judgement:
vil Appeals Nos. 883 to 892 of 1966.
Appeals by special leave from the judgment and order dated December 3, 1964 of the Orissa High Court in Special Jurisdiction Cases Nos. 44 and 53 of 1963.
C.K. Daphtary and D.N. Mukherjee, for the appellant (in all the appeals).
D. Narsaraju and R.N. Sachthey, for the respondent (in all the appeals).
C.J. M/s Hindustan Steel Ltd., a Company incorporated under the Indian Companies Act, 1913 is a Government of India undertaking in the public sector.
The Company is registered as a dealer under the Orissa Sales Tax Act 14 of 1947, from the last quarter ending March 1959.
Between 1954 and 1959 Company was erecting factory buildings for the steel plant, residential buildings for its employees and ancillary works such as roads, water supply, drainage.
Some constructions were done departmentally and the rest through contractors.
The Company supplied to the contractors for use in construction, bricks, coal, cement, steel etc.
for consideration and adjusted the value of the goods supplied at the rates specified in the tender.
In proceedings for assessment of tax under the Orissa Sales Tax Act, 1947, the Sales Tax Officer held that the Company was a dealer in building material, and had sold the material to contractors and was on that account liable to pay tax at the appropriate rates under the Orissa Sales Tax Act.
The Sales Tax Officer directed the Company to pay tax due for ten quarters ending December 31, 1958 and penalty in addition to the tax for failure to register itself as a dealer.
The Appellate Assistant Commissioner confirmed the order of the Sales Tax Officer.
In second appeal the Tribunal agreed with the tax authorities and held that the Company was liable to pay tax on its turnover from 755 bricks, cement and steel supplied to the contractors.
The Tribunal however substantially reduced the penalty imposed upon the Company.
At the instance of the Company the Tribunal referred six questions to the High Court of Orissa under section 24(1) of the Orissa Sales Tax Act, 1947.
The questions were: "A.
Whether in the facts and circumstances of the case Messrs. Hindustan Steel Ltd. can be held to be a 'dealer ' within the meaning of section 2(c) of the Orissa Sales Tax Act ? B. Whether the sale of materials by the Company to different contractors working for the company for which sales tax is sought to be assessed amounts to 'sale ' within the meaning of section 2(g) of the Act ? C. Whether the accrual of some profit in the absence of any motive to make such profit can make the assessee a 'dealer ' under the Act and whether in the circumstances of the case, the Tribunal was justified in coming to a finding that there was profit making motive on the part of the Company ? D.
Whether in view of the definition contained in section 2, cl.
(h) as it stood prior to the amendment of the provision by Act 18 of 1959, the supplies of materials can be treated as 'sale price ' in the hands of the assessee ? E.
Whether in the facts and circumstances of the case.
the amount received by the assessee in respect of tender forms can be said to be 'sale price '? F. Whether the Tribunal is right in holding that penalties under section 12(5) of the Act had been:rightly levied and whether in view of the serious dispute of liability it cannot be said that there was sufficient cause for not applying for registration ?" The High Court answered the questions A, B, C, D and F in the affirmative and question E in the negative.
In these appeals filed with special leave substantially three matters fall to be determined: 1.
Whether the Company sold building material to the contractors during the quarters in question ? 756 2.
Whether the Company was a dealer in respect of building material within the meaning of the Orissa Sales.
Tax Act ? 3.
Whether imposition of penalties for failure to register as a dealer was justified ? Solution of the first and third matters does not present much difficulty.
At the relevant time 'sale ' was defined by section 2(g) of the Orissa Sales Tax Act as follows : "Sale ' means, with all its grammatical variations and cognate expressions, any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of contract, but does not include a mortgage hypothecation charge or pledge: . . . . . .
The Company supplied building material to the contractors at agreed rates.
There was concurrence of the four elements which constitute a sale (1) the parties were competent to contract; (2) they had mutually assented to the terms of contract; (3) absolute property in building materials was agreed to be transferred to the contractors; and (4) price was agreed to be adjusted against the dues under the contract.
No serious argument was advanced before us that the supply of building material belonging to the Company for an agreed price did not constitute a sale.
Under the Act penalty may be imposed for failure to register as a dealer: section 9(1) read with section 25(1)(a) of the Act.
But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer.
An order imposing penalty for failure to carry out a statutory obligation is the result of a quasicriminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation.
Penalty will not also be imposed merely because it is lawful to do so.
Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances.
Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.
Those in charge of the affairs of the Company in failing to register the Company as a dealer acted in the honest and 757 genuine belief that the Company was not a dealer.
Granting that they erred, no case for imposing penalty was made out.
Liability to pay sales tax is imposed by section 4 of the Act.
Every dealer whose gross annual turn over exceeds Rs. 10,000/is liable to pay tax during the ten quarters in question.
The expression "dealer" was defined at the relevant time as meaning: "Dealer ' means any person who executes any contract or carries on the business of selling or supplying goods in Orissa whether for commission, remuneration or otherwise and includes any firm or Hindu Joint family, and any society, club or association which sells or supplies goods to its members.
Explanation . . . . " A person to be a dealer within the meaning of the Act must carry on the business of selling or supplying goods in Orissa.
The expression "business" is not defined in the Act.
But as observed by this Court in State of Andhra Pradesh vs Abdul Bakhi and Bros. (1) "The expression 'business ' though extensively used is a word of indefinite import, in taxing statutes.
it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit.
To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure .
" The sales tax authorities and the Tribunal have held that the Company was carrying on business of selling or supplying materials to the contractors and with that view the High Court agreed.
The Company purchased bricks manufactured by its own contractors and sold the bricks to the building contractors at a flat 30% premium over the purchase price in the case of "second class bricks" and 25% premium in the case of "First class bricks".
Steel, cement and other materials were initially supplied at 3 1/2% premium over the purchase price paid by the Company.
It was contended on behalf of the Company that merely because the price charged to the contractors exceeded the price paid by the Company for acquiring the materials, motive of the Company to carry on business in building materials for profit, cannot be inferred.
The Company, it is true, maintained no separate accounts relating to the expenditure incurred by it for (1) ; 758 overhead and other charges in respect of those materials.
Before the sales tax authorities counsel for the Company also conceded that the Company had not maintained separate accounts from which.
it could be proved that the transactions of supply of bricks, cement, steel and other commodities resulted in no profit.
The High Court observed: "It is the Stores Department of the company as a whole which deals with the purchase, storage and sale of all the goods required both for acquisition and issue of materials to be used for the construction and operation work of the Company . . the.
Company had to construct not only the buildings but also roads, railways, etc., acquire machinery and perform other multifarious activities connected with the establishment of steel plants and construction of the township.
There is nothing in the statement to show that the Company had at any time even contemplated the allocation of the total expenditure incurred for the maintenance of its Stores Department between the expenditure incurred in respect of the goods namely bricks, cement, steel etc.
and other goods.
If such allocation was not even contemplated, it will be unreasonable to say that when these goods were sold to the building contractors at the prices mentioned above, the intention of the Company was merely to utilise the difference in price to meet the overhead charges in respect of these articles and that there was no profit making motive.
" It is unfortunate that in submitting the statement of case the Tribunal stated no facts at all, and merely submitted the question which was submitted by the Company and the question which, in the view of the Tribunal, arose out of the order.
Even in the order deciding the appeal, the facts found on which the conclusion was based were not clearly set out.
The Tribunal observed that though the primary object of the Company was to establish a steel plant, the Memorandum authorised the Company to carry on "any trade or business" that it thought would be conducive to its interest.
Observed the Tribunal: "Judged in this light one cannot find anything wrong if in the initial stages when construction works were going on, the Company thought it prudent that instead of keeping its employees idle and bearing the cost of maintenance without any return, utilised them in some subsidiary business which would promote the interest of the Company and bring some return.
With that end 759 in view the company could as well have brought contractors to manufacture bricks in its lands, purchased the same from them, purchased cement, coal and other materials from dealers, opened a stores department and kept those materials so procured in its stores and thereafter effected sales of the materials to outsiders including its contractors.
The Company knew that for speedy construction of its buildings and factory the contractors would require these materials and so the Company would not lose if it entered into such business.
Rather that business would be in the interest of the Company.
If the Company had no idea to enter into any business.
there was no reason why it should have brought contractors to manufacture bricks, purchased the entire stock from them, stocked the same and thereafter sell the same to its building contractors.
" But in so observing a very important piece of evidence appears to have been ignored by the Tribunal.
Annexed to the form of the tender submitted by the contractors there are certain "general rules.
and directions for the guidance of contractors." Paragraph8 slated: "The memorandum of work tendered for, and the schedule of materials to be supplied by the H.S. Ltd. and their issue rates, shall be filled in and completed in the office of the Divisional Officer before the tender form is issued.
If a form is issued to an intending tenderer without having been so filled in as completed he shall request the office to have this done before he completes and delivers his tender." Then follow the conditions of contract of which condition No. 10 is material; it states "If the specification or estimates of the work provides for the use of any special description of materials to be supplied from the Engineer in Charge 's store, or if it is required that the contractor shall use certain stores to be provided by the Engineer in Charge (such materials or stores, and the prices to be charged therefor as hereinafter mentioned being so far as practicable for the convenience of the contractor, but not so as in any way to control the meaning or effect of this contract specified in the schedule or memorandum hereto annexed), the contractor shall be supplied with such materials and stores as required from time to time to be used by him for the purpose of the contract only, and the value of the full quantity of materials and stores so 760 supplied at the rates specified in the said schedule or memorandum may be set off or deducted from any sums then due, or thereafter to become due to the contractor under the contract, or otherwise or against or from the security deposit.
All materials supplied to the contractor shall remain the absolute property of the Company, and shall not on any account be removed from the site of the work, and shall at all times be open to inspection by the Engineer in Charge.
Any such materials unused and in perfectly good condition at the time of the completion or determination of the contract shall be returned to the Engineer in Charge 's store, if by.
a notice in writing under his hand he shall so.
require;. . . " Attached to the tender form is the schedule which recites: "Recovery of rates of materials to be supplied by H.S.L., for the work of: (1) Construction of brick masonry compound wall around plant area.
Northern section Length 2.4.
miles.
(2) Construction of brick masonry compound wall around plant area.
Southern section Length 2.30 miles.
(3) Construction of brick masonry compound wail around plant area.
Marshalling yard section Length 4.15 miles .
" It is followed by a table which sets out the Serial No. of the articles to be supplied, description of materials unit, rate and place of delivery.
It is clear from the terms of the tender and the schedule annexed thereto that the Company was to charge certain rates for the materials to be supplied by it.
One of the contracts which has been produced before this Court states under the head "Rate": Rs. 5.94+3 1/2% storage charges against "cement in bags," Rs. 800.00+3 1/2% storage charges against "structural steel and M.S. rods", and "Rs. 41.25 for 1000 bricks" against "first class bricks".
Apparently 3 1/2% over the specified rate was agreed to be paid by the contractors as storage charges in respect of cement and structural steel and M.S. rods.
No. specific percentage was set out in respect of the bricks and an inclusive price was made chargeable.
Relying upon the terms of the schedule, counsel for the Company contends that the contractors and the Company expressly 761 agreed that 3 1/2% over the agreed price of the goods was chargeable as storage charges.
It is common ground that the rate mentioned 'against cement and structural steel is the price at which the goods were purchased 'by the Company.
If the Company was charging a fixed percentage on the price paid by it for procuring such goods for storage and other incidental charges, it would be difficult to resist the conclusion that the Company was not carrying" on the business o.f selling cement and structural steel.
There is of course no statement in the schedule that the price charged by the Company in excess of the price paid by the Company to its contractors for bricks was in respect of storage charges.
But neither the Tribunal nor the High Court has referred to this important piece of evidence and we are unable to decide these appeals unless we have an additional statement of facts in the light of the relevant evidence as to whether the excess charged over and above the price which the Company paid for procuring cement and steel (expressly called storage charge) and bricks was intended to be profit.
If the Company agreed to charge a fixed percentage above the cost price, for storage, insurance and rental charges, it may be reasonably inferred that the Company did not carry on business of supplying materials as a part of business activity with a view to making profit.
The Tribunal 's statement of case is bald and in recording its findings the Tribunal has ignored a very important piece of evidence.
To enable us to answer the questions referred, it is.
necessary that the Tribunal should be called upon to submit a supplementary statement of the case on the questions whether the Company charged any profit apart from the storage charges for supplying cement and structural steel, and whether the difference between the price charged to the contractors and the price paid by the Company to its suppliers for bricks was not m respect of storage and other incidental charges.
The Tribunal to submit the supplementary statement of case to this Court, within three months from the date on which the papers reach the Tribunal.
V.P.S, Directions given.

summary/full:
Between the years 1954 and 1959 the appellant company was erecting its factory buildings and other ancillary constructions through buildings contractors.
The appellant arranged for the manufacture of bricks and sold those bricks to the building contractors for the purpose of the appellant 's constructions.
The appellant also supplied for the same purpose steel, cement and other materials which it procured and stored.
The difference between the sale price and the appellant 's cost price was a flat percentage of the cost price varying with the material.
The sale price was agreed to be adjusted against the dues under the contract between the appellant and the building contractors.
Treating the appellant as a dealer in the building materials the sales tax authorities under the Orissa Sales Tax Act.
1947, directed the appellant to pay sales tax for ten quarters ending with December 31, 1958, and a penalty.
in addition to the tax, for failure to register itself as a dealer.
The Tribunal agreed on the liability to pay tax, reduced the penalty, and the High Court, on reference, confirmed the Tribunal 's order.
In appeal to this Court on the questions: (1) Whether the appellant sold building materials to the building contractors; (2) Whether the imposition of penalty for failure to register as a 'dealer ' was justified; and (3) Whether the appellant was a 'dealer ' in respect of the building material supplied by it, HELD: (1) The supply of building material belonging to the appellant for 'an agreed price constituted a 'sale ' as defined in section 2(g) of the Act as the definition stood at the relevant time.
[756 E] (2) Under sections 9(1) and 25(1)(a) of the Act a penalty may be imposed for failure to register as a dealer.
But the discretion to impose a penalty must be exercised judicially.
A penalty will ordinarily be imposed in cases where the party acts deliberately in defiance of law, or is guilty of contumacious or dishonest conduct, or acts in conscious disregard of its obligation; but not, in cases where there is a technical o; venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.
[756 E H] In the present case, those in charge of the affairs of the appellant, in failing to.
register it as a dealer, acted in the honest and genuine belief that the company was not a dealer; and therefore, assuming the appellant to be a 'dealer ' no case for imposing penalty was made out.
[757 A] (3) Under the terms of the tender submitted by the building contractors and the schedule annexed thereto, the appellant was to charge 754 certain rates for the materials supplied by it.
The excess percentage over the specified rate in the case of building materials other than bricks was agreed to be paid by the contracto:rs as storage charges.
There was nothing to show that the excess price charged by the appellant to its contractors for bricks was also for storage charges.
But neither the Tribunal nor the High Court had referred to this aspect of the sale price namely whether the excess price was for storage or for profit with respect to any of the building materials.
Therefore, merely because the price charged to the contractors exceeded the price paid by the appellant for procuring the building materials it cannot be inferred that the motive of the appellant was to carry on business in building materials for profit.
[761 B E]


judgement:
ivil Appeal No. 1953 of 1968.
Appeal by special leave from the judgment and order dated September 17, 1962 of the Allahabad High Court in Misc.
I.T. Application No. 167 of 1955.
A.K. Sen, G.L. Sanghi and B.R. Agarwal, for the appellant.
Jagdish Swarup, Solicitor General, S.K. lyer, R.N. Sachthey and B.D. Sharma, for the respondent.
In proceedings for assessment to incometax for the year 1946 47, the appellant firm was assessed to tax in respect of an amount of Rs. 3,99,587 received by it as profit on sale of shares.
The. plea of the firm that the amount was "capital gain" and was on that account not taxable was rejected.
In the view of the Income tax Officer the profit arose from "a well planned business activity in which the assessee had fully utilised its resources".
The Appellate Assistant CommiSsioner affirmed the decision of the Income tax Officer.
The Income tax Appellate Tribunal dismissed the appeal filed by the firm.
The Tribunal, amongst others, referred the following question to the High Court of Allahabad for opinion: "Whether the surplus realised by the sale of the shares of Aluminium Corporation of India Ltd., J.K. Investment Trust and Raymond Woollen Mills amounting in aggregate to Rs. 3,99,587 or any part thereof was the revenue income of the assessee liable to tax under the Income Tax Act, 1922 ?" The High Court answered the question in the affirmative.
The firm has appealed to this Court with special leave.
In 1944 the firm purchased 50,000 ordinary shares of Raymond Woollen Mills Ltd. (hereinafter called "Raymond") for Rs. 69,75,255.
The firm paid Rs. 7,00,000 on November 4,1944 and the balance on December 6, 1944.
The transaction was financed with the aid of a loan of Rs. 70 lakhs borrowed from the Hindustan Commercial Bank Ltd. The firm sold those shares through brokers between November 23, 1944 and April 2, 1946 and realised Rs. 72,42,200, the transaction resulting in a net profit of Rs. 2,66,945.
Between January 26, 1945 and April 5, 1946 the firm also purchased 67 debentures, 5,582 preference shares and 18,576 ordinary shares of the Aluminium Corporation 722 Ltd. (hereinafter called "Aluminium") for Rs. 8,57,480.Except 2118 preference shares, the entire lot of shares with the debentures was sold for Rs. 7,05,957 between February 1, 1945 and August 13, 1945.
Adjusting the cost of shares left on hand the firm realised a net profit of Rs. 60,278 in that transaction.
The firm also purchased 290 "A" Class shares of J.K. Investment.
Trust Ltd. (hereinafter called "J. K. Trust") on February 4, 1945 for Rs. 1,45,000 and sold the same on August 22, 1945 for Rs. 2,17,264, the transaction resulting in a net profit of Rs. 72,364.
Before the departmental authorities the firm claimed that it had taken over the entire share capital issued by Raymond with a view to secure its managing 'agency and had thereafter distributed the shares of Raymond to the various associates of the firm, and the transaction being one to facilitate acquisition of a capital asset being a capital investment, the profit realised by sale of the shares was not liable to be assessed to income taX.
The firm also claimed that when a part of the new issue of capital of Aluminium was not taken over by the public, the firm as financiers of the, J.K. Group of Industries took over the shares and the debentures not subscribed within the time allowed.
This transaction, it was contended, was also of the nature of capital investment.
It was explained that the shares were sold on account of "financial embarrassment" and not with the object of earning income, and the profit realised by the sale did not attract tax.
Similar contentions were also raised in respect of the shares of J.K. Trust.
The departmental authorities rejected the contentions.
The Tribunal agreed with them.
From the ,facts found by the Tribunal it is clear that for purchasing the Raymond shares, the firm paid Rs. 7,00,000 on November 4, 1944, and the balance on December 6, 1944, .and commenced selling the shares on November 23, 1944.
The contention that the shares were only distributed to the "allied concerns" is contrary to the findings of the Tribunal.
Some of the shares were sold through brokers to outsiders.
It is a significant circumstance that the firm parted with all the Raymond shares by April 2, 1946 and did not retain a single share after that date.
It is true that some of the shares were held by J.K. Industries Ltd. and other J.K. concerns.
But the transfer even to the J.K. concerns was in 'all cases for a profit.
Within a few days after purchasing the Raymond shares, the "firm started unloading them".
and the shares were never sold without making profit.
The interest paid for the loan borrowed from the Hindustan Commercial Bank Ltd. for financing the purchase of Raymond shares was debited in the accounts as a revenue expenditure, and it was claimed as a permissible allowance.
The firm used to promote Companies.
723 One of its activities was to finance "sister concerns" known as J.K. Industries.
The Case of the firm that the shares had to be sold on account of "financial embarrassment" was plainly untrue.
The Tribunal was, in our judgment, right in inferring that the "purchase 'and sale of shares was a business activity which was continuous", and since the firm "had entered upon a well planned scheme for earning profit and that in furtherance and execution of that profit making scheme they sold the shares at the opportune time" and that "the sale of the shares was not merely on account of pecuniary embarrassment" as claimed, the profit realised by the firm by the sales of shares could not be characterised as a casual receipt, nor could it be treated as accretion to a capital asset.
Strong reliance was, however, placed on a somewhat obscure statement in the order of the Appellate Assistant Commissioner ' "In the case of Raymond Woollen Mills shares it is clear beyond doubt that the purchase of the shares was a first rate business deal and that it was motivated by the desire and intention to acquire the, Managing Agency of the Mills.
If this is not an operation in the scheme of profit making, it is not known what will constitut e such a transaction.
" Apparently there is a typographical error in the second clause of the first sentence, and the word "not" has by inadvertence been omitted; otherwise in the context in which it occurs the clause has no meaning whatever.
In any event as rightly pointed out by the High Court the reasons given by the Tribunal and the conclusion recorded by it are inconsistent with the finding that the shares were purchased with the sole object of acquiring the Managing Agency of the Raymond Woollen Mills and not with a view to make profits.
Counsel for the firm invited our attention to the decision of this Court in Ramanarain Sons (P) Ltd. vs Commissioner of Income tax, Bombay(1) in support of his contention that a transaction for purchasing shares with the object of acquiring the managing agency of a Company will be regarded as capital investment and not a business in share.
In Ramnarain Sons ' case(1) the appellant Company was a dealer in shares and securities and also carried on business 'as managing agents of other companies.
With a view to acquire the managing agency of a company, the appellant Company purchased from the managing agents a large block of shares at a rate approximately 50% above the ruling market rate.
Two months later the appellant Company sold a small lot out of those shares at a loss and claimed the loss as a (1) 724 trading loss.
It was found in that case by the Tribunal that the intention of purchasing the shares was not to acquire them as part of the stock in trade of tax payer 's business in shares, but to facilitate the acquisition of the managing agency of the Company which was in fact acquired, and on that account loss incurred by the sale of a small lot could be regarded only as a loss of capital nature.
The Court observed in that case that the circumstance that the tax payer had borrowed loans at interest to purchase the shares or that it was a dealer in shares and was authorised by its memorandum of association to deal in shares was of no effect.
On a review of the evidence the Tribunal held that the shares were purchased with the object of acquiring the managing agency and with that view the High Court agreed.
Whether a transaction is or is not an adventure in the nature of trade is question of mixed law and fact: in each case the legal effect of the facts found by the Tribunal on which the tax payer could be treated as a dealer or an investor in shares, has to be determined.
In the present case the transaction since the inception appears to be impressed with the character of a commercial transaction entered with a view to earn profit.
Large block of shares was purchased at the ruling rates with borrowed money, and soon thereafter the shares were disposed of at a profit in small lots.
Some of the shares were sold through brokers to strangers.
The story of the firm that some or all the shares were merely "distributed" to its associates is not proved.
The interest which the firm had to pay for the amount borrowed for purchasing the shares was acted in the revenue account and was claimed as a revenue allowance.
It was not the case of the firm that Aluminium and J.K. Trust shares were purchased for .acquiring the managing agency.
It was claimed that the shares were taken over because the public did not accept those shares.
It was one of the objects of the firm to finance its allied concerns and in taking over shares which the public did not subscribe the firm was 'acting in the course of its business.
The firm commenced selling the shares soon after they were purchased.
Aluminium shares were purchased between January 26, 1945 and April 5, 1946 (except a few which were retained) and sold at profit.
Whereas the first lot was purchased on January 26, 1945, the first sale was made on February 1, 1945.
It could not be said that this was an investment in shares independent of the trading activity of the firm.
The story that the shares had to be sold on account of financial difficulties is plainly belied by the circumstance that the firm went on purchasing and selling the Aluminium shares.
J.K. Trust shares were purchased on February 14, 1945 and were sold on August 22, 1945.
Aluminium shares as well as J.K. Trust shares were sold at a profit 725 and through brokers.
These transactions were ,also stamped with the character of commercial transactions entered into with a profit motive and were not transactions in the nature of capital investments.
The answer recorded by the High Court is therefore correct.
The appeal fails and is dismissed with costs.
V.P.S. Appeal dismissed.

dataset_name: IN-Abs

summary/full:
The assessee firm used to promote companies.
It purchased all the shares of a Company at the ruling rates with borrowed money and very soon thereafter disposed of all of them at a profit.
Before the Income tax authorities the assessee claimed that it had taken over the shares with a view to secure the managing agency of that Company and had thereafter distributed the shares to its allied concerns, that the transaction was only to facilitate acquisition of a capital asset and the profit realised from the sale of such a capital investment was a capital gain.
It was, found by the Departmental authority and the Tribunal that the shares were not merely 'distributed to the assessee 's associates, but that, some of the shares were sold to its allied concerns and others to strangers, through brokers, in small lots and at a profit.
Also, the interest which the assessee had to pay for the amount borrowed for purchasing the shares was debited in its revenue account and was claimed before the Income tax authorities as a revenue allowance.
The assessee also purchased shares of two other Companies which were its allied concerns, and commenced selling them soon after at a profit.
It was claimed before the Income tax authorities, with respect to these transactions that when a part of the new issue of capital of those two Companies was not taken over by the public, the assessee, as the financiers of those two companies took over the shares, that the were in the nature of a capital investment and the shares were sold on account of 'financial embarrassment ' and not with the object of earning income and so the profit realised by the sale did not attract income tax.
The Departmental authorities and the Tribunal found that the first lot of shares in one of these two Companies was purchased in January, 1945 and the firm went on purchasing and selling the shares of that Company thereafter from February, 1945 and hence, there could not have been any 'financial embarrassment '.
As regards the shares in the second company they were purchased in February, 1945 and sold in August, 1945.
The sales were all through brokers and at a profit.
On the question whether the total profits realised by the assessee was a capita1 gain or revenue income, HELD: Whether a transaction is or is not an adventure in the nature of trade is a mixed question of law and fact: in each case, the legal effect of the facts found by the Tribunal on which the tax payer could be treated as a dealer or an investor in shares has to be determined.
[724 C D] In the present case, on the facts found, there was a well planned scheme for earning profit.
Therefore, all the transactions were impressed with the character of a commercial transaction entered into with a view to earn profits and were not capital investments and hence were liable to tax [724 D; 725 A B] 721 Ram Narain Sons (P) Ltd.
T., Bombay, C.) explained.


judgement:
ivil Appeal No. 1635 of 1968.
Appeal from the judgment and order dated May 7, 1965 of the Calcutta High Court in Income tax Reference No. 205 of 1961.
section Ray, R.K. Choudhury and B.P. Maheshwari, for the appellant.
Jagdish Swarup, Solicitor General, S.C. Manchanda, R.N. Sachthey and B.D. Sharma, for the respondent.
The Judgment of the Court was delivered by Grover, J.
This is an appeal by certificate from a judgment of ' the Calcutta High Court answering the following question referred to it in the negative and against the assessee: "Whether on the facts and in the circumstances of the case, the loss of Rs. 1,11,816/ suffered by the assessee on the sale of shares of Fort William Jute Company Limited was a loss that arose in its share dealing business.
" The assessee is a public limited company.
It Carries on, inter alia, business of dealing in shares and securities.
The profits 774 and losses arising from transactions in shares in the ordinary course of the assessee 's business have always been treated as profits or losses of the share dealing business.
During the assessment year 1954 55, relevant accounting period being the financial year 1953 54 the assessee suffered a loss of Rs. 1,11,816 on the sale of 1,575 preference shares of Fort William Jute Company Ltd. These shares were purchased on May 22, 1952 at the rate of Rs. 186 per share from Mugneeram Bangur & Co. and were sold on December 23, 1953 at the rate of Rs. 115/ per share to the same company.
The background in which these transactions took place may be noticed.
Kettlewell Bullen & Co. were the managing agents of Fort William Jute Co. Ltd. On May 21, 1952 an agreement was entered into between Kettlewell Bullen & Co. and Mugneeram Bungur & Co. according to which the entire holdings of Kettlewell Bullen & Co. in the managed company (Fort William Jute Co. Ltd.) consisting of 6,920 tax free cumulative preference shares and 600 ordinary shares were to be sold to Mugneeram Bangur & Co. or their nominees at the agreed price of Rs. 185/ ' per preference share and Rs. 400/ per ordinary share.
Pursuant to .this agreement Kettlewell Bullen & Co. issued a circular letter to all shareholders of Fort William Jute Co. Ltd informing them of the terms of the agreement and pointing out that Kettlewell Bullen & Co. would tender resignation from the office of the managing agents with effect from July 1, 1952.
It was stated in this letter "the purchase price of each ordinary share was Rs. 400/ and of each preference share Rs. 185/ .
It was further condition of the agreement that M/s. Mugneeram Bangur & Co. would offer to all shareholders of the company (ordinary and preference) to purchase their shares at the same price on the terms hereinafter referred to".
It was intended that M/s. Bangur Brothers Ltd. would be appointed managing agents.
At the time of the agreement, namely, May 21, 1952 the market price of the preference shares ranged between Rs. 119/ and Rs. 122 per share but the shares were purchased by the assessee on May 22, 1952 at the rate of Rs. 186/ per share.
A large part of the preference shares of Fort William Jute Co. Ltd. were transferred to three Companies by Mugneeram Bangur & Co. who had to take over 8,617 preference shares in terms of the agreement.
The Companies to which these shares were transferred were (1) Manwar Textile Agency Ltd; (2) Union Co. Ltd., and (3) Star Co. Ltd. the assessee.
M/s. Bangut Bros., were appointed as the managing agents of Fort William Jute Company for a period of ten years with effect from July 1, 1952.
The total number of preference shares of Fort William Jute Company Ltd. which were acquired by the assessee from Mugnee 775 ram Bangur & Co. was 1,670.
One lot of 1,620 shares was purchased on May 22, 1952 at Rs. 186/ per share and the second lot of 50 shares was purchased at Rs. 184/ on May 27, 1952.
For the acquisition of these shares the assessee had to overdraw on its Bank account.
On December 23, 1953, 1,575 shares were sold to Mugneeram Bangur & Co. at Rs. 115/ per share resulting in a loss of Rs. 1,11,816 which was included in the loss of Rs. 1,30,152/ debited to the profit and loss account under the head "loss on sale of investment".
The assessee claimed this as a loss arising in the ordinary course of its business.
The Income tax Officer and the Appellate Assistant Commissioner rejected the assessee 's claim on the ground that the shares were purchased as a contribution to the scheme of acquisition of the managing agency of the Fort William Jute Co. Ltd. by Mugneeram Bangur & Co. or its nominee.
The loss, therefore, did not arise in the course of the assessee 's normal business of dealing in shares.
The Appellate Tribunal found that there was no evidence that the assessee had been made a pawn in the scheme of acquisition of the managing agency of Fort William Jute Co. Ltd. by Mugneeram Bangur & Co. or that the shares were acquired by the assessee to relieve the latter of the load of their shares in pursuance of that scheme.
The Tribunal was further of the view that even if Mugneeram Bangur & Co. had a controlling interest in the assessee firm by having a majority of the shares in it no such inference could necessarily by raised that the assessee did not purchase the shares of Fort William Jute Co. Ltd. as a measure of its own activity as a dealer in shares.
The Tribunal, however, held that the shares were not acquired in the course of the assessee 's share dealing business for the reason that in the profit and loss account for the year ending March 31, 1954 the assessee had made a distinction between its transactions as a dealer and as an investor in shares.
The Tribunal found that while the profit on sale of shares out of its stock in trade had been shown and described as such in the profit and loss account, the loss on sale of investment had been shown in the profit and loss account as a loss in investment.
From the treatment of the loss given by the assessee in its own profit and loss account the Tribunal came to the conclusion that the shares of Fort William Jute Co. Ltd., were acquired by the assessee as a measure of investment and not as stock in trade of the assessee 's share dealing business.
The High Court, while dealing with the question which had been referred at the instance of the assessee, was of the opinion that the Tribunal had not properly considered the primary facts which had been found by the Income tax Officer and the Appellate 776 Assistant Commissioner.
It proceeded to refer to some of the proved and admitted facts which were: (1) The profits and loss account relating to the sale of shares showed that the transactions in Fort William Jute Co. shares stood apart from the other transactions.
While the other transactions were of a few thousand rupees only rising to nearly 30,000 in one case the transaction in Fort William Jute Co. shares involved the payment of nearly Rs. 3,00,000.
(2) These shares were acquired in one lot from Mugneeram Bangur & Co. and sold back to the same concern in one lot which was altogether unusual.
(3) The shares in question were purchased by the assessee one day after the agreement was entered into between Kettlewell Bullen & Co. and Mugneeram Bangur & Co. (4) The preference shares of the face value of Rs. 100/ were purchased at Rs. 186/ per share on May 22, 1952 when on the previous day the quotation in the market was Rs. 119/ per share only.
Taking the overall picture the High Court felt that there could be only one inference that the assessee an associate of Mugneeram Bangur & Co. had enttred into the transaction relating to preference shares at the bidding of the Bangurs, for the purpose of helping them.
It was observed that the Tribunal was wrong in holding that there was no evidence that these associates had been made pawns in the transaction.
The conclusion of the High Court was "on the facts and circumstances of the case it is impossible to hold that the assessee bought shares in the ordinary course of business or would have bought them but to help Mugneeram Bangur & Co. in their scheme of acquisition of the managing agency rights".
It appears that the High Court was not impressed with the view of the Tribunal that on the basis of entries in the profit and loss account it could be held that the share transactions in question related to the capital account, the shares having been acquired as a measure of investment.
The first contention raised on behalf of the assessee, which is the appellant before us, is that the High Court was not entitled to reverse the findings of fact of the Appellate Tribunal since 777 the department had not challenged the same by means of appropriate proceedings for reference of a question challenging those findings.
It is pointed that the Tribunal had come to the conclusion that there was no evidence to show that the assessee had been made a pawn in the scheme of acquisition of the managing agency of Fort William Jute Co. by Mugneeram Bangur & Co. or that the preference shares had been acquired by the assessee pursuant to that scheme.
It is submitted that the Tribunal had thus reversed the view which had commended itself to the Income tax Officer and the Appellate Assistant Commissioner and to that extent the Tribunal 's decision was in favour of the assessee and could not be reversed or set aside by the High Court in the absence of any reference at the instance of the department.
It is noteworthy that the question which was referred is couched in general terms and was not limited to.
or circumscribed by the reasons which had been given by the Tribunal against the assessee The question of law on which reference can be made must arise out of the order of the Tribunal.
The order which was made in the present case was in favour of the department and against the assessee.
It is true that certain reasons which had appealed to the Income tax Officer and the Appellate Assistant Commissioner were, not accepted by the Appellate Tribunal but it had come to the following conclusion which was material for the disposal of the appeal : "We accordingly uphold the view taken by the authorities below that the loss of Rs. 1,11,818/ incurred on the sale of 1,575 preference shares of Fort William Jute Co. Ltd. was not a loss that arose in course of the appellant 's business in share dealing though for different reasons".
The question which was referred was framed in the light of the final conclusion and in our judgment it was not necessary for the department to apply for and obtain a reference on a question arising from the reasons given by the Tribunal in support of its conclusion in favour of the department.
It has next been contended on behalf of the appellant that where a question is one of mixed facts and law the facts as found by the Tribunal must be accepted as correct.
The Tribunal had negatived the finding of ' the Income tax Officer and the Appellate Assistant Commissioner that the preference shares had been acquired by the assessee as a pawn in the scheme of transfer of the managing agency of Fort William Jute Co. Ltd. It was, therefore, not open to the High Court to come to the same conclusion by not treating the finding of the Appellate Tribunal 778 as final.
Our attention has been invited to the observations in Commissioner of Income tax, Bombay City Iv.
Greaves Cotton & Co. Ltd. (1) that it is not open to the High Court in a reference under section 66(1) of the Income tax Act, 1922 to embark upon a re appraisal of the evidence and to arrive at findings of fact contrary to those of the Tribunal.
The finding of fact will be defective in law if there is no vidence to support it or if the finding is unreasonable or perverse, but it is not open to a party to challenge such a finding unless reference has been made of a specific question concerning that finding.
In Oriental Investment Ca. P. Ltd. vs Commissioner of Income tax(2) it has been reiterated that in dealing with findings on questions of mixed law and fact, the High Court must accept the findings of the Tribunal on the primary question of fact as final although it is open to the High Court to examine whether the Tribunal had applied the relevant legal principles correctly.
It is argued that the High Court has not characterised the aforesaid finding of the Appellate Tribunal as perverse or arbitrary and once that finding is accepted there would be no justification for holding that the assessee had been made a pawn in the matter of the scheme of transfer of the managing agency of Fort William Jute Co. Ltd. by Mugneetare Bangut & Co. or Bangut Brothers Ltd. In any case there were several facts which showed that the assessee was not privy or party to the aforesaid scheme.
It did not acquire any interest in the managing agency nor was it a subsidiary or associate of Mugneeram Bangut group of concerns.
The assessee was connected with the Bangurs only to the extent that out of its four Directors two of the Directors were Bangurs.
In our opinion even if the conclusion of the High Court on the point mentioned above is not taken into consideration the question which was referred had to be answered against the assessee.
On admitted and proved facts there can be no manner of doubt that the assessee did not acquire the preference shares in the ordinary course of business.
These facts may be restated as follows : (1) The market rate of the preference shares remained constant at the figure of Rs. 119/ between April 16, 1952 and May 21, 1952.
(2) On May 21, 1952 the agreement between Mugneeram Bangur & Co. and Kettlewell Bullen & Co. was entered into for purchasing the entire holding of the managing agency company in the managed company.
(1) (2) 779 (3) On May 22, 1952, 1,620 shares were acquired by the assessee from Mugneeram Bangur & Co. at the rate of Rs. 186/ per share.
50 more shares were acquired on May 27, 1952 at Rs. 184/ per share.
The shares were obviously acquired at a price which was very much higher than the market price which prevailed only a day before they were purchased by the assessee.
(4) Out of 1,670 shares taken over by the assessee from Mugneeram Bangur & Co. 1,575 were sold back to the same company at the rate of Rs. 115/ per share.
(5) The profit and loss account for the assessment year 1954 55 showed that the dealings in other shares of comparatively much lesser value than the shares in question.
The profits and losses which had been made and incurred on account of the other shares were also comparatively of minimal nature.
(6) The shares of Fort William Jute Co. Ltd., were purchased by the assessee by obtaining an overdraft from a Bank.
All the above facts and circumstances which have some extraordinary features lead to the irresistible conclusion that whatever the motives which entered into the acquisition of the shares, they were certainly not bought and sold in the ordinary course of business of the assessee as a dealer in shares.
The answer to the question must, therefore, be in the negative and against the assessee and it was rightly so returned by the High Court.
The appeal fails and it is dismissed with costs.
R.K.P.S. Appeal dismissed.

summary/full:
The K company, who.
were the managing agents of the F Company, entered into an agreement on May 21, 1952, with the M Company, whereby the entire share holding of the K Company consisting of certain preference and ordinary shares were to be sold to the M Company or their nominees.
The appellant was a public limited company carrying on the business of dealing in shares and securities.
Some of the preference shares were purchased, amongst others by the appellant at Rs. 185 per share and for this purpose the appellant had to overdraw on its bank account.
The market price of the preference shares at the time was about Rs. 119.
After the agreement was implemented, the M Company became the managing agents, of the F Company.
On December 23, 1953, the appellant sold the preference shares to the M Company thereby incurring a loss of Rs. 1,11,816.
In its assessment to income tax the appellant claimed this loss as arising in the ordinary course of its business.
The Income tax Officer and Appellate Assistant Commissioner rejected the appellant 's claim on the ground that the shares were purchased as a contribution to the scheme of acquisition of the managing agency of the F Company by the M Company.
The Appellate Tribunal found however that there was no evidence that the appellant had been made a pawn in the scheme of acquisition of the managing agency; but in view of the treatment of the loss by the appellant as a loss in investment and not a loss on its stock in trade in its own profit and loss account, the tribunal held that the shares were not acquired in the course of the appellant 's share dealing business and therefore rejected its claim.
The High Court, upon a 'reference, also held against the appellant, 'but expressed the opinion that the tribunal had not properly considered the primary facts found by the Income tax Officer and the Appellate Assistant Commissioner which clearly showed that the appellant, an associate of the M Company, had entered into the transaction relating to preference shares at the bidding of the M Company and for the purpose of helping them.
In appeal to this Court it was contended (i) that the High Court was not entitled to reverse the findings of fact of the tribunal which were in favour of the appellant since the department had not challenged these by means of appropriate proceedings; and (ii) that where a question is one of mixed 'facts and law, the facts as found by the tribunal ran.st be accepted as correct; the tribunal had negatived the finding that the preference shares were acquired by the appellant as a pawn in the scheme of transfer of the managing agency of the F Company and it was not open to the High Court to come to the same conclusion by not treating the findings of the Tribunal as final.
773 HELD: Dismissing the appeal: (i) The question which was referred to.
the High Court was couched in general terms and was not limited to or circumscribed by the reasons which had been given by the Tribunal against the appellant.
The question of law on which reference can be made must arise out of the order of the Tribunal.
Although certain reasons which had appealed to the Incometax Officer and the Appellate Assistant Commissioner were not accepted by the Tribunal, it had come to the conclusion which was material for the disposal of the appeal.
namely,.
that the loss in question was not a loss that arose in the course of the appellant 's business in share dealing.
The question which was referred to the High Court was framed in the light of this final conclusion and it was not necessary for the department to apply for and obtain a reference on a question arising from the reasons given by the Tribunal in support of its conclusion in favour of the department.
[777 D G] (ii) Even if the conclusion of the High Court on the facts relating to the appellant 's role in the scheme for transfer of the managing agency to the M Company was not taken into consideration, the question which was referred to it had to be answered against the appellant.
This was clear on admitted and proved facts which had some extraordinary features and led to the irresistible conclusion that whatever the motives which entered into the appellant 's acquisition of the shares, they were not bought and sold in the ordinary course of the business of the appellant as a dealer in shares.
[778 F] Commissioner of Income tax, Bombay City Iv.
Greaves Cotton & Co. Ltd., and Oriental Investment Co. P. Ltd. vs Commissioner of Income tax, ; referred to.


judgement:
ns Nos. 188 and 189 of 1968.
Petitions under article 32 of the Constitution of India for enforcement of the fundamental rights.
V. Krishnamurti, section K. Dholakia and J. B. Dadachanji, for the petitioners (in both the petitions).
Niren De, Attorney General, section section Shukla and section P. Nayar, for the respondents (in both the petitions).
The Judgment of the Court was delivered by Ramaswami, J.
In these writ Petitions under article 32 of the Constitution a common, question of law arises for determination, viz., whether the Mysore (Personal and Miscellaneous) Inams Abolition Act, 1954 (Mysore Act 1 of 1955)is constitutionally valid.
The villages of Debur and Kappasoge in Mysore District were Inam grants made to Bakshi Bhima Rao, the ancestor of the petitioners.
The inam grants were made by the Ruler of 3 Mysore State in recognition of the military services of Bakshi Bhima Rao.
The inam included not only the income from the lands but from every kind of revenue including excise and the right to treat all lands newly brought into cultivation as the personal property of the Inamdars.
The Mysore (Personal and Miscellaneous) Inams Abolition Act, 1954 (Mysore Act 1 of 1955) (hereinafter called the impugned Act) was passed by the , Mysore Legislature and received the assent of the President on the 18th March, 1955 and published in the Mysore Gazette on 19th March, 1955.
The Act was subsequently amended by Mysore Act 7 of 1956 which received the assent of the President: on 28th June, 1956 and which was published in the Mysore Gazette on 5th July, 1956.
By virtue of a notification dated 2nd October, 1956 under section 1 clause (iv) of the impugned Act,, the two inam villages vested in the State of Mysore under section, 3 of the impugned Act.
Compensation of the various items was.
the subject matter of dispute between the petitioners and the Special Deputy Commissioner who was appointed to assess.
compensation under the machinery of the Act.
Awards of compensation were made under sections 17 and 20 of the impugned Act by the Special Deputy Commissioner.
The peti tioners preferred Miscellaneous Appeals Nos. 89 and 130 in the High Court of Mysore under section 31 of the impugned Act.
These appeals were heard and decided by the Mysore High Court by a consolidated order of the 27th October, 1960.
Against that decision two appeals were brought to this Court in Civil Appeals, 196 and 197 of 1965.
These appeals were heard on 25th October, 1967.
It was then pointed out by the Court that the. constitutional validity of the provisions of the Act cannot be challenged in the statutory appeals in view of the decision of this Court in K. section Venkataraman & Co. vs State of Madras.(1) The petitioners thereafter filed these writ petitions challenging the constitutional validity of the Act.
The main contention raised by the petitioners is that the, impugned Act does not provide for adequate compensation for the property acquired, that the compensation provided for was not a "just equivalent", in other words,.the market value of the property at the time of acquisition and there was hence a violation of the guarantee under article 31(2) of the Constitution.
The impugned Act is entitled as an Act to provide for the "abolition, of personal inams and certain miscellaneous inams in the State of Mysore except Bellary District".
The preamble states that it is expedient in the public interest to provide for the abolition of ' personal inams and certain miscellaneous inams in the State of Mysore except Bellary District and for other matters connected therewith.
, Section 1(4) enacts that this section and (1) ; 4 sections 2, 27, 38 and 40 shall come into force in respect of any inam village, or minor inam in an unalienated village, on such date as the Government may by notification appoint.
Section 3 provides for the consequences of ' the vesting of an inam in the State and states as follows : "(1) When the notification under sub section (4) of section 1 in respect of any inam has been published in the Mysore Gazette, then notwithstanding anything contained in any contract, grant or other instrument or in any other law for the time being in force, with effect on and from the date of vesting, and save as otherwise expressly provided in this Act, the following consequences shall ensue, namely : (a) the provisions of the Land Revenue Code relating to alienated holdings shall, except as respects minor inams to which this Act is not applicable, be deemed to have been repealed in their application to the inam; and the provisions of the Land Revenue Code and all other enactments applicable to unalienated villages shall apply to the said inam; (b) all rights, title and interest, vesting in the inamdar including those in all communal lands, cultivated lands uncultivated lands, whether assessed or not, waste lands, pasture lands, forests, mines and minerals, ,quarries, rivers and streams, tanks and irrigation works, fisheries and ferries, shall case and be vested absolutely in the State of Mysore, free from all encumbrances; Section 9 enacts "Lands and buildings to vest in the inamdar (1) Every inamdar shall, with effect on and from the date of vesting, be entitled to be registered as an occupant of all lands other than (i) communal lands, waste lands,, gomal lands, forest lands,tank beds, mines, quarries, rivers, streams, tanks and irrigation works; (ii) lands in respect of which any person is entitled to 'be registered under sections 4, 5, 6, 7 or 8; and (iii) lands upon which have been erected buildings owned by any person other than the inamdar.
(2) Every building situated within the limits of the inam which was owned immediately before the 2 date of vesting by the inamdar shall, with effect on and from such date, vest in the inamdar.
Explanation : In this section inamdar ' means an inamdar other than a holder of a minor inam referred to in section 7".
Section 17 provides as follows "Amount of compensation payable : (1) Save as otherwise provided in section 26, the total compensation payable in respect of any inam shall be the aggregate of the sums specified below (i) a sum equal to twenty times the amount of land revenue payable in respect of land held by kadim tenants and permanent tenants entitled to be registered under section 4 and section 5, respectively.
Explanation : where the land revenue is paid in kind, the amount of land revenue for purposes of this.
clause shall be determined on the basis of the market value prevailing on the 1st day of January, 1954, of the crop or crops paid as land revenue; (ii) a sum equal to seventy five per centum of the amount payable by the quasi permanent tenants of the inamdar under subsection (2) of section 6 in respect of lands of which they are entitled to be registered as occupants under sub section (1) of the said section 6; (iii) a sum calculated at the rates specified below in respect of lands referred to in clause (iii) of subsection (1) of section 7 or section 9; (a) seventy five rupees per acre within the municipal limits of the Cities of Bangalore, Mysore and Davangere and within an area of one mile from such, limits; and (b) forty rupees per acre within the municipal limits of the towns of Kolar, Tumkur, Chitaldrug, Shimoga, Bhadravati, Chickmagalur, Hassan and Mandya and the limits of the Kolar Gold Fields Sanitary Board Area, and within an area of one mile from such limits; and (c) twenty rupees per acre in all other areas; (iv) a sum equal to twenty times the jodi, quitrent or other amount, if any, of like nature, derived by the inamdar concerned from persons holding minor inams under such inamdar; and 6 (v) a sum equal to ten times the average net annual income derived by the inamdar during a period of five years immediately preceding the date of vesting, from lands other than lands referred to in clause (iii) and lands in respect of which any person is entitled to be registered under sections 4, 5, 6, 7, 8 and 9; Provided that (a) the income from sandalwood or any other forest produce shall not be included in the annual income from forests unless the right thereto was expressly conferred on the inamdar by a competent authority; (b) the income from royalty on minerals or from mining lease shall not be included in the annual in come unless the right to such minerals or mines was expressly conferred on the inamdar by a competent authority and such right was recognised under section 38 of the Land Revenue Code; (c) the income from ferries shall not be included unless the right to such ferries was expressly granted to the inamdar 'by a competent authority.
On behalf of the petitioners learned counsel stressed the argument that the inamdar of the estate was completely deprived of any sort of compensation in regard to the category of lands mentioned in section 9 ( 1 ) (1).
It was said that in regard to the permanent tenants, the compensation was fixed at 20 times of the land revenue, but in the case of quasi permanent tenants the compensation is 75 per cent of the value payable by the quasi permanent tenants under section 6(2).
That is to say, the Government recovers a premium under section 6(2) at 40 times the land revenue and hands over 75 per cent as compensation to the holder of the inam estate.
It was contended that compen sation was not fixed on the basis of the market value on the date of acquisition and that the guarantee embodied in Article 31 (2) of the Constitution has been violated.
In support of this argument reference was made to the decision of this Court in The State of West Bengal vs Mrs. Bela Banerjee & Ors., (1) in which this Court observed that while under Entry 42 List III the Legislature was given discretionary (1) [1954] S.C.R.558.
7 power to lay down the principles which should govern determination of the amount to be given to the owner of the property appropriated, Article 31(2) of the Constitution required that such principles must ensure what is determined as payable must be 'compensation ', i.e. a just equivalent of what the owner has been deprived.
Whether such principles take into account all the elements which make up the true value of the property appropriated and exclude matters which are to be neglected is a justiciable issue to be adjudicated by the Court.
The Court, therefore, held in that case that the West Bengal Land Development and Planning Act, 1948 which was enacted primarily for the settlement of immigrants who had migrated into West Bengal due to communal disturbances in East Bengal and which by section 8 provided that the compensation to be awarded for compulsory acquisition to the owner of the land was not to exceed the market value of the land on 31st December, 1946 was ultra vires of the Constitution and void under Article 31(2) of the Constitution.
At page 564 of the report the Court observed as follows: " Turning now to the provisions relating to compensation under the impugned Act, it will be seen that the latter part of the proviso to section 8 limits the amount of compensation so as not to exceed the market value of the land on December 31, 1946, no matter when the land is acquired.
Considering that the impugned Act is a permanent enactment and lands may be acquired under it many years after it came into force, the fixing of the market value on December 31, 1946 as the ceiling on the land at the time of the acquisition is arbitrary and cannot be regarded as due compliance in letter and spirit with the requirement of .
Article 31(2)".
In our opinion, this principle cannot apply in testing the validity of the impugned Act in the present case.
Article 31(2) before its amendment by the Constitution (4th Amendment) Act reads as follows : "(2) No property, movable or immovable, including any interest in, or in any company, owning, any commercial or industrial undertaking, shall be taken possession of or acquired for public purposes under any law authorising the taking of such possession or such acquisition, 'unless the law provides for compensation for the property taken possession of or acquired and either fixes the amount of the compensation, or specifies the principles on which, and the manner in which, the compensation is to be determined and given".
8 But Article 31A was added in the Constitution with retros pective effect by section 4 of the Constitution (1st Amendment) Act, 1951 which provides as follows : "4.
After Article 31 of the Constitution, the following article shall be inserted, and shall be deemed always to have been inserted, namely : 31A. Saving of laws providing for acquisition of estates.
etc. (1) Notwithstanding anything in the foregoing provisions of this Part, no law , providing for the acquisition by the State of any estate or of any rights therein or for the extinguishment or modification of any such rights shall be deemed to be void on the ground that it is inconsistent with or takes away or abridges any of the rights conferred by, any provisions of this Part Provided that where such law is a law made by the Legislature of a State, the provisions of this article shall not apply thereto unless such law, having been reserved for the consideration of the President, has received his assent.
(2) In this article (a) the expression 'estate ' shall, in relation to any local area, have the same meaning as that expression or its local equivalent has in the existing law relating to land tenures in force in that area, and shall also include any jagir, inam or maufi or other similar grant; (b) the expression 'rights ' in relation to an estate, shall include any rights vesting in a proprietor, sub proprietor, under proprietor, tenure holder or other intermediary and any rights or privileges in respect ofland revenue".
Article 31A was amended again by section 3 of the Constitution (4th Amendment) Act, 1955 with retrospective effect.
Section 3 of the Constitution (4th Amendment) Act reads, as follows "(a) for clause (1), the following clause shall be, and shall be deemed always to have been substituted, namely : (1) Notwithstanding anything contained in article 13, no law providing for (a) the acquisition by the State of any estate or of any rights therein or the extinguishment or modification of any such rights, or 9 (b) the taking over of the management of any "property by the State for a limited period either in the public interest or in order to secure the proper management of the property; or (c) the amalgamation of two or more corpora tions either in the public interest or in order to secure the proper management of any of the corporations, or (d) the extinguishment or modification of any rights of managing agents, secretaries and treasurers, managing, directors, directors or managers or corporations, or of any voting rights of shareholders thereof, or (e) the extinguishment or modification of any rights accruing by virtue of any agreement, lease or licence for the purpose of searching for, or winning, any mineral or mineral oil, or the premature termination or cancellation of any such agreement, lease or licence, shall be deemed to be void on the ground that it is inconsistent with, or takes away or abridges any of the rights conferred by article 14, article 19 or article 3 1; Provided at where such law is a law made by the Legislature of a State, the provisions of this article shall not apply thereto unless such law, having been reserved for the consideration of the President, has received his assent; and (b) in clause (2), (i) in sub clause (a), after the word 'grant ' the words 'and in the States of Madras and Travancore Cochin, any janmam right ' shall be, and shall be deemed always to have been inserted.
(ii) in sub clause (b), after the word 'tenure holder ' the words 'raiyat, under raiyat ' shall be, and shall be deemed always to have been, inserted.
In the present case, it is plain that under Article 31A as introduced by the 1st Amendment to the Constitution or as altered by the 4th Amendment, the impugned Act is protected from attack in any Court on the ground that it contravenes the provisions of Article 31(2) of the Constitution.
The reason is that the impugned Act is a law providing for the acquisition by the State of any estate or of any rights therein or for the extinguishment or modification of such rights as contemplated by Article 31A of the Constitution.
The impugned Act provides L7 Sup.
C.1.169 2 10 for acquisition of the rights of inamdars in inam estates in Mysore State and it is intended to abolish all intermediate holders who were termed as Superior holders and to establish direct relationship between the Government and occupants of land in the Inam Villages in respect of which notifications had been issued.
The legislation was undertaken as a part of agrarian reform which the Mysore State Legislature proposed to bring about in the former State of Mysore.
The impugned statute, therefore, falls under the protection of Article 31A of the Constitution and cannot be challenged on the ground that Article 31 has been violated, that no principle of compensation has been provided or that the compensation provided for is illusory or inadequate.
On behalf of the petitioners Mr. Krishnamurthi in support of his argument referred to the decision of this Court in State of Madras vs D. Namasivaya Mudaliar and Ors.
(1) in which Madras Lignite (Acquisition of Land) Act (Madras Act XI of 1953) was held invalid on the ground that the provisions of the Act relating to compensation violated Article 31(2) of the Constitution as it stood before the Constitution (4th Amendment) Act, 1955 and that the principle laid down in The State of West Bengal vs Mrs. Bela Banerjee & Or s.(2) was applicable.
Reference was also made to another decision of this Court in P. Vajravelu Mudaliar vs Special Deputy Collector, Madras & Anr.
,(3) in which the question was raised with regard to the validity of Land Acquisition, Madras Amendment Act, 1961 (Madras Act 23 of 1961).
In that case the petitioners ' lands were notified for acquisition for the purpose of housing schemes and the object of the acquisition was slum clearance.
In that case also it was held by this Court that the principle of Bela Banerjee 's(2) case should be applied and by virtue of Article 31(2) the Legislature in making the law of acquisition must provide for a "just equivalent" of what the owner has been deprived of or specify the principles for the purpose of ascertaining such "just equivalent" It was pointed out that the comparative study of the principal Act and the Amending Act showed that if land was acquired for a housing scheme under the Amending Act, the claimant would get a lesser value than what he, would get for the same or similar land acquired for some public purpose under the Principal Act.
The discrimination between persons whose lands were acquired for housing schemes and those whose lands were acquired for other public purposes could not be sustained on the principle of reasonable classification and the Amending Act clearly violated Article 14 of the Constitution and was void.
In our opinion, the ratio of the two decisions, in State Of Madras vs (1) [1964] 6S.C.R.936.
(2) [1954] S.C.R.558.
(3) ; , 11 D.Namasivaya Mudaliar & Ors.
(1) and P. Vajravelu Mudaliar vs Special Deputy Collector, Madras and Anr.
(2) has no application to the present case because those cases related to legislation not dealing with agrarian reform and the protection of Article 31A of the Constitution was not available to either of the statutes challenged in those cases.
We pass on to consider the next question raised on behalf of the petitioners, namely, whether, the impugned Act was beyond the legislative competence of the Mysore Legislature under Entry 36 of List 11 to the 7th Schedule and Entry 42 of List III as those Entries stood before the 7th Amendment of the Constitution.
The argument maybe summarised thus : Entry 36 of List 11 read with Article 246(3) of the Constitution was obviously intended to authorise the State Legislature to exercise the right of eminent domain i.e., right of compulsory acquisition of private property.
The exercise of such power has been recognised in Anglo Saxon jurisprudence as conditioned by public necessity and payment of compensation.
All legislation in this country authorising such acquisition of property from Regulation 1 of 1824 to Land Acquisition Act 1894 proceeded on that footing.
The existence of public purpose and the obligation to pay compensation are, therefore, necessary concomitants of compulsory acquisition of private property, and so, the term "acquisition" must be construed as importing by necessary implication the aforesaid two conditions.
It is also a recognised rule for the construction of statutes that, unless the words of the statute clearly so demand, a statute is not to be construed so as to take away the property of a subject without compensation : 'Attorney General V. De Keyser 's Royal Hotel.(3) The power to take compulsorily raises by implication a right to payment : Central Control Board vs Cannon Brewery(4).
The words "subject to the provisions of entry 42, in List 111" in entry 36 reinforce the argument, as these words must be taken to mean that the power to make a law with respect to acquisition of property should be exercised subject to the condition that such law should also provide for the matters referred to in entry 42, in other words, a two fold restriction as to public purpose and payment of compensation (both of which are referred to in entry 42) is imposed on the exercise of the law making power under entry 36.
Entry 36 at the material time read as follows .lm15 " Acquisition or requisition of property, except for the purposes of the Union, subject to the provisions of entry 42 of List III".
Entry 42 was to the following effect (1) ; (2) ; (3) ; , 542.
(4) [1919] A.C. 744.
12 "Principles on which compensation for property acquired or requisitioned for the purpose of the Union or of a State or for any other public purpose is to be determined, and the form and the manner in which such compensation is to be given".
By the Constitution (7th Amendment) Act, 1956, Entries 36 of List 11, 33 of List I were omitted and Entry 42 of List III was altered and the altered entry reads as follows : "Acquisition and requisitioning of Property" it was however pointed out on behalf of the petitioners that the amendment was not retrospective and the validity of the impugned Act must be tested by the language of entries 36 of List II and 42 of List III as they stood at the material time.
In our opinion, there is no substance in the argument.
It is true that under the common law of eminent domain as recognised in Anglo Saxon jurisprudence the State cannot take the property of its subject unless such property is required for a public purpose and without compensating the owner for its loss.
But, when these limitations are expressly provided for in Article 31(2) and it is further enacted that no law shall be made which takes away or abridges these safeguards, 'and any such law, if made, shall be void, there can be no room for implication, and the words "acquisition of property" in entry 36 must be understood in their natural sense of the act of acquiring property, without importing into the phrase an obligation to pay compensation or a condition as to the existence of a public purpose.
In other words, it is not correct to treat the obligation to pay compensation as implicit in the legislative entry 33 of List I or legislative entry 36 of List II for it is separately and expressly provided for in Article 31(2).
The well known maxim expressum facit cessare tacitum is indeed a principle of logic and common sense and not merely a technical rule of construction.
The express provision in Article 31(2) that a law of acquisition in order to be valid must provide for compensation will, therefore, necessarily exclude all suggestion of an implied obligation to provide for compensation sought to be imported into the meaning of the word "acquisition" in entry 36 of List II.
In the face of the express provision of Article 31(2), there remains no room for reading any such implication in the legislative heads.
The entries in the Lists of the Seventh Schedule are designed to define and delimit the respective areas of legislative competence of the Union and State Legislatures.
Such a context is hardly appropriate for the imposition of implied restrictions on the exercise of legislative powers, which are ordinarily matters for positive enactment in the body of the Constitution.
It was said that the words "subject to the provisions of entry 42 of List 111" must be taken to mean that the law making power under entry 36 could be exercised subject to the two conditions as 13 to public purpose and payment of compensation both of which are referred to in entry 42.
In our opinion, the contention is unsound.
The two entries are merely heads of legislation and are neither interdependent nor complementary to each other.
These words in entry 36 mean no more than that any law made under entry 36 by a State Legislation can be displaced or overridden by the Union Legislation making a law under entry 42 of List II.
It is important to notice that similar words do not occur in entry 33 of List I which confers on Parliament the power to make laws with respect to acquisition of property for the purpose of the Union.
For if these restrictive conditions as to public purpose and payment of compensation are to be derived only from those words, then it must follow that in the absence of those words, Parliament can make law, authorising acquisition of property without a public purpose and without a provision for compensation.
No reason was suggested why Parliamentary Legislation with respect to such acquisition of property is to be free from such restrictive condition, while State Legislation should be subject to them.
The true inference is that the power to make law belonging to both Parliament and the State Legislatures can be exercised only subject to the aforesaid two restrictions not by, reason of anything contained in the legislative entries themselves but by reason of positive provisions contained in Article 31(2).
But as legislation falling within Article 31A cannot be called in question in a Court of law for noncompliance with those provisions such legislation cannot be struck down as unconstitutional and void.
In our opinion, counsel on behalf of the petitioners is, unable to make good his argument that the impugned Act was beyond the legislative competence of the Mysore Legislature at the time when it was enacted.
For these reasons we hold that the petitioners have made out no case for grant of relief under article 32 of the Constitution.
These writ petitions accordingly fail and are dismissed with costs.
There will be one set of hearing fee.
V.P.S. Petitions dismissed.

summary/full:
By virtue of a notification under section 1(4) of the Mysore (Personal 'and Miscellaneous) Inams Abolition Act, 1954, the Inam villages of the petitioners vested in the State of Mysore.
The petitioner challenged the validity of the Act on two grounds, namely : (1) that the compensation provided by the Act was not the market value of the property at the time of acquisition and since it did not, provide for an adequate compensation as a 'just equivalent ' there; was a violation of article 31(2); and (2) that the impugned Act was beyond the legislative competence of the Mysore Legislature under Entry 36 of List 11 and Entry 42 of List III to the 7th Schedule as the Entries stood before the 7th Amendment of the Constitution, because, (i) the existence of public purpose and the obligation to pay compensation are necessary concomitants of compulsory acquisition of property, and so, the term 'acquisition ' must be construed as importing by necessary implication the two conditions of public purpose and payment of adequate compensation, and (ii) the words 'subject to the provisions of Entry 42, List III ' in Entry 36 of List 11 reinforce the argument that a law with respect to acquisition of property made under Entry 36 should be exercised subject to the two fold restriction as to public purpose and payment of compensation both of which are referred to in Entry 42, List Ill. HELD : (1) (a) The impugned Act provides for the acquisition of rights of inamdars in inam estates and it is intended to abolish 'all intermediate holders and to establish direct relationship between the Government and occupants of land in Inam villages in respect of which notifications had been issued.
The legislation was undertaken as a part of agrarian reform which the Mysore State Legislature proposed to bring about in the State.
Therefore, the impugned Act is a law providing for the acquisition by the State of any estate or of any rights therein or for the extinguishment or modification of such rights as contemplated by article 31A and hence, the impugned Act is protected from attack in any court on the ground that it contravenes article 31(2).
[9 G H; 10 A B] (b) The ratio of the two decisions in State of Madras vs Namasivaya Mudaliar ; and Vajravelu Mudaliar vs Spl.
Collector, ; , in which it was held that the principle of Beta Banerjee 's case.
; , that the Legislature in making a law of acquisition must provide for a 'just equivalent ' as compensation, has no application to the present case, because, those two cases related to legislation not dealing with agrarian reform and the protection of article 31A was not available to either of the statutes challenged in those cases.
A B] 2 (2) (1) Under the common law of eminent domain the State cannot take the property of its subject unless such property is required for a public purpose and without compensating the owner for its loss.
But, when these limitations are expressly provided for in article 31(2) and it is further enacted that no law shall be made which takes away or abridges those safeguards, and any such law, if made, shall be void, there can be no room for implication, and the words 'acquisition of property ' in Entry 36 must be understood in their natural sense of the mere 'act of acquiring property without importing into the phrase an obligation to pay compensation or a condition as to the existence of a public purpose.
The entries in the Lists of the VII Schedule are designed to define and delimit the respective areas of legislative competence, of the Union and State Legislatures and the principle of the maxim expressum facit cessare tacitum, makes it inappropriate to treat the obligation to pay compensation as implicit in Entry 33 of List I or Entry 36 of List 11 when it is separately and expressly provided for in article 31(2).
[12 C F] (3) The words 'subject to the provision of Entry 42 of List III ' mean no more than that any law made under Entry 36 by a State Legislature can be displaced or overridden by the Union Legislature making a law under Entry 42 of List 11.
If the restrictive conditions as to public purpose and payment of compensation are to be derived from these words, their absence in Entry 33 of List I leads to the unreasonable inference that Parliament can make law authorising acquisition of property without a public purpose and without a provision for compensation.
The true inference is that the power to make a law, belonging both to Parliament and State Legislatures, can be exercised subject to the two restrictions not by reason of anything contained in the legislative entries but by reason the positive provisions in article 31(2).
But as legislation falling within article 31A cannot be called in question in a court for non compliance with those provisions in article 31(2) such legislation cannot be struck down as unconstitutional and void.
[13 B E]