.
987 We are satisfied that in the two appeals, i.e., C. As. 1449 and 1453/67 in which returns had been filed the Tax Officer was not bound to make any order quantifying the amount of tax before issuing the notice of demand.
The amount sought to be realized was quantified in the returns themselves vide Form IV read with Rule 4(2)(c) of the M. P. Motor Vehicles (Taxation of Passengers) Rules.
It has not been shown that any penalty was sought to be imposed in those two cases.
The order of the High Court, therefore, in these appeals cannot be sustained and is hereby set aside and the writ petitions are ordered to be dismissed.
As regards C. As.
1450, 1451, 1452 and 1454/67, it appears, as has been stated earlier, that some proceedings were held of the nature contemplated by section 7 and the notices of demand were issued after orders had been duly made by the Tax Officer.
But this is a matter which was not examined in each case by the High Court and we would like to express no opinion with regard to it.
These appeals are also allowed and the orders of the High Court are set aside.
The High Court will rehear and redecide the same in accordance with law.
There will be no order as to costs in all.
the appeals.
K. B. N, Appeals allowed.

dataset_name: IN-Abs

summary:
Under the Madhya Pradesh Motor Vehicles (Taxation of Passengers) Act, 1939, where returns have been accepted as correct nothing more need be done except to recover the tax due which has not been paid and no assessment order need be passed in view of the express language of section 7.
It is only when the returns have not been submitted or when returns submitted are found to be incorrect and incomplete that the tax officer has to make an enquiry and determine the sum payable by the operator by way of tax.
Simmilarly if there has been escapement of tax, proceedings have to be taken under section 8 and an order has to be made after an enquiry.
The position would be the same if penalty is sought to be levied under section 9.
[986F H; 987A]


judgement:
Appeal No. 15 of 1968.
Appeal from the judgment and decree dated August 11, 1964 of the Allababad High Court in first Appeal No. 11 of 1957.
C. B. Agrawala, O. P. Rana and R. Bana, for the appellants.
Grover, J. This is an appeal by certificate from the judgment of the Allahabad High Court dacreeing the suit filed by the respondent company for recovery of a sum of Rs. 21,000/ on account of rent or damages in respect of storage charges for 4,000 Maunds of potatoes for which space had been reserved in the cold storage by the company The plaintiff respondent brought a suit against the State of Uttar Pradesh and impleaded three other defendants who were, at the material time.
in the service of the State.
Defendant No. 3 was a Horticulturist in the Department of Agriculture.
He negotiated with the plaintiff for storing Government potatoes in a cold storage which belonged to the plaintiff.
It was agreed that the Government potatoes would be sent for storage and the plaintiff would be entitled to charge at a certain rate per maund.
It was understood that 4,000 maunds of potatoes would be sent for storage.
How ever, no potatoes were sent although the plaintiff had reserved the requisite space in the storage which remained unoccupied during the season.
It appears that defendant No. 3 A. P. Gupta was acting on behalf of Srivastava defendant No. 2 who was Deputy Director, Horticulture.
Both these defendants were acting upon instructions from Sri Ram Krishna defendant No. 4 who was Assistant Development Commissioner, Planning Lucknow.
The suit was therefore filed against the State and the other three defendants to recover the storage charges amounting to Rs. 21,000/ .
3 Although, all the defendants raised a common plea that there was no contract between the parties for the storage of potatoes and that the entire matter remained at the stage of negotiations the real plea taken on behalf ' of the State was that no contract had been entered into in accordance with article 299 (1) of the Constitution.
The trial court upheld the objection of the State and dismissed the suit against it but it held the other defendants jointly liable for the storage charges.
The High Court on appeal by the defendants set aside the decree against defendants Nos. 2 and 4 but maintained it against defendant No. 3.
No appeal, however, was filed by the plaintiff against the State.
As the judgment of the High Court proceeded mainly on the provisions of sub section (3) of section 230 of the Contract Act the whole of that section may be set out : section 230. "In the absence of any contract to that effect an agent cannot personally enforce contracts entered into by him on behalf of his principal, now is he personally bound by them.
Such a contract shall be presumed to exist in the following cases: (1) Where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad; (2) Where the agent does not disclose the name, of his principal; (3) where the principal,though disclosed,cannot be, sued.
According to the High Court the entire transaction had been entered into by the defendant on behalf of the, Government.
As the State Government was not liable by virtue of article 299 of the Constitution section 230 (3) would be applicable and defendant No. 3, who was apparently acting as an agent of the State Government, would become personally liable under the contract.
Certain observations in Chatturbhuj Vithaldas Jasani vs Moreshwar Parshrain & Others (1) appear to lend support to this view.
In that case also no formal contract had been.
(1) ; 4 entered into as required by article 299 (1) of the Cons titution.
The court observed that the Chairman of the Board of Administration had acted on behalf of the Union Government and his authority to contract in that capacity had not been questioned.
Both sides ,acted in the belief and on the assumption that the goods were intended for Government purposes.
The only flaw was that the contracts were not in proper form and because of this technical difficulty the principal could not have been sued.
But that was just the kind of case that section 230 (3) of the Indian Contract Act was designed to meet.
The Government might not be bound by the contract but it was very difficult to say that such contracts were void and of no effect.
There would be nothing to prevent ratification especially if that was for the benefit of the Government However, in a subsequent decision in State of West Bengal vs M/s B. K. Mondal and sons, (1) Gajendragadkar J., delivering the majority judgment of Bench said at page 885 with reference as he then was, the Constitution to the above observation: "The contract which is void may not be capable of ratification, but, since according to the Court the contract in question could have been ratified it was not void in that technical sense.
That is all that was intended by the observation in question.
We are not prepared to read the said observation or the final decision in the case of Chatturbhuj as supporting the proposition that notwithstand ing the failure of the parties to comply with article 299 (1) the contract would not be invalid.
Indeed, Bose, J., has expressly stated that such a contract cannot be enforced against the Government and is not binding on it.
" The effect of the reference to section 230 (3) of the Contract Act in Chatturbhui"s case(2)was not directly considered 'but in a large number of Subsequent decisions this Court has taken the view that the provisions of article 299 (1) (corresponding to section 175 (3) of the Government of India ' Act (1935) are mandatory and contain a prohibition against a contract being entered into (1) [1962] Supp. 1 S.C.R. 876.
(2) ; , 5 except in the manner prescribed by the aforesaid provisions.
We need only refer to the recent judgment in Mulamchand vs State of Madhya Pradesh (1).
After referring to the earlier decisions Ramaswami, J. observed at page 221 : "The principle is that the provisions of section 175 (3) of the Government of India Act, 1935 or the corresponding provisions of article 299 (1) of the Constitution of India are mandatory in character and the contravention of these provisions nullifies the contracts and makes them void.
There is no question of estoppel or ratification in such a case.
" It is clear that the observations in Chatturbhuj 's case(2) have been regarded either as not laying down the law correctly or as being confined to facts of that case.
The consensus of opinion is that a contract entered into without complying with the conditions laid down in article 299 (1) is void.
If there is no contract in the eye of the law it is difficult to see how section 230 (3) of the Contract Act would become applicable.
Although the High Court did not rely on section 235 of the Contract Act the trial court bad held that the defendants had no authority to enter into a contract on behalf of the State Government but still they purported to do so.
There was an implied warranty of authority which had to be presumed and the plaintiff was entitled to receive compensation for breach of that warranty under section 235 of the Contract Act.
Section 235 provides that a person untruly representing himself to be the authorised agent of another, and thereby inducing a third person to deal with him as such agent, is liable, if his alleged employer does not ratify his acts, to make compensation, to the other in respect of any loss or damage which he has incurred by so dealing.
The High Court did not base its decision on the above section.
But it seems that section 235 also can become applicable only if there is a valid contract in existence.
This appears to follow from the words "if his alleged employer does not ratify his acts." ' The contract should thus be such that it is (1) ; (2) ; 6 capable of ratification.
;In the present case where the con tract was entered into 'Without complying with the re quirements of article 299 (1) of the Constitution the question of ratification could not arise because on the view which has already been followed such a contract is void and is not capable of ratification.
However, we do not wish to express any final opinion on the applicability of section 235 of the Contract Act to cases where the contract suffers from the infirmity that the requirements of article 299 (1) of the Constitution have not been complied with.
The reason is that before the High Court no contention appears to have been advanced on behalf of the plaintiff based on section 235 of the Contract Act nor has the plaintiff 's counsel chosen to satisfy us that even if section 230 (3) was not applicable the decree should be sustained on the ground that relief could be granted by virtue of section 235 of the Contract Act.
The appeal thus succeeds and the judgment and decree of the courts below are hereby set aside and the suit of the plaintiff is dismissed.
In the circumstances of the case the parties are left to bear their own costs throughout.

summary:
The respondent company had a cold storage.
It filed a suit against the Government of Uttar Pradesh and three of its officials claming rent or damages on the allegation that under an agreement negotiated by Defendant No. 3 under instructions from Defendants Nos. 2 and 4 on behalf of the State Government (defendant No. (1) space had been reserved in its cold storage by the company for the storage of Government potatoes but no potatoes had been sent for storage.
On behalf of the State Government it was pleaded that no contract was entered into in accordance with article 299(1) of the Constitution.
The trial court upheld the objection of the State and dismissed the suit against it, but it held the other defendants liable for the storage charges.
The High Court on appeal by the defendants set aside the decree against defendants Nos. 2 and 4 but maintained it against defendant No. 3.
According to the High Court the entire transaction had been entered into by the defendant No. 3 on behalf of the Government and since the State Government was not liable by virtue of article 299 of the Constitution the said defendant would be liable under section 230(3) of the Contract Act.
In appeal to this Court by certificate, HELD : Except in Chatturbhuj 's case which lent some support to the High Court 's view, this Court has taken the view that the provisions of article 299(1) are mandatory and contain a prohibition against a contract being entered into otherwise than in the manner prescribed by the aforesaid provisions.
The observations in Chaturbhuj 's case have been regarded in subsequent decisions as either not laying down the law correctly or as being confined to the facts of that case.
The consensus of opinion is that a contract entered into without complying, with the conditions laid down in article 299(1) is void.
If there is no contract in the eye of the law it is difficult to see how section 230(3) of the, Contract Act would become applicable.
(5 D] The appeal must accordingly be allowed.
Chatturbhuj Vithaldas Jasani vs Moreshwar Parashram & Ors, ; , not followed.
State of West Bengal vs M/s. B. K. Mondal & Sons.
[1962] Supp. 1 S.C.R. 876, and Mulamchand vs State o/ Madhya Pradesh; , , applied.
[For the reasons stated in the judgment the court did not give any final opinion on the question of applicability of section 235 of the Contract 2 Act to cases when the contract Suffers from the infirmity that the requirements of article 299(1) of the Constitution have not been complied with]


judgement:
iminal Appeal No. 83 of 1953.
Appeal under article 132(1) of the Constitution of India from the Judgment and Order dated the 25th August 1953 of the High Court of Judicature at Patna in Criminal Appeal No. 410 of 1951.
B. K. Saran and M. M. Sinha, for the appellants.
M. C. Setalvad, Attorney General for India (R.C.prqsad, with him) for the respondent.
1047 1954.
December 2.
The Judgment of the Court was delivered by DAS J.
This is an appeal from a judgment of the High Court of Judicature at Patna which raises a substantial question of law as to the interpretation of the Constitution of India.
The appeal arises out of a criminal trial held in the district of Hazaribagh in the State of Bihar.
The case against the appellants was investigated by the local police and on the 4th June, 1951 a challan was submitted before the Sub Divisional Magistrate.
The Sub Divisional Magistrate passed the following order in the order sbeet: "Let the record be sent to the Dy.
Commr., Hazaribagh for.
transferring it to the file of the Spl.
Magistrate for trial".
On the record being placed before the Deputy Commissioner, the latter passed following order: "Perused S.D.0 's order sheet.
Withdrawn and transferred to the file of Mr. section F. Azam, Magte.
with powers u/s 30, Cr. P. C. for favour of disposal".
The appellants were then tried by Mr. section F. Azam, Magistrate of the first class exercising powers under section 30 of the Code of Criminal Procedure on charges under sections 366 and 143 of the Indian Penal Code and each of them was convicted under both the sections and sentenced to rigorous imprison ment for five years under section 366, Indian Penal Code, no separate sentence having been passed under section 143.The appellants preferred an appeal to the High Court of Judicature at Patna.
The appeal was heard by a Bench consisting of section K. Das and C. P. Sinha, JJ.
There was a difference of opinion between the two learned Judges as to the constitutionality of section 30 of the Code of Criminal Procedure.
section K. Das, J., took the view that the impugned section did not bring about any discrimination or inequality between persons similarly circumstanced and consequently did not offend the equal protection clause of the Constitution, while C. P. Sinha, J., was of the opinion that 1048 the section was hit by article 14.
The appeal was thereupon placed before Reuben, C. J., who in agreement with section K. Das, J., held that section 30 did not violate the inhibition of article 14.
The learned Chief Justice upheld the conviction but reduced the sentence.
On application by the appellants the High Court granted them a certificate under article 132(1) and the present appeal has been filed accordingly.
The learned Advocate appearing in support of the appeal contends before us, as was done before the High Court, that there had been an infraction of the fundamental rights guaranteed to the appellants under article 14 of the Constitution of India.
The complaint is that the appellants had been tried by a section 30 Magistrate and not by a Court of Session.
A section 30 Magistrate is enjoined by that section to try the case brought before him as a Magistrate and accordingly in cases like the present case he will follow the warrant procedure which is different from the procedure followed by a Court of Session.
The substance of the grievance is that a trial before the Sessions Judge is much more advantageous to the accused person in that he gets the benefit of the commitment proceedings before a Magistrate and then a trial before the Sessions Judge with the aid of the jury or assessors.
It has not been seriously questioned before us that in spite of the risk of imposition of a punishment heavier than what a section 30 Magistrate can inflict, a trial by a Sessions Judge is of greater advantage to the accused than a trial before a Magistrate under the warrant procedure.
We have, therefore, to see whether this apparent discrimination offends against the equal protection clause of our Constitution.
The provisions of article 14 of the Constitution have come up for discussion before this Court in a number of cases.
, namely, Chiranjit Lal Chowdhuri vs The Union of India(1), The State of Bombay vs F. N. Balsara(2), The State of West Bengal vs Anwar Ali Sarkar(3), Kathi Raning Rawat vs The State of Sau (1) ; (2) ; (3) ; 1049 rashtra(1), Lachmandas Kewalram Ahuja vs The State of Bombay(2) and Qasim Razvi vs The State of Hyderabad(3) and Habeeb Mohamad vs The State of Hyderabad(4).
It is, therefore, not necessary to enter upon any lengthy discussion as to the meaning, scope and effect of the article in question.
It is now well established that while article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation.
In order, however, to pass the test of permissible classification two conditions must be fulfilled, namely, (i) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped togetber from others left out of the group and (ii) that differentia must have a rational relation to the object sought to be achieved by the statute in question.
The classification may be founded on different bases; namely, geographical, or according to objects or occupations or the like.
What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration.
It is also well established by the decisions of this Court that article 14 condemns discrimination not only by a substantive law but also by a law of procedure.
The contention now put forward as to the invalidity of the trial of the appellants has, therefore to be tested in the light of the principles so laid down in the decisions of this Court.
There are no less than four modes of trial prescribed by the Code of Criminal Procedure, namely,(i) trial of sessions cases, (ii) trial of warrant cases, (iii)summary trials and (iv) trials before a High Court and a Court of Session and the procedure in each of these trials is different.
Section 28 of the Code of Criminal Procedure which is to be found in Chapter III which deals with "Powers of Courts" reads as follows: "28.
Subject to the other provisions of this Code, any offence under the Indian Penal Code may be tried (1) ; (3) ; (2) [1952] S C R. 710.
(4) ; 1050 (a) by the High Court, or (b) by the Court of Session, or (c) by any other Court by which such offence is shown in the eighth column of the second schedule to be triable".
Section 30, as it now stands, provides: "30.
In Assam, Madhya Pradesh, Punjab, Oudh, Madhya Bharat, Hyderabad, Mysore, Patiala and East Punjab States Union and Rajasthan, in all Part C States and in those parts of the other States in which there are Deputy Commissioners or Assistant Commissioners the State Government may, not withstanding anything contained in section 28 or section 29, invest the District Magistrate or any Magistrate of the first class, with power to try as a Magistrate all offences not punishable with death".
Section 34 puts a limit to the power of punishment of a section 30 Magistrate in terms following: "34.
The Court of a Magistrate, specially empowered under section 30, may pass any sentence authorised by law, except a sentence of death or of transportation for a term exceeding seven years or imprisonment for a term exceeding seven years".
It will be noticed that section 28 begins with the clause "subject to the other provisions of this Code".
This means that the section and the second schedule referred to therein are controlled by the other provisions of the Code including the provisions of section 30.
Further, the text of section 30 itself quite clearly says that its provisions will operate "notwithstanding anything contained in section 28 or section 29".
Therefore, the provisions of section 28 and the second schedule must give way to the provisions of section 30.
It is not, however, claimed by the learned Attorney General that section 30 abrogates or overrides altogether the provisions of section 28 and the second schedule in the sense that in the specified territories Magistrates empowered under section 30 become the only tribunal competent to try all offences not punishable with death to the exclusion of all other Courts mentioned in the 8th column of the second schedule.
1051 If that had been the position, then there could be no question of discrimination, for, in that situation, section 30 Magistrate 's Court would be the only Court in which all offences not punishable with death would become triable.
As already stated, this extreme claim is not made by the learned Attorney General.
The effect of the State Government investing the District Magistrate or any Magistrate of the first class with power under section 30 is to bring into being an additional court in which all offences not punishable with death become triable.
In other words, the effect of the exercise of authority by the State Government under section 30 is, as it were, to add in the 8th column of the second schedule the Magistrate so em powered as a Court before whom all offences not punishable with death will also be triable.
The question is whether this result brings about any inequality before the law and militates against the guarantee of article 14.
Section 30, however, empowers the State Government in certain areas to invest the District Magistrate or any Magistrate of the first class with power to try as a Magistrate all offences not punishable with death.
There is an obvious classification on which this section is based, namely, that such power may be conferred on specified Magistrates in certain localities only and in respect of some offences only, namely, all offences other than those punishable with death.
The Legislature understands and correctly appreciates the needs of its own people which may vary from place to place.
As already observed, a classification may be based on geographical or territorial considerations.
An instance of such territorial classification is to be found in the which came up for discussion before this Court and was upheld as valid in The State of Punjab vs Ajaib Singh(1).
section K. Das, J., and the learned Chief Justice have in their respective judgments referred to certain circumstances, e.g. the distance between the place of occurrence and the headquarters where (1) ; 135 1052 the Court of Session functions at considerable intervals, the inconvenience of bringing up witnesses from the interior, the difficulty of finding in the backward or out of the way places sufficient number of suitable persons to act as jurors or assessors, all of which make this classification quite a reasonable one.
In this sense, the section itself does not bring about any discrimination whatever.
The section only authorises the State Government to invest certain 'Magistrates with power to try all offences not punishable with death and this authority the State can exercise only in the specified places.
If the State invests any Magistrate with powers under section 30 anybody who commits any offence not punishable with death and triable by a Court of Session under section 28 read with the second schedule is also liable to be tried by the section 30 Magistrate.
The risk of such liability falls alike upon all persons committing such an offence.
Therefore, there is no discrimination in the section itself.
The learned counsel for the appellants, however, contends, on the strength of the decision of the Supreme Court of America in Yick, Wo vs Peter Hopkins(1) that "though a law be fair on its face and impartial in operation, yet, if it is administered by public authority with an evil eye and an unequal hand so as practically to make illegal discrimination between persons in similar circumstances materially to their rights, the denial of equal justice is still within the prohibition of the Constitution".
The contention is that although the section itself may not be discriminatory, it may lend itself to abuse bringing about a discrimination between persons accused of offences of the same kind, for the police may send up a person accused of an offence under section 366 to a section 30 Magistrate and the police may send another person accused of an offence under the same section to a Magistrate who can commit the accused to the Court of Session.
It is necessary to examine this contention with close scrutiny.
When a case under section 366, Indian Penal (1)[1886] 118 u.s. L.Ed. 220.
1053 Code., which is a case triable by a Court of Session under the second schedule, is put up before a section 30 Magistrate, the section 30 Magistrate is not necessarily bound to try the case himself.
Section 34 limits the power of the section 30 Magistrate in the matter of punishment.
If the section 30 Magistrate after recording the evidence and before framing a charge feels that in the facts and circumstances of the case the maximum sentence which he can inflict will not meet the ends of justice he may, instead of disposing of the case himself, act under section 347 and commit the accused to the Court of Session.
Here, whether the accused person shall be tried by the section 30 Magistrate or by the Court of Session is decided not by the executive but is decided according to the discretion judicially exercised by the section 30 Magistrate himself.
Take the case of another person accused of an affence under section 366 which is sent up by the police to a Magistrate who is not empowered under section 30.
Such Magistrate after perusing the challan and other relevant papers may, if he thinks that the ends of justice will be met if the case is tried by a section 30 Magistrate, submit the case to the District Magistrate with his own recommendations for such action as the latter may think fit to take under section 528 of the Code of Criminal Procedure.
That is what was done in the instant case.
On the other hand, he may take evidence under section 208 and after the evidence has been taken, make up his mind judicially whether he should proceed under section 209 or section 210.
He may consider that in the facts and circumstances of the case disclosed in the evidence the ends of justice require that the accused person should be committed to the Court of Session and in that event he will proceed to frame a charge and follow the provisions of sections 210 to 213.
If, however, the Magistrate is satisfied on the facts of the case that the ends of justice will be sufficiently met if the accused is tried by a section 30 Magistrate having jurisdiction in the matter, the Magistrate may report to the District Magistrate and the latter may, in his discretion, withdraw the case under section 528 of the 1054 Code of Criminal Procedure to himself and may enquire into or try such case himself or refer it for enquiry or trial to any other Magistrate competent to try the same.
In such a case there is exercise of judicial discretion at two stages, namely, under section 209 by the Magistrate before whom the accused was sent up for enquiry and also by the District Magistrate acting under section 528 of the Code of Criminal Procedure.
It is thus clear that the ultimate decision as to whether a person charged under section 366 should be tried by the Court of Session or by a section 30 Magistrate does not depend merely on the whim or idiosyncrasies of the police or the executive Government but depends ultimately on the proper exercise of judicial discretion by the Magistrate concerned.
It is suggested that discrimination may be brought about either by the Legislature or the Executive or even the Judiciary and the inhibition of article 14 extends to all actions of the State denying equal protection of the laws whether it be the action of anyone of the three limbs of the State.
It has, however, to be remembered that, in the language of Frankfurter, J., in Snowden vs Hughes(1), "the Constitution does not assure uniformity of decisions or immunity from merely erroneous action, whether by the Courts or the executive agencies of a State".
The judicial decision must of necessity depend on the facts and circumstances of each particular case and what may superficially appear to be an unequal application of the law may not necessarily amount to a denial of equal protection of law unless there is shown to be present in it an element of intentional and purposeful discrimination (See per Stone, C.J., in Snowden vs
Hughes (supra).
It may be mentioned at once that in the present case there is no suggestion whatever that there has been at any stage any intentional or purposeful discrimination as against the appellants by the Sab Divisional Magistrate or the District Magistrate or the section 30 Magistrate who actually tried the accused.
Further, the discretion of judicial officers is not arbitrary and the law provides for revision by (1) ; ; 1055 superior Courts of orders passed by the Subordinate Courts.
In such circumstances, there is hardly any ground for Apprehending any capricious discrimination by judicial tribunals.
On the facts and circumstances of this case we find ourselves in agreement with section K. Das, J., and Reuben, C. J., and hold that no case of infringement of fundamental right under Article 14 has been made out.
In the circumstances, we dismiss this appeal.
Appeal dismissed.

summary:
It is well settled that while Article 14 of the Constitution forbids class legislation, it does not forbid reasonable classification for the purposes of legislation.
In order, however, to pass the test of permissible classification two conditions must be fulfilled, namely, (i) the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group; and, (ii) that differentia must have a rational relation to the object sought to be achieved by the statute in question.
The classification may be founded on different bases; namely geographical, or according to objects or occupations or the like.
What is necessary is that there must be nexus between the basis of classification and the object of the Act under consideration.
Further Article 14 condemn,,; discrimination not only by a substantive law but also by a law of procedure.
The Constitution does not assure unanimity of decisions or immunity from merely erroneous action, whether by the courts or the executive agencies of a State.
Section 30 of the Code of Criminal Procedure does not infringe the fundamental right guaranteed by Article 14 of the Constitution.
Chiranjit Lal Chowdhuri vs The Union of India ( ; , The State of Bombay vs F.N. Balsara ([1951] S.C.R. 682), The State of West Bengal vs Anwar Ali Sarkar ([1952] S.C.R. 284), Kathi Raning Rawat vs The State of Saurashtra ([1952] S.C.R. 435), Lachmandas Kewalram Ahuja vs The State of Bombay ([1952] S.C.R. 710), Qasim Razvi vs The State of Hyderabad ([1953] S.C.R. 581), Habeeb Mohamad vs The State of Hyderabad ([1953] S.C.R. 661), The State of Punjab vs Ajaib Singh ([1953] S.C.R. 254), Yick Wo vs Peter Hopkins ([1886] ; 29 L. Ed. 220) and Snowden vs
Hughes ([1944] ; ; , referred to.


judgement:
Appeal No. 2293 of 1970.
45 Appeal by special leave, from the order dated May 4, 1970 of the Central Registrar of Co operative Societies, New Delhi in Appeal No. CR/1/70.
Harbans Singh, for the appellant.
Remeshwar Dial and A.D. Mathur, for the respondent.
The Judgment of the Court was delivered by Sikri, C. J.
This appeal by special leave is against the order of the Central Registrar of Cooperative Societies New Delhi dismissing the appeal filed by Panchshila Industrial Cooperative Society (Multi Unit) appellant before us against the award passed by the Arbitrator (Deputy Registrar of Cooperative Societies Rohtak) dated October 7, 1969, in respect of the dispute between the Gurgaon Central Cooperative Bank Ltd., Gurgaon respondent before us, and the appellant.
The Central Registrar held that he was not the appropriate appellate authority against the award in question.
The only question which arises before us is whether the Central Registrar was the appropriate authority on the facts of this case.
The relevant facts are these.
The respondent Bank approached the Registrar of Cooperative Societies Haryana for resolving a dispute between the Bank and one of its members appellant before us.
The Registrar by his order dated February 17, 1968, in exercise of the powers vested in him under section 56 of the Punjab Co operative Societies Act, 1961, referred the dispute to the Deputy Registrar Cooperative Societies Rohtak for decision.
The arbitrator gave the award on October 7, 1969, directing that the appellant do pay to the respondent in all Rs. 16,05,658 20 together with interest at the rate of six and a half per cent per annum until the realisation of the principal amount viz. Rs. 11,52,535 00.
The appellant as mentioned above filed an appeal against this award before the Central Registrar.
The respondent Bank is a co operative society governed by the provisions of the Punjab Co operative Societies Act 1961.
Section 55(1) of this Act inter alia provides that if any dispute touching the constitution management or the business of a co operative society arises between a member 46 and the society such dispute shall be referred to the Re gistrar for decision and no Court shall have jurisdiction to entertain any suit or other proceeding in respect of such dispute.
Section 55(2) provides that for the purposes of sub section (1) a claim by the society for any debt or de mand due to it from a member or the nominee heirs or legal representatives of a deceased member whether such debt or demand be admitted or not, shall be deemed to be a dispute touching the constitution, management or the business of the co operative society.
Sub section (3) of section 55 provides that "if any question arises whether a dispute referred to the Registrar under this section is or is not a dispute touching the constitution management or the business of a cooperative society, the decision thereon of the Registrar shall be final and shall not be called in question in any court.
" There is no doubt that the dispute between the respondent Bank and the appellant fell within section 55 and was properly referred to arbitration under that section.
It is however, contended that the appellant was registered in December 1955 under the Punjab Cooperative Societies Act, 1955, and by virtue of the , and section 5A of the Multi Unit Co operative Societies Act, 1942, the appellant has ceased to be governed by the provisions of the Punjab Co operative Societies Act because it has become a multi unit co operative society.
There is no doubt that by virtue of the , and section 5A of the Multi Unit Co operative Societies, Act, 1942, the appellant has become a multi unit co operative society and the Multi Unit Co operative Societies Act applies to it.
But that Act is for the incorporation, regulation and winding up of co operative societies with objects not confined to one State, and it has no impact on section 55 of the Punjab Co operative Societies Act, 1961, inasmuch as the appellant remains a member of the co operative society, namely, the respondent Bank.
There is nothing in the provisions of the Multi Unit Co operative Societies Act to indicate that a multi unit co operative society cannot be a member of a co operative society governed by the Punjab Act of 1961.
If the appellant continues to be a member, then the terms of section 55 apply and a dispute can be referred to arbitration under that section.
An appeal against the at award lies under section 68 of the Punjab Act of 47 1961 to the Government of the decision or order was made by the Registrar, and to the Registrar if the decision or order was made by any other person.
It is quite clear therefore, that the Central Registrar had no jurisdiction to hear the appeal.
The learned counsel next contends that the Central Registrar should not have dismissed the appeal but returned the memorandum of appeal for presentation to the proper authority.
There is no statutory provision enabling the Central Registrar to do so.
At any rate, if an appeal is filed before the appropriate authority under the Punjab Co operative Societies Act, 1961, that authority will no doubt take into consideration the provisions of section 14 of the , read with section 29(2) and decide whether the appeal should be entertained or not.
In the result the appeal fails and is dismissed with costs.
K.B.N. Appeal dismissed.

summary:
The respondent bank is a co operative society governed by the Punjab Co operative Societies Act, 1961.
A dispute between the bank and the appellant, one of its members, was referred by the Registrar of Co operative Societies, in exercise of the powers vested in him by section 55 of the Act, to the Deputy Registrar, Co operative Societies for arbitration.
The appellant filed an appeal against the award before the Central Registrar of Co operative Societies.
The Central Registrar dismissed the appeal holding that he was not the appropriate appellate authority, under the Act.
In appeal to this Court the appellant con tended that it was registered in 1955 under the Punjab Co operative Societies Act 1955 and by virtue of the and section 5(A) of the Multi Unit Co operative Societies Act, 1942, it had ceased to be governed by the provisions of the Punjab Co operative Societies Act, because, it had become a multi unit co operative Society.
Dismissing the appeal, HELD : There is nothing in the provisions of the Multi unit Cooperative Societies Act to indicate that a multi unit co operative society cannot be a member of a co operative society governed by the Punjab Act of 1961.
The multi unit co operative societies Act is for the incorporation, regulation and winding up of co operative societies with objects not confined to one State and it has no impact on section 55 of the Punjab Co operative Societies Act, 1961, in as much as the appellant remains a member of the Co operative Society, namely, the respondent bank.
If the appellant continues to be a member then the terms of section 55 apply and a dispute can be referred to arbitration under that section.
An appeal against that award lies under section 68 of the Punjab Act of 1961 to the government if the decision or order was made by the Registrar and to the Registrar if the decision or order is made by any other person.
Therefore the Central Registrar had no jurisdiction to hear the appeal.


judgement:
Appeals Nos. 1687 and 1688 of 1968 Appeals from the judgment and order dated August 29, 30, 1967 of the Calcutta High Court in Income Tax Reference No. 16 of 1964.
section Mitra, R. N. Sachthey and B. D. Sharma, for the appellant (in both the appeals).
M. C. Chagla, section M. Jain, B. P. Maheshwari and R. K. Maheshwari for the respondent (in both the appeals).
The Judgment of the Court was delivered by Hegde, J.
These appeals by certificate arise from the decision of the Calcutta High Court in Income tax Reference No. 16 of 1964 on its file.
Therein the High Court was considering a reference made by the Income Tax Appellate Tribunal 'B ' Bench Calcutta under section 66 (1) of the Indian Income Tax Act, 1922 to be hereinafter referred to as 'the Act '.
The question of law which was referred for the opinion of the High Court reads thus : "Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that in view of the capital loss of Rs. 12,00,000/ suffered by the assessee on account of depreciation in the value of the shares of Messrs. Elphinstone Mills Ltd. payment of any dividend at all during any of the two relevant accounting years would have been unreasonable ?" The assessment years with which we are concerned in these appeals are 1955 56 and 1956 57, the corresponding accounting years being the years ending on June 30, 1954 and June 30, 1955.
The assessee is a limited company doing business as selling agents of a Textile Mill.
For the assessment year 1955 56 the assessee was assessed on a total income of Rs. 1,61,089/ and taxes paid were Rs. 69,973/ leaving a distributable balance of Rs. 91,116/ .
According to the Profit & Loss Account, however, the company suffered a net loss of Rs. 11,63,874/ and this was due to the loss of Rs. 12,00,000/ on account of depreciation in the value of 83 shares held by the company in Elphinstone Mill Ltd. of Bombay.
The Income tax authorities disallowed an amount of Rs. 11,88,000/ out of this loss on the ground that it relates to the price paid for the shares purchased for the sake of acquiring the managing agency of the: Elphinstone Mills Ltd. The Tribunal upheld the disallowance on the ground that the amount of Rs. 11,88,COO/was a loss relating to shares held by the company in its, investment account.
The company however, did not declare any dividend for the year in question.
The Income tax Officer in exercise of his powers under Section 23 A(1) levied additional super tax @ /4/ per rupee on the distributable surplus of Rs. 91,116/ .
In so doing be ignored.
the loss in the value of the, shares in Elphinstone Mills.
Ltd. For the assessment year 1956 57 the total income assessed was Rs. 1,07,429/ and the taxes payable thereon were Rs. 46,668/ leaving a distributable surplus of Rs60,761/ .
In this year also the company did not declare any dividend because of the loss referred to earlier.
The. income tax Officer, however, again invoked the provisions of Section 23A (1) and levied additional super tax @ /4/ per rupee on the surplus of Rs. 60,761/ .
In appeal, the Asstt.
Commissioner took the view that the loss incurred by the company was a capital loss.
But all the same as there was no commercial profits in the relevant accounting years it was not reasonable to expect the assessee company to declare any dividend in respect of those years in view of the capital loss incurred and he,.
therefore, cancelled the orders of the Income tax Officer under section 23A (1).
Aggrieved by the Order of the Appellate Assistant Commissioner, the department appealed to the Tribunal.
The Tribunal agreed with the conclusions reached by the Appellate Assistant Commissioner.
It held that under the circumstances the Directors were justified in 'not declaring any dividend in respect of the profits that had accrued in the accounting years.
At the instance of the Commissioner, the Tribunal submitted to the High, Court of Calcutta the question of law set out by us earlier.
The High Court answered that question in favour of the assessee.
8 4 The Tribunal the final fact finding authority has ,come to the conclusion that the assessee had incurred a capital loss of Rs. 12,00,000/ as a result of the depreciation of the value of the shares of Elphinstone Mills Ltd. The question is whether that was a relevant circumstance for not 'declaring any dividend.
The further ,question is whether the Directors of the assessee company acted as prudent businessmen in refraining from ,declaring any dividend.
Section 23A (1) of the Act reads : " Where the Income tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within the twelve months immediately following the expiry of that previous year are less than the statutory percentage of the total income of the company of that previous year as reduced by (a) the amount of income tax and super tax payable by the company in respect of its total income, but excluding the amount of any super tax payable under this section (b) the amount of any other tax levied under any law for the time being in force on the company by the Government or by a local authority in excess of the amount, if any, which has been allowed in computing the total income; and (c) in the case of a banking company, the amount actually transferred to a reserve fund under section 17 of the Banking Companies Act, 1949; the Income tax Officer shall, unless he is satisfied that, having regard to the losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable, make an order in writing that the company shall, apart from the sum deter mined as payable by it on the basis of the assessment under section 23, be liable to pay super tax at the rate of fifty per cent in the case of a company whose business consists wholly or mainly in the 85 dealing in or holding of investments, and at the rate of thirty seven per cent in the case of any other company on the undistributed balance of the total income of the previous year, that is to say, on the total income as reduced by the amounts, if any, referred to in clause (a), clause (b) or clause (c) and the dividends actually distributed, if any." Whether in a particular year dividend should be declared or not is a matter primarily for the Directors of a company.
The Income tax Officer can step in under Section 23A (1) only if the Directors unjustifiably refrain from declaring dividend.
If the Directors of a company had reasonable grounds for not declaring any dividend, it is not open for the Income tax Officer to constitute himself as a super Director.
As observed by this Court in Commissioner of Income tax, West Bengal, vs Gangadliar Bannerjee and Co. (Pvt.
) Ltd. ' the Income tax Officer, in considering whether the payment of a dividend or a larger dividend than that declared by a company would be unreasonable within the meaning of Section 23A of the Act does not assess any income to tax.
He only does what the directors should have done putting himself in their place.
Though the object of the section is to prevent evasion of tax, the provision must be worked not from the standpoint of the tax collector but from that of a businessman.
The reasonableness or unreasonableness of the amount distributed as dividends is judged by business considerations, such as the previous losses, the present profits, the availability of surplus money and the reasonable requirements of the future and similar others.
The Income tax Officer must take an overall picture of the financial position of the business.
He should put himself in the position of a prudent businessman or the director of a company and deal with the problem with a sympathetic and objective approach.
On the facts found by the Tribunal, there can be hardly any doubt that the assessee had suffered a capital loss of Rs. 12,00,000/ .
In our opinion, in view of the the said loss, any reasonable body of Directors of a company would have done just what the Directors of the (1) 86 assessee company did.
We think, that the Income tax officer took an erroneous view of the scope of Section 23A (1).
Mr. Mitra, learned counsel for the department contended that the assessee had not in fact incurred any loss though the value of the shares had gone down in the market.
As the assessee was still in possession of those shares, there was still a possibility of avoiding the anticipated loss.
Hence there was no occasion to take note of the depreciation in the value of the shares in the matter of declaration of dividends.
This is an unacceptable contention.
The Directors of a company will be justified in taking things as they stand and not befool themselves in the wild hope that the value of the shares may come up again.
They are expected to act as hard headed businessmen.
They are not expected to gamble with the future of the concern.
The question is not whether the value of the shares may not go up in future but whether the Directors were justified in not declaring dividends in view of the loss incurred.
The Income tax Officer overlooked the fact the Directors were naturally more interested in the stability of their concern rather than in increasing the tax payable to the Government.
Before the High Court, it appears to have been urge Mr. Mitra rightly did not press that plea that the loss incurred being a capital loss the same cannot be taken into consideration in the application of Section 23A (1).
This very contention was examined and rejected by the Judicial Committee in Commissioner of Income tax vs Williamson Diamonds Ltd.(1).
In that case their Lordships were con sidering the scope of section 21 (1) "(Consolidation) Ordinance, 1950 of Tanganyika.
" That provision corresponds very closely to Section 23A (1) of the Act.
Dealing with the scope of that provision, their Lordships observed: "It does not follow from what has been said that capital losses should not be taken into account by the Commissioner.
Two matters are mentioned specifically in the words which give him a direction the first is 'losses ' (as interpreted above) and the second is "smallness of profit." The Commissioner (1) 87 is directed to come to a decision upon the question whether "the payment of a dividend or a larger divdend than.
that declared" his unreasonable. "The form of the word used no doubt lends itself to, the suggestion than regard should be paid only to the two matters mentioned, but it appears to their Lordships that it is impossible to arrive at a conclusion as to reasonableness by considering the two matters mentioned isolated from other relevant factors.
Moreover, the Statute does not say 'having regard only ' to losses previously incurred by the company and to the smallness of the profits made.
No answer which can be said to be in any measure adequate, can be given to the question "unreasonableness" considering these two matters only.
Their Lordships are of the opinion that the Statute by the words used while making sure that "losses and smallness of profit" are never lost sight of require all matters relevant to the question of unreasonableness to be considered capital loss, if established is one of them.
" We respectfully agree with these observations.
For the reasons mentioned above, these appeals fail and they are dismissed with costs.
One hearing fee.
G.C. Appeals dismissed.

summary:
The assessee was a limited company doing business as selling agents of a Textile Mill.
During the previous years relevant for the assessment years 1955 56 and 1956 57 the company had assessable profits but did not declare dividend, because capital loss far in excess of profits was incurred by it due to fall in value of its share holdings.
The Income tax Officer exercised his powers under section 23A (1) and levied additional super tax on the distributable surplus in the relevant years.
The Appellate Assistant Commissioner, the Tribunal and the High Court however, took the opposite view, holding that in the circumstances it was not reasonable to expect the company to declare dividend.
In appeal to this Court by the Revenue, HELD : Whether in a particular year dividend should be declared or, not is a matter primarily for the Directors of a company.
The Income tax Officer can step in under section 23A(1) only if the Directors unjustifiably refrain from declaring dividend.
If the Directors of a company had reasonable grounds for not declaring any dividend, it is not open for the Income tax Officer to constitute himself as a super Director.
Though the object of the section is to prevent evasion of tax, the provision must be worked not from the standpoint of the tax collector but from that of a business man.
[85C E] Commissioner of Income tax, West Bengal vs Gangadliar Bannerjee & Co. (P) Ltd. 57 , relied on.
In the present case in view of the capital loss of Rs. 12 lacs as found by the Tribunal, any reasonable body of Directors of a company would have done just what the Directors of the Assessee company did.
The Income tax Officer took an erroneous view of section 23A (1).
[85H] The fact that the company continued to hold the shares whose value could possible go up again was irrelevant.
The Directors of a company will be justified in taking things as they stand and not be fool themselves in the wild hope that the value of the shares may come up again.
[86C] It would be incorrect to say that capital loss cannot be taken into consideration in the application of section 23A(1).
[86E F] Commissioner of Income tax vs Williamson Diamonds Ltd. , applied. 82


judgement:
Appeal No. 1125 of 1970.
Appeal under section 116 A of the Representation of the People Act, 1951 from the judgment and order dated March 26, 1970 of the Assam and Nagaland High Court in Election Petition No. 2 of 1969.
S.V. Gupte, S.K. Ghose, Advocate General, Nagaland, Naunit Lal, A. R. Bharthakar, R. C. Choudhry and B. K. Dass, for the appellant.
A. section R. Chari, R. K. Garg, D. P. Singh, R. K. Jain, V. J. Francis and section Chakravarty, for the respondent. 425 On January 14, 1971 the Court passed, the following ORDER After hearing the arguments we are of the view that unders.
116A of the Representation of the People Act, 1951 as amend ed by the Act of 1966, the respondent is entitled to support the judgment of the High Court without preferring an appeal against, an order made against him if the ultimate decision in the petition is in his favour.
The reasons for this order will be given hereafter.
The Judgment of the Court was delivered by Hegde, J.
The decision on the question of law considered by this Bench was announced on the 14th of this month.
We are now proceeding to give our reasons in ' support of that decision.
On September 14, 1970, two of us (Shah, C.J. and Grover, J.) passed the following order "This appeal raises an important question of procedure.
We have heard leaned Counsel appearing on behalf of the parties.
Mr. Gupte appearing for the appel lant contended that the charge under section 123(6) read with section 77 of the Representation of the People Act was not made out.
Mr. Chari appearing on behalf of the respondent contended that he was entitled to submit without preferring a substantive appeal to this Court that the charges in respect of which the appellant has been absolved by order of the High Court are proved and he should be permitted to raise those questions in this appeal.
Our attention has not been invited to any case which interprets the provisions of section 116(A) of the Representation of the People Act at it stands after the amendment made in the year 1967.
In view of the importance of the question, we direct that the case be referred to a larger bench of five judges.
Hearing expedited.
Though, the entire appeal was referred to a larger bench for decision, at the hearing it was considered advisable to decide only the question of law set out in the order and not the whole case.
We accordingly heard arguments only on that question.
In our opinion that question is concluded by the decision of this Court in Ramanbhai Ashabhai Patel vs Debhi Ajitkumar Fulsinji and ' Ors.
(1) (1) ; 426 Mr. section V. Gupte , learned Counsel for the appellant tried to distinguish that decision on two grounds viz. (1) that the decision in question was rendered in an appeal to this Court by special leave and as such the jurisdiction of this Court was much wider than that conferred on this Court by section 116A of the Representation of the People Act, 1951 and (2) that the scope of an appeal under section 116A before, its amendment in 1966 was different than from its scope at present.
We are unable to accept either of these two contentions.
In the above decision, it was ruled that this Court has power to decide all the points arising from the judgment appealed against and even in the absence of an express provision like 0.
XLI, r. 22 of the Code of Civil Procedure, this Court can devise appropriate procedure to be adopted at the hearing and there could be no better way of supplying the deficiency than by drawing upon the provisions of a general law like the Code of Civil Procedure and adopting such of those provisions as are suitable.
The decision of, the Court did not rest either on the ground that the appeal before it was brought by special leave of this Court or on the interpretation of section 116A as it than stood.
The reasons behind the rule laid down by this Court are found at p. 725 of the report.
Therein it is observed : "It is true that the rules framed by this Court in exercise of its rule making powers do not contain any provision analogous to 0.
XLI, rule 22 of the Code of Civil Procedure which permits a party to support the judgment appealed against upon.
a ground which has been found against him in that judgment.
The provision nearest to, it is the one contained in 0.
XVIII, r. 3 of the Rules of this Court which requires parties to file statement of cases.
Sub rule (1) of that rule provides that Part I of the statement of the case shall also set out the contentions of the parties and the points of law and fact arising in the appeal.
It further provides that in Part II a party shall set out the propositions of law to be urged in support of the contentions of the party lodging the case and the authorities in support thereof.
There is no reason to limit the provision of this rule only to those contentions which deal with the points found in favour of that party in the judgment appealed from.
Apart from that we think that while dealing with the appeal before it this Court has the power to decide all the points arising from the judgment appealed against and even in the absence of an express provision like 0.
XLI, r. 22 of the Code of Civil Procedure it can devise the appropriate procedure to be adopted at the hearing.
There could be no better way of supplying the deficiency than by drawing upon the provisions of a 427 general law like the Code of Civil Procedure and adopting such of those provisions as are suitable.
We cannot lose sight of the fact that normally a party in whose favour the judgment appealed from has been given will not be granted special leave to appeal from it.
Considerations of justice, therefore, require that this Court should in appropriate cases permit a party placed in such a position to support the judgment in his favour even upon grounds which were negatived in that judgment." The decision referred to above will govern the question of law with which we are connected in this case.
The appeal was already directed by the Chief Justice to be posted before the Bench presided over by Mitter J. for further hearing.

summary:
In an election petition there were charges under section 123(6) read with section 77 of the Representation of the People Act, 1951 against the appellant.
The High Court decided against him.
although absolving him of certain charges.
The appellant filed an appeal in this Court under section 116A of the Representation of the People Act, 1951 as amended in 1966.
The respondent contended that he was entitled to submit without preferring a Substantive appeal to this Court that the charges in respect of which the appellant had been absolved by the High Court were proved and he should therefore be allowed to raise those questions.
On the matter being referred to a large bench , HELD : The respondent 's contention must be accepted.
In Rambhai Ashabhai Patel 's case it was ruled that this Court has power to decide all the points arising from the judgment appealed against and even in the absence of an express provision like OXLI r. 22 of the Code of Civil Procedure, this Court can devise appropriate procedure to be adopted at the hearing and there could be no better way of supplying the deficiency than by drawing upon the provisions of a general law like the Code of Civil Procedure and adopting such of those provisions as are ,suitable.
The decision of the Court did not rest either on the ground that the appeal before it was brought by special leave or on the interpretation of section 116A as it then stood.
[426 D G] Rai anbhai Ashabhai Patel vs Debbi Ajitkumar Pulsinji & Ors. ; , followed and applied.


judgement:
l Appeals No. 1834 and 1169 of 1968.
Appeals from the Judgment and order dated February 21, 22 1967 of the Calcutta High Court in Wealth Tax Reference No. 138 of 1962.
section T. Desai, section A. Aiyar, R.N. Sachthey and B. D. Sharma, for the appellant (in C.A. No. 1169/68 and the respondent (in C. A. No 1834 of 1968) A. C. Mitra, N. R. Khaitan, P. Khaitan, Krishna Sen and B.P. Maheswari for the respondent (in C. A. No. 1169.
of 1968 ) and the appellant (in C. A. No. 1834 of 1968. ) The Judgment of the Court was delivered by Grover, J.
These appeals have been brought from a judgment of the Calcutta High Court by certificate in a Wealth Tax Reference.
Civil Appeal No. 1834 of 1968 is of the assessee and the other appeal has been filed by the Commissioner of Wealth Tax, West Bengal.
It is necessary to deal with the appeal of the Commissioner of Wealth Tax as the other appeal shall also stand disposed of once the question is answered in the Commissioner 's appeal.
The assessee is a public limited company.
In the assessment year 1948 49 the assessee revalued its assets enhancing the existing book value by Rs. 1,45,00,0001which was credited to the capital reserve account.
In assessing the wealth tax payable by the assessee for the assessment year 1957 58 the relevant valuation date being March 31, 1957 the Wealth Tax Officer proceeded under section 7 (2) of the Wealth Tax Act, hereinafter called the 'Act ' and took the valuation of the assets at Rs. 5,10 40,897 as shown in the balance sheet on the relevant date.
The assessee claimed that a sum of Rs. 1,45,00,0001 by which 106 the book value of the fixed assets was enhanced in 1948 49 should be deducted in the computation of the net value.
It is not clear from the order of the Wealth Tax Officer, who rejected the claim, as to what was the ground taken for claiming this deduction.
Before the Appellate Assistant Commissioner it was contended on behalf of the assessee that the capital reserve was not out of profits and was only a notional reserve and therefore it should be excluded when global valuation of the assets was being made.
It was urged that the figure of reserve was purely artificial and had no relation to the working of the company and should not be taken into account in the valuation of the net assets.
The Appellate Assistant Commissioner did not accede to the contention and confirmed the assessment.
The Appellate Tribunal found that a similar point had come up for decision before a special bench of the Tribunal consisting of three members in Bombay ' and had been decided in favour of the assessee.
Following that decision the Tribunal allowed the appeal and held that the department was not justified in valuing the assets at the enhanced figure for the purpose of computation of the net wealth of the assessee.
The relevant question that was referred was as follows "Whether on the facts and in the circumstances of the case the Tribunal was justified in excluding the sum of Rs. 1,45,00,000/ from the net valuation of the assets as shown in the balance sheet of the assessee as on 31 3 57.
" The High Court was of the view that the Revenue had taken the stand before the Tribunal that the motive of the assessee in revaluing the assets at a higher figure was to declare the bonus share which, however, could not be so declared as the permission of the Central Government was withheld in that behalf.
According to the High Court there was a motive for revaluation of the assets and therefore the valuation in the balance sheet could not furnish the correct basis.
It was pointed out that the conduct of the assessee was "far from what was to be desired" because even in the successive balance sheets the revaluation figure appeared even after the assessee had failed to get the permission of the Central Government to issue bonus shares.
107 But according to the High Court an erroneous figure did not become a correct figure by lapse of time.
The following portion of the judgment of the High Court may be reproduced: "The Tribunal was, therefore, in a sense right in excluding a sum of Rs. 1,45,00,000/ from the net value of the assets as shown in the balance sheets of the assessee as on March 31, 1957.
We, however, make it clear that in answering question No. 1 in the affirmative we did not mean that the net value of the assets should be taken at the figure as appearing in the balance sheet reduced by Rs. 1,45,00,000/ .
What we mean to say is that in valuing the assets the addition of Rs. 1,45,00,000/ may not have been correctly made.
This does not, however, mean that the net value of the assets must be the balance sheet figure reduced by Rs. 1,45,00,000/ .
That net value will have now to be ascertained under section 7 (1) of the Wealth Tax Act, now that we have expressed the opinion that the balance sheet in the instant case has not found the unequivocal approval both of the assessee and of the Revenue authorities.
" It is quite clear that under section 7 (2) of the Act the Wealth Tax Officer may determine the net value of the assets of the business as a whole having regard to the balance sheet of the business as on the valuation date.
it must be remembered that under section 211 of the Indian , every balance sheet of a company must give a true and fair figure of the state of its affairs as at the end of the financial year.
If the assessee has shown the net value of the assets at a certain figure in the balance sheet the Wealth Tax Officer would be entitled to accept it on the footing that the assessee knew best what the valuation of the assets was.
It was, however, open to the assessee to satisfy the authorities that the said figure had been enhanced or increased or inflated "for acceptable reasons".
It was equally open to the Wealth Tax Officer not to accept the figure given by the assessee but to arrive at another figure if he was satisfied for good reasons that the valuation given in the balance sheet was wrong.
Theer 108 can be no doubt that section 7 (2) (a) of the Act contemplates that the book value in the balance sheet should be taken as the primary basis of valuation and if any adjustment is required it is open to the Wealth Tax Officer to make such an adjustment in the valuation as given in the balance sheet as may be necessary in the circumstances of the case.
(See Kesoram Industries and Cotton Mills Ltd. vs Commissioner of Wealth Tax (Central) Calcutta.(1) In the present case the sole reason which at the stage of the appeal before the Tribunal came to be disclosed for inflating the valuation by Rs. 1,45,00,000 in the assessment year 1948 49 was that the assessee contemplated issuing bonus shares for which the consent of the Central Government was necessary under section 3 of the .
The same was not granted.
The assessee, however, did not produce the order of the Central Government showing the reasons for which permission was declined to the issuance of bonus shares.
It continued to show the enhanced or inflated valuation in the balance sheet throughout.
The circumstances in which bonus shares are issued are well known.
A company may not require any new money but it may reasonably wish to bring the nominal amount of its issued share capital more into line with the true excess of assets over liabilities.
Unless it takes this step its annual profits will appear to be disproportionately high in relation to its nominal capital.
By means of issuing bonus shares the reserve or share premium account or some part of the same are capitalised or converted into share capital.
The capitalisation of free i.e. voluntary reserves merely means that undistributed profits have been permanently ploughed back and converted into share capital which cannot be returned to the members by way of dividend.
(vide Modern Company Law by L.C.B. Gower, p. 110).
It is quite clear that the main idea underlying the issue of bonus shares is to bring the nominal amount of the issued share capital of the company into line with the true excess of assets over liabilities.
This will involve a genuine and correct valuation of assets and not their under valuation or inflation.
It must be remembered that the power to (1) ; 109 issue shares for increasing the capital is of a fiduciary nature and must be exercised bona fide for the general advantage of the company.
No evidence in the shape of an affidavit or any other material was placed before the wealth tax.
authorities by the assessee demonstrating how it became necessary to inflate the valuation by Rs. 1,45,00,000 for the purpose of issuing bonus shares.
It was not even the case of the assessee that the value was inflated under expert acturial suggestion or under some misapprehension or mistaken advice.
In this situation the only possible conclusion can be that the assessee could not advance any convincing and acceptable reasons for the alleged inflation.
The Wealth Tax Officer could reject the figure given by the assessee in the balance sheet if he was, for sufficient reasons, satisfied that that figure was wrong.
The facts and circumstances which have been discussed above show that the Wealth Tax Officer was fully justified in accepting the figure which the assessee himself had given in the balance sheet as the correct figure and proceed to make the assess ment in accordance with that figure.
The High Court should have, therefore, answered the question in the negative and in favour of the Commissioner of Wealth Tax The appeal of the Commissioner of Wealth Tax i.e. C.A. 1169/68 is allowed and the question is answered accordingly.
The appeal of the assessee i.e. C. A. 1834/68 consequently becomes infructuous and must be dismissed in view of the answer returned in the other appeal.
The Commissioner will be entitled to the costs incurred in this Court (one hearing fee) as also in the High Court.
V.P.S. Appeal dismissed.

summary:
In the assessment year 1948 49, the assessee, a public limited company revalued its assets and enhanced the book value by Rs. 145,00,000 and continued to show the inflated valuation in the balance sheets for subsequent years.
For the assessment year 1957 58, the Department took the valuation of the assets as shown in the balance sheets.
The assessee, however, claimed that the said Rs. 45,00,000 should be deducted in the computation of the net value.
Before the Tribunal, it was stated that the reason for the inflation was that the assessee contemplated issuing bonus shares for that amount, but it did not do so because the necessary consent of the Central Government was not grant ed.
The Tribunal decided in favour of the assessee but the High 'Court, on reference, held that there was a motive for the revaluation ,of the assets and therefore the valuation in the balance sheet could not be accepted as a correct basis and that the net value would have to be ascertained by the Wealth tax Officer under section 7 of the Wealth tax Act.
Both the assessee and the Revenue appealed to this Court.
HELD: (1) Under section 211 of the Indian , every balance sheet must give a true and fair figure of the state of its affairs as at the end of the financial year.
Under section 7 of the Wealth tax Act the Wealth Tax Officer may determine the net value of the assets of the business having regard to the balance sheet of the business as on the valuation date it is open to the Wealth tax Officer to accept the figure given by the assessee or to arrive at another figure if he was satisfied for good reasons that the valuation given in the balance sheets was wrong.
Equally it is open to the assessee to satisfy the authorities that .the said figure had been enhanced, for "acceptable reasons".
[107 E H] (2) The main idea underlying the issue of bonus shares is to bring the nominal amount of the issued share capital of the company into line 'with the true excess of assets over liabilities.
But the taking of this ,step would involve a genuine and correct valuation of assets and not their under valuation or inflation, especially when the power of the Company to issue bonus shares is of fiduciary nature and must be ,exercised bonafide for the general advantage of the company.
[108G H., 109A] (3) In the present case, no evidence was placed before the Wealth Tax Officer for demonstrating how it became necessary to inflate the valuation by Rs. 1,45,00,000 for the purpose of issuing bonus 105 shares, nor was it shown that it was so done under expert acturial suggestion under some misapprehension or mistake.
The Wealth Tax Officer was therefore fully justified in accepting the figure which the assessee had himself given in the balance sheet as the correct figure and making the assessment in accordance with that figure.
[109B E] Kesoram Industries and Cotton Mills Ltd., vs Commissioner of Wealth Tax (Central) Calcutta, ; referred to.