judgement:
minal Appeal No. 267 of 1968.
Appeal from the judgment and order dated September 26, 1968 of the Bombay High Court in Criminal Appeal No. 244 of 1967.
36 A.S.R. Chari, R. Nagaratnam, Janendra Lal and B. R. Agarwal, for the appellant.
H. R. Khanna and B. D. Sharma, for the respondent.
The Judgment of the Court was delivered by Vaidialingam, J.
This appeal by the first accused, on certi ficate, is directed against the judgment of the Bombay High Court dated September 26, 1968, in Criminal Appeal No. 244 of 1967 confirming his conviction and sentence passed against him by the Presidency Magistrate, Mazgaon, Bombay for offences under section 120B I.P.C. read with section 135 of the Customs Act, 1962 (Act 52 of 1962) (hereinafter to be referred as the Act) and also under section 135 of the in respect of the articles claimed to have been recovered from his possession.
The short point that arises for consideration in this appeal is whether section 24 of the Evidence Act is a bar to the admissibility in evidence of the statement exhibit T given by the appellant to the Customs Officers on a summons issued to him under section 108 of the Act.
The appellant along with six others was charged under the sections mentioned above and after being found guilty was sentenced to undergo one year 's rigorous imprisonment and to pay a fine of Rs. 2,000/ for the charges under section 120B I.P.C. read with section 135 of the Act.
He was also sentenced to undergo one year 's rigorous imprisonment and to pay a fine of Rs. 2,000/ for the charge under section 135 of the Act.
The sentences were directed to run concurrently.
In default of payment of fine, he was also sentenced to undergo further rigorous imprisonment for the period mentioned in the judgment of the Presidency Magistrate.
The case against the appellant was that he and several other persons entered into a conspiracy during the period from June, 1963 to the end of December, 1963 to smuggle wrist watches and other luxury goods such as Nylon Textiles, toilet requisites, plying cards, cigarette lighters, saffron etc.
from Dubai to India through Mechanized sailing vessel and land the said imported and smuggled goods surreptitiously at any coast near Bombay and then to bring the smuggled goods to Bombay by Motor vehicles.
It was further alleged that in pursuance to the said conspiracy such articles were actually smuggled in the month of December, 1963.
The various parts played by the appellant along with the other accused had been given in the evidence of the prosecution witnesses.
P. W. 19, Inspector in the Rummaging Division Town Intelligence in the Bombay Customs, on receipt of information in or about December 21, 1963 about the smuggling of the goods conducted searches in various places and seized several smuggled articles.
37 During the pendency of the trial, the third and the fifth accused died and the second accused who was present for some time later absconded necessitating separation of his trial.
Some other accused could not be traced at all.
Therefore, the trial proceeded against the appellant and accused Nos. 4, 6, and 7.
It is not necessary to refer to the pleas of accused Nos. 4, 6 and 7 as they have been acquitted of all the charges by the Presidency Magistrate.
The appellant had filed a lengthy written statement on October 24, 1966 denying the.
charges levelled against him.
He had stated that he was not in any manner concerned with any conspiracy.
He also denied, that any articles had been recovered by the Customs Officers from the houses mentioned by them and stated that in any event he had nothing to do with any of those articles.
He pleaded that his brother Cama was inimical towards him and that the latter in connivance with the Customs authorities had foisted this criminal case against him making false allegations.
The appellant alleged that he had left Bombay for Ajmer to pay his respects to the Darga on December 21, 1963 and returned to Bombay on January 2, 1964, when he was apprehended by the Customs authorities and kept in detention, in the first instance, till January 7, 1964.
During this period of detention he was conti nuously harassed and interrogated by P. Ws. 5 and 19 and forced to put his signature on January 7, 1964 to a statement already got written and prepared by P. W. 5.
He was threatened that if he did not put his signature on the said statement, his mother and another brother will be prosecuted.
He further alleged that it was represented to him that the statement to which he was being asked to put his signature was intended only to be used against the second accused and no part of it was meant to be used against him.
It may be stated at this stage that the statement recorded from the appellant by P. Ws. 5 and 19, on January 7, 1964 is exhibit T.
The statement referes to various matters concerning his relationship with the other accused as well as his connection with several articles which had been seized and which were the subject of the charges.
We do not think it necessary to refer to exhibit T in any great detail nor to the various seizures of articles made by the Customs authorities.
It is enough to state that the conviction of the appellant has been substantially, based on the confessional statement exhibit T after finding independent corroboration furnished by other evidence on record in respect of the statements contained in exhibit T. Objections were taken to the admissibility in evidence of exhibit
T. on the ground that it is hit by article 20(3) and sections 24 and 25 of the Evidence Act.
All these objections were overruled both by the Presidency Magistrate as well as the High Court.
The findings of the Presidency Magistrate and accepted by the High Court are 38 that exhibit T is a voluntary statement and it was a true disclosure made by the appellant.
The allegation of the appellant that he was forced to Put his signature to exhibit T which had already been prepared by P. Ws. 5 and 19 and that he was induced to put his signature on the representation that it will be used only against.
the second accused and not against the appellant, was rejected.
The further findings are that exhibit T was a voluntary statement made by the appellant and that his plea that he was kept under illegal, detention from January 2, 1964 to January 7, 1964 was false.
It has also been found that exhibit T is not hit either by article 20(3) or by sections 24 and 25 of the Evidence Act.
The only contention that has been raised before us by Mr.
A.S. R. Chari, learned counsel for the appellant, is, that in view of section 24 of the Evidence Act, exhibit T, the statement of the appellant recorded by the Customs authorities under the Act, is not admissible in evidence at the trial for the offences in respect of which the appellant was charged and tried.
His further contention is that as the conviction has been based substantially on the state ments contained in exhibit T, the conviction is illegal.
The other contentions based on article 20(3) and section 25 of the Evidence Act which were taken in the High Court have not been taken before us.
In fact those contentions are no longer available to the appellant in view of the decisions of this Court.
According to Mr. Chari when the statement exhibit T was recorded by the Customs officials, the appellant was in the position of an accused.
It is in evidence that P. W. 5, who recorded the statement warned the appellant that he was bound to state the truth as the officer was conducting a judicial proceeding to which the provisions of sections 193 and 228 1.
P. C. apply.
This, according to the learned counsel, amounts to a threat and as the statement exhibit T has been procured on the basis of such a threat, it is inadmissible in evidence.
On the other hand, Mr. H. R. Khanna, learned counsel for the State has referred us to the findings recorded by the Presidency Magistrate and accepted by the High Court regarding voluntary nature of exhibit T.
The counsel also pointed out that the fact that P. W. 5, who recorded the statement exhibit T from the appellant, informed him that he was bound to speak the truth as it was a# judicial proceeding to which section 1931.
P. C. applies, does not amount to any threat in law so as to attract section 24 of the Evidence Act.
We will now reter to the circumstances under which exhibit T was recorded as found by both the Courts.
Consequent on in formation received by the Customs authorities, several raids were conducted from December 21, 1963.
The appellant went to the Customs House at about 8 A.M. on January 7, 1964.
By about 39 8.30 A.M. summons under section 108 of the Act was served on him.
From 11.30 A.M. onwards to about 8.30 P.M. the process of recording of the statement exhibit T. from the appellant continued excepting for a short break of about 21 hours for lunch, tea and other requirements.
The appellant was arrested immediately after his statement exhibit T was completed.
The seizures of the entire contraband goods were completed by about December 25, 1963.
Though the attention of the appellant was drawn to sub section 4 of section 108 of the Act, he was not informed or warned that his statement was likely to be used in the event of any prosecution against him for the said offence.
Undoubtedly exhibit T contained various incriminating facts regarding the complicity of the appellant with the offences alleged against him.
The Inspector of Customs, P. W. 5, who recorded the statement exhibit T and P. W. 19, have both admitted that they questioned the appellant till the statement exhibit T was finally completed at 8.30 P.M. on January 7, 1964.
Both of them have also asserted that they had not given any threat or ,offered any inducement to the appellant before the statement exhibit T was made.
P. W. 5 has deposed that he drew the attention of the appellant to the last paragraph of the summons issued under section 108 of the Act.
In fact in exhibit T the appellant states that he had received summons No. 3 of 1964 dated January 7, 1964 issued to him under section 108 of the Act.
He has further stated that he had read the summons and that he had further understood that giving false evidence is an offence punishable under section 193 of the Indian Penal Code.
P. W. 5 has further deposed that he had explained to the appellant the provisions of section 1931.
P. C. and that the statement was being recorded as if he was in court and that the appellant was bound to speak the truth and that if he made a false statement he would be prosecuted.
Based upon these answers of P. W. 5, Mr. Chari, urged that it is clear that P. W. 5 has administered a threat to the appellant and it was in consequence of such a threat that the appellant gave the statement exhibit T and thereby has placed himself in a grave jeopardy of action being taken against him under the Act.
Before we refer to section 24 of the Evidence Act, it is desirable to advert to the relevant provisions of the .
Sections 107 and 108 are as follows : "section 107 Power to examine persons Any officer of customs empowered in this behalf by general or special order of the Collector of Customs may, during the course of any enquiry in connection with the smuggling of any goods, (a) require any person to produce or deliver any document or thing relevant to the enquiry; 40 "(b) examine any person acquainted with the facts and circumstances of the case.
section 108.
Power to summon persons to give evidence and produce documents (1) Any gazetted officer of customs shall have power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry which such officer is making in connection with the smuggling of any goods.
(2) A summons to produce documents or other things may be for the production of certain specified documents or things or for the production of all documents or things of a certain description in the possession or under the control of the person summoned.
(3) All persons so summoned shall be bound to attend either in person or by an authorized agent, as such officer may direct; and all persons so summoned shall be bound to state the truth upon any subject respecting which they are examined or make statements and pro duce such documents and other things as may be required Provided that the exemption under section 132 of the Code of Civil Procedure, 1908, shall be applicable to any requisition for attendance under this section.
(4) Every such enquiry a,, aforesaid shall be deemed to be a judicial proceeding within the meaning of section 193 and section 228 of the Indian Penal Code.
" Section 122 of the Act deals with confiscation of goods and levy of penalty.
Section 124 deals with the procedure to be adopted before ordering the confiscation of any goods or imposing any penalty on any person.
Section 135 deals with prosecution before a criminal court in the circumstances mentioned in cls, (a) and (b) and that prosecution is without prejudice to any action taken under the Act.
This Court had to consider in Romesh Chandra Mehta vs State of West Bengal(1) whether an officer of customs under the was a police officer and whether the statements made to him were hit by article 20(3) of the Constitution and inadmissible in evidence under section 25 of the Evidence Act.
A further question also arose whether an officer of customs acting, (1) 41 under the Act is in any event a police officer within the meaning ,of section 25 of the Evidence Act and hence the confessional statements made to him were inadmissible in evidence.
After a consideration of the scheme of the , this Court held that a Customs Officer does not exercise, when inquiring into, a .suspected infringement of the , powers of investigation which a police officer may in investigating the commission of an offence and that he is invested with the power to enquire into infringements of the Act primarily for the purpose of adjudicating about forfeiture and penalty.
Further it was held that the said officer has no power to investigate an offence triable by a Magistrate and that he can only make a complaint in writing before a competent Magistrate and hence section 25 of the Evidence .Act has no application.
It was further held that the steps taken by the Customs Officer are for the purpose of holding an enquiry under the and for adjudging confiscation of ,goods dutiable or prohibited and imposing penalties and that the Customs Officer does not at that stage accuse the person suspected of infringing the provisions of the with the corn.mission of any offence.
Finally, it was held that a person examined under section 17 1 A of the does not stand in the character of an accused person inasmuch as there is no formal accusation made against him by any person at that time and hence any statement made by such a person to a, Customs Officer is not hit by article 20(3) of the Constitution.
The scheme of the Act was also considered in the said deci sion and some points of difference between the Act and the were noted.
But notwithstanding the slight difference in the powers exercised by a, Customs Officer under the Act, it was held that the Customs Officer under the Act is not a police officer within the meaning of section 25 of the Evidence Act.
It was emphasized that the proceedings taken by him are for the purpose of holding an enquiry into suspected cases of smugly and that the Customs Officer is for all purposes an officer of the Revenue.
It was laid down that as the Customs Officer under the Act is not a police officer, the statement made before him by a person, who is arrested or against whom an enquiry is made, are not covered by section 25 of the Evidence Act.
It was further laid down that until a complaint is filed before a Magistrate, the person against whom an enquiry is commenced under the does not stand in the character of a person accused of an offence under section 135.
The discussion on this aspect is wound up by this Court as follows : ". .
The Customs Officer even under the Act of 1962 continues to remain a revenue officer primarily concerned with the detection of smuggling and enforcement and levy of proper duties and prevention of entry 42 of proper duties and prevention of entry into India of dutiable goods without payment of duty and of goods of which the entry is prohibited.
He does not on that account become either a police officer, nor does the information conveyed by him, when the person guilty of an infraction of the law is arrested, amount to making of an accusation of an offence against the person so guilty of infraction.
Even under the Act of 1962 a formal accusation can only be deemed to be made when a complaint is made before a Magistrate competent to try the person guilty of the infraction under sections 132, 133, 134 and 135 of the Act.
Any statement made under sections 107 and 108 of the by a person against whom an enquiry is made by a Customs Officer is not a statement made by a person accused of an offence.
" From this decision it follows that a Customs Officer conduc ting an enquiry under sections 107 or 108 of the Act is not a police officer and the person against whom the inquiry is made is not an accused and the statement made by such a person in that inquiry "is not a statement made by a person accused of an offence".
The same position has been reiterated in the latter case of Illias vs Collector of Customs, Madras.(1) Now coming to section 24 of the Evidence Act, it runs as follows "Section 24 : Confession caused by inducement, threat, or promise, when irrelevant in criminal proceeding : A confession made by an accused person is irrelevant in a criminal proceeding, if the making of the confession appears to the Court to have been caused by any inducement, threat or promise having reference to, the charge against the accused person, proceeding from a person in authority and sufficient, in the opinion of the Court, to give the accused person grounds which would appear to him reasonable for supposing that by making it he would gain any advantage or avoid any evil of a temporal nature in reference to the proceedings against him.
" To attract the provisions of this section, the following facts have to be established : (a) that the confession has been made by an accused, person to a person in authority; (b) that it must appear to the Court that the confession.
has been obtained by reason of any inducement. threat or promise proceeding from a person in authority; (1) (1969] 2 section C. R. 613.
43 (c) that the inducement, threat or promise must have reference to the charge against the accused person; and (d) the inducement, threat or promise, must, in the opinion of the Court, be such that the accused in making the confession believed or supposed that by making it he would pin any advantage or avoid any evil of temporal nature in reference to the proceedings against him.
We have already pointed out that when the appellant ap peared, before the Customs Officers on the morning of January 7, 1964, he was served with a summons under section 108 of the Act and that it was after the receipt of the summons, the appellant gave the statement exhibit T. From the decision in Ramesh Chandra Mehta vs State of West Bengal(1), it is clear that when an inquiry is being conducted under section 108 of the Act, and a statement is given by a person against whom the inquiry is being held it "is not a statement made by a) person accused of an offence and the person who gives the statement does not stand in the character of an accused person." Therefore the first essential fact to be established, to attract section 24, referred to above, is lacking in this case, as the appellant was not an "accused person".
We have already stated that it has been found by both the Courts that the statement exhibit T is a voluntary statement made by the appellant.
Mr. Chari attempted to bring the statement exhibit T under section 24 of the Evidence Act because of P. W. 5 having informed the appellant that the statement was being recorded as if he was a court and that the appellant was bound to speak the truth and that if any false statement is made, he would be prosecuted.
P. W. 5 has also stated that he explained section 193 1.
P. C. to the appellant.
According to the learned counsel this conduct of P. W. 5 clearly amounts to a threat being administered to the appellant.
It is not in dispute that P. W. 5, who recorded the confes sion, is a person in authority within the meaning of section 24 of the Evidence Act.
But the question is whether, when P. W. 5 drew the attention of the appellant to the fact that the inquiry is a judicial proceeding to which section 1931.
P. C. applies and that the appellant must speak the truth, it can be considered to be a threat. . proceeding from a person in authority" under the section.
We are not inclined to accept the contention of Mr. Chari that in the circumstances mentioned above any threat has proceeded from a person in authority to the appellant, in consequence (1) 44 of which the statement exhibit T was given.
Section 108 of the Act gives power to a Customs Officer of a gazetted rank to summon any person to give evidence in any inquiry in connection with the smuggling of any goods.
The inquiry made under this section is by virtue of sub section (4) deemed to be a judicial proceeding within the meaning of sections 193 and 228 of the Indian Penal Code.
A person summoned under section 108 of the Act is bound to appear and state the truth when giving evidence.
If he does not answer he would render himself liable to be prosecuted under section 228 1.
If, on the other hand, he answers and gives false evidence, he would be liable to be prosecuted under section 193 I. P. C. for giving false evidence in a judicial proceeding.
In short a person summoned under section 108 of the Act is told by the statute itself that under threat of criminal prosecution he is bound to speak what he knows and state it truthfully.
But it must be noted that a compulsion to speak the truth, even though it may amount to a threat, emanates in this case not from the officer who recorded the statement, but from the provisions of the statute itself.
What is necessary to constitute a threat under section 24 of the Evidence Act is that it must emanate from the person in authority.
In the case before us there was no such threat emanating from P. W. 5, who recorded the statement of P. W. 19, who was guiding the proceedings.
On the contrary the officers recording, the statement were only doing their duty in bringing to the notice of the appellant the provisions of the statute.
Even if P. W. 5 had not drawn the attention of the appellant to the fact that the inquiry conducted by him is deemed to be a judicial proceeding, to which section 193 I. P. C. applies, the appellant was bound to speak the truth when summoned under section 108 of the Act with the added risk of being prosecuted, if he gave false evidence.
Further, it is to be seen that it is not every threat, inducement or promise even emanating from the person in authority that is hit by section 24 of the Evidence Act.
In order to attract the bar, it has to be such an inducement, threat or promise, which should lead the accused to suppose that "by making it he would gain any advantage or avoid any evil of temporal nature in reference to the proceedings against him".
In the case before us what is it that the appellant has been told ? He has been told that the law requires him to tell the truth and if be does not tell the truth, lie may be prosecuted under section 193 I. P. C. for giving false evidence.
we have held, does not constitute a threat under section 24 of the Evidence Act.
The plea of the appellant was that he was compelled to make the statement under the threat that otherwise his mother and another brother will be prosecuted.
He has further stated that he was induced to make the statement on the belief that it will be used only against the second accused and not against him.
These pleas of the appellant have been disbelieved by both the 45 trial court and the High Court.
, Therefore, it follows that even assuming that there was an inducement or threat, the appellant had no basis for supposing that by making the statement he would gain any advantage or avoid any evil with reference to the proceedings in respect of which an inquiry was being conducted by the Customs Officers.
Therefore, even on this ground also section 24 of the, Evidence Act has no application.
For all the above resons we hold that by the mere fact that the Customs Officer P. W. 5, who recorded the statement exhibit T, explained the provisions of section 193 1.
P. C. and informed the appellant that he was bound to tell the truth and that he is liable to be prosecuted if he made a false statement, there was no threat given to the appellant.
We accordingly hold that section 24 of the Evidence Act has no application and the statement exhibit T was properly admitted in evidence in the trial of the appellant.
Both the Courts have found that there is also independent evidence to corroborate the truth of the statements in exhibit T.
The question of admissibility of exhibit T in evidence, having been decided against the appellant, no other point has been argued before us.
In the result the appeal fails and is dismissed.
K.B.N. Appeal dismissed.

summary:
The appellant was convicted for offences under the .
He challenged the legality of his conviction on the ground that his statement to the customs authorities made on a summons issued under s, 108 of the Act and on which the conviction was substantially based was not admissible in evidence in view of section 24 of the Evidence Act.
It was contended that the statement was procured by threat in as much as the officer who recorded the statement warned the appellant that he was bound to state the truth as the officer was conducting a judicial proceeding to which sections 193 and 228 of the Penal Code applied.
Dismissing the appeal, HELD,: (i) A statement by a person against whom an inquiry is being held under section 108 is not a statement made by a person accused of an ,offence.
Therefore, the essential ingredient to attract section 24, namely that the confession must be made by an accused person, is lacking in this case.[143 D] Romesh Chandra Mehta vs State of West Bengal, and Illias vs Collector of Customs, Madras ; , relied on.
(ii) A compulsion to speak the truth emanates in this case riot from ,the officers who recorded the statement but from the provisions of the statute itself.
What is necessary to constitute a threat under section 24 of the Evidence Act is that it must emanate I e from ' the person in authority.
The officers recording the statement were only doing their duty in bringing to the notice of the appellant the provisions of the statute.
[44 C E] (iii) To be told that the law required him to tell the truth and if he did not tell the truth he was liable to be prosecuted under section 193 Penal ,Code, for giving false evidence did not constitute a threat under section 24 of the Evidence Act.
(iv) Even assuming that there was an inducement or threat, the appellant bad no basis for supposing that by making the statement he would gain any advantage or avoid any evil with reference to the proceedings in respect of which an inquiry was being conducted by the customs officers.
Therefore, even on this ground section 24 of the Evidence Act has no application.
[44 G H]


judgement:
Appeal No. 217 of 1953.
Appeal from the Judgment and Order dated the.
16th day of January, 1950, of the Income tax Appellate 120 942 Tribunal, Calcutta in Income tax Appeal No. 4658 of 1948 49 and E.P.T.A. No. 1137 of 1948 49.
N. C. Chatterjee and Veda Vyas, (section K. Kapoor and Ganpat Rai, with them) for the appellant.
C. K. Daphtary, Solicitor General for India (G. N. Joshi, with him) for the respondent.
October 29.
The Judgment of the Court was delivered by MEHR CHAND MAHAJAN C.J.
The appellant is a public limited joint stock company incorporated under the Indian Companies Act, 1915, with its registered office at Calcutta.
It carries on the business of manufacture and sale of cotton yarn and piece goods.
On the 28th of July, 1944, the Income tax Officer issued a notice to it under section 22(2) of the Indian Income tax Act calling upon it to file the return of its income for the assessment year 1944 45 (account year being 1943 44).
Before the expiry of the due date for filing the return the account books of the appellant company together with the documents relevant to the accounts, were taken into custody by the Sub Divisional Officer, Narayanganj and it is alleged that these remained in the custody of the court of the Sub Divisional Magistrate till January, 1950, when they were handed back to the appellant.
In this situation the assessee pleaded for extension of time to furnish the return.
This request was refused, and a show cause notice was issued under section 28(3) of the Act calling upon the appellant company why penalty should not be imposed upon it for its failure to file the return.
An officer of the company appeared before the Income tax Officer and explained the cause for this default.
In order to, ascertain whether the explanation furnished by the assessee was genuine, the Income tax Officer made inquiries from the court concerned about this matter.
He also made a request to the court to allow him, access to the books of account.
The court, however, neither acceded to the demand that books of account be made available to the assesse nor did it permit the Income tax Officer to have access to them.
The 943 Income tax Officer having thus satisfied himself about ,the genuineness of the assessee 's explanation, condoned the default in filing the return and dropped the proceedings taken against the company under section 28(3) of the Act.
It seems that no further action in the matter was taken by the department till the year 1947.
During that year the company requested the department toreador the proceedings.
The proceedings having been revived the appellant company furnished the return of its income for the assessment year 1944 45 on the 16th March, 1948.
This return, however, was not a complete document as without the assistance of the books the profits could not be computed according to the ,provisions of law.
On receipt of the return the Income tax Officer issued a notice under section 23(2) of the Act calling upon the company to supply further information on a number of points and to prepare certain statements indicated in the notice.
This requisition had to be complied with by the 19th March, 1948.
On that date the Chief Accounts Officer of the company appeared before the Income tax Officer and asked for further time till the middle of the following week for furnishing the requisite particulars.
This request was, however, refused and assessment was completed on the 20th March, 1948.
The excess profits assessment was also made final on the 23rd March, 1948.
The relevant part of the assessment order is in these terms: "From the point of view of profits, 1943 was a very good year, if not the best, for all cotton mills.
Expenses on cotton and fuel shows that production was undoubtedly higher whereas it is found that the gross profit disclosed by this company is low.
I conclude that full amount of sales have not been accounted for.
It is expected that actually the rate of gross profit should have been higher this year.
In view of the higher costs of establishment, I take it that the rate of about 40%, i.e., near about the rate disclosed in 1942 accounts, should have been maintained.
I add back the Rs. 36 lakhs for unaccounted sales".
It may be mentioned that in the return the company had disclosed a gross :profit of 28 per cent,.
on 944 sales amounting to Rs. 1,78,96,122.
The total amount of sales in the year 1942 was of the amount of Rs. 1, 15,69,582, disclosing a gross profit of 41 percent.
The establishment expenses, however, during that year were in the sum of Rs. 15,94,101, while during the accounting year relevant to the year under assessment these had gone up to Rs. 34,74,735 on account of labour troubles.
A number of other causes were mentioned by the assessee for the low rate of profit during the relevant period; but the Income tax Officer took no notice of them.
On appeal this order was upheld by the Appellate Assistant Commissioner.
The assessee then appealed to the Tribunal against these decisions.
What happened before the Tribunal may well be stated in terms of the Tribunal 's order itself. 'this is what is mentioned in the judgment of the Tribunal: "At the end of the hearing of this appeal on 25th of November, 1949, the Income tax Appellate Tribunal requested the departmental representative to produce for the examination of the Income tax Appellate Tribunal the gross profit rates shown or assessed in the cases of other similar cotton mills.
The departmental representative wanted 3/4 days ' time to collect information on this point.
On this the appellant also wanted to be allowed to produce information regarding the gross profit rates shown or assessed by other similar cotton mills, and he was also allowed to produce information on the point.
On or about the 29th November the counsel for the appellant requested that he should be allowed time till Saturday the 3rd of December to file the above information and time for this purpose was allowed to him.
On the 3rd December Mr. Banerjee the appellant 's counsel saw the Account.
ant Member in his chamber and wanted to produce written arguments and a trunk full of books and papers in support of his case.
Mr. Banerjee was told that the arguments in the case had finished on the 25th and he was allowed time only to supply to the court the gross profit rates shown or assessed in the cases of other similar cotton mills.
He was told that it was pot fair to the other side to take notice of any 945 additional evidence or record at that stage and his trunk of books and papers was returned to him.
During the discussion of Mr. Banerjee with the Accountant Member Mr. Banerjee produced a report ' showing that the gross profit rates of some mills in Bengal on the average amounted to 23 per cent.
In the statement showing 23 per cent.
gross profit rates there was another item called 'Pool profit ' which was bigger than the gross profits rate.
Mr. Banerjee was asked to explain what this word 'Pool profit ' meant but he had no information on this point. .
For want of this information we are afraid it is not possible for us to attach a great deal of importance to the gross profit percentage of 23 per cent.
mentioned in the books produced by Mr. Banerjee.
Mr. Banerjee during this discussion further produced a book showing the wastage expected.
In that book certain quality of cotton had been mentioned and it was said that wastage of 34 per cent.
was normal.
In the case of the assessee he has shown a wastage of 9 per cent.
in 1942, 26 per cent.
in 1943 and 19 per cent. ' in 1944.
The figure of 34 per cent.
shown in that book would therefore seem to refer to a particular quality of cotton very much inferior to the cotton generally used by the appellant.
The department 's main case on the question of wastage is based on the appellant 's own books according to which his wastage in the year under review amounted to three times the wastage in the year previous.
In the light of all this information it appears to us that the Income tax Officer was justified in making a substantial addition to the gross profit shown by the appellant.
Coming to the question of what the amount of addition should be the departmental representative has on our request filed a number of cases of other cotton mills which show a gross profit rates varying between 49 per cent.
and 22 per cent.
and in one case even 13 per cent. has been shown. .
In the face of all the above facts it appears to us that the Income tax Officer was justified in coming to the conclusion that all sales had not been brought into 946 the books.
We have, however, considered all facts relevant to this case and are of the opinion that the addition to the sales should be reduced from Rs. 36 lakhs made by the Income tax Officer to Rs. 16 lakhs Which would reduce the gross profit rate to about 35 per cent.
The sum and substance of these decisions is that the Income tax Officer estimated the gross profit on sales at 40 per cent.
by a pure guess, while the Tribunal reduced it to 35 per cent.
by applying some other rule of thumb.
It is not clear from either of these judgments on what material these estimates were based.
Dissatisfied with the decision of the Tribunal, the assessee wanted the Tribunal to state a case and refer to the High Court for its decision ten questions of law.
It seems that Dr. Pal who represented the assessee before the Tribunal had only argued one question namely, whether the estimate of profit made by the Income tax Officer was excessive or whether it was justified on the material on the record.
The other points raised in the memorandum of appeal regarding the validity or the correctness of the procedure of assess ment had been abandoned.
The questions which were submitted to the Tribunal.
and which it was asked to refer to the High Court concerned all the points including those abandoned before the Tribunal.
The Tribunal came to the conclusion that no question of law arose on its order, and it, therefore, dismissed the application made by the assessee.
It appears that the assessee then applied to the High Court under section 66(2) of the Act for the issue of a mandamus to the Tribunal directing it to refer to the High Court the very same questions of law which it had refused to refer.
This application was summarily rejected.
The High Court also refused an application for leave to appeal to this Court.
Having exhausted all the remedies that were available to him under the Income tax Act, the assessee then made an application to this Court for special leave against the order of the Income tax Tribunal under the provisions of article 136 of the Constitution.
Leave was allowed and this appeal is now before us by virtue of that leave.
947 Mr. Chatterjee, the learned counsel for the appellant, contended inter alia that the assessment order made under section 23(3) of the Income tax Act had been made in violation of the principles of natural justice, inasmuch as it was not based on any material whatsoever and that the evidence tendered by the appellant had been improperly rejected.
It was further said that the Tribunal acted without jurisdiction in relying on the data supplied by the Income tax department behind the back of the appellant company, and without giving it an opportunity to rebut or explain the same.
Reliance was placed on the decision of a Full Bench of the Lahore High Court in Seth Gurmukh Singh vs Commissioner of Income tax, Punjab(1), for the proposition that while proceeding under sub section (3) of section 23, the Income tax Officer, though not bound to rely on evidence produced by the assessee as he considers to be false, yet if he proposes to make an estimate in disregard of that evidence, he should in fairness disclose to the assessee the material on which he is going to found that estimate; and that in case he proposes to use against the assessee the result of any private inquiries made by him, he must communicate to the assessee the substance of the information so proposed to be utilized to such an extent as to put the assessee in possession of full particulars of the case he is expected to meet and that he should further give him ample opportunity to meet it.
It was said that the Tribunal failed to disclose to the assessee the material that the departmental representative had given to it regarding the rates of gross profit of cotton mills varying between 49 per cent.
and 13 per cent., and that if that disclosure had been made, the assessee would have satisfied the Tribunal that the mills which had shown gross profits at rates mentioned above had no similarity of any kind with the appellant company 's mill or to other mills in Bengal and therefore those rates had no relevancy in the enquiry as to gross profits of the assessee company 's mill.
It was also argued that both the Income tax Officer and the Tribunal acted arbitrarily and on suspicion in estimating the rate of (1) 948 gross profit.
In conclusion the learned counsel urged that now that the books of account of the company were available, it was only just and fair that the 'Income tax Officer and the Tribunal should examine these book,% in order to determine the correctness of the return furnished by the assessee.
The learned Solicitor General who appeared for the Commissioner of Income tax, West Bengal, combated the contentions raised by 'Mr. Chatterjee on a two fold ground: (1) In the first instance, without questioning the jurisdiction of this Court to grant special leave against an order of an Income tax Tribunal, he argued that such leave should not be granted when remedies provided by the Income tax Act itself were available for correcting errors of the Tribunal, and had been taken but without success.
It was said that the power conferred on this Court by article 136 of the Constitution being an extraordinary power, its exercise should be limited to cases of patent and glaring errors of procedure, or where there has been a failure of justice because of the violation of the rules of natural justice or like causes but that this discretionary power should not be exercised for the purpose of reviewing findings of fact when the law dealing with the subject has declared those findings as final and conclusive.
(2) That the finding given by the Income tax Officer and affirmed by the Appellate Assistant Commissioner and the Tribunal was based on material and it could not be said that these bodies had acted arbitrarily in this matter.
It was contended that the Income tax Officer has very wide powers and is not fettered by technical rules of evidence and pleadings, and that the only restriction on his judgment is that he must act honestly on the material however inadequate before him, but not capriciously or arbitrarily.
It was suggested that owing to the disparity of the rate of wastage the Income tax Officer was entitled to reach the conclusion that the assessee had not disclosed the full sales made by him during the accounting year, and that on that basis he was entitled on his own information to make an estimate of the rate of gross profit.
949 As regards the first contention of the learned Solicitor General, we are unable to accede to it.
It is not possible to define with any precision the limitations on the exercise of the discretionary jurisdiction vested in this Court by the constitutional provision made in article 136.
The limitations, whatever they be, are implicit in the nature and character of the power itself.
It being an exceptional and overriding power, naturally it has to be exercised sparingly and with caution and only in special and extraordinary situations.
Beyond that it is not possible to fetter the exercise of this power by any set formula or rule.
All that can be said is that the Constitution having trusted the wisdom and good sense of the Judges of this Court in this matter, that itself is a sufficient safeguard and guarantee that the power will only be used to advance the cause of justice, and that its exercise will be governed by well established principles which govern the exercise of overriding constitutional powers.
It is, however, plain that when the Court reaches the conclusion that a person has been dealt with arbitrarily or that a Court or tribunal within the territory of India has not given a fair deal to a litigant, then no technical hurdles of any kind like the finality of finding of facts or otherwise can stand in the way of the exercise of this power because the whole intent and purpose of this article is that it is the duty of this Court to see that injustice is not perpetuated or perpetrated by decisions of Courts and tribunals because certain laws have made the decisions of these Courts or tribunals final and conclusive.
What we have said above sufficiently disposes of the first contention raised by the learned Solicitor General.
As regards the second contention, we are in entire agreement with the learned Solicitor General when he says that the Income tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a Court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub section (3) of section 23 of the Act, the Income tax Officer is not entitled to 950 make a pure guess and make an assessment without reference to any evidence or any material at all.
There must be something more than bare suspicion to support the assessment under section 23(3).
The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh vs Commissioner of Income tax, Punjab (Supra).
In this case we are of the opinion that the Tribunal violated certain fundamental rules of justice in reaching its conclusions.
Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative.
Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and, lastly, it declined to take all the material that the assessee wanted to produce in support of its case.
The result is that the assessee had not had a fair hearing.
The estimate of the gross rate of profit on sales, both by the Income tax Officer and the Tribunal seems to be based on surmises, suspicions and conjectures.
It is somewhat surprising that the Tribunal took from the representative of the department a statement of gross profit rates of other cotton mills without showing that statement to the assessee and without giving him an opportunity to show that statement had no relevancy whatsoever to the case of the mill in question.
It is not known whether the mills which had disclosed these rates were situate in Bengal or elsewhere, and whether these mills were similarly situated and circumstances.
Not only did the Tribunal not show the information given by the representative of the department to the appellant, but it refused even to look at the trunk load of books and papers which Mr. Banerjee produced before the Accountant Member in his chamber.
No harm would have been done if after notice to the department the trunk had been opened and some time devoted to see what it contained.
The assessment in this case and in the connected appeal,* we are told, was above the figure of Rs. 55 lakhs and it was meet and proper when dealing with a matter of this magnitude not to employ *civil Appeal NO 218 Of 1953, not reported, 951 unnecessary haste and show impatience, particularly when it was known to the department that the books of the assessee were in the custody of, the Sub Divisional Officer, Narayanganj.
We think that both the Income tax Officer and the Tribunal in estimating the gross profit rate on sales did not act on any material but acted on pure guess and suspicion.
It is thus a fit case for the exercise of our power under article 136.
In the result we allow this appeal, set aside the order of the Tribunal and remand the case to it with directions that in arriving at its estimate of gross profits and sales it should give full opportunity to the assessee to place any relevant material on the point that it has before the Tribunal, whether it is found in the books of account or elsewhere and it should also disclose to the assessee the material on which the Tribunal is going to found its estimate and then afford him full opportunity to meet the substance of any private inquiries made by the Income tax Officer if it is intended to make the estimate on the foot of those enquiries.
It will also be open to the department to place any evidence or material on the record to support the estimate made by the Income tax Officer or by the Tribunal in its judgment.
The Tribunal if it thinks fit may remit the case to the Income tax Officer for making a fresh assessment after taking such further evidence as is furnished by the assessee or by the department.
The coats; of these proceedings will abide the result.
Case remitted.

dataset_name: IN-Abs

summary:
It is not possible to define with any precision the limitations of the powers conferred on the Supreme Court by article 136 of the Constitution.
This is an overriding and exceptional power and should be exercised sparingly and with caution and only in special and extraordinary situation.
Beyond this no set formula, or rule can stand in the way of or fetter the exercise of the power conferred on the Supreme Court under article 136 of the Constitution.
Sufficient safeguard and guarantee for the exercise of this power lie in the trust reposed by the Constitution in the wisdom and good sense of judges of the Supreme Court.
This power is not hedged in by technical hurdles of any kind when it is called in aid against any arbitrary adjudication or for advancing the cause of justice or for giving a fair deal to a litigant so that in justice may not be perpetrated or perpetuated.
Conclusiveness or finality given to any decision by any domestic law cannot dater the Supreme Court from exercising the power conferred under article 136 of the Constitution.
The powers given to the Income tax Officer under section 23(3) of the Indian Income tax Act, 1922, however wide, do not entitle him to base the assessment on pure guess without reference to any evidence or material.
An assessment under 9.
23(3) of the Act cannot be made only on bare suspcion.
An assessment so made without disclosing to the assessee the information supplied by the departmental representative and without giving any opportunity to the assessee to rebut the information so supplied and declining to take into consideration all materials which the assesses wanted to produce in support of his case constitutes a violation of the fundamental rules of justice and calls for the powers under article 136 of the Constitution.
Seth Gurmukh Singh vs Commissioner of Income tax, Punjab (1944 I.T.R. 393) approved.


judgement:
minal Appeal No. 142 of 1968.
Appeal by special leave from the judgment and order dated September 8, 1967 of the Madhya Pradesh High Court in Criminal Appeal No. 81 of 1966.
I. N. Shroff, for the appellant U. P. Singh and Nur ud din Ahmed, for the respondent.
126 The Judgment of the Court was delivered by Sikri, C.J.
This appeal by special leave by the State of Madhya Pradesh is against the judgment of the High Court allowing the appeal of the respondents, Mr Basi Ali Khan, Mir Shahniwaz Ali khan and Mir Sarfaraz Ali Khan, and setting aside the conviction and sentences passed on them by the learned First Additional Sessions Judge, Bhopal, who had convicted them under Section 120B and Section 420, 1.
The respondents were, however, acquitted of the charge under Section 406, 1.
We may mention that there were two committal orders made by the learned Magistrate, First Class, Bhopal, on April 5, 1965 and on October 12, 1965, respectively, which gave rise to two Sessions Trials, No. 90 of 1965 and No. 98 of 1965.
The learned Sessions Judge disposed of both the trials by a single judgment as he was of the view that both the trials were in effect a single trial of a single conspiracy and of several incidents of cheating.
The respondents also filed one appeal before the High Court and the High Court disposed of that appeal by one judgment.
The facts are not very much in dispute.
The prosecution case, in brief, was that Mir Basit Ali Khan, the father, and his two sons, Mir Shahniwaz Ali Khan and Mir Sarfaraz Ali Khan. entered into a partnership which was registered on September 21, 1959, under the Indian Partnership Act of 1932 in the State of Andhra Pradesh at Hyderabad.
The registration number of the firm was 1468.
Mir Basit Ali Khan started a money circulation scheme known as Multi Purpose Constructive Circulation Scheme with its head office at Hyderabad, in the year 1960.
He, alongwith others, was prosecuted in the City Magistrate 's Court at Hyderabad, but they were acquitted and the acquittal was maintained in the High Court.
The Magistrate had come to the conclusion that though the scheme appeared to be speculative yet it could not be said that the accused were running the said scheme with a dishonest intention to cheat the public.
It is alleged that Mir Basit Ali Khan again organised the Multi Purpose Constructive Circulation Scheme on September 20, '1961, at Bhopal with its principal office at Bungalow No. 59, Roshanara Naka, T. T. Nagar, Bhopal.
The firm issued policies and printed pamphlets and handbills representing that it was a Government of India Registered firm No. 1468.
We may reproduce the pamphlet, exhibit P 9 / 1, which was one of the pamphlets issued by the firm : "1. Perform the marriage of marriageable girls by spending only 5.50 np.
127 2.
Only after spending once Rs. 5.50 np.
send your promising children to America or England for Education.
By spending Rs. 5.
50 nP. only once, you can meet your daily necessities.
By spending Rs. 5 50 nP. only once make provision for education, and books, stationery, etc., etc. 5.
By spending Rs. 5.50 nP. get a big sum of Rs. 2,309 for the progress of your business.
For obtaining all the above mentioned thing, you can get a big sum of Rs. 2,309 by spending only Rs. 5.50 nP. Please do come and meet on the address noted below so that you may know how to do it and how to utilise this golden opportunity.
Otherwise please do not say that you did not get intimation.
" It is necessary to reproduce another pamphlet, exhibit P 12, because according to the State there were clear misrepresentations of fact which amounted to cheating "Phone : 1266.
M. C. C. Bhopal M. P. Grams "Jansewak" Government of India 's Registered X X Firm, 1468.
The Government of India after establishing the social service Department are doing a great service for the public and to the nation as a whole by spending lacks of rupees.
The public have also been exerting manual labour in addition to giving their valuable time.
But this Public Service scheme of ours is so unique that without any difficulty every individual of the country receives direct benefit to the extent of Rs. 2,309 50 by sitting at home.
That is, remit your admission fee once through the de T. T. (sic.) and the Government postman will knock down at your doors several times to pay you up the amount.
The Founder of this unique formula has placed before you in such a way that a person with ordinary intelligence will be pleased to understand it.
HOW THIS IS POSSIBLE: Collect Rs.5.50 from each of your three friends, and out of this keep Rs. 5.50 for yourself and this remaining Rs. 11.00 may be remitted according to the schedule.
It is thus clear that you have received your original amount of Rs. 5.50 in full immediately after the sale of three Policies.
128 From the procedure explained above, it is very clear that this is neither a Gambling lottery, Riddle nor Satta.
There is not the least possibility of your losing the amount.
of course, such persons will be losers who will not be in a position to sell their three policies.
Therefore, those persons who do not have the capacity of selling their 3 Policies need not join this scheme.
But in our opinion we are confident that there Is no such an unfortunate person who is not having even three well wishing friends, or relatives in this vast world.
But the question of selling 3 policies by an individual is most important.
You should purchase one policy by paying Rs. 5.50 nP. from any person who has already enrolled in this scheme or write to the Firm for the policy, by sending M. 0. of Rs. 5.
Now select three energetic and enthusiastic friends, collect Rs. 5.50 from each of them and remit the M. Os.
to the members and the Firm as shown in the schedule.
Write down the names of your selected 3 friends with their address in full in BLOCK LETTERS ONLY.
Send the Policy along with the M. 0.
receipts to the firm by EXPRESS DELIVERY ONLY.
Never send M. Os.
to persons in column nos.
2 they will not get any amount to the extent of THIS POLICY ONLY BUT as and when this Policy goes in circulation they will automatically change their places and enjoy with their expected amount.
FIRM 'S RESPONSIBILITY: The firm will send you 3 policies in which you will stand in column No. 2 and that of the new member in column No. 1.
Hand over these policies immediately to your friends carefully.
As soon as you finish this job, YOUR RESPONSIBILITY IS OVER.
The chain of M. Os., will be continued in such a way that your neighbors will be fed up with postman 's voice.
Because the beauty of our scheme is that we allow 15 days period for the sale of the policy to each of our member after the expiry of the period we cancel such slack members and the same cancelled policy in which you stand in No. 2 is sold to other new members through our authorised agents and field officers, who are spread all over India thereby we try our utmost to continue your chain.
The cause of failure of other previous Schemes is only due to not having this wonderful arrangement of continuation of Chain to which we give much importance.
For this reason only we are having a very 129 good response & our to days membership number is more than a lack all over India.
Under unavoidable circumstances, extension of one week can be given on payment of extension fee of 0.37 nP. SCHEDULE section NO.
No. of Policies Amount payable Column No. 1 1 5.50 2 3 Nil 3 9 9.00 4 27 27.00 5 81 81.50 6 243 364.50 7 729 1822.50 Total No. of Policies 1093 2309.50 MOST IMPORTANT : If your chain of M. O.s. are discontinued for two weeks Please inform us immediately so that they may be continued.
MEER BASITH ALI KHAN Author of Dukhi Kisan approved by the Ministry of Agr.
of India, Founder of full House Talkie Formula Regd.
by Govt.
of India No. 104 Proprietor M. C. C. Govt.
of India 's Regd.
Firm No. 1468 Bhopal.
TIME IS MONEY : If you are inclined to become agent, contact us and enjoy with the commission of 3.50 np.
per member.
The Chief agent will get 75 P. M. salary as well as commission of Rs. 3.50 per member.
The advertisement expenses will also be borne by the The learned Sessions Judge had come to the conclusion that the respondents by using the expression "Government of India Registered Firm No. 1468" in their policies and pamphlets misled the public into believing that the scheme was sponsored by the Government of India or it had its approval.
He also came to the conclusion that there was a misrepresentation in the pamphlet that the scheme was neither a gambling, lottery, riddle or a satta, but was an ordinary financial scheme.
The learned 9 1 S.C. India/71 130 Sessions Judge had further found that as the remitter of the money orders was always Mir Basit Ali Khan,respondent No '.
I and the Proprietor of M. C. C., the, member of the policy was left only with a small piece of paper, exhibit P 69, the scheme 'contained a misrepresentation and suppression of material facts which made the respondents liable for conspiracy to cheat and cheating.
The High Court, however, held that it being not in dispute that the firm was registered and its number was 1468 there was no fraudulent or deceitful representation.
The High Court further held that most of the witnesses had clearly stated that they had known the fact that it was a private firm and the Government had nothing to do with it.
The High Court was of the view that the statement may be an exaggeration or a puffing.
The High Court, after going through the evidence and the various.
pamphlets came to the following conclusion: "There appears to be no misrepresentation or suppression of any material facts with a view to defraud or cheat.
How so ever speculative and unworkable the scheme may be, unless it is shown that there is a false representation or suppression of the material facts which might render it to be fraudulent, it cannot be said that the offence of cheating has been committed.
of course, to judge its effect, the policy and the pamphlet has to be read as a. whole.
" The High Court further observed, after referring to a number of cases which we will presently deal with "In this scheme as aforesaid, the purchaser also got his amount alright and one can expect to get even more provided the Chain continued.
As the policy with its rules and pamph let make it quite clear, the, appellants cannot be held guilty unless it is positively shown that some, deception had been practiced on the public with the result that they were deceived and they had paid the money.
The prosecution has not produced any witness to say that some money was due from the company and they have been in any way deceived and the amount has not been paid.
It is only the.
Jhua lot of witnesses who could not be, paid because of the police raid and the, Ms. being withheld by the Magistrate.
" The High Court further found that the name of.
Mir Basit Ali Khan, Proprietor, M. C. C., was mentioned simply because it was a chain scheme and that it may go on, working continuously, otherwise there is every possibility that some policy holder might not send the full amount or may not be traceable for one reason 131 or the other.
The High Court observed that nothing was kept secret from the policy holders and it was known to them alright that they had joined the scheme with the conditions laid down in the policy and the pamphlet.
The High Court did not think that the size, of the taken had anything to do with cheating.
The High Court accordingly came to the concl usion that the respondents had committed no offence.
Regarding the money which had been seized by the police the High Court said that the money belonged to the policy holders and the respondents and it was a case where the money in question had 'to go back to them and it could not be ordered to be confiscated.
The High Court accordingly directed that the respondents would be entitled to get back their amount which had .been withheld as property in the Sessions Trials referred to above.
It is common ground that the Scheme is highly speculative, and the question which arises is whether it amounts to cheating under Section 420, 1.
The learned counsel for the State ,stresses the following facts (1)None of the 2000 odd persons who purchased the policy had received Rs. 2309.50, the assured amount in the policy.
(2) The large amounts of Rs. 90,750 and Rs. 5,52,587 95 were obtained by the respondents showed the extent of wrongful gain by them.
(3)The policy holders had no control over other Policy holders which would assure continuance of the .scheme.
(4)Merely because some persons received some :amount it could not be inferred that the scheme was not fraudulent (5)The evidence showed that the names entered in columns 3, 4, 5, 6 and 7 were bogus and that 2696 money orders were sent back to the remitter, as the persons were not traceable because of wrong addresses on the form.
The learned counsel for the respondents contends that since the year 1939 similar schemes have been held not to fall within Section 420, I. P. C. , and the legislature must be deemed to have accepted the law as laid down in the cases.
The learned counsel has drawn our, attention to two decisions of the Calcutta High Court on similar schemes.
The earliest case pointed out by the learned counsel is Radha Ballav Pal, vs Emperor In that case (1) A. I. R. 132 the society was described as Government Registered No. 5934.
registered under Act 11 of 1932.
The High Court held that it was not a misrepresentation as this society was actually registered under that Act.
Regarding the scheme the High Court held on the facts of that case that the scheme was one of those snowball schemes which were speculative to the highest degree and unworkable but it was not dishonest or fraudulent in the sense that it either represented to the public something which was not true or, concealed from them something which should have been disclosed.
The High Court thought that it was an appeal to the gambling instinct of humanity but this cannot per se amount to cheating.
This case was followed by another Bench of the Calcutta High Court in Hari Das Barat vs Emperor (1).
The headnote brings out the decision thus : "Promoters of a financial snowball scheme, which could run only so long as there would be a continuous uninterrupted and enormously progressive increase in subscribers, but which could not go on indefinitely, would not be guilty of cheating, in the absence of false representations and dishonest concealment of facts either in the prospectus issued or in the conduct of the promoters, calculated to deceive the public and thereby induce it to contribute money to the scheme.
" These cases were distinguished in Nadir Barga Zaidi vs The State of U. P. (1) as the High Court felt that on the facts of that case there were misrepresentations made to the depositors and certain facts had been dishonestly concealed from them.
In re M. K. Srinivasan (3) the facts were slightly different and the case does not assist us.
It seems to us that the Calcutta cases, referred to above, were correctly decided and the High Court came to the correct conclusion.
This appeal must accordingly fail.
It is for the legislature to intervene if it wants to protect people who participate in these schemes knowing that sooner or later the schemes are bound to fail.
In the result the appeal fails and is dismissed.
G. C. Appeal dismissal.
(1) (2) A. 1.
R. 1960 All.
(3) A.I.R.1944Mad 410.

summary:
The respondents organised a money circulation scheme.
For alleged cheating and misrepresentation in connection therewith they were convicted by the Sessions Judge, Bhopal under section 120B and section 420 Indian Penal Code.
The High Court however acquitted them.
The State of Madhya Pradesh by special leave appealed to this Court.
In support of the appeal the following facts were stressed: (1) None of the 200 odd persons who purchased the policy issued under the scheme received Rs. 2309.50, the assured amount in the policy.
(2) The large amounts of Rs. 90,750 and Rs. 5,52,587.95 were detained by the respondents and showed the extent of wrongful gain by them.
(3) The policy holders had no control over other policy holders which would assure continuance of the scheme.
(4) Merely because some persons receive some amount it could not be inferred that the scheme was not fraudulent.
(5) The evidence showed that the names entered in columns 3, 4, 5, 6 and 7 of the pamphlet, issued by the respondents were bogus and that 2696 money orders were sent back to the remitter, as the persons were not traceable because of wrong address on the form.
HELD: As held by the Calcutta High Court in Radha Ballav Pal 's case and Haridas Barat 's case there was an element of speculation in money circulation schemes, but those who ran them could not be held guilty of cheating unless there was misrepresentation or dishonest concealment of facts.
It could not be said in the present case that the respondents had deceived the public and thereby induced it to contribute money to the scheme.
The appeal must accordingly fail.
[131H 132F] Radha Ballav Pal vs Emperor, A.I.R. 1939 Cal.
327 and Hari Das Barat vs Emperor, , approved.
Nadir Barga Zaidi vs State of U.P.
A.I.R. 1960 All. 103 and In re M. K. Srinivasan, A.I.R. 1944 Mad. 410, referred to.
It is for the legislature to intervene if it wants to protect people who participate in these schemes, knowing that sooner or later the schemes are bound to fail.
[132F G]


judgement:
Appeal No. 974 of 1968.
Appeal from the judgment and order dated December 22, 1967 and January 3, 1968 of the Calcutta High Court in Civil Rule No. 3369(W) of 1966.
L. M. Singhvi and section P. Nayar, for the appellant.
A. K. Dutta and K. Rajendra Chowdhary, for respondents Nos. 1 to 3.
Santosh Chatterjee and G. section Chatterjee, for respondent No.4 The Judgement of the Court was delivered by Grover, J.
This is an appeal from a judgment of a learned single judge of the Calcutta High Court who granted a certificate under article 132(1) of the Constitution.
It involves primarily the question whether the cession of a territory by India as a result of a treaty with Pakistan would be compulsory acquisition of the property comprised in that territory by the Union of India and would, therefore, attract the provisions of article 31 of our Constitution.
At the outset it may be mentioned with reference to a preli minary objection which has been raised by the respondents that the judgment under appeal was delivered by the learned single Judge in a petition under article 226 of the Constitution and it appears that on an oral prayer made to him he granted a certificate under article 132(1) even though under the Letters Patent of the High Court an appeal lay to a division bench of that court.
This Court has said on an earlier occasion in clear and unequivocal terms that the practice of a single Judge deciding the case and giving a certificate under article 132(1) for appeal to this Court, al though technically correct, was an improper practice.
The right of the parties to file an appeal in the High Court itself against the decision of the single Judge should not be short circuited.
Indeed 246 in R. D. Agarwala & Another etc.
vs Union of India & Ors.(1) the certificate was cancelled.
In Union of India vs J. P. Mitter(2) it was observed that a certificate by a single judge under article 132(1) should be given in very exceptional cases where a direct appeal was necessary.
Even though the present case may be of an exceptional kind we have been deprived of the benefit of the judgment of a larger bench of the High Court on points which are of substantial importance.
Presumably a number of matters which had no bearing on the real questions to be determined and which have been dealt with by the learned single judge would have been either satisfactorily disposed of or would not have been the subject matter of discussion by the court, being irrelevant and unnecessary, if the decision had been given by a larger Bench.
The facts may be shortly stated.
On September 10, 1958, an agreement was entered into between the Government of India and Pakistan called the Indo Pakistan Agreement.
Item No. 3 of the agreement related to Berabari Union No. 12 which was a group of, villages lying within the territory of India.
This territory was to be so divided as to give one half area to Pakistan.
The other half adjacent to India was to be retained by India.
Subsequently a doubt arose whether the implementation of the agreement relating to Berubari Union required Legislative action either by way of an Act of Parliament relatable to article 3 of the Constitution or by way, of a suitable amendment of the Constitution in accordance with the provisions of article 368 or both.
A similar doubt had also arisen in respect of another item of the agreement which related to the exchange of certain enclaves but with which we are not concerned.
The President of India made a reference to this Court under article 143(1), of the Constitution for its advisory opinion.
The opinion was deliverted on March 14, 1960.
(In Re ': The Berubari Union and Exchange of Enclaves Reference Under Article 143 (1) of the Constitution of India(3).
As mentioned in the advisory opinion Berubari Union No. 12 had an area of 8 75 Sq.
Miles and a, population of 10 to 12 thousand residents.
It was situated in the district, of Jalpaiguri.
This Court expressed the view that since the agreement between India and Pakistan a mounted to cession of a part of the territory of India in favour of Pakistan its implementation would naturally involve the alteration of the content of and the consequent amendment of Article and of the relevant part of the First Schedule to the Constitution which could be made only under Article 368.
Pursuant to the opinion delivered by this Court the Parliament enacted (1) C. As.
2634/69 & 63/70 decided on 23 2 70.
(2) ; (3) 247 the Constitution (Ninth Amendment) Act 1960 on December 28, 1960.
In order to implement the provisions of the above Act a physical division of the Berubari Union in accordance with the agreement and demarcation of the portion that was to go to Pakistan was necessary.
Some of the, inhabitants of the Berubari Union filed a petition under Article 226 of the Constitution challenging its proposed partition with the object of transferring its southern part to Pakistan.
The Writ petition was dismissed and an appeal was brought to this Court which was disposed of on August 11, 1965.
(Ram Kishore Sen & Others vs Union of India & Ors.)(1).
It was held that the Ninth Constitution Amendment Act had been passed by the Parliament in the manner indicated in the advisory opinion of this Court.
No merit was found on the other points which were agitated.
The appeal was dismissed.
On June 11, 1965, the respondents filed another petition under Article 226 of the Constitution before the High Court challenging the validity of the proposed demarcation principally on the ground right of citizenship conferred by also of their property without payment of compensation.
D. D. Basu J. called for an affidavit in opposition and after hearing lengthy arguments delivered an elaborate judgment A.I.R. 1967 Cal. 216) directing the issue of rule nisi limited to ground No. 3 of the writ petition.
This ground was: "For that no Act of the State is involved in the transfer of Berubari Union No. 12 to Pakistan and as such your petitioners are entitle to compensation in terms of article 31(2) of the Constitution inasmuch as the operation of transfer involves deprivation of their right to property for which no provision has been made in the Constitution 9th Amendment Act, 1960." According to the allegation in the writ petition respondent Dhanoswar Roy had 2 acres 64 decimals of khas land in the area in question.
It was also claimed that the respondents had their household property, ancestral homes and cultivated lands in the Berubari Union No. 12.
The constitutional question formulated by the learned judge was whether compensation under Article 31(2) of the Constitution was to be provided for the respondents before the demarcation in implementation of the Constitution (Ninth Amendment) Act took place,.
We may mention some of the material conclusions of the learned judge out of the numerous matters dealt with by (1) ; 248 him.
These are: (1) the treaty making power must be exercised subject to the fundamental rights guaranteed by the Constitution.
(2) Once it is established that a treaty making law involves a transfer which attracts article 31(2) it cannot be exempted from the requirements of that Article on the ground that it is a treaty of "cession".
(3) Although under the International Law the private rights of the inhabitants of the ceded territory are not instantly affected they shall have no legal right to assert against the new State under its own municipal law to which such inhabitants shall be subject from the moment the cession is complete.
(4) As a result of cession it would be competent for the Government of Pakistan to deal with the disputed territory as absolute owner in complete disregard of the existing rights of the respondents.
"The rights of the Government of Pakistan under its municipal law would in no way be less than what would have happened if the lands were vested in that Government by a direct Act of the Government of India.
Such vesting the Government of India could arrange for only after acquiring the disputed lands".
(5) The present case will not be covered by clause 2(A) of Article 31 of the Constitution as so far all the cases which have been held to fall within its purview have been those in which there was exercise of the regulatory power of the State.
(6) The cession of the disputed properties sought to be implemented by the impugned demarcation involved compulsory acquisition of those properties by the Union of India within the meaning of article 31(2) and unless competent legislation is enacted to provide for compensation the Union cannot announce the appointed day within the meaning of section 2(A) of the Constitution (Ninth Amendment) Act 1960 and for constructing pillars to demarcate Berubari Union No. 12 for the purpose of effecting the transfer of the specified portion to Pakistan.
According to Dr. Singhvi learned counsel for the appellant the High Court has fallen into serious errors inasmuch as it has proceeded on many assumptions, reasoned on a priori theories and has founded its judgment on certain premises which do not exist either in fact or in law.
Stress has been laid on the true import of "cession".
According to all authorities on International Law "cession" is the transfer of sovereignty over the State territory by the owner State to another State"(1).
Under the International Law two of the essential attributes of sovereignty are the power to ac quire foreign territory as well as the power to cede national territory in favour of foreign State(2) (supra at p. 281).
Hardship is certainly involved in the fact that in all cases of cession the inhabitants of the territory ceded lose their old citizenship and have to submit to a new sovereign whether they like it or not.
As the object of cession is sovereignty over the ceded territory all such (1) Oppenheim 's International Law Vol. 1, 8th Edn.
at pp.
547, 551.
(2) 249 individuals domiciled thereon as are subjects of the ceding State become ipso facto, by the cession, subjects of the acquiring .,State(1) (supra at p. 551).
Dr. Singhvi says that the first premise on which the High Court has proceeded is that as a result of cession it would be ,competent for the Government of Pakistan to deal with the disputed territory as an absolute owner in complete disregard of the .existing rights of the respondents.
In other words it has been assumed that the Government of Pakistan will not recognise owner ship or other similar rights of the respondents in the lands and properties which belong to them.
This, Dr. Singhvi claims, is contrary to the rule enunciated by Chief Justice Marshall in United States vs Juan Perchman(2) in the following words : "The modern usage of nations, which has become law, would be violated; that sense of justice and of right which is acknowledged and felt by the whole civilised world would be outraged, if private property should be generally confiscated and private rights annulled.
The people change their allegiance; their relation to their ancient sovereign is dissolved; but their relations to each other and their rights of property, remain undisturbed.
" The rule set forth in the Perchman case has been followed in over forty American cases and has been accepted as the rule of Inter,national law in English, French, German and Italian law(3).
This Court has had occasion to consider fully the Perchman 's case as also the English law apart from several other autho rities on International law and the decisions of the Permanent Court of International Justice.
In State of Gujarat vs Vora Fiddali Badruddin Mithibarwala(4) the following passage from the judgment of Mudholkar J., at pages 590, 591 gives tersely the position which obtains in our country : "Thus while according to one view there is a State succession in so far as private rights are concerned according to the other which we might say is reflected in our laws, it is not so.
Two concepts underline our law; one is that the inhabitants of acquired territories bring with them no rights enforceable against the new sovereign.
The other is that the municipal courts have (1) Oppenheim 's International Law Vol.
1,8th Edn.
at pp.
547, 551.
(2) 8 L. ed.
(3)Extracts from the Law of Nations (2nd Edn. of.
F. B. Sayre, "Change of Sovereignty and Private Ownership of Land," 12 XIXL A. J. I. L. (1918), 475, 481, 495 497.
(4) ; 250 no jurisdiction to enforce, any rights claimed by them, even by virtue of the provisions of a treaty or other transaction internationally binding on the new sovereign unless their rights have been recognised by the new sovereign.
" The above case related to rights pertaining to the exploitation of the forests which were claimed under a Tharao which was held by the 'majority to be a grant to the jagirdars by the ruler of the erstwhile Sant State which merged in the )Dominion of India as from June 10, 1948.
It wag thus held that the rights derived by the inhabitants of 'the 'ceded territory from its former rulers could not be enforced by them against the new sovereign in the courts of that sovereign unless they had been recognised by the 2,1 new sovereign.
It is altogether unnecessary to discuss the principles established by.
the decisions of this Court further because they can afford no Assistance in deciding no question arises of how the private a particular territory would be affected ceaded to India.
The session involved the present case in which rights of the inhabitants of if the same Were to be is of territory to Pakistan and no evidence was placed before the High Court from which it could be concluded that inder the Pakistan laws the private rights of the inhabitants therein would not be respected in accordance with the ordinary principles of International law.
In this situation it would be a wholly wrong approach to conclude that the respondents are bound to loge all their property rights in the territory which is being ceded by India to Pakistan.
Even on the assumption that the respondents will not be entitled to enforce their private rights in the municipal courts of Pakistan unless they are recognised by the new sovereign it is incomprehensible how such a prospect or possibility can attract the applicability of article 31(2) of our Constitution so as to entitle the respondens to compensation as provided thereby.
Nor can we understand the process of reasoning by which the High Court has reached the result that cession would be tantamount to vesting by the direct act of the Government of India of the properties of the respondents in Pakistan.
ln order to determine whether the case of the respondent,% would fill within article 3.1(2) ,it is necessary to set out that provision as also para 2A of that, Article which was added by the Constitution (4th Amendment) Act 1955: (2)"No property shall be compulsorily acquired or requisitioned save.
for a public purpose and save by authority of a law which provides for compensation for the property so aquired or requisitioned and either fixes the amount of the compensation or specifies the principles on which, and the manner in which, the compensa 251 tion is to be determined and given; and no such law shall be called in question in any court on the ground that the compensation provided by that law is not adequate." (2A) Where a law does not provide for the transfer of the ownership or right to possession of any property to the State or to a corporation owned or controlled by the State it shall not be deemed to provide for the compulsory acquisition or requisitioning of property, notwithstanding that it deprives any person of his property.
" As far back as 1950 Mukherjea J. (as he then was) gave the meaning of "acquisition ' in Charanjit Lal Chowdhury vs Union of India(1) in the following words: "Acquisition means and implies the acquiring, of the entire title of the expropriated owner, whatever the nature or extent of that title might be.
The entire bundle of rights which were vested in the original holder would pass on acquisition to the acquirer leaving nothing in the former".
But in the State of West Bengal vs Subodh Gopal Bose & others(2) the view taken in the judgment of the majority was that clauses 1 and 2 of Article 31 were not mutually exclusive in scope and content but should be read together and understood as dealing with the same subject.
Thus a wider meaning was given to acquisition, deprivation contemplated in clause being no other than the acquisition or taking possession of the property referred to in clause(2).
In Dwarkadas Shrinivasa of Bombay vs The Sholapur Spinning & Weaving Co. Ltd. & Others(3) this Court, While confirming the above principle, held that the word "acquisition" had quite a wide concept, meaning the procuring of property or taking of it permanently or temporarily and it was not confined only to the acquisition of a legal title, by the State in the property taken possession of.
This was the position relating to article 31 as it stood before the Constitution (4th Amendment) Act, Clause 2A was inserted in 1955 with the object of superseding the majority decision in Subodh Gopal 's(2) case as also in Saghir Ahmed vs The State of Uttar Pradesh(4) in which the earlier decisions were followed.
It was pointed out in Gultapalli Nageswdra Rao & other vs Andhra Pradesh State Road Transport Corporation & Another(5) "The Constitution (Fourth Amendment) Act, 1955 Amended clause (2) of article 31 and inserted clause 2A in (1) ; At p. 902.
(2) ; (3) ; (4) ; (5) [1959] Suppl.
1 section C. R. 319. 252 that article.
The amendments, in so far as they are relevant to the present purpose, substitute in place of the words 'taken possession or acquired ' the words ` compulsorily acquired or requisitioned ' and provide an explanation of the words 'acquired and requisitioned ' in clause (2A).
The result is that unless the law depriving any person of his property provides for the transfer of the ownership or right to the possession of any property to the State, the law does not relate to acquisition or requisition ' of property and therefore the limitations placed upon the legislature under cl.
(2) will not apply to such law.
" It is therefore essential that in order to constitute acquisition or requisitioning there must be, transfer of the ownership or right to possession of any property to the State or to a corporation owned or controlled by the State.
Article 12 provides that in Part III (in which Article 31 appears) unless the context otherwise requires the State "includes the Government and Parliament of India and the Government and the legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India.
The effect of the Constitution (Ninth Amendment) Act 1960 by which part of the Berubari Union No. 12 shall be ceded to Pakistan can by no stretch of reasoning be regarded as a transfer of the ownership or right to possession of any property of the respondents to the State within the meaning of article 12 of the Constitution.
The amendment of 1955 makes it clear that mere deprivation of property unless it is acquisition or requisitioning within the meaning of clause (2A) will not attract clause (2) and no obligation to pay compensation will arise thereunder.
Cession indisputably involves transference of sovereignty from one sovereign State to another.
There is no transference of ownership or right to possession in the properties of the inhabitants of the territory ceded to the ceding State itself.
The Constitution (Ninth Amendment) Act having been enacted in accordance with the Advisory opinion of this court(1) there can be no impediment in the way of ceding part of Berubari Union No. 12 pursuant to the Indo Pakistan Treaty 1958.
The view of the High Court that the cession of the said territory involves transfer of the ownership and other private property rights to Pakistan through the Union of India which was outside clause(2A) of Article 31 and was covered by clause(2) of that Article is to say the least wholly untenable and cannot be sustained.
In our judgment no question of acquisition within article 31(2) is involved in the present case and even though a good deal of hardship may result to the respondents owing to the change of sovereignty they (1) 253 cannot claim compensation for the simple reason that there has been no transfer of the ownership of their property to the State namely the Union of India which would attract the applicability of article 31(2).
The appeal, therefore, succeeds and it is hereby allowed.
In view of the nature of the points decided there will be no order as to costs.
K.B.N. Appeal allowed.

summary:
Pursuant to the Indo Pakistan Agreement, 1958, and after this Court 'section Advisory opinion in In re the Berubari Union and Exchange and Enclaves, , Parliament enacted the Constitution (Ninth Amendment) Act, 1960 for cession of part of the territory of India to Pakistan.
In order to implement the provisions of the Act a physical demarcation of the portion that had to be ceaded was necessary.
The respondents filed a petition under article 226 of the Constitution before the High Court challenging the validity of the proposed demarcation principally on the ground that they would be deprived of their property without compensation.
A single Judge of the High Court held that the cession of the territory involved transfer of ownership and other private property rights to Pakistan through the Union of India, which, though outside cl 2A of article 31 was compulsory acquisition within the meaning of article 31(2).
The single Judge granted a certificate under article 132(1) for appeal to this Court.
HELD:(i) No question of acquisition within the meaning of Article 31(2) is involved in the present case.
The Constitution (Fourth Amendment) Act, 1955, makes it clear that mere deprivation of property unless it is acquisition or requisitioning within the meaning of cl.
2A will not attract cl.
(2) and no obligation to pay compensation will arise thereunder and it is essential under clause (2) that in order to constitute acquisition or requisitioning there must be transfer of the ownership or right to possession of the property to the State or to a corporation owned or controlled by the State.
Cession indisputably involves transference of sovereignty from one sovereign State to another.
But, there is no transference of ownership or right to possession in the properties of the inhabitants of the territory ceded to the ceding State itself.
The effect of the Constitution (Ninth Amendment) Act, 1960, can by no stretch of reasoning be regarded as transfer of the ownership or right to possession of any property of the respondents to the "State" within the meaning of Article 12 of the Constitution.
[202C F, H] Charanjit Lal Chowdhury vs Union of India, [1950] S.C.R. 869, 902, State of West Bengal vs Subodh Gopal Bose & Ors.
; , Dwarkadas Shrinivas of Bombay vs Sholapur Spinning & Weaving Co. Ltd. & Ors.
; , Saghir Ahmed vs State of Uttar Pradesh, ; and Gullapalli Nageswara Rao & Ors.
vs Andhra Pradesh State Road Transport Corporation & Anr.
[1959] Supp. 1 S.C.R. 319, referred to.
245 (ii) This Court has on earlier occasions, observed that the practice of single Judge deciding the case and giving a certificate under Article 132 (1) for appeal to this Court, although technically correct, was an improper practice and that such a certificate should be given only in very exceptional cases where a direct appeal was necessary.
The present case may be of an exceptional kind; but this Court has been deprived of the benefit of the judgment of a larger Bench of the High Court on points which are of substantial importance.
[246B] R.D. Agarwala. & Anr.
vs Union of India & Ors.
C.A. Nos.
2634/69 etc.
dt. 23 2 1970 and Union of India vs J. P. Mitter; , , referred to.