judgement:
Appeal No. 73 of 1954.
Appeal by Special Leave against the Judgment and Order dated the 11th day of February, 1954, of the Election Tribunal, Allahabad.
in Election Petition No. 252 of 1952.
672 N.C. Chatterjee and G. N. Kunzru, (Rameshwar Nath and Rajinder Narain, with them) for the appellant.
Veda Vyasa (G. C. Mathur, with him) for respondent No. 1. 1954.
September 29.
The Judgment of the Court was delivered by DAB J.
Kunwar Rananjaya Singh, the appellant before us, is the son of Raja Bhagwan Bux Singh of Amethi.
He was the successful candidate at an election to the Uttar Pradesh Legislative Assembly from Amethi (Central) constituency the polling in respect of which took place on the 31st January, 1952, and the result whereof was announced on the 6th February, 1952, and finally published in the Uttar Pradesh State Gazette on the 26th February, 1952.
The respondent, Baijnath Singh, who was one of the unsuccessful candidates filed an election petition calling in question the election of the appellant.
Three other unsuccessful candidates were also impleaded as respondents.
The grounds on which the election was challenged were that the appellant himself, together with his own and his father 's servants and other dependents and agents, committed various corrupt practices of bribery, exercise of undue influence, publication of false and defamatory statements and concealment of election expenses as per particulars set forth in the petition and the schedules thereto.
He prayed that the election of the appellant be set aside and that he, the said respondent, be declared to have been duly elected.
The appellant alone contested the petition.
In his written statement he denied each and every one of the charges of corrupt practices levelled against him and he also filed a petition of recrimination challenging the conduct of the said respondent at the election.
The said respondent denied the charges imputed to him.
Altogether 15 issues were raised, namely, eight.
on the election petition and 7 on the petition of recrimination.
All the 7 issues arising out of the petition of recrimination were found by the tribunal constituted for hearing of the election petition against the appellant and the petition of recrimination was dismissed.
The appellant has not 673 contested the correctness of those findings before us and nothing further need be said about them.
As regards the issues arising on the main election petition the election tribunal found in favour of the appellant on issues Nos. 1, 2, 4,5, 6 and 7 but decided issue No. 3 against the appellant.
That issue was as follows:3 Did respondent No. I employ for election more persons than authorised by law? Did respondent No. I incur the expenditure shown in the list as "Heads of other concealed expenditures?" Did he exceed the prescribed limit of expenditure for election ?" The above issue related to charges made out in paragraph 6 of the election petition and the list of particulars set out in Part III of the schedule thereto.
The particulars in that part were grouped under two main heads, each containing several items.
The first head referred to persons alleged to have been employed on payment far in excess of the prescribed number and not shown in the return of election expenses.
The second bead of particulars contained other alleged concealed expenditures.
The election tribunal held in favour of the appellant on all items of charges under both heads in Part III, except items (ii) and (iii) of the first bead.
Item (ii) charred that all the paid Ziladars of Amethi estate who were about 20 in number assisted by their peons and orderlies worked for the appellant and item No. (iii) complained that the Manager and the Assistant Manager of that estate also worked for him.
The tribunal held that the number of all these persons coming within these two categories far exceeded the prescribed number of persons who could be employed in an election and their salary for the period they worked for the appellant in connection with the election, if added to the admitted election expenses, would exceed the maximum expenditure permissible for contesting a single member constituency.
The tribunal, therefore, held that the appellant was guilty, under both these heads, of corrupt practice as defined, in section 123(7) of the Representation of the People Act, 1951, and was consequently liable to be dealt with under section 100(2) (b) and section 145 of that Act.
674 These findings as to employment of extra persons on payment and the expenditure of money in excess of 7h the permissible maximum election expenses necessarily led to the further finding that inasmuch as these expenses had not been shown in the appellant 's return of election expenses the appellant was also guilty of a minor corrupt practice as defined in section 124(4) of the Act and was liable to be dealt with under section 100(2) (a) and section 145 of the Act.
In the result, the tribunal under the general issue No. 8 only declared the election of the appellant to be void.
Hence this appeal filed by the unseated candidate with the special leave of this Court.
Section 77 of the Representation of the People Act, 1951, provides that the maximum scales of election expenses at elections and the numbers and descriptions of persons who may be employed for payment in connection with election shall be as may be prescribed.
As regards the maximum expense, rule 117 lays down that no expense shall be incurred or authorised by a candidate or his election agent on account of or in respect of the conduct and management of an election in any one constituency in a State in excess of the maximum amount specified in respect of that constituency in Schedule V.
The maximum amount specified in that schedule in respect of a singl emember constituency in the Uttar Pradesh is only Rs. 8,000.
Rule 118 prescribes that no person other than or in addition to those specified in Schedule VI shall be employed for payment by a candidate or his election agent in connection with an election.
Schedule VI allows I election agent, 1 counting agent, 1 clerk and 1 messenger at all elections.
It also allows, in addition to these, 1 clerk and 1 messenger for every 75,000 electors and 1 polling agent and 2 relief agents for each polling booth and I messenger at each polling booth.
The contravention of the provisions of section 77, read with rules 117 and.
118 and Schedules V and VI, is made a corrupt practice by section 123(7) Section 123(7) clearly shows that in order to amount to a corrupt practice the excess expenditure must be incurred or authorised by a candidate or his agent and 675 the employment of extra persons must likewise be by a candidate or his agent.
The charge against the appellant was, inter alia, that the Manager, Assistant Manager, 20 Ziladars of Amethi estate and their peons and orderlies had worked for the appellant in connection with the election.
The tribunal took the view we think quite erroneously that although the estate belonged to the father of the appellant, nevertheless, as the appellant was the heir apparent and actually looked after the estate on behalf of the old and infirm proprietor, these servants of the estate were "virtually" his "own" servants and could properly be regarded as having been employed for payment by the appellant.
The Learned advocate appear ing for the respondent frankly and properly conceded that he could not support this part of the finding of the tribunal.
He, however, contended, relying on the language used in section 77, that if the number of persons who worked for payment in connection with the election exceeded the maximum number specified in Schedule VI, the case fell within the mischief of the relevant sections and the rules, no matter who employed them or who made payments to them.
It is true that section 77 uses the words "who may be employed for payment" without indicating by whom employed or paid but it must be borne in mind that the gist of a corrupt practice as defined in section 123(7) is that the employment of extra persons and the incurring or authorising of excess expenditure must be by the candidate or his agent.
The provisions of rules 117 and 118 are to be read in the light of this definition of a corrupt practice.
Indeed, these rules follow the language of section 123(7) in that they prohibit the employment of persons other than or in addition to those specified in Schedule VI, and the incurring or authorising of expenditure in excess of the amount.
specified in Schedule V, and in both cases by a candidate or his agent.
Section 77 must, therefore, be read in a manner consonant with section 123(7) and rule 117 and and 11 8.
In this view of the matter the observation made by Phillimore J. in Joseph Porster Wilson and, 676 Another vs Sir Christopher Furness(1), relied on by the appellant and referred to in the judgment of the tribunal are quite apposite.
There can be no doubt that in the eye of the law these extra persons were in the employment of the father of the appellant and paid by the father and they were neither employed nor paid by the appellant.
The case, therefore, does not fall within section 123(7) at all and if that be so, it cannot come within section 124(4).
It obviously was a case where a father assisted the son in the matter of the election.
These persons were the employees of the father and paid by him for working in the estate.
At the request of the father they assisted the son in connection with the election which strictly speaking they were not obliged to do.
Was the position in law at all different from the position that the father had given these employees a holiday on full pay and they voluntarily rendered assistance to the appellant in connection with his election? We think not.
It is clear to us that qua the appellant these persons were neither employed nor paid by him.
So far as the appellant was concerned they were mere volunteers and the learned advocate for the respondent admits that employment of volunteers does not bring the candidate within the mischief of the definition of corrupt practice as given in in section 123(7).
The learned advocate, however, contended that such a construction would be against the spirit of the election laws in that candidates who have rich friends or relations would have an unfair advantage over a poor rival.
The spirit of the law may well be an elusive and unsafe guide and the supposed spirit.
can certainly not be given effect to in opposition to the plain language of the sections of the Act and the rules made there under.
If all that can be said of these statutory provisions is that construed according to the ordinary, grammatical and natural meaning of their language they work injustice by placing the poorer candidates at a disadvantage the appeal must be to Parliament and not to this Court.
(1) 6 O 'Mally and Hardcastle 's Report of Election Cases, page I at page 6, 677 On a consideration of the relevant provisions of the Act and the rules and the arguments advanced before us we are of opinion that the appellant cannot in the circumstances of this case be held to be guilty of any corrupt practice under section 123(7) as alleged against him.
It follows from this that not having incurred any expenditure over and above what was shown by him in his return of election expenses he cannot be said to have concealed such expenditure and, therefore, he cannot be held to have been guilty of any minor corrupt practice under section 124(4) of the Act.
In the view we have taken, namely, that these extra men were not employed or paid by the appellant, it is unnecessary, for the purpose of this appeal, to discuss the question whether, if one 's own servants are also utilised or employed in the conduct of the election, their salary for the period they are so utilised or employed should be regarded as election expenses and shown in the return.
On that we prefer not to express any opinion on this occasion.
No other point having been raised we allow this appeal with costs.
Appeal allowed.

summary/full:
Section 123(7) of the Representation of the People Act, 1951, shows clearly that in order to amount to a corrupt practice the excess expenditure must be incurred or authorised by a candidate or his agent and the employment.
of extra persons must likewise be by a candidate or his agent.
The charge against the appellant was, inter alia, that the Manager, Assistant Manager, 20 Ziladars of Amethi and their peons and orderlies had worked for the appellant in connection with the election.
The view taken by the Election Tribunal that though the estate belonged to the father of the appellant, nevertheless as the appellant was the heir apparent and actually looked after the estate on behalf of the old and infirm proprietor, these servants of the estate were "virtually" his "own" servants and could properly be regarded as having been employed for payment by the appellant, was untenable because though section 77 of the Act uses the words SC who may be employed for payment", without indicating by whom employed or paid, the gist of a corrupt practice as defined in B. 123 (7) of the Act is that the employment of extra persons and the incurring or authorising of extra expenditure must be by the candidate or his agent.
The appellant accordingly, could not in the circumstances of the present case, be held to be guilty of any corrupt practice under section 123(7) as alleged against him and therefore could not be held to have been guilty of any minor practice under section 124(4) of the Act.
, Joseph Forster Wilson and Another vs Sir Christopher Furness (6 O 'Mally & Hardocastle 's Report of Election Cases, p. 1), referred to.


judgement:
minal Appeal No. 189 of 1967.
Appeal by special leave from the judgment and order dated September 4, 1967 of the Madhya Pradesh High Court in Criminal Appeal No. 492 of 1964.
A.S.R. Chari, B.P. Maheshwari and Sobhag Mal Jain for the appellant.
I. N. Shroff, for the respondent.
The Judgment of the Court was delivered by Sikri, J.
In this appeal by special leave the principal question which arises is whether a Sales Tax Inspector inspecting the accounts under the Madhya Pradesh General Sales Tax Act, 1958 (No. 2 of 1959) hereinafter referred to as the Act is entitled to remove obstruction to the inspection of account books; in other words, if he attempts to remove the obstruction is he acting in the execution of his duties as such.
The facts are not in dispute.
On October 24, 1959, Krishan Sahai, Sales Tax Inspector, P.W. 1, alongwith Shri N. J. Warudkar, P.W. 5, and Shri Harikishan Gupta, P.W. 2, went to the shop of the appellant Mangat Rai, run under the name and style "Mangat Rai Ram Kumar".
The officer visited the shop for a surprise check.
He informed the appellant that he wanted to inspect his account books.
At that time they were in the verandah which is common to the shop of the appellant and the neighbouring shop of Munshiram.
It is perhaps best to describe what happened in the words of the Inspector: "I entered the shop of the accused for inspection and Shri Warudkar entered the shop of Munshiram.
The accused, Harikishan and myself all three entered the shop of the accused.
I and Harikishan sat on the Gadi of the accused and the accused Mangat Ram sat near the iron safe.
I asked the accused person to show his account books for inspection.
Many account books were kept there.
He took out 3 note books of the size of exercise notebooks out of them.
I thought he was taking out them for showing the same to me for inspection.
In the meantime Dayakishan who is the son of the accused also came into the shop.
The accused kept one notebook as it was and he handed over the remaining two note books to his son and asked him to rule away for keeping the same at his house.
When the accused was turning the pages of the note book I noticed that it contained accounts therefore, suspicion came to my mind and I demanded these note books from that boy for inspection.
That boy had the exercise book in his right hand.
I tried to snatch away the exercise book by catching hold of 153 his left hand.
When I had caught hold of that boy with my left hand the accused caught hold of my right hand and pulled me to the back side by giving me a jerk as a result of which my shirt got torn and the boy ran away.
I tried to get separated from the grip of the accused so that I would be able to catch the boy but in the mean time the accused caught hold of my waist with his both the hands and said, "Do not touch the exercise books.
It would be dangerous.
" In cross examination it is stated: "When the accused was turning the pages of both the account books with which the boy was running away "I noticed that 'Business transaction ' was written therein.
" The Magistrate who, tried the: case convicted the appellant under section 353 and under section 506(1) of the Indian Penal Code.
The learned Sessions Judge held that the Sales Tax Inspector "had not required the accused to produce those copy books for checking and inspection and as he was not authorised to seize them, his attempt to hold the boy and relieve him of the copy books was not in the discharge of his public duty and therefore the accused cannot without doubt be held guilty of an offence under section 353 Indian Penal Code or even 352 Indian Penal Code.
" The State filed an appeal under section 417 of the Criminal Procedure Code.
The High Court came to the conclusion that the Sales Tax Inspector was certainly within his statutory authority to demand inspection of the copy books kept in the shop and if some of the books were sought to be removed in such clandestine manner, it would be idle to contend that the Sales Tax Inspector would have no power to prevent evasion of inspection and commission of an offence in his very presence.
In the result the High Court allowed the appeal and convicted Mangat Rai under section 353 and section 506(1) and sentenced him to rigorous imprisonment for four months on each count, the sentences to run concurrently.
The learned counsel for the appellant, Mr. Chari, contends that the Act contemplates voluntary submission to inspection and that there cannot be any forcible inspection of accounts.
He says that if there is any obstruction to inspection it may be punishable under section 46(h) of the: Act, but the Sales Tax Inspector cannot do anything to forcibly inspect the accounts.
He urges that what has happened in this case is an attempt on the part of the Sales Tax Inspector to exercise the powers under section 29 (3) of the Act, and it is common ground that the Sales Tax Inspector did not have power to act under section 29(3).
Sup CI 70 11 154 In order to appreciate the arguments of the learned counsel it is necessary to set out the relevant provisions of the Act and the Rules.
"Madhya Pradesh General Sales Tax Act section 29.
Production and inspection of accounts and documents and search of premises.
(1)The Commissioner may, subject to such conditions as may be prescribed, require any dealer to produce before him any accounts, registers or documents, relevant to the financial transactions of a dealer including accounts, registers or documents relating to profits derived from the business of any firm, or to.
furnish any information, relating to the stock of goods of the dealer, or purchases, sales or deliveries of goods made by him, as may be necessary for the purpose of this Act.
(2) All accounts, registers and documents relating to the stocks of goods of any dealer, or to purchases, sales or deliveries of goods made by him and all goods kept in any place of business or warehouse of any dealer shall, at all reasonable times, be open to inspection by the Commissioner.
(3) If the Commissioner has reason to suspect that any dealer is attempting to evade payment of any tax, he may, for reasons to be recorded in writing, seize such accounts, registers, or documents of the dealer as he may consider necessary and shall grant a receipt for the same, and shall retain the same only for so long as may be necessary for examination thereof or for a prosecution.
(4) For the purpose of sub section (2) or subsection(3), the Commissioner may enter and search any place of business or where house of any dealer." "Madhya Pradesh General Sales Tax Rules 54.
Notice of inspection.
Unless the inspecting officer in his discretion deems it necessary to make a surprise visit, he shall give reasonable notice in writing to the dealer of his intention to inspect the accounts, registers, documents or stocks of goods of such dealer and in fixing the date, time and place for the purpose 155 shall, as far as possible, have due regard to the convenience of the dealer.
Retention of seized books of accounts, registers and documents.
If the inspecting officer seizes any books of accounts, or documents under section 29, he shall give a written acknowledgement of the same specifying in brief the articles so seized.
He shall not without recording in writing the reasons retain them for more than twenty one days.
" A similar section was construed by this Court in Commissioner of Commercial Taxes vs Ramkishan Shrikishan Jhaver(1).
The section which came up for interpretation was section 41 (2) of the Madras General Sales Tax Act (1 of 1959), which reads as follows: "41(2).
All accounts, registers, records and other documents maintained by a dealer in the course of his business, the goods in his possession and his offices, shops, godowns, vessels or vehicles shall be open to inspection at all reasonable times by such officer: Provided that no residential accommodation (not being a place of business cure residence) shall be entered into and searched by such officer except on the authority of a search warrant issued by a Magistrate having jurisdiction over the area, and all searches under this sub section shall, so far as may be, be made in accordance with the provisions of the Code of Criminal Procedure, 1898 (Central Act 5 of 1898).
" The contention of the respondent in that case was that the provisions did not authorise search of premises but merely provided for inspection thereof at all reasonable times by the empowered officer.
This Court observed: "Though, therefore, the word 'search ' has not been used in sub section (2) these two powers of entering the offices, etc., for inspection and of inspecting every kind of account maintained by a dealer with respect to his business together amount to giving the officer 'concerned the powers to enter and search the offices, etc., and if he finds any account in the offices, shops, etc., to inspect them.
Otherwise, we can see no sense in the legislature giving power to the empowered officer to enter the offices, etc., for the purpose of inspection as the officer concerned would only do so for the purpose (1) , 671.
156 of finding out all accounts, etc., maintained by the dealer and if necessary to inspect them for the purposes of the Act.
We cannot therefore agree with the High Court that there is no power of search whatsoever in sub section (2) because the sub section in terms does not provide for search.
Similarly, the officer has been given the power to inspect the goods in the possession of the dealer.
He has also the power to enter the dealer 's offices, etc., for the purpose of such inspection.
Combining these two powers together it follows on the same reasoning that the officer has the power to search for the goods also and to inspect them it found in the offices of the dealer.
We have therefore no hesitation in coming to the conclusion that the power of search is implicit in subsection (2) with reference both to the accounts, etc.
maintained by the dealer and the goods in the possession of the dealer.
" We have referred to the above case, which was not cited at the bar, in order to show that there is no rule that provisions like this should be construed very strictly.
In the present Act there is a special provision section 29(4) which enables the Commissioner to enter and search any place of business or wherehouse of any dealer for the purpose of sub section (2) of section 29.
If the powers under sub sections
(2) and (4) are read together it would mean that the Commissioner is entitled to search for the account books even if the assessee does not place the account books before him.
If the Commissioner searches and takes hold of account books for the purposes of inspection it is difficult to say that he is seizing the account books within the meaning of sub section
(3) of section 29.
Search for inspection implies taking possession of the account books for the purpose of inspection.
In the Act 'seizure ' means something different because here seizure means that the Commissioner would take into possession the account books and take them outside the possession of the assessee.
The learned counsel referred to us the decision of this Court in Hazari Lal vs State of Bihar(1), where this Court observed: "In our opinion merely holding books found lying in the premises for perusing them cannot properly be regarded as seizure because seizure implies doing something over and above holding an article in one 's hand.
According to Shorter Oxford Dictionary, seizure, among other things, means ' . confiscation or forcible taking possession (land or goods); a sudden and forcible taking hold. ' As already stated, Mr. Singh (1) [1963] Supp. 1 S.C.R. 419, 425. ? 157 merely picked up the books which were lying in the shop and did not snatch them away from anyone nor did he take them by force.
On the contrary they were taken away by force by the appellant.
If, indeed, he had retrieved them by force it may have been possible to urge that latter act of his amounts to seizure.
" In our opinion the last sentence quoted above is an abiter, and we must examine the question independently whether the attempt made by the Sales Tax Inspector in this case to take possession of the account books from the hands of the appellant 's son amounts to seizure or does it amount only to an attempt to enforce his right of inspection.
It seems to us that if we were to accept the contention of the learned counsel for the appellant we would be nullifying the power of inspection and search contained in section 29(2) and (4) of the Act.
Any assessee who does not want to show any particular book or if he finds that the Sales Tax Inspector has got hold of a book, which might prove damaging to his case, the assessee could snatch away or ask his clerk or son or relation to snatch away the book and run away leaving the Sales Tax Inspector helpless to do anything in the matter.
In our view the Sales Tax Inspector having seen the two books in the hands of the assessee was entitled to demand that they be shown to him and if he did forcibly try to take possession of them it cannot be said that he attempted to seize the account books within the meaning of section 29(3) for the object was not to dispossess the trader but to hold the books for a temporary period for the purpose of inspection.
If section 29(4) authorises him to search business premises for the purpose of inspection it implies that he can get hold of the books in respect of the business of the assessee.
As observed by this Court in M.P. Sharma vs Satish Chandra(1) these powers are given to the Sales Tax Inspector for the protection of social security.
This Court observed that "a power of search and seizure is in any system of jurisprudence an overriding power of the State for the protection of social security and that power is necessarily regulated by law." The learned counsel urges that the appellant was entitled to exercise his right of private defence of the person of his son.
We are unable to sustain this contention.
The son was clearly committing an offence under section 46(h) of the Act and in these circumstances we are unable to appreciate how any question of private defence arises.
(1) ; ; 1096.
158 In our view the Sales Tax Inspector was acting in execution of his duty as a Sales Tax Inspector and the appellant used criminal force against the Sales Tax Inspector.
Further he intended to deter the Sales Tax Inspector and prevent him from discharging his duty as a public servant.
In the result the appeal fails and is dismissed.
R.K.P.S. Appeal dismissed.

dataset_name: IN-Abs

summary/full:
Section 29 sub section (2) of the Madhya Pradesh General Sales Tax Act provides in part that all accounts relating to the stock in trade of any dealer shall be.
open to inspection by the Commissioner; and for this purpose sub section (4) empowers the Commissioner to search any place of business of the dealer.
The Sales Tax Inspector visited the shop of the appellant fox a surprise check and wanted to inspect his account books.
When the Inspector tried to prevent removal of the books in a clandestine manner by forcibly taking possession of them, the appellant used criminal force and was subsequently convicted under sections 353 and 506(1) I.P.C.
In appeal to this Court it was contended that the Act did not authorise forcible inspection of accounts and that the Inspector was exercising powers of seizure under section 29(3) of the Act which he did not have.
HELD: Dismissing the appeal, If the powers under sub section (2) 'and (4) are.
read together, it would mean that the Commissioner is entitled to search and take hold of the account books even if the assessee does not place the account books before him.
If the Commissioner does so, he cannot be said to seize the account books.
In the Act "seizure" means that the Commissioner should take into possession the account books and take, them outside the possession of the assessee.
[156 E G] In the present case the Sales Tax Inspector having seen the account books in the hands of the assessee was entitled to demand that the account books be shown to.
him and if he did forcibly try to take possession of them, he was only attempting to enforce his right of inspection.
He cannot be said to have attempted to seize the account books within the meaning of section 29(3), for, the object was not to dispossess the trader but to hold the books for a temporary period for the purpose of inspection.
[157 E F] The observation contra in Hazari Lal vs State of Bihar [1962] Supp. ?.
S.C.R. 419 at 425, held obiter, Commissioner of Commercial Taxes vs Ramkishan Shrikishan Jhovar , 671 and N.P. Sharma vs Satish Chandra ; ; 1096 referred ' to.


judgement:
Appeals Nos. 481 and 482 of 1966.
Appeals by special leave from the judgment and order, dated April 15, 1963 of the Patna High Court in Misc.
Judicial Cases Nos. 342 and 346 of 1954.
165 S.T. Desai and D.N. Mukherjee, for the appellant (in both the appeals).
Jagadish Swarup, Solicitor General, S.K. Aiyar, R.N. Sachthey and B.D. Sharma, for the respondent (in both the appeals).
The Judgment of the Court was delivered by Shelat, J.
These two appeals, under special leave, arise from two References to the High Court of Patna under section 66(2) of the Income Tax Act, 1922 and relate to the assessment years 1.945 46 and 1947.
In the first appeal, the question arising for determination is whether, on the facts and circumstances of the case, the surplus receipt of Rs. 13,43,469/ , realised as a result of the side of gold, is assessable as income, or profits or gains for the assessment year 1945 46 under section 4(3) (vii) of the Act.
In the 2nd appeal, two questions arise for determination; one relates to the surplus receipt of Rs. 33,481/ arising out of the sale of some more gold, and the second relates to the receipt of Rs. 88,522/ realised by the assessee as a receipt as a result of sale of certain shares.
All the three questions raise the common problem whether the said transactions in gold and shares were by way of realisation of investment or were adventures in the nature of trade or business.
The assessee was at all material times a landholder deriving large income from agriculture, royalties of minerals and income from forests forming part of his estate.
Prior to 1937, when he was a minor, his estate was under the management of a Court of Wards.
On attaining majority, the estate, which included Government securities of the value of about Rs. 40 lacs, was handed over to him on August 19, 1937.
During the account year 1938 39 he sold the whole.
lot of these securities and realised Rs. 44,25,088/ , the sale thus resulting in an excess of Rs. 4,55,305/ .
This excess amount was assessed as profit by the income tax officer for the assessment year 1939 40.
But on appeal against the assessment order, the Appellate Tribunal set side that order on a finding that the said sale was by way of a change in investment, and therefore, was not a transaction in the nature of trade or business.
On March 23, 1939, the assessee opened an account in the Imperial Bank of India initially with Rs. 46 lacs, which included the said sale proceeds of Rs. 44 lacs 'and odd and to which on March 27, 1939 he added Rs. 2.60 lacs.
The account was opened in the name of his wife and was called "Account of Rs. 48 lacs floating in the share market ' ' ' In September 1939, the assessee purchased shares and debentures of the value of Rs. 34.14 lacs from out of the funds in the said account.
He, however, sold certain shares for Rs. 5,75,723/ in October 1939, and then the rest of them in 1940 and 1941 realising Rs. 29,58,677/ and 166 Rs. 64,201/ respectively.
The first sale fetched a proFit of Rs. 1,17,064/ the second a profit of Rs. 25,133 and the third a loss of Rs. 1,642/ .
The income tax officer brought to tax the two surpluses in the assessments for the assessment years 1940 41 and 1941 42.
But the department was again unsuccessful as the Tribunal once again held, on the strength of the correspondence which had passed between the assessee, his bankers axed his brokers in Calcutta, that the only possible conclusion emerging from that correspondence was that the assessee 's intention was not to deal in shares and debentures, and that the said transactions were a mere change in investment carried out of a single scheme of earning a better yield from investments.
The Tribunal 's orders in respect of these assessments for the assessment years 1939 40 to 1941 42 were made part of the Statement of Case filed by the Tribunal be,fore the High Court in the present References.
Between June 28, 1940 and November 9, 1940 the assessee purchased 68,109 tolas of gold for Rs. 28,47,380/ from out of the sale proceeds of the said shares.
The gold so purchased was kept in his family vaults at Padma, the seat of his estate, for nearly 4 years.
Between October 9, 1944 and October 20, 1944, he disposed of the bulk of the gold, i.e. 55,494 tolas, for Rs. 36,80,174/ , the sale resulting in a surplus of Rs. 13,43,469/ , which is the subject matter of the first appeal.
The remaining quantity of gold was sold of October 19, 1945, and that sale brought_ him an excess of Rs. 33,481/ , which is part of the subject matter of the second appeal.
In respect of these two surplus amounts, the assessee contended that they were the result of a change in investment and could not be said to be transactions in the nature of trade or business.
His case was that neither the Government securities, nor the shares and debentures purchased out of their sale proceeds, nor the gold were sold and purchased by way of dealing in them, that at no time they became his stock in trade for any business or adventures in the nature of trade or business therein, that the transactions were mere conversions from one investment to another, depending upon the circumstances which prevailed during the respective periods and that the sale of gold in 1944 and 1945 was occasioned partly due to the tide in the second world war turning in favour of the ,allies and partly due (a) to his having to pay Rs. 7 lacs by way of income tax, (b) expenses for the marriage of his younger brother, (c) for payment of Rs. 6 lacs debt to one Gupta and (d) for purchase of Victory Bonds worth Rs. 14 lacs and odd 'at the instance of the Government authorities as contribution of his estate to the war effort.
The Tribunal rejected the case that gold had been sold for the reasons given by the assessee or as a change in investment and 167 held that: (1 ) conversion of shares into gold was not due to any panic resulting from the war, (2) that there was no pressing necessity for the sale of gold as alleged by him, (3) that Victory Bonds were not by way of any war effort since the assessee sold them away within a short time after their purchase, and (4) that he sale proceeds of gold were utilised in purchasing shares for which he borrowed an additional amount of Rs. 5.10 lacs in 1945 46 against gold.
in this view the Tribunal confirmed the I.T.O. 's decision that the two excess amounts were liable to income tax in the two assessment years.
The sale proceeds of gold sold as aforesaid were utilised by the assessee in purchasing 7(325 shares of Karanpura Development Co. Ltd. for Rs. 2,37,267/ during the period from December 8, 1944 to April 20, 1945 and shares of Bokaro Ramgur Co. for Rs. 39,81,663/ purchased in 1945 46.
Part of the sale proceeds were 'also.
utilised in purchasing the said Victory Bonds.
between November 8, 1945 and February 21, 1946, he sold 6950 of the Karanpura shares realising a net surplus of Rs. 88,522/ , which the Income Tax Officer treated as business profit and brought to tax for the assessment year 1946 47.
As the Statement of Case by the Tribunal shows, the Tribunal examined the assessee 's dealings since the time he took over the said estate.
The Tribunal noted that the said shares were purchased from the said Rs. 48 lacs in the Bank reserved ,for that purpose and that they were sold and purchased at very short intervals.
From these facts it held that he must be considered to have launched a scheme in dealing in shares, which conclusion, it thought, was strengthened by the fact of the assessee having borrowed Rs. 5.10 lacs for the said purpose.
The Tribunal further held that the complete picture of the said transactions over a length of time had not 'been before the preceding Tribunal when it passed the earlier orders for the assessment years 1939 40 to 1941 42, and therefore, its conclusions were not applicable to the transactions in question.
It consequently held the assessee to be a dealer in shares.
As regards the gold ,also, the Tribunal confirmed the orders of the I.T.O. rejecting the assessee 's case that the gold was purchased by him owing to the war crisis and sold by him on account of the pressing necessities alleged by him and the change in the war situation then.
By an order dated April 2, 1959, the High Court referred that statement of Case back to the Tribunal under section 66(4) directing it to consider further all the materials before it and file a supplementary Statement of Case as the High Court found the Statement factually incorrect in certain respects.
The Tribunal accordingly sent a supplementary Statement of Case on April 23, 1960.
After setting out the assessees transactions of the sale of Government securities in 1938 39, the purchase of shares from 168 their sale proceeds, their sale in 1939 40 and 1940 41, the purchase of gold 'and its sale, the Tribunal once again rejected the assessee 's claim that those transactions were conversions of one investment to another made for a better return or that the gold was sold in October 1944 for pressing necessities alleged by the assessee.
Regarding the purchase and sale of shares, the Tribunal stated that the assessee purchased shares of the value of Rs. 37 lacs and odd in1945 46, that those were shares of two, concerns only, Bokaro, and Ramgur Co. Ltd. and Karanpura Development Co. Ltd. and that as the latter company 's shares were of the value of Rs. 2,37,267/ only, the 'bulk of the amount of Rs. 37 lacs and odd went into the purchase of the shares of Bokaro: and Ramgur Co. Ltd. The Tribunal noted that the sale of Karanpura shares resulted in a net profit of Rs. 88,522/ , that in respect of the Karanpura shares there was correspondence showing that his brokers had advised him to acquire 51% of the company 's share holding as he desired to obtain control over its management, that for doing so he wanted to obtain founders ' shares (each of which shares carried 3 votes per share), that a compromise was proposed in a suit he had filed as the lessor of the mines leased out to the company, that M/s. Bird & Co., the managing agents of that company, were not willing to.
sell him shares representing the unissued capital of the company on terms proposed by the assessee and that ultimately he failed to obtain majority of shares which only could have enabled him to obtain control over the company 's management.
But the Tribunal found that "the assessee was attempting to obtain control of the company not by purchasing of shares in the market, but by issue of shares by the company in order to settle the dispute between the company and the assesses These negotiations finally failed.
" It finally held that having perused the correspondence and having regard to the circumstances, the purchase of Karanpura shares was not in pursuance of a scheme to obtain control over the company by acquiring 51% of the votes therein.
The High Court, after hearing the: References, held that though the Tribunal had in the earlier assessments held that the assessee 's transactions in shares, securities and gold did not amount to transactions in the nature of trade or business, and therefore, the assessee could not be treated as a dealer in those articles.
There was no bar to the revenue coming to a different conclusion, though to do so it must have some new materials and facts before it.
It further held that the present Tribunal could a/so arrive at such a conclusion having regard to: (a) the frequency of transactions of purchase and sale of shares, (b) the short interval between purchase and sale of shares, (c) the fact of Rs. 48 lacs in the assessee 's wife 's account having been ear marked for shares transactions, (d) his borrowing Rs. 5.10 lacs 'against gold for purchase 169 of shares, and lastly, the fact that the Tribunal this time had before it a more complete picture of the assessee 's transactions over a length of period which its predecessor had not when it dealt with the assessments for the assessment years 1939 40 to 1941 42.
The High Court further held that there was fresh material, namely, that when the gold was sold, its sale proceeds were again invested in shares and the fact that though Victory Bonds were purchased in January 1945 they were sold after an interval of two months only.
The High Court, in this view, concluded that "the Appellate.
Tribunal, therefore had before it fresh materials for coming to a conclusion contrary to the one come by its predecessors in the previous orders.
" It rejected the assessee 's case: (a) that he had converted one investment into another, i.e. from shares and securities to gold, because of the worsening of the war situation after the fall of France in 1940, (b) that when the war situation improved in 1944 and with that the price of gold began to fail he once again converted his investment from gold to shares, i.e., from an unproductive investment into one which could give him an adequate yield, and (c) that he had sold gold because of pressing necessities.
The first contention was held unsustainable because even after purchasing gold the assessee had retained considerable cash; the second was rejected on the ground that the assessee had sold gold not because of the allied victory in sight but because he found the gold unprofitabIe by reason of the fall in its price and the third was rejected as the assessee had failed to make_good the pressing necessities alleged ' by him.
The High Court further held that the findings given by the Appellate Tribunal were all findings of fact and as they could not be said to have been arrived at without any evidence they could not be interfered with in a Reference under section 66(2), and answered the questions as to the two surplus amounts of Rs. 13 lacs and odd and Rs. 33 thousand 'and odd as liable to assessment.
In regard to the excess of Rs. 88,522/_ resulting from the sale of ' Karanpura shares, the High Court agreed with the Tribunal that that amount also was rightly brought to tax.
It held that the finding of the Tribunal that the purchase of these shares was not in pursuance of a scheme to obtain control in the company and that the assessee 's scheme for that purpose was to acquire shares representing the unissued capital of the company was one of fact with which also it had no jurisdiction to interfere.
Counsel for the appellant disputed the correctness of the High Court 's judgment and contended: (1 ) that it was in error in declining to go into the correctness of the findings of the Tribunal by merely stating that they were findings of fact, (2) that the question whether a particular item was a trading profit or capital accretion depended on the intention on the part of the assessee at the time of the transaction in question and which had Sup CI/70 12 170 to be arrived at by an inference from established facts and was, therefore, a mixed question of fact and law, (3) that on the facts and circumstances, the Tribunal, and following it the High Court, was in error in treating the gold and the Karanpura shares as the stock in trade of the assessee for his alleged trading activities, (4) that the onus of proving that the activities of the assessee amounted to activities in the nature of trade or business was on the department and particularly so,, as the Tribunal in the earlier assessments had come to a contrary conclusion, and (5) that the facts and circumstances as accepted by the Tribunal in its Statement of Case showed that the purchases of gold and share were made without any intention at that time to resell them at profit, and that therefore, the subsequent sales thereof would not stamp those transactions with the character of trade or business in them.
Since these appeals arise out of References under section 66(2), we cannot exercise any wider power of interference than that permitted to the High Court under the Act.
That was not disputed by Mr. Desai.
But in support of his contention that this was a case ' where the High Court could and should have interfered with the Tribunal 's findings he cited a number of decisions.
It is not necessary to go into all these decisions as the principles on which such interference can be made and the scope of power under section 66 to do so are by now well established.
That the question, whether an assessee carries on business or whether certain transactions are in the course of business or whether they amount to adventures in the nature of trade or business, is a mixed question of fact and law is well settled.
The decision in Venkataswami Naidu & Co. vs
T.(1) is an instance in point where this Court observed that the expression 'adventure in the nature of trade ' appearing in the definition of 'business ' implies the existence of certain elements in the .adventure which in law would invest it with the character of trade and that renders the question whether a transaction 'is in the nature of trade a mixed question of law and fact and the High Court in such a case would interfere if the Tribunal had misdirected itself in law of 'also Liquidators of Pursa Ltd. rs.
C.I.T.)(2).
But to distinguish a question of fact and a question of law is not always easy, for, sometimes there is a common area between the two and though a mere question of fact can be turned into one of law, care should be taken against a finding of a mixed question of fact and law being given the unassailability which the Act confers on a pure finding of fact.
The case of Sree Menakshi Mills Ltd. vs
T.(3) holds that where an ultimate finding on an issue is an inference to be drawn from facts found, on application of a principle of law, there is a mixed question of law and fact and such an inference in such a (1) at 603 to 604.
(2) (3) 171 case is a question of law open to review by the court.
On the other hand, when the final determination of the issue does not involve any application of a principle of law, an inference is a pure inference of fact drawn from the other basic facts.
Such an inference can be attacked only if there is no evidence to support it, or, if it is perverse.
Since the expression 'adventure in the nature of trade ' implies the existence of certain elements in the transactions which in law would invest them with the character of trade or business and the question on that account becomes a mixed question of law and fact, the Court can review the Tribunal 's finding if it has misdirected itself in law.
It is fairly clear that where a person in selling his investment realises an enhanced price, the excess over his purchase price is not profit assessable to tax But it would be so, if what is done is not a mere realisation of the investment but an act done for making profits.
The distinction between the two types of transactions is not always easy to make The distinction whether the transaction is of one kind or the other depends on the question whether the excess was an enhancement of the value by realising a security or a gain in an operation of profit making.
If the transaction is in the ordinary line of the 'assessee 's business there would hardly be any difficulty in concluding that it was a trading transaction, but where it is not, the facts must be properly assessed to discover whether it was in the nature of trade.
The surplus realised on the sale of shares, for instance, would be capital if the assessee is an ordinary investor realising his holding; but it would be revenue, if he deals with them as an adventure in the nature of trade.
The fact that the original purchase was made with the intention to resell if an enhanced price could be obtained is by itself not enough but in conjunction with the conduct of the assessee and other circumstances it may point to the trading character of the transaction.
For instance, an 'assessee may invest his capital in shares with the intention to resell them if in future their sale may bring in higher price.
Such an investment, though motivated by a possibilty of enhanced value, does not render the investment a transaction in the nature of trade.
The test often applied is, has the assessee made his shares and securities the stock in trade of a business.
Though the assessee was at the material time a landholder of a large estate, that fact by itself would not mean that his transactions in shares, securities and bullion cannot be transactions in the nature of trade.
They had, therefore, to be examined in the light of all the facts and circumstances to ascertain whether they had been entered into in pursuit of a trading activity.
The first relevant ,fact iS that the assessees occupation was that of a landholder, having, on attaining majority, a considerable amount of money available for raising income therefrom.
The transactions 172 in question were obviously not in the line of any business or trade carried on by him.
Since the Tribunal came to a conclusion as regards the nature of the assessee 's transactions different from that arrived at earlier, it would be useful to tabulate them at one place.
So tabulated, they are as follows: (1) Sale of Government securities in 1938 39 which realised Rs. 44.25 lacs; (2) Opening of an account with this and certain other amounts totaling Rs. 48 lacs in the Imperial Bank; (3) Purchase out of these funds, shares and debentures of the value of Rs. 34.14 lacs in September 1939; (4) Sale in October 1939, i.e., within a month, of some of these shares bringing him Rs. 5.75 lacs; (5) Sale of the bulk of the shares in 1940 bringing in Rs. 29.58 lacs; (6) Sale of the remaining shares in 1941 resulting in a small deficit; (7) Purchase of 68,109 tolas of gold in June 1940 for Rs. 28.47 lacs; (8) Sale of the bulk of the gold, i.e., 55,495 tolas in October 1944 resulting in a surplus of Rs. 13 lacs and odd; (9) Sale of the remaining gold in October 1945 resulting in a surplus cf Rs. 33,481/ ; (10) Purchase of Karanpura shares between December 1944 and April 1945 of the value of Rs. 2,37,267/ ; (11 ) Purchase of Victory Bonds in January 1945 of Rs. 14 lacs, and sale thereof in March 1945; (12) Borrowing Rs. 5.10 lacs against gold in 1945 46; (13) Purchase of Bokaro Ramgur shares in 1945 46 for Rs. 39.81 lacs and (14) Sale of Karanpura shares in 1945 46 bringing in a surplus of Rs. 88,000 and odd.
As already stated, though these transactions were not in the line of any trade of business carried on by the assessee, nonetheless, if they possess the characteristics of adventures in the nature of trade, the profits resulting therefrom would be liable to tax.
But in an enquiry on the question whether these transactions were in the nature of trade or business, it would not be altogether irrelevant 173 to notice that in 1938 39, when the assessee sold the Government securities, he sold the entire lot and invested the bulk of their sale proceeds in shares and debentures, i.e., as much as Rs. 34 lacs.
The same features is present also in his purchase of gold in 1940 and its disposal in 1944 and 1945 using its sale proceeds in buying shares, which, it must be remembered, were of two companies only.
The transactions thus are not diversified nor are gradual according to the opportunities offered by fluctuating market prices, but are in bulk and almost at a time, which ordinarily are not the characteristics of the dealings of a person carrying on trade or business in them.
Thus, in 1938 39 all Government securities were sold and the bulk of their sale proceeds, i.e. Rs. 34 lacs and odd, used in the purchase of shares.
The same was the case when gold was bought 'and sold.
Furthermore, when a person trades in shares and debentures, he does not ordinarily buy shares of two companies only, except when a particular script has the possibility of giving an unusual or a certain profit.
There was nothing on record to show, nor did the Tribunal find, that that was the case with the shares of either of the two companies whose shares the assessee purchased in such large quantity.
Prima facie these transactions would appear in the nature of investments and their conversion into what the assessee believed to be better investments as the circumstances changed from time to time.
In support of his contention that these transactions were not in the nature of trade or business, the assessee had relied on the correspondence between him on the one hand and his bankers and brokers on the other, which had satisfied the Tribunal previously with reference to the assessment years 1939 40 to 1941 42.
That correspondence lends support to the assessee 's case inasmuch as he had there in clearly instructed his brokers to invest the sale proceeds of the said Government securities in such a way as to give him an annual yield of net 7%.
There can be no doubt that Government securities were sold accordingly and shares of certain companies were purchased from their sale proceeds in accordance with the advice of his brokers and bankers.
When it was found that certain shares so purchased were not Likely to yield the percentage he desired, they were sold within hardly a month from their purchase.
The circumstances in which these transactions were brought 'about, would disclose, as was held by the previous Tribunal in the case of the earlier assessments, that the assessee 's intention then was to change his investments from Government securities into shares and debentures which, he was advised, would procure him a better yield.
This conclusion is consistent with his sale of the entire lot of Government securities 'at 'a time, his going in for shares with their sale proceeds and the sale in October 1939 of certain shares which were found incapable of giving the return he desired.
174 Since the present Tribunal had the advantage of examining the assessee 's transactions during the whole of the period, i.e., right from 1938 39 to 1944 45 and thus have a more comprehensive picture of all the transactions, there would be no bar to its coming to a conclusion different from that arrived at in the earlier years, if the acts and conduct of the assessee taken as a whole throughout the period pointed to ,a different conclusion as both the Tribunal and the High Court have said.
But the only new materials pointed out by the Tribunal from which a different conclusion could be arrived at were (1) the sale of gold in 1944 and 1945, (2) the purchase of the said shares from its sale proceeds, and (3) the sale of Karanpura shares.
The question, therefore, the Tribunal had before it was, whether when the assessee purchased the gold he did so with the intention to deal in it.
The Tribunal held, and the High Court concurred with it, that the assessee 's transactions showed that they were in the nature of trading transactions.
Two facts, however, throw considerable doubt on the validity of that conclusion and neither the Tribunal nor the High Court seems to have weighed them with the consideration which they demand.
The first fact is that in 1940 he converted his entire share holding into gold, a fact consistent with his case that he did so because of the nervousness engendered by the breaking out of the Second World War, the initial German victories and the fall of France.
The Tribunal did not countenance this case for it thought that if that was so, the assessee would have invested the other cash lying with him also in gold, and secondly because according to it the war panic started in 1942 and not in 1940.
We do not think that this was an accurate 'approach.
The fact that the assessee did not invest all his cash cannot mean, as the Tribunal thought, that his case about the purchase of gold was not correct.
The war had commenced in 1939 and it is a notorious fact that in 1940 the fortunes of the allies were none too bright.
The fact was that the assessee sold his entire share holding and applied their sale proceeds and also a further amount of Rs. 13 lacs and odd obtained ,from his lessees, M/s Anderson Wright & Co., into.
The second fact, whose significance does not also seem to have been adequately apprehended, was that the assessee, who started with the plan of getting at least net 7% yield, put a very Large part of his funds into gold, an altogether sterile security, and retained that gold in his family vaults ,for nearly 4 years.
The Tribunal had before it the gold prices current during the years 1940 to 1944.
These indicate that the gold price remain steady at Rs. 42 per tola all throughout 1940.
There was, however, an upward trend noticeable from about the end of 1941 which went up to Rs. 65 towards the end of 1942.
By the middle of 1943 the gold price had risen to Rs. 90 and even more.
In October 1944, when the assessee sold 175 a large bulk of his gold holding the price was at Rs. 68 per tolaIf the idea of the assessee in purchasing the gold was to trade in it, he would not have waited for 4 years without disposing of a particle of it.
The price was on the upward trend in 1941 and reached the climax in 1943 when he could have sold the gold and made considerable gain.
The fact that he did not do so and waited until October 1944 the war fortunes were turning in favour of ' the allies, that confidence had gradually been regained by trading circles and that that was why he thought that it was no longer necessary for him to retain the ,gold any further and could safely invest his money in income bearing securties.
The further fact that he sold practically the whole of his stock of gold in October 1944 instead of selling it bit by bit when the price was rising since about the end of 1942 is inconsistent with the hypothesis that the object with which the gold was purchased was to trade in it.
Regarding share transactions, we think that the Tribunal placed undue emphasis on the fact that when he opened the bank account in March 1939 with the sale proceeds of Government securities, he did so, firstly, in the name of his wife 'and, secondly, called that account as one of "Rs. 48 lacs floating in the share ' market".
The first had no particular significance and the second properly viewed only meant that he wanted to set apart this fund for transactions in shares and securities and not mix up his other capital and the income arising from his estate.
The name he gave ' to this account cannot for that reason only render his dealing with that account into trading transactions if otherwise, they were not.
Similarly, the Tribunal was unduly impressed by the fact that he sold away the Victory Bonds within about two months from their purchase.
The correspondence produced by the assessee clearly shows that he had bought those Bonds at the pressure of the then Commissioner.
The Bonds were not likely to fetch him the yield he desired.
His purchase of them had thus served the purpose, viz., his showing to the authorities that his estate had made a war contribution.
The sale by him of those Bonds would not affect the Government or its war effort.
The fact that he sold ' them soon after the purchase would not invest it with the stamp of ' trade or business in Victory Bonds.
As regards the Karanpura shares, the correspondence between him and the company and the advice he had from his brokers referred to in the Statement of Case show that the assessee did at one time entertain the idea of obtaining control over the company 's management by procuring 51% of its total shares.
He could do so by purchasing shares in the open market and also, by other means.
He purchased 7,025 shares in the market but that ,was clearly not enough.
There was at that time litigation going on_ 176 between him and the company and he seems to have hit upon the idea that he would compromise his suit if the managing agents of the company were to sell him shares representing its unissued capital at prices offered by him.
The object of his offer was that he would not have to pay the market price of the shares which was 3 times more than the one offered 'by him.
The company did not agree and his move for compromise ,failed.
According to him, there was, therefore, no useful purpose for retaining those shares and he sold 6,950 shares leaving only 75 shares with him.
On these facts the Tribunal was not right in concluding that the shares which the assessee purchased from the market were not for the purpose of acquiring the major share holding in the company and that the control over the company was to be obtained only by purchasing shares representing the unissued capital.
Both the purchase of shares and the move to obtain shares representing the unissued capital were part of the same design and if the latter 'failed, his purchase of 7,025 shares would obviously not bring him nearer his object.
Furthermore, the bulk of the sale proceeds of gold went into the purchase of Bokaro.
Ramgur shares which remained with him till the assessment years in question.
The profits made on the sale of shares, acquired with the intention of obtaining control over the company 's management and not for dealing in them, would be on the capital and not revenue account.
(see Kishan Prasad & Co. Ltd.
C.I.T.(1) and C.I.T. vs National Finance Ltd. (2).
The Statement of Case itself set out facts which were consistent with the assessee 's case.
In our view the Tribunal misdirected itself in applying the law to the facts ,found by it both in the matter of gold and shares, and the High Court would have been entitled to interfere with its findings instead of holding that it could not do so as the findings were findings of fact.
The questions involved being mixed questions of fact and law, the hypothesis on which the High Court acted that the findings were purely findings of fact and therefore 'were unassailable was in our view not correct.
The appeals, therefore, will have to be allowed and the answers given by the High Court set aside.
We hold that the two questions referred to the High Court should have been answered in assessee 's favour and we do s0 accordingly.
The respondent will pay to the appellant costs of these appeals but only one hearing fee.
(3.C. Appeal allowed.

summary/full:
The assessee inherited a vast estate consisting of agricultural and other land as also Government securities worth Rs. 40 lacs.
In 1937 he attained majority and control of the estate from the Court of Wards.
In the accounting year 1938 39 he sold some of these securities at a profit.
Thereafter he opened an account in the Imperial Bank of India in the name of his wife and called it "account of 48 lacs floating in the share market.
" In September 1939 he purchased shares worth Rs. 34.14 lacs out of the said fund but sold them, again at a profit in the Years 1939 ', 1940 ' and 1941.
The profits on the said sales of shares were subjected to tax by the Income tax Officer in the years 1939 40, 1940 41 and 1941 42.
The Tribunal however held that the asessee was not a dealer in shares anti ' held the profits not to be taxable.
Between June.
and November 1940 the assessee purchased gold for Rs. 28.47,380/ from out of the sale proceeds of the aforesaid shares.
This gold was sold 'at a profit in the accounting periods relevant t0 the 1945 46 and 1946 47 assessment years.
With the sale proceeds certain shares including 7,025 shares of Karanpura Development Co. Ltd. were purchased, most of which were sold at a profit.
Certain Victory Bonds were purchased and resold within two months.
The Income tax Officer subjected the profits from the sales of gold and Karanpur shares to tax in the assessment years 1945 46 and 1946 47.
The Tribunal on ,considering the whole pattern of transactions from 1938 onwards came to the conclusion that the said ' profits were rightly taxed.
The High Court upheld the view of the Tribunal holding inter alia, that the findings were of fact and not arrived at without evidence so that no interference was warranted in reference proceedings.
The assessee appealed.
HELD: (1) When a transaction is not in the ordinary lines of an assessee 's business the facts must be properly assessed to discover whether it was in the nature of trade.
The test often applied ' is has the assessee made his shares and securities the stock in trade of a business ? [171 G; 172 H] (ii) Since in the present case the Tribunal had the advantage of examining the assessee 's transactions during the whole period i.e. right from 1938 39 to 1944 45 and thus had more comprehensive picture of all the transactions, there would be no bar to its coming to a conclusion different from that arrived at in the earlier years.
if the acts and conduct of the assessee taken as a whole throughout the period pointed to a different conclusion.
[174 A B] (iii) On the facts and circumstances of the case, however the finding of the Tribunal, concurred in by the High Court, that the transactions in question were in the nature of trading transactions, was not justified.
[174 C D] 164 (a) It is a notorious fact that in 1940 the fortunes of the allies were none too bright.
The conversion by the assessee of his entire share holding into gold in that year was consistent with his case that he did so because of the nervousness engendered by the breaking out of the war, the initial German victories, and the fall of France.
The fact that the assessee did not invest all his cash would not mean, 'as the Tribunal thought, that his case about the purchases of go1d was not correct.
[174 D F] The Tribunal also failed to give due significance.
to the fact that the assessee who started with the plan of getting 'at least net 7% yield, put a very large part of his funds into gold, an altogether sterile security, and retained it for 4 years.
The price of gold began to rise in 1941 and was at its peak in 1943.
The fact that the assessee did not sell his gold then but only in October 1944 when the price had fallen showed that it was only after the: fortunes of war had turned in favour of the allies and confidence restored that he felt it safe to invest his money in income beating securities.
The further fact that he sold practically the whole of his stock of gold in October 1944 instead of reselling it bit by bit after the price was rising since 1942 was inconsistent with the hypothesis that the object with which the go1d was purchased was to trade in it.
[174 G H; 175 A D] (b) The fact that the account in the Imperial Bank opened in 1939 was called "Rs. 48 lacs floating in the share market" was given undue significance by the Tribunal.
Properly viewed it only meant that the assessee wanted to set apart this fund for transactions in shares and securities and not mix up his other capital and the income arising from his estate.
[175 D E] (c) The sale of the.
Victory Bonds within two months of their purchase would not invest the transaction with the stamp of trade or business they were only purchased to show to the authorities that his estate had made a contribution to the war effort.
[175] (d) The Karanpur shares were purchased by the assessee with a view to getting control over the company 's management by procuring 51% of its total shares.
When that plan failed he sold these shares.
In these circumstances the transaction could not be considered to be on revenue account.
[175 G H; 176 D] Kishan Prasad & Co. Ltd.
C.I.T., and C.I.T.v.
National Finance Ltd. , 'applied.
(e) The expression 'adventure in the nature of trade ' implies the existence of certain elements in the transactions which in law would invest them with the character of trade or business.
The question therefore whether a particular transaction is an adventure.
in the nature of trade is a mixed question of law and fact and the court can review the Tribunal 's finding thereon.
Therefore in the present case the High Court was wrong in treating the Tribunal 's decision as a finding of fact and refusing to interfere on that ground.
[171 A C] Venkataswami Naidu & Co.
C.I.T., , 603, 604 and Liquidators of Pursa Ltd. vs
C.I.T., , referred to.


judgement:
riminal Appeal No. 65N of 1968.
Appeal by special leave from the judgment and order, dated October 5, 1967 of the Allahabad High Court, Lucknow Bench in Criminal Revision No. 152 of 1966.
A.S.R. Chari, R.K. Garg, R.A. Gupta and S.C. Agarwal, for the appellant.
H.R. Khanna and O.P. Rana, for the respondent.
188 The Judgment of the Court was delivered by Mitter, J.
In this appeal by special leave the appellant challenges his conviction under section 3 of the Railway Stores (Unlawful Possession) Act, 1955.
The Act is a measure providing for punishment of persons in unlawful possession of railway stores who cannot satisfactorily account how they came by the same.
By section 2 "railway stores" are defined to mean any article (a) which is the property of any railway administration, and (b) which is used or intended to be used in the construction, operation or maintenance of a railway.
Section 3 defines the offence as also the measure of punishment therefore.
It reads: "If any person is found, or is proved to have been in possession of any article of railway stores reasonably suspected of being stolen or unlawfully obtained, and cannot account satisfactorily how he came by the same, he shall be punishable with imprisonment for a term which may extend to five years, or with fine, or with both.
" Before anyone can be charged with the offence under section 3 it must be shown that he was in possession of railway stores which by the definition of section does not include all articles which are ' the property of a railway administration but only those which are used or intended to be used in the construction, operation or maintenance of a railway.
Mere unlawful possession of the property of any railway administration is not an offence.
The prosecution must also prove that the articles were being actually used or were intended to be used for by the railway.
Thus any article which is the property of a railway administration but which has been discarded or rejected for further use would be outside the definition of railway stores.
Railway stores may be new or old and an offence may be committed in respect of stores of either kind.
If the railway administration has no further use of them be they new or old as in the case where they have become unserviceable or outmoded no person can be charged with an offence under section 3 in respect thereof.
It is only when the articles satisfy the definition of railway stores that the prosecution can be successfully launched against a person in unlawful possession thereof.
Even in such a case.
the prosecution must first adduce evidence to show that there was cause for reasonable suspicion of the stores being stolen or obtained unlawfully.
It is only when the burden in respect of this is discharged by the prosecution that the onus shifts to the accused to account satisfactorily of his possession of the same.
He may, for instance, show that he had purchased the property in open market where goods of this 189 kind are usually sold or that he had bought them from someone bona fide in the belief that the vendor had lawfully obtained the The facts in this case are as follows.
On the strength of some information received on 28th July, 1964 that some stolen railway property was being sent out of Lucknow through a motor transport agency, a Sub Inspector attached to the Railway Protection Force along with another Sub Inspector of Police searched the premises of the motor transport company at Lucknow the same night.
The search which took place in the presence of the appellant and the manager of the transport company revealed that a large number of parts of railway machinery (railway engines) bearing railway marks were contained in 23 bags of metal scrap booked the same day by the appellant for consignment to Jullunder.
The usual formality of preparing a recovery memo and the sealing of goods in bags in the presence of witnesses was gone through.
One Jaswant Singh, described as an expert of railway machinery parts and Foreman and Chief Inspector of N.E. Kotwali Chowk, Lucknow, examined the goods said to be railway stores and kept in 11 bags and made a report to the effect that they were all railway stores being parts of a railway engine.
It was the case for the prosecution that the appellant failed to offer any satisfactory explanation of his possession of the goods.
On the strength of the evidence adduced and principally on the report of Jaswant Singh along with his oral testimony the Magistrate found him guilty and sentenced him to imprisonment for two years.
The conviction was maintained by the Sessions Judge and the High Court.
The report made by Jaswant Singh shows that he had examined the material which he classified under 38 heads and described the same as unauctionable property.
Against each item he put a remark either "O" or "N", 'O ' signifying old goods and 'N ' meaning new ones.
The report seems to suggest that the goods being unauctionable a third party could not lawfully obtain possession of the same.
Curiously in his testimony before the court although he said that he had prepared ' the report and signed the same he made no statement to the effect that the contents of the report were correct.
His definite averment was: "Railway engine is auctioned in the market.
I cannot say if these articles were auctioned in the market.
I cannot say if these articles were auctioned Or not." In his cross examination he repeated the same averment in 'different words but only added that he had examined the articles 1Sup.
C.I./70 14 and they were parts of an engine and that railway articles were mixed with other goods in the bags.
From his deposition it is not possible to spell out any averment to the effect that the items mentioned in his report were used or intended to be used in the construction, operation or maintenance of a railway.
In our view there was no evidence before the courts to prove that the articles seized were railway stores within the meaning of section 2 of the Act.
Our attention was drawn to the case of Moyalal Rostagir vs The State(1) wherein it was held that in order to prove that the articles were railway stores it was necessary to establish that the articles in question were not only the property belonging to a railway administration but they were used or intended to be used for the construction or operation of a railway.
Counsel for the respondent however cited a decision of the Orissa High Court in Udaya Dalai vs The State(2).
The material seized in that case were tie bars and iron sleepers which were brand new.
According to the learned Judge of the Orissa High Court: " . section 2 of the Act does not require the prosecution to prove that the incriminating articles belonging to a particular railway.
From the evidence of P.W. 5 it can be reasonably inferred that as the seized articles were found to conform to the specifications of the Indian Railway Standards they held that they belonged to any of the railways in India.
His further evidence that they were 'brand new ' is also sufficient to show that they were intended to be used in the construction, operation or maintenance of the railway.
" In our view although the prosecution is not called upon to prove that the goods belong to any particular railway administration it has to establish that the articles were the property of a railway administration.
Evidence to the effect that the goods conformed to the Railway Standards fails short of such proof.
In most cases the burden of proof in this respect may be discharged by leading evidence about the identifying marks on the goods or some, peculiarity of the goods not to be found in cases of non railway goods.
Again the mere description of the goods as new would not fulfil the requirements of section 2(b).
Some evidence will have to be led to the effect that the goods of the kind were being actually used by a railway administration and that the goods were in a serviceable condition.
In the case of goods which had not been put to use evidence would have to be led to establish that they had been manufactured for such us,.
(1) (2) 30 Cuttack Law Tims, 275.
191 The evidence 'in the case before us did not establish that goods were railway stores within the meaning of section 2 of the Act and as such the question of punishment under section 3 did not arise.
The appeal will there be allowed and the bail bond of the appellant directed to be cancelled.
V.P.S. Appeal allowed.

summary/full:
A large number of parts of machinery bearing railway marks, contained in bags of metal scrap booked for transport by lorry by the appellant, was seized by the Railway police and the appellant was charged with an offence under section 3 of the Railway Stores (Unlawful Possession) Act, 1955.
The expert on railway machinery parts certified that the goods were unactionable, suggesting that they could not have been auctioned and lawfully purchased by any third party, but in court, he gave evidence and made a categorical statement that he could not say if the articles were auctioned in the market or not.
The appellant was convicted and the conviction was confirmed by the High Court.
In appeal to this Court, HELD: Before anyone can be charged with the offence under section 3, the prosecution must show that the articles in his possession are 'railway stores ' as defined in section 2, that is: (i) that the articles are the property of a railway administration (though it is not necessary to prove that they belong to any particular railway administration); and (ii) that they are used or intended to be used in the construction, operation or maintenance of a railway.
The prosecution must also show that there was cause for reasonable suspicion of the stores having been stolen or unlawfully obtained.
Evidence that the goods conformed to the railway standards, or that they were new, fails short of the requisite proof, because, an article, though it is the property of a railway administration would not be "railway stores ' if the article has been discarded or rejected as useless.
Since the evidence in this case did not establish that the goods were used or intended to be used in the construction, operation or maintenance of a railway the charge must fail.
[188 D F, E H; 189 F H] Moyalal Rostagir vs State, , approved.
Observations contra in Udaya Dalai vs State, 30 Cuttack L.T. 275, disapproved.