judgement:
98 of 1956.
Petition under Article 32 of the Constitution of India for enforcement of fundamental rights.
N. C. Chatterjee and section C. Majumdar, for the petitioner.
P. A. Mehta, R. Ganapathy Iyer and R. H. Dhebar, for the respondents NOS. 1, 2, 3 and 5. 1957.
May 8.
The Judgment of the Court was delivered by GOVINDA MENON, J.
This application under article 32 of the Constitution raises the question of the constitutionality of section 178 A, inserted in the Sea Customs Act, (VIII of 1878), by section 14 of the Amending Act XXI of 1955, and the chief ground on which it is sought to be struck down is that it offends article 14 of the Constitution.
From the affidavits of both the parties to which there are annexures the following facts emerge: The petitioner carries on business as a broker in diamonds and precious stones in Calcutta and, according to him, he enjoys credit and reputation in the market as a well known and respectable broker of such goods.
On May 4, 1955, the Rummaging Inspector (Intelligence), Customs House, Calcutta, Respondent No. 3, armed with a search warrant from the Chief Presidency Magistrate, Calcutta, Respondent No. 4, searched the residential room of the petitioner, situated at No. 32, Sir Hariram Goenka Street, Calcutta, and after a minute search of the steel almirah in which according to the statement of the petitioner, he used to keep his stock in trade and finding none there questioned him as to where he had secreted the diamonds to which the 1112 reply given by him was in the negative.
Thereupon a wall almirah, wherein washed clothes, and other articles were stored, was searched and therein in an old jacket 475 pieces of diamonds were discovered along with one piece of synthetic stone.
A statement signed by him was taken from which we find that his explanation for the possession was that Rs. 10,000/ worth of diamonds were received by him from M/s. Ratilal Amritlal, of 89 Zaveri Bazar, Bombay, and the rest were purchased locally in Calcutta.
He did not remember the names and address of the parties from whom the local purchases were made, nor did he have in his possession any documents covering the purchase.
Thereafter the Rummaging Inspector escorted the petitioner to the Customs House where the Assistant Collector, Customs, asked him to produce evidence showing that the goods were not smuggled goods but were legally imported on payment of duty.
The Assistant Collector then permitted the petitioner to go and gave him time till May 7, 1955, to produce evidence showing that the goods were imported on payment of customs duty and under a valid import licence.
On the same day, i.e., May 4, 1955, a notice was served on the petitioner by the Customs authorities stating that there were reasonable grounds to believe that the goods seized by the Rummaging Inspector had been illegally imported into India and, therefore, before further action was taken under as.
167(8) and 167(39) of the Sea Customs Act, the petitioner should submit by May 7, 1955, any documents which might be in his possession showing that the goods in question were legally imported into India on payment of proper Customs duty and on production of a valid import trade control licence.
It is also stated that if the goods were not imported by the petitioner, but were bought from another party he should submit by the same date any evidence in his possession showing the purchase of the goods.
In answer to this, on behalf of the petitioner ' Messrs. section K. Sawday and Company, a firm of Advocates, Calcutta, wrote to the Assistant Collector, Customs, on May 7, 1955, reciting the circumstances under which the petitioner came to 1113 be in possession of the seized articles alleging that in the circumstances the presumption of an offence having been committed in contravention of section 86 of the Sea Customs Act attracting a punishment under section 167(39) of the Sea Customs Act was unwarranted and requested to be furnished with a statement of the reasons for the seizure as soon as possible.
The letter went on to request for ten days ' time for procuring and producing certificates etc.
from the Bombay trade and Calcutta trade about the authenticity of the petitioner 's business.
and also how he came to be in possession of the goods.
Another letter was written by the same firm of Advocates on May 9, 1955, the details of which it is unnecessary to refer.
On May 16, 1955, a further letter was written enclosing two certificates and containing further particulars.
This also reiterated the request for the supply of specific reasons for the seizure.
On May 23, 1955, the Assistant Collector replied to the Advocates informing them that the diamonds in question were seized on reasonable suspicions that the same had been imported into India illegally and as such were liable to seizure under the Sea Customs Act.
Further correspondence followed by a letter dated June 20, 1955, to which there was a reply on June 25, 1955, wherein there was a detailed reference to everything that had taken place till then and especially with regard to the earlier denial of the petitioner about there being any diamonds with him and the discovery of the same later on in a used jacket in a wall almirah.
This is a comprehensive letter containing the justification for the proceedings taken by the search officers and finally the Assistant Collector observed that if the petitioner failed to submit a written explanation in time or did not appear before him when the case was fixed for hearing, the case would have to be decided on the basis of the evidence on the record without any further notice; On July 1, 1955, Messrs. section K. Sawday & Company wrote a further letter on behalf of the petitioner reiterating their objections and showing why action should not be taken.
This was followed by letters dated July 4 and 20, 1955.
A personal hearing was granted on July 21, 1955, followed by a letter from the Advocates 143 1114 dated July 22, 1955.
It is unnecessary for the present to elaborate the contents of these letters or to refer to the statement enclosed therewith from M/s. Ratilal Amritlal, Bombay.
The Collector of Customs thereupon, after considering the entire matter placed before him, passed an order dated September 12, 1955, which was dispatched on November 5, 1955, containing an elaborate discussion of the various facts and circumstances and finally concluding that since the petitioner had failed to discharge the onus under section 178 A of the Sea Customs Act in respect of the diamonds seized on May 4, 1955, orders had been passed confiscating the same under sections 167 (8) and 167 (39) of the Sea Customs Act and that the confiscation would be absolute in terms of the provisions of sections 3 (2) and 4 of the Imports and Exports (Control) Act, 1947.
The reasons given in the above order were that the subsequent statements were contrary to what had been stated in the first instance, that at the time of the raid, an attempt was made to hide the diamonds in a suspicious manner and lastly that the petitioner was making statements which were in the nature of an afterthought, and not supported by facts.
On account of these and other reasons the Collector was of the opinion that the presumption under section 178 A had not been rebutted.
The order stated that an appeal against it lay to the Central Board of Revenue within three months of the date of the dispatch and also contained information as to the court fee stamps etc., which would have to be affixed.
Without availing himself of that remedy the petitioner has come up to this Court by way of an application for a writ under article 32 of the Constitution.
Though Mr. Chatterjee faintly argued that the provisions of article 19(1)(f) and (g) and article 31 of the Constitution had been violated, he did not seriously press those contentions.
The main point of the attack was centered on the contention that section 178 A was violative of the principles of equal protection of the laws guaranteed under article 14 of the Constitution.
Before we discuss the validity of section 178 A, it would be useful to consider the circumstances which led to 1115 the enactment of that statutory provision and for that purpose a brief outline of the relevant sections of the Act would be necessary.
Section 19 of the , enables the Central Government by notification in the official Gazette to prohibit or restrict importation or exportation of goods into or out of India, and section 20 enumerates the dutiable goods.
When any person imports goods into India, the owner of such goods is required, after the delivery of the manifest by the master of the vessel in which they are imported, to make an entry of the goods for home consumption or warehousing by delivering to the Customs collector a bill of entry containing particulars which shall correspond with the particulars given of the same goods in the manifest of the ship (section 86).
This is intended to give an idea to the Customs collector as to whether what the owner claims is different or the same as what the master of the vessel has intimated by the delivery of the manifest.
On the delivery of such a bill, if any duty is payable on such goods, the same shall be assessed and it is only after payment of the duty so assessed that the owner may proceed to clear the same (section 87).
Clearance of the goods after the payment of such duty is provided in section 89 and if everything has been done according to law, the owner can take away the goods.
Chapter XVI deals with offences and penalties and section 167 of the same Chapter contains three columns in a schedule, the first of which mentions the offence, the ,second, which does not have the force of law, gives the section of the Act to which the offence has reference and the third lays down the penalty which may be imposed.
With regard to the third column a distinction has to be made between the penalty to be imposed by the customs authorities and the. punishment that can be imposed by a court of law for the infringement of certain provisions.
Offences mentioned in entries Nos. 26, 72 and 74 to 76 (both inclusive) have reference to prosecution and conviction before a Magistrate, whereas most of the others concern penalties imposed by the Customs authorities.
This distinction will be important when referring to section 182.
We are in this 1116 case concerned with entries Nos. 8 and 39.
The penalty of confiscation is provided in the third column of entry No. 8, if any goods, the importation or exportation of which is prohibited or restricted, are imported contrary to such prohibition or restriction.
It lays down that in addition to the confiscation of the goods, the persons concerned shall be liable to a penalty not exceeding three times the value of the goods, or not exceeding one thousand rupees.
This Court has held that the minimum is the alternative: see Maqbool Hussain vs The State of Bombay(1).
Entry No. 39 also provides for a penalty not exceeding Rs. 500 and the confiscation of the goods if they are taken or passed out of any custom house or wharf without an entry duly made.
Smuggled goods when traced and seized come under this category.
Though the word 'smuggling ' is not defined in the Act, it must be understood as having the ordinary dictionary meaning namely carrying of goods clandestinely into a country.
Chapter XVII relates to searchers and recovery of smuggled goods, as well as offences, appeals, etc.
Section 169 gives power to any customs officer, duly employed in the prevention of smuggling, to search any person on board of any vessel in any part in (India) or any person who has landed from any vessel, provided that such officer has reason to believe that such person has dutiable or prohibited goods secreted about his person.
A safeguard is provided under section 170 by which any person about to be searched may require the said officer to take him, previous to search, before the nearest Magistrate or Customs collector.
The important factor in this case is that the person making the search or attempting to do it must have a reason to believe that such person has dutiable or prohibited goods.
These two sections refer to the time at which a person brings dutiable goods into India but the later provisions of the Chapter lay down the procedure to be followed where goods have been smuggled without being detected at the port or the wharf.
Power to issue search warrants is given to any Magistrate under section 172 which is to the following effect: (1) ; ,742. 1117 " Any Magistrate may, on application by a Customs collector, stating his belief that dutiable or prohibited goods (or any documents relating to such goods) are secreted in any place within the local limits of the jurisdiction of such Magistrate, issue a warrant to search for such goods (or documents).
Such warrant shall be executed in the same way, and shall have the same effect, as a search warrant issued under the law relating to Criminal Procedure.
" The warrant, as will be noticed, may be issued only on the application of a Customs collector who is a responsible senior officer and that is certainly a safeguard against indiscriminate issue of search warrants.
Section 178 speaks of the seizure of goods liable to confiscation in any place either upon land or water by any officer of customs or any other person duly employed for the prevention of smuggling.
The impugned section 178 A comes next which is quoted below: " 178 A (1): Where any goods to which this section applies are seized under this Act in the reasonable belief that they are smuggled goods, the burden of proving that they are not smuggled goods shall be on the person from whose possession the goods were seized.
(2)This section shall apply to gold, gold manufactures, diamonds and other precious stones, cigarettes and cosmetics and any other goods which the Central Government may, by notification in the Official Gazette, specify in this behalf.
" The presumption under section 178 A is equally applicable to seizure as a result of a search warrant under section 172 or seizure made under section 178.
How the things seized are to be dealt with can be seen from section 179, and section 181 lays down that when a seizure or arrest is made, a statement in writing of the reasons therefor should be given to the person who is arrested or from whom goods are seized.
When an article is seized under sections 172 and 178, except in cases falling under entries Nos. 26, 72 and 74 to 76 of section 167, the confiscation or penalty or duty may be adjudged by the officer mentioned therein, i.e., the person from whom the articles are seized is entitled to an adjudication 1118 regarding either confiscation or penalty or duty.
This gives the valuable right of having the adjudication of the claim made by a superior officer, and despite such adjudication if the confiscation is still made, under section 188 an appeal lies from the subordinate to the Chief Customs authority within three months from the date of such a decision.
In the present case the confiscation was made by the Collector of Customs and an appeal lay from him to the Central Board of Revenue.
Section 191 enables the Central Government on the application of any person aggrieved by any decision or order passed under this Act by an officer of Customs or Chief Customs authority and from which no appeal lies, to reverse or modify such decision or order.
The outline of the various provisions above made shows that successive remedies are provided to an aggrieved person from whom articles have been seized and confiscated and the Act is a complete Code in itself affording redress and relief in case of illegal or unjustified orders.
The genesis of section 178 A may now be considered.
The Central Government had appointed a commission known as the Taxation Enquiry Commission which by its report recommended the adoption of the principles underlying section 178 A in order to minimize smuggling.
In Vol.
II of their report, Chapter VII deals with administrative problems in regard to customs and Excise duties.
At pp.
320 and 321 the Committee recommends the amendment of the , firstly to make smuggling a criminal offence and secondly empowering Customs officers to search premises etc.
and the third recommendation is the one with which we are concerned.
It is in the following terms: "To transfer the onus of proof in respect of offences relating to smuggling to the person in whose possession any dutiable, restricted or prohibited goods are found.
" It is to implement this recommendation that section 178 A has been enacted.
Section 178 A applies to diamonds and other precious stones and there has been no dispute about 1119 the application of this provision to the present case.
On the facts mentioned above it is clear that the seizure has been under the Act in the reasonable belief of the Customs authorities that they are smuggled goods and, therefore, the burden of proving that they are not smuggled goods has been cast by this section on the persons from whose possession the goods are seized.
No doubt the content and import of the section are very wide.
It applies not only to the actual smuggler from whose possession the goods are seized but also to those who came into possession of the goods after having purchased the same after the same has passed through many hands or agencies.
For example, if the Customs authorities have a reasonable belief that certain goods in the possession of an innocent party are smuggled goods and the same is seized under the provisions of this Act, then the person from whose possession the goods were seized, however innocent he may be, has to prove that the goods are not smuggled articles.
This is no doubt a very heavy and onerous duty cast on an innocent possessor who, for aught one knows, may have bona fide paid adequate consideration for the purchase of the articles without knowing that the same has been smuggled.
The only pre requisite for the application of the section is the subjectivity of the Customs officer in having a reasonable belief that the goods are smuggled.
A careful examination of the contents of the somewhat lengthy petition under article 32 of the Constitution does not show how the impugned section offends article 14, and no distinct and separate ground is taken about its unconstitutionality, but Mr. Chatterjee argues that the burden of proof enunciated therein is opposed to fundamental principles of natural justice, as it gives an unrestricted arbitrary and naked power to the customs authorities without laying down any standard or norm to be followed for exercising powers under the section.
What is urged is that whereas under the ordinary law the burden of proof in matters like this is on the party who sets up a particular case, under the section that process is inverted and the 1120 burden is cast on the possessor of the article to show that it was imported into India with a proper bill of entry and after paying the proper custom duty due.
As stated already, it is a heavy burden to be laid upon the shoulders of an innocent purchaser who might have come into possession after the article has changed many hands and this, it is alleged, invokes discrimination between him and other litigants and deprives him of the equal protection of the law guaranteed by article 14 of the Constitution.
A large number of cases have been cited at the Bar in support of the respective contentions of the parties.
The true nature, scope and effect of article 14 of the Constitution have been explained by different constitutional Benches of this Court in a number of cases, namely, Chiranjit Lal Chowdhury vs The Union of India and Others(1), The State of Bombay and Another vs F. N. Balsara(2), The State of West Bengal vs Anwar Ali Sarkar(3), Kathi Raning Rawat vs The State of Saurashtra(4), Lachmandas Kewalram Ahua and another vs The State of Bombay (5), Syed Qasim Razvi vs The State of Hyderabad and Others(6) , Habeeb Mohammad vs The State of Hyderabad(6) and V. M.
Syed Mohammed and Company vs The State of Andhra(7), but it will not be necessary for us to enter upon a lengthy discussion of the matter or to refer to passages in those judgments, for the principles underlying the provisions of the Article have been summarised by a Full Bench of this Court in Budhan Chaudhury and Others vs The State of Bihar(9) in the following terms: "It is now well established that while article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation.
In order, however, to pass the test of per omissible classification two conditions must be fulfilled, namely (1) that the classification must be founded on an intelligible differential which distinguishes persons or things that (1) ; , (2) ; (3) ; (4) ; (5) ; (6) (7) ; (8) ; (9) ; at p. 1048 1049.
1121 are grouped together from others left out of the group and (ii) that that differentia must have a rational relation to the object sought to be achieved by the statute in question.
The classification may be founded on different bases, namely, geographical or according to objects or occupations or the like.
What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration.
It is also well established by the decisions of this Court that article 14 condemns discrimination not only by a substantive law but also by a law of procedure.
" The principle thus enunciated has been adopted and applied by this Court in Purshottam Govindji Halai vs Shri B. M. Desai (1) and in A. Thangal Kunju Musaliar vs M. Venkitachalam Potti and another (2).
Mr. N. C. Chatterjee appearing for the petitioner has referred us to several decisions of the Supreme Court of America, such as William N. McFerland vs American Sugar Refining Co. (3), W. D. Manley vs State of Georgia (4) and Tot vs United States(5).
It appears to us that these decisions really turn upon the due process clause of the American Federal Constitution and cannot help in the construction of the equal protection clause of our Constitution.
The contentions urged by Mr. Chatterjee as to the unconstitutionality of section 178 A of the , will, therefore, have to be tested in the light of the principles laid down by this Court in Budhan Chowdhury 's case (supra).
A cursory perusal of section 178 A will at once disclose the well defined classification of goods based on an intelligible differentia.
It applies only to certain goods described in sub section
(2) which are or can be easily smuggled.
The, section applies only to those goods of the specified kind which have been seized under the Act and in the reasonable belief that they are (1) , 898 899.
(2) [1955] 2 S C.R. 1996, 1229.
(3) ; ; (4) (1929) 279 U.S.I; ; (5) ; 144 1122 smuggled goods.
It is only those goods which answer the threefold description that come under the operation of the section.
The object of the Act is to prevent smuggling.
The differentia on the basis.
of which the goods have been classified and the presumption raised by the section obviously have a rational relation to the object sought to be achieved by the Act.
The presumption only attaches to goods of the description mentioned in the section and it directly furthers the object of the Act, namely, the prevention of smuggling, and that being the position the impugned section is clearly within the principle enunciated above, not hit by article 14.
The impugned section cannot be struck down on the infirmity either of discrimination or illegal classification.
Confining as it does to certain classes of goods seized by the customs authorities on the reasonable belief that they are smuggled goods, there is only a presumption which can be rebutted.
In these circumstances, there can be no doubt whatever that section 178 A does not offend article 14 of the Constitution and this petition is, therefore, to be dismissed with costs.
Petition dismissed.

summary/full:
Section 178 A of the Sea Customs Act which places the burden of proving that any of the goods mentioned in the section and reasonably believed to be smuggled are not really so on the person from whose possession they are seized, is not discriminative in character and does not violate equal protection of law guaranteed by article 14 Of the Constitution.
Budhan Chaudhury and Others vs The State of Bihar, (1955) I S.C.R. 1045, applied.
Purshottam Govindji Halai vs Shri B. M. Desai, and A. Thangal Kunju, Musaliar vs M. Venkitachalam Potti and another (1955) 2 S.C.R. ii96, referred to.
1111 William N. McFeyland vs American Sugar Refining Co., ; , W. D. Manley vs State of Georgia, (1929) 279 U.S. I and Tot vs United States, , held inapplicable.
Consequently, in a case where the Collector of Customs on the failure of a person, from whose possession certain diamond pieces were seized, to prove that they were not smuggled goods but were legally imported into India, confiscated the diamonds under sections 167(8) and 167(39) Of the Sea Customs Act, no violation of the fundamental right conferred by article 14, Of the Constitution occurred.


judgement:
Appeal Nos.
1769 to 1771 of 1967.
Appeals from the judgment and order dated December 17, 1963 of the Mysore High Court in I.T.R.C. Nos.
6 of 1959 and 3 of 1960.
C.K. Daphtary, Attorney General, V.A. Seyid Muhammad, R.N. Sachthey and B.D. Sharma, for the appellant (in all the appeals ).
S.T. Desai, Bhuvanesh Kumari and Ravinder Narain, for the respondent (in all the appeals).
The Judgment of the Court was delivered by Grover, J.
These appeals are by certificate from the common judgment of the Mysore High Court on the following questions of law which were referred by the Income tax Appellate Tribunal under section 66(1) of the Income tax Act, 1922, hereinafter called the Act. "( 1 ) Whether, on the facts and circumstances of the case, the income of the assessee did not arise in Bangalore (Mysore State) in respect of sales effected by the assessee to the Burma Teak Trading Co., Ltd., Colombo ? (2) If the answer to.
the above question is in favour of the assessee, then whether, on the facts and circumstances of the case, the assessee is entitled to the concession under Part B States (Taxation Concessions) Order, 1950 ? and (3 ) Whether, on the facts and circumstances of the case, the apportionment of profits of business is called for pursuant to assessee 's trading activities in Bangalore (Mysore State) ?" The assessee is a firm carrying on business in Bangalore in Mysore State.
It was appointed as the sole selling agent for Ceylon except Jaffina Peninsula and the town of Trincomalee for the purpose of marketing, selling or distributing Lotus Brand tiles and ridges manufactured by M/s. Modern Tile & Clay Works of Feroke.
According to.
an agreement dated August 10, 1949 between the parties all prices quoted by the manufacturer were to Be F.O.B. Beypore Fort and for loading into country crafts; the right to charter or engage vessels was to be with the agents.
Beypore is in the taxable territory as also Feroke where the tiles manufacturers carried on their business.
One of the employees 57 of the assessee stayed at Calicut during the season to supervise the operation of delivery of articles and to.
engage vessels.
The bills of lading were obtained by the assessee 's representative at Beypore and sent to Bangalore where the hundis together with the invoices and shipping documents were handed over by the assessee to the Indian Overseas Bank Ltd., Bangalore.
Pursuant to the letter of credit opened by the Burma Teak Trading Co. Ltd., Colombo, which was the purchaser, payments were made by the aforesaid bank to the assessee.
It is unnecessary to state the details about the profits which the assessee made during the relevant assessment years 1951 52, 1952 53 & 1953 54.
The assessee claimed that since its registered office was in Bangalore and as the agency agreement with the purchaser at Colombo was entered into in Bangalore the entire income should be treated as income accruing or arising in Part B State and concession regarding rates and allowances as provided in Part B States (Taxation Concessions) Order, 1950, hereinafter called the "Order", should be allowed to it.
The income tax authorities as also the Appellate Tribunal decided against the assessee.
It was held that hardly any activity took place at Bangalore in the matter of earning the profits from the transactions in question.
The High Court was of the view that since the profits were received in Part B State, namely, Bangalore, it could not be said that the entire profit accrued or arose within the meaning of cl.
(a) of sub section
(1) of 'section 4 of the Act in the taxable territories other than Part B State.
After referring to section 42(3) of the Act and certain decisions of this Court it was observed that the business operations which produced profits were carried out at three different places i.e., Bangalore, Feroke and Ceylon.
Therefore the portion of these profits must be held to have accrued in all these places.
The only profits which could be deemed to have accrued in the taxable territories other than Part B State were those that could be said to have accrued at Feroke.
The profits that could be attributed to the business operations at Bangalore could not be deemed to have accrued in the taxable territories other than the Part B State nor could it be said that the profits that had accrued at Ceylon could be deemed to have accrued in the taxable territories other than Part B State.
The answers which were 'returned to the questions were as follows: "(1) The profits of the assessee in respect of sales effected by it to Burma Teak Trading Co., Colombo did not entirely arise in Bangalore (then a Part B State), it arose in Bangalore, Feroke and.
Ceylon.
(2) The assessee was entitled to the concession under the Order in respect of the profits that could be Sup.
CI/69 5 58 attributed towards business operations conducted in Bangalore and Ceylon. ' (4) Apportionment of profits of business was called for pursuant to the assessee 's trading profits.
The sole point which has been raised before us by the learned Attorney General who appears for the appellant is that hardly any activity took place of such a nature as could be said to give rise to accrual of profits in Bangalore.
It is pointed out that admittedly the manufacturing concern from where the tiles had to be sent to Colombo was in Feroke in British India and that the goods were also delivered F.O.R., Beypore which was in British India.
The assessee 's agent resided in British India and supervised all the operations there.
Our attention has been invited to the findings of the tribunal which inter alia were that the assessee purchased the goods at places outside Bangalore and the sales were also effected in Ceylon; the assessee continued to retain its title to the goods till they were delivered to the Ceylonese buyers on theft accepting the documents and bills of exchange forwarded through the Bank in that country.
The sale operations were carried out in Ceylon and the profits attributable to those transactions accrued and arose only in Ceylon which was outside the taxable territories.
The essential question, according to the learned Attorney General is, whether any part 0 income accrued or arose at Bangalore.
According to the learned counsel for the respondent it was clear that the profits accrued at Bangalore where the assessee 's registered office was situate and where the contracts were entered into by the assessee for the sale and purchase of the goods and where moneys were received.
At any rate the profit producing operations could not be said to have been confined only to places in the taxable territories because without the contracts no further steps could be taken in carrying out the transactions and the contracts indisputably were entered into at Bangalore.
It is urged that the assessee 's business activity came within the scope and ambit of paragraph 4(1) (iii) of the Order and therefore it was entitled to the concessions provided in paragraphs 6, 6A and 7 of that Order.
Section 42(3) of the Act lays.
down that when profits accrue or arise from a business all the operations of which are not carried out within the taxable territories those profits must be deemed to have accrued or arisen in several places where the business operations were carried out and the total profits earned will have to be apportioned on reasonable basis amongst the several operations and tax should be levied only on that portion of the profits which are deemed to have accrued or arisen within the taxable territories.
If it be held, as indeed it must be held, that the making of contracts pursuant to which all the subsequent activity in respect 59 of the execution of those contracts took place resulting in profits to the assessee, is an integral part of the entire selling operations, there can be no escape from the conclusion at which the High Court arrived.
The appeals consequently fail and they are dismissed with costs.
(one hearing fee).
Y.P. Appeals dismissed.

dataset_name: IN-Abs

summary/full:
The assessee firm carried on business at Bangalore in the State of Mysore, which at the relevant time was a Part B State.
It was appointed as the sole selling agent for certain areas in Ceylon in respect of tiles and ridges manufactured by the principal at Feroke in British India.
According to the agreement between the parties all prices quoted by the manufacturer were to be F.O.B. Beypore Port situated in taxable territory.
Chartering and loading of vessels was done by one of the employees stationed at Calicut.
The bills of lading were obtained by the assessee 's representative at Beypore and sent to Bangalore when the hundis together with the invoices and shipping documents were handed over by the assessee to a bank at Bangalore.
Pursuant to the letter of credit opened ' by the purchaser in Ceylon, payments were made by the aforesaid bank to the assessee.
In income tax proceedings for the assessment years 1951 52, 1952 53, and 1953 54 the assessee claimed that since its registered office was in Bangalore and as the agency agreement with the purchaser at Colombo was entered into in Bangalore the entire come should be treated as income accruing or 'arising in Part B State and concession regarding rates and allowances as provided in Part States (Taxation Concessions) Order, 1950 should be allowed to it.
The income tax authorities and the Tribunal decided against the assessee.
The High Court however held that since the profits were received in Part State at Bangalore, it could not be said that the entire profit accrued or arose within the meaning of el.
(a) of sub section
(1) of section 4 of the Income tax Act, 1922 in the taxable territories other than Part B State.
According to the High Court the profits arose at Bangalore, Feroke, and Ceylon, of which only Feroke was in the taxable territories, and therefore, the assessee was entitled to the concession under the order in respect of the profits that could be apportioned under section 42(3) of the Act to the business operations conducted in Bangalore and Ceylon.
The Revenue appealed to this Court contending that hardly any activity took place of such a nature as could be said to give rise to accrual of profits at Bangalore.
HELD: The conclusion which the High Court arrived at must be upheld.
The making of contracts pursuant to which all the subsequent activity in respect of the execution of those.
contracts took place resulting in profits to the assessee was an integral part of the entire selling operations.
The contracts in the present case having been entered into at Bangalore it could not be said that no part of the business activity which produced the profits took place there.
[53 H] 56


judgement:
Appeals Nos.
651 to.
655 of 1967.
Appeals from the judgment and order dated March 2, 1966 of the Bombay High Court in Income tax Reference No,.
73 of 1962.
S.T. Desai, D. Dwarkadas and S.S. Javali, for the appellant.
C.K. Daphtary, Attorney General, R. Gopalakrishnan, R.N. Sachthey and B.D. Sharma for the respondent in all the appeals.
The Judgment of the Court was delivered by Ramaswami, J.
These appeals are brought by certificate from the judgment of the Bombay High Court dated March 2, 1966 in Income Tax Reference No. 73 of 1962.
The appellant company, hereinafter called the assessee company, was incorporated on July 29, 1924, as an investment company, the objects of which are set out in el.
III of the memorandum of association and more particularly in sub cls. 1, 2, 15 and 16 of that clause.
The assessment years in question are 1943 44 to 1948 49, excepting the year 1947 48.
According to its petition made in the High Court, the assessee company dealt with its assets as follows: "The petitioner company purchased during the period 1st July, 1925 to 30th June, 1928, shares of the value of Rs. 1,86,47,789 major portion of which was comprised of shares in the Sassoon Group of Mills.
During the year ended 30th June, 1929, the petitioner company promoted two companies known as Loyal Mills Ltd., and Hamilton Studios Ltd. and took over all their shares of the value of Rs. 101/2 lacs.
In the year 1930, the petitioner company purchased shares of Rs. 1,33,930.
During the period of 9 years from Ist July, 1930, to 30th July, 1939, no purchases. were made with the exception of a few shares of Loyal Mills Ltd. taken over from the staff of E.D. Sassoon & Co. Ltd., who retired from service.
In the year ended 30th June, 1940, reconstruction scheme of the Appollo Mills Ltd. 48 took place under which debentures held by the petitioner company in the Appollo.
Mills Ltd., were redeemed and the proceeds were .reinvested in the new issue of shares made by the Appollo Mills Ltd. Out of the purchases of the value of Rs. 2,794 made by the petitioner company during the year ended 30th June, 1941, Rs. 2,000 was the value of shares of the Loyal Mills.
Ltd., taken over from the retiring staff.
In the year ended 30th June, 1943, the petitioner company took over from the David Mills Co. Ltd., shares of the Associated Building Co., of the value of Rs. 56,700.
After this there were no purchases at all to this date excepting purchases.
of the value of Rs. 34,954 during the year ended 30th June, 1946.
" The sales are contained in paragraph 3(b) which states: "In relation to the purchases made by the petitioner company as stated above no appreciable sales of shares were made during the period 29th July, 1924 to 30th June, 1942, the sales made in the year ended 30th June, 1929, of the value of Rs. 1,29,333 included shares of the value of Rs. 45,000 in the Loyal Mills Ltd., sold to the members of the staff and shares of the value of Rs. 83,833 representing sterling investments handed over to the creditors of the petitioner company in part repayment of the loan taken from them in the year ended 30th June, 1931, shares of the value of Rs. 7,48,356 were handed over to the creditors in payment of the loan granted ' by them.
From the year ended 30th June, 1943, E.D. Sassoon & Co. Ltd., started relinquishing the managing agencies of the various mills under their agency and the shares held by the petitioner company in the Sassoon Group of Mills were handed over to the respective purchasers.
of the mills agencies.
" Prior to 1940 the assessee company made a claim every year being treated as a dealer in investments and properties but this contention was repelled by the Income Tax authorities and upto the assessment year 1939 40 the assessee company was assessed on the basis of being an investor but it appears that for the assessment years 1940 41, 1941 42 and 1942 43 the Income Tax department accepted the plea of the assessee company and treated it as a dealer in shares, securities and immovable properties and assessed it on that basis.
For these years and for the assessment year 1943 44 the assessee company made its return in that basis.
But after the return had been filed for the year 1943 44, the assessee company withdrew its return and filed a revised return on March 7, 1944, contending that it was not a 49 dealer but merely an investor.
Along with the return it filed a letter dated March 6, 1944 in which it stated: "The return of Total Income which was submitted with the Company 's letter of 25th May 1943 was prepared in conformity with the ruling of the Income tax Officer in the 1940 41 assessment that the company was to be assessed as a dealer in Investments.
Since that return was submitted the Central Board of Revenue has decided that the Company is an Investment Holding Company, and accordingly an amended Return of Total Income under Section 22( 1 ) of the Indian Income tax Act is submitted herewith on which the assessment for 1943 44 may be based, as on this particular question the company obviously cannot have one status for Excess Profits Tax and another for Income taX." It was contended by the assessee company that it never carried on any business in the purchase or sale of shares, securities or properties In support of this contention the assessee company relied on the order of the Central Board of Revenue dated August 18, 1943 passed under section 26(1) of the Excess Profits Tax Act.
The Income.
Tax Officer rejected the plea and held that the investments were held by the assessee company as the stock intrade of its business which it carried on during the previous year and also in the preceding years.
The assessee company took the matter in appeal to the Appellate Assistant Commissioner who dismissed the appeal and upheld the order of the Income Tax Officer.
The assessee thereafter appealed to the Income Tax Appellate Tribunal and the same contentions were urged on behalf of the assessee company.
The Appellate Tribunal rejected the assessee 's claim that it was showing itself as a dealer in shares, securities and immovable properties under a misapprehension and without appreciation of the correct facts.
The Appellate Tribunal held that in the case of the assessee company not only the Memorandum of Association gave the power to the company to deal in investments but the case of the company all along in the past was that it was a dealer in investments and properties.
Consequently, the Tribunal held that the assessee company was a dealer in shares, securities and properties and dismissed the appeals.
Thus the grounds on which the case was decided against the assessee company were (1) that the assessee claimed to.
be a dealer or an investor according as it incurred losses or made profits and (2) that because of the objects contained in the memorandum of association and because of its assertion made in the past as being a dealer the assessee company could not be held to be an investor.
The assessee company then applied to the Appellate Tribunal under section 66(1) of the Income Tax Act, 1922, 50 hereinafter called the 'Act ' for a reference of the following questions of law for the opinion of the High Court: "(i) Whether on the facts and in the circumstances of the case the assessee company can rightly be treated as a dealer in investments and properties; and (ii) Whether the profits and losses arising from the sale of shares, securities and immovable properties of the assessee company can be taxed as business profits.
" The application was rejected by the Appellate Tribunal on the ground that no question of law arose out of its order.
The assessee company then made an application under section 66(2) of the Act to the Bombay High Court which dismissed the application by its order dated June 15, 1952.
The assessee company thereupon obtained special leave to appeal to this Court.
The appeal was allowed by this Court by its judgment dated May 22, 1957 and the order of the Bombay High Court dated June 15, 1952 was set aside.
It was pointed out by this Court that the Appellate Tribunal in arriving at its finding that the assessee was a dealer and not an investor, had relied on two basic facts, viz., the objects set out in the Memorandum of Association and the previous assertion made by the assessee company that it was a dealer in investments and properties and not merely an investor.
It was observed that merely because the company had within its objects the dealings.
in investments, shares and properties the circumstance did not give it the characteristics of a dealer in shares.
The circumstance, though relevant, was not conclusive.
It was pointed out in the judgment of this Court that the question as to.
what were the characteristics of the business of dealing in shares or that of an investor was a mixed question of fact and law and what was the legal effect of the facts found by the Appellate Tribunal.
and whether as a result thereof the assessee could be termed a dealer or an investor was itself a question of law.
Accordingly the Court formulated the following two .questions of law as arising out of the order of the Tribunal: "( 1 ) Whether there are any materials on the record to support the finding of the Income Tax Officer that the assessee company was a dealer in shares, securities and immovable property during the assessment year in question? (2) Whether the profits and losses arising from the sale of shares, securities and immovable properties of the assessee company can be taxed as business profits. ?" The case was therefore remanded to the High Court for directing the Appellate Tribunal to state a case on the aforesaid questions of law under section 66(2) of the Act.
In accordance with the direc 51 tion of this Court the Appellate Tribunal made a statement of the case on June 12/13, 1962.
The reference being Income tax Reference No. 73 of 1962 was heard by the High Court which by its judgment dated March 2, 1966 answered both the questions.
against the assessee company and in favour of the Commissioner of Income Tax.
On behalf of the assessee company Mr. S.T. Desai argued that the question whether the assessee company was a dealer dealing in investments and properties or whether it was a mere investor will have to be judged on a proper scrutiny of the transactions themselves considered in the light of the Circumstances in which the transactions 'both of purchase and sale had .been brought about.
If it is found on an examination of the transactions themselves that the essential characteristics of the business of the assessee were of dealing in shares and investments, the assessee will undoubtedly be taken as a dealer.
If, on the other hand, the characteristics revealed by the transactions are those ' peculiar to mere investments in shares, securities and properties, the finding of the Court must be that the assessee is an investor and the profits made by it are only excess obtained on realisations of the investments and not liable to be taxed.
According to Mr. S.T. Desai, neither the Memorandum of Association nor the previous assertions made by the assessee company either under a misconception or even deliberately will not have the effect of changing the legal nature of the transactions as revealed by the transactions themselves and the circumstances in which the transactions have taken place.
In support of this argument reference was made on behalf of the appellant to the statements of the transactions, Annexures 'E ' and 'F ' of the statement of the case and detailed explanations, statements M 1 and M 2.
The substance of the argument of the appellant was that (1 ) most of the shares, securities and properties acquired by the assessee company were the properties of E.D. Sassoon & Co. and the family of Sassoons; (2) a large block of shares held by the company consisted of the shares of the Sassoon Group of Mills and the ' block was held all along since its acquisition before the year 1930 until E.D. Sassoon and Co. and the Sassoons continued to be interested in the said Group of Mills and they were realised by sale only when E.D. Sassoon & Co. and the Sassoons decided to relinquish their interest in the said Group of Mills, and (3) neither the mode of acquisition of these shares.
and properties nor the mode and manner of their disposal have any of the distinctive characteristics of business dealings.
On the questions actually formulated by this Court upon which the Appellate Tribunal has made a statement of the case it is not possible for us to entertain the argument advanced by Mr. S.T. Desai.
It was contended on the contrary by the Attorney General 52 that upon the questions actually referred, the answers must be against the asses.see company.
It was said that there were at least two materials on record to support the finding of the Appellate Tribunal that the assessee company was a dealer in shares, securities and immovable properties during the assessment year in question.
The first is that in its own memorandum dated October 2, 1942, the assessee company contended ' that it was a dealer in shares and investments and set out various reasons in support of its contention.
The second circumstance is that el. 3 of the Memorandum of Association gave the power to the assessee company to deal with investments.
The contention of the Attorney General was that there was material on the record to support the finding of the Appellate Tribunal that the assessee company was a dealer in shares, securities and immovable properties and the questions, as already framed, were rightly answered by the High Court in the affirmative and against the assessee company.
In answer to this contention Mr. S.T. Desai submitted that the real controversy in this case is not reflected in the two questions framed by this Court in its judgment dated May 22, 1957.
It was argued that the two questions up.on which the assessee company applied for a reference under section 66(1) of the Act were properly framed and were questions arising out of the order of the Appellate Tribunal.
Mr. S.T. Desai urged that we should modify the questions in a manner suggested by the assessee company in the application under section 66(1) of the Act and ask the Appellate Tribunal to make a fresh statement of the case.
In our opinion, the argument put forward on behalf of the appellant is well rounded and as we shall presently point out, it is necessary in the interest of justice that we should modify the questions framed by this Court on the last occasion and call upon the Appellate Tribunal to make a fresh statement of the case.
There is no doubt that the jurisdiction conferred on the High Court by section 66(1) of the Act is limited to entertain references involving questions of law.
If, fo.r instance, the point raised on reference relates to the construction of a document of title or interpretation of relevant provisions of a statute, it is a pure question of law.
In dealing with it, the High Court may have due regard for the view taken by the Tribunal, but its decision would not be lettered by that view.
In some cases, the point sought to be raised in a reference may turn out to be a pure question of fact and if that be so, the finding of fact recorded by the Appellate 'Tribunal must be regarded as conclusive in a proceeding under 'section 66(1).
But it would be open to challenge the conclusion of fact drawn by the Appellate Tribunal on the ground that it is not supported by any legal evidence or material or that the conclusion of fact drawn by the Appellate Tribunal 'is perverse and is not ration,ally possible.
It is within these narrow limits that the 53 conclusions of fact by the Appellate Tribunal can be challenged under section 66(1).
Such conclusions can never be challenged on the ground that they are based on misappreciation of evidence.
There is, however, a third class of cases in which the assessee or the department may seek to challenge the correctness of the conclusion reached by the Tribunal on the ground that it is a conclusion on a question of mixed ' law and fact.
Such a conclusion is no doubt based upon the primary evidentiary facts, but its ultimate form is determined by the application of relevant legal principles.
To put it differently, the proper construction of statutory language is always a matter of law and therefore the claim of the assessee that the profits and losses arising from the sale of shares, securities etc.
cannot be taxed as profits of a business involves the application of law to the facts found in the setting of the particular case.
In dealing with findings on such questions of mixed law and fact the High Court must no doubt accept the findings of the Tribunal on the primary questions of fact; but it is open to the High Court to examine whether the Tribunal had applied the relevant legal principles correctly or not in reaching, its final conclusion; and in that sense, the scope of enquiry and the extent of the jurisdiction of the High Court in dealing with such points is the same as in dealing with pure points of law.
(See the decision of this Court in G. Venkataswami Naidu & Co. v.C.I.T.(1)).
On the last occasion it was pointed out by this Court that the question as to what are the characteristics of the business in shares or that of an investor is a mixed question of fact and law.
To put it differently, the question as to what is the legal effect of the facts found by the Tribunal and whether as a result the assessee can be treated as a dealer or an investor is itself a question of law.
The final conclusion of the Tribunal can, therefore, be challenged on the ground that the relevant legal principles have been mis applied by the Tribunal in reaching its decision on the point; and such a challenge is open under section 66( 1 ) because it is a challenge on a ground of law.
It is because the question involved in this case was not a question of pure fact but was a mixed question of fact and law that this Court allowed the appeal on the last occasion and set aside the judgment of the Bombay High Court dated June 15, 1952 and directed the Appellate Tribunal to state a case, but owing possibly to some mistake or inadvertence the actual questions framed by this Court (quoted at page 676 of 32 I.T.R.) and the form in which the questions were framed by this Court seem to assume that the questions involved are questions of fact.
The reason is that it is only in regard to a finding of fact that the question can be properly framed "as to whether there was material to support the said finding".
We are accordingly of the opinion that the questions actually framed by this Court on the last occasion are not appropriate and (1) 54 do not reflect the real controversy between the parties.
It is therefore, expedient in the interest of justice that the questions should be modified as suggested by the assessee company in its .petition under section 66( 1 ) of the Act to the High Court and the Appellate Tribunal should be asked to make a fresh statement of the case.
For these reasons we allow these appeals and set aside the judgment of the Bombay High Court dated March 2, 1966 and direct the Appellate Tribunal to make a fresh statement of the case on the following questions of law: "( 1 ) Whether on the facts and in the circumstances of the case the assessee company can rightly be treated as a dealer in investments and properties; and (2) whether the profits and losses arising from the sale of shares, securities and immovable properties of the assessee company can be taxed as business profits." After the Appellate Tribunal has made a statement of the case the High Court will dispose of the reference in accordance with law.
The appellant must pay the costs of this appeal in this Court to the respondent.
We should like to add that we have not considered whether the High Court has in its judgment reached the correct conclusion on what the High Court assumed were 'the questions to be decided by it.
We are setting aside the judgment of the High Court only on the ground that the enquiry made by the High Court was, .on the view taken by us, not competent on the questions as framed at present.
We therefore express no opinion on the merits of the dispute.
We trust that the Tribunal will make the fresh reference with the least practicable delay.
G.C. Appeals allowed.

summary/full:
For the assessment years 1940 41 to 1943 44 the assessee company claimed to be an investor in shares and properties and not a dealer.
The contention was rejected by the Income tax Officer, the Appellate Assistant Commissioner and the Tribunal.
The company then applied to the Tribunal under section 66(1) of the Income tax Act, 1922 for a reference of the following questions of law for the opinion of the High Court: (i) whether on the facts and in the circumstances of the case the assessee company can rightly be treated as a dealer in investments and properties ? (ii) whether the profits and losses arising from the sale of shares, securities and immovable properties of the assessee company can be taxed as business profits.
The Tribunal refused to make the reference and the High Court dismissed the application under section 66(2).
On appeal by special leave this Court held that the question as to what were the characteristics of the business of dealing in shares or that of an investor was a mixed question of law and fact.
It remanded the case to the High Court for directing the Tribunal to state a case under section 66(2) on the following questions: (i) whether there are any materials on the record to support the finding of the Income tax Officer that the assessee company was a dealer in shares.
, securities and immovable property during the assessment year in question (ii) whether the profits and losses arising from the sale of shares, securities and immovable properties of the assessee company can be treated as business property ? On these questions being referred to the High Court by the Tribunal, the High Court decided them against the assessee company.
The company again appealed to this Court.
It was contended on behalf of the appellant that the questions as framed by this.
Court did not reflect the real controversy 'and therefore the questions as originally framed in the company 's application under section 66(1) should be referred to the High Court in a fresh statement of case to be made by the Tribunal.
HELD: (i) The questions framed by this Court and the form in which they were framed seemed to assume that the questions involved were questions of fact for it is only in regard to a question of fact that the question can properly be framed "as to whether there was material to support the said finding".
This Court had itself held that the questions involved in the present case were mixed questions of law and fact.
Therefore the questions framed by this Court were not appropriate and did not reflect the real controversy between the parties.
It was therefore appropriate that the questions should be modified as suggested by the appellant in its petition under section 66(1) to the High Court.
[53 G 54 B] (ii) The proper construction of statutory language is always a matter of law and therefore the claim of the assessee that the profits and losses arising from the sale of shares securities etc.
cannot be treated as profits 47 of a business involves the application of law to the facts found in the setting of the particular case.
In dealing with findings on such questions of law and fact the High Court must No. doubt accept the findings of the.
Tribunal on the primary questions of fact; but it is open to the High Court to examine whether the Tribunal had 'applied the relevant legal principles correctly or not in reaching its final conclusion; and in that sense, the scope of enquiry and the extent of the jurisdiction of the High Court in dealing with such points is the same as in dealing with pure questions of law.
[53 B D] G. Venkataswami Naidu & Co. vs
C.I.T., , relied on.


judgement:
Appeal No. 972 of 1967.
Appeal from the judgment and order.
dated December 14, 15, 1964 of the Gujarat High Court in Special Civil Application No. 54 of 1964.
D. Narsaraju, S.K. Aiyar, S.P. Nayar and, B.D. Sharma, for the appellants.
S.T. Desai, M.C. Bhandare and K. Rajendra Chaudhuri, for the respondent.
The Judgment of the Court was delivered by Ramaswami, J.
This appeal is brought by certificate against the judgment of the Gujarat High Court dated 14th/15th December 1964 in Special Civil Application No. 54 of 1964 whereby a writ of mandamus was issued to.
quash the notices issued under sections 147, 148 and 142(1) of the Income Tax Act, 1961 against the respondent.
The respondent was assessed by the, Income Tax Officer, Ward E, Circle 11, Ahmedabad for the assessment year 1947 48 by an assessment order dated 31 1 1952.
The Income Tax Officer thereafter received 'information that a certain profit made by the assessee in the name of Natwarlal Mardial Pandit who was a benamidar of the respondent had escaped assessment by reason of the respondent not having disclosed it at the time of the original assessment.
The Income Tax Officer, therefore, after obtaining the approval of the Commissioner of Income Tax issued a notice dated 27th March, 1956 under section 34(1)(a) of the Income Tax Act, 1922 (hereinafter referred to as the old Act).
The notice could not be served personally, and, therefore, was served by affixing on a conspicuous part of the respondents.
The respondent objected to the service of the notice and did not file a return stating that there had been no valid service.
When the Income Tax Officer threatened to proceed ex parte, a return was filed under protest on 16 1 19 '57 and in that return the respondent showed the same amount of income which was determined in the original assessment.
Despite the objection.
of the respondent that there was no proper service of notice under section 34( 1 ) (a), the Income Tax Officer proceeded to assess the income of the respondent for the assessment year 1947 48 and made an order 716 dated 29th March, 1957 determining the total income of the respondent at Rs. 89,000 by including the profit alleged to have been earned by Natwarlal Manilal Pandit.
The respondent preferred an appeal to the Appellate Assistant Commissioner who allowed the appeal and set aside the order of assessment on the ground that there was no valid service of the notice.
The ' decision of the Appellate Assistant Commissioner was given on 5 1 1963 by which time the Income Tax Act, 1922 had been repealed and the Income Tax Act, 1961 (hereinafter called the New Act) had come into force with effect from 1st April, 1962.
The time for taking action for assessment or reassessment in case of escaped income exceeding Rs. 50,000 but less than Rs. ,1,00,000/ was enlarged from 8 years to 16 years under the new Act.
On 4 1 1963 the Income Tax Officer, Circle IV, Ward G, Ahmedabad issued a notice calling upon the respondent to show cause why proceedings should not be taken under section 147(a) of the new Act for bringing to tax the escaped profit of the respondent.
The respondent protested against the new notice on the ground that action under the old Act had become time barred and the new Act had no application to his case.
Subsequently, a notice under section 148 of the new Act was issued on 13 11 1963 and this notice was followed by another notice dated 9 1 1964 issued under section 142(1).
The respondent, therefore, preferred Special Civil Application No. 54 of 1964 in the Gujarat High Court praying for a writ of certiorari to quash the notices dated 13 11 1963 and 9 1 1964 by the first appellant.
The High Court took the view that on a true construction of section 297(2)(d)(ii) of the new Act the Income Tax Officer could not issue a notice under section 148 in order to reopen the assessment in a case where the right to reopen the assessment was barred under the old Act at the date when the new Act came into force.
The High Court observed that the right of the Income Tax Officer to reopen the assessment of the resportdent in the present case was admittedly barred under section 34(1 )(a) of the old Act at the commencement of the new Act and it was, therefore, not competent to the Income Tax Officer to issue a notice under section 148 of the new Act in order to reopen the assessment of the ' respondent and to reassess the income of the respondent relying on the provisions enacted under section 297 (2)(d)(ii) of the new Act.
The High Court accordingly allowed the Special Civil Application preferred by the respondent and set aside the notices dated 13 11 1963 and 9 1 1964.
It is necessary at this stage to set out the relevant provisions of the two statutes.
Section 34 of the Income Tax Act, 1922 (No. 11 of 1922) as it stood immediately prior to its amendment by the Finance Act, 1956 is in the following terms : 717 "34.
(1) If (a) the Income Tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable for that year or have been underassessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act or excessive loss or depreciation allowance has been computed, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income Tax Officer has m consequence of information in his possession reason to believe that income, profits or gains chargeable to income tax have escaped assessment for any year, or have been underassessed, or assessed at too ,low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance and the provisions of this Act shall, so far as may be apply accordingly as if the notice were a notice issued under that sub section: Provided that : (1 ) the Income Tax Officer shall not issue a notice under this sub section, unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it ' is a fit case for the issue of such notice.
Provided further that nothing in this section limiting the time within which any action may 'be taken, or any order, assessment or reassessment may be made shall app ly to a reassessment made under section 27 or to an assessment or reassessment made on the assessee 718 or any person in consequence of Or to give effect to any finding or direction contained in an order under section 31, section 33, section 33A, section 33B, section 66 or section 66A".
By the Finance Act, 1956 certain amendments were made in section 34 with effect from 1st April, 1956.
The time limit of 8 years in sub section (1 ) in respect of cases failing within clause (a) was removed and the following provisos were substituted for the existing proviso in sub section (1 ) : "Provided that the Income Tax Officer shall not issue a notice under clause (a) of sub section (1) (i) for any year prior to the year ending on the 31st day of March, 1941: (ii) for any year, if eight years have elapsed after the expiry of that year, unless the income, profits or gains chargeable to income tax which have escaped assessment or have been underassessed or assessed at too low a rate or have been made the subject of excessive relief under this Act, or the loss or depreciation allowance which has been computed in excess, amount to, or are likely to amount to, one lakh of rupees, or more in the aggregate, either for that year, or for that year and any other year or years after which or after each of which eight years have elapsed, not being a year or years ending before the 31st day of March, 1941; (iii) for any year, unless he has recorded his reasons for doing so, and, in any case falling under clause (ii), unless the Central Board of Revenue, and, in any other case, the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice; The Income Tax Act, 1961 (No. 43 of 1961) came into force from 1st April, 1962.
Sub section ( 1 ) of section 297 of the new Act repealed the old Act and by sub section (2) of that section the new Act enacted certain saving provisions consequent upon the repeal of the old Act.
The material provision is set out in clause (d): "297.
Repeals and savings : (1). . (2) notwithstanding the repeal of the Indian Income Tax Act 11 of 1922 (hereinafter referred to as the repealed Act) : 719 (d) where in respect of any assessment year after the year ending on the 31st day of March, 1940 (i) a notice under section 34 of the repealed Act ' had been issued 'before the commencement of this Act, the proceedings in pursuance of such notice may be continued and disposed of as if this Act had not been passed; (ii) any income chargeable to tax had escaped assessment within the meaning of that expression, in section 1.47 and no proceedings under section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under section 148 may, subject to the provisions contained in section 149 or section 150, be issued with respect to that assessment year and all the provisions of this Act shall apply accordingly".
Sections 147 to 150 referred to in section 297(2)(d)(ii) and sections 151 to 153 were the provisions of the new Act corresponding to section 34 of the old Act.
In the new Act, section 34 of the old Act was split up into sections 147 to 153.
Section 147 empowered the Income Tax Officer to assess or reassess escaped income in the same kind of cases in which he could do so under section 34 but that right could be exercised subject to the provisions of sections 148 to 153.
Sub section (1) of section 148 provided that before making any assessment or reassessment under section 147, the Income Tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under section 139(2) and sub section (2) of that section imposed an obligation on the Income Tax Officer before issuing such notice, to record 'his reasons for doing so.
Section 149 laid down different time limits for issuing notices and in cases falling within clause ( a ) of section 14 7 corresponding to clause (a) of sub section (1 ) of section 34 the time limits.
were prescribed as follows : "149.
Time limit for notice : (a) No notice under section 148 shall be issued, (a) in cases failing under clause (a) of section 147 (i) for the relevant assessment year, if eight years have elapsed from the end of that year, unless the ease falls under sub clause (ii); (ii) for the relevant assessment year, where eight years, but not more than sixteen years, have elapsed from the end of that year, unless the income chargeable 720 to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year; Section 150(1) makes an exception in cases where assessment or reassessment is sought to be made in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under the Act by way of appeal, reference or revision and provided that in such cases there should be no time limit and notice under section 148 may be issued at any time unless of course the case fell within sub section (2) of section 150.
Section 151 made it a condition precedent to the issue of the notice under section 148 that the Income Tax Officer should obtain the previous sanction of the Central Board of Revenue or the Commissioner of Income Tax according as the notice is proposed to be issued after the expiry of 8 years from the end of the relevant assessment year or after the expiry of 4 years from the end of the relevant assessment year.
On behalf of the appellants Mr. Narasaraju stressed the argument that the High Court was in error in holding that the provisions of the new Act of 1961 were not applicable in cases where the time limit fixed in the old Act had expired before the coming into force of the new Act.
It was contended that section 297(2) (d)(ii) of the new Act was wide in its sweep and it took in all assessment years after the year ending on 31st March, 1940 irrespective of the question whether the right to reopen the assessment in respect of any such assessment years, was barred or not under the old Act at the date when the new Act came into force.
According to Mr. Narasaraju the legislative intention was that once the new Act came into force, the question whether the assessment in respect of any assessment year after the year ending on 31st March, 1940 was liable to be reopened or not should be decided with reference to the provisions of the new Act.
It was argued that the new Act authorised such assessment to be reopened whatever might be the position in regard to the right to reopen such assessment under the old Act.
In our opinion, the argument put forward by Mr. Narasaraju is not warranted.
It is admired in this case that the right of the Income Tax Officer to reopen the assessment for the year 1947 48 was barred under the old Act before the new Act came into force.
In our opinion, it not permissible to construe section 297(2)(d)(ii) of the new Act as reviving the right of the Income Tax Officer to reopen the assessment which was already barred under the old Act.
The reason is that such a construction of section 297(2)(d)(ii) would be tantamount to giving of retrospective operation to that section which is not warranted either by the express language of 721 the section or by necessary implication.
The principle is based on the well known rule of interpretation that unless the terms of the statute expressly so provide or unless there is a necessary implication, retrospective operation should not be given to the statute so as to affect, alter or destroy any right already acquired or to revive any remedy already lost by efflux of time.
On behalf of the appellants reference was made to the opening phrase "where in respect of any assessment year after the year ending on the 31st day of March 1940" occurring in section 297(2)(d)(ii) of the new Act, but these general words cannot take in their sweep assessment years subsequent to the year ending on 31st March, 1940 without regard to the question whether the right to reopen the assessment in respect of any assessment year was or was not barred under the repealed Act.
We consider that the language of the new section must be read as applicable only to those cases where the right of the Income Tax Officer to reopen the assessment was not barred under the repealed section.
In our view, the new statute does not disclose in express terms or by necessary implication that there was a revival of the right of the Income Tax Officer to reopen an assessment which was already barred under the old Act.
This view is borne out by the decision of this Court in S.S. Gadgil vs Lal & Company(1).
In that case, a notice was issued against the assessee as an agent of a non resident on 27th March, 1957 and that notice related to the assessment year 1954 55.
Under clause (iii) of the proviso to section 34( 1 ) as it stood prior to its amendment by the Finance Act, 1956, a notice of assessment or reassessment could not be issued against a person deemed to be an agent of a non resident after the expiry of one year from the end of the year of assessment.
The right to commence a proceeding for assessment against the assessee as agent of a non resident for the assessment year 1954 55 therefore ended on 31st March, 1956 under the new Act before its amendment in 1956.
This provision was, however, amended by the Finance Act, 1956 and under the amended provision the period of limitation was extended to two years from the end of the assessment year.
The amendment was made on 8th September, 1958 but was given effect from 1st April, 1956.
Since the time within which notice could be issued against a person deemed to be an agent of a non resident was extended to two years from the end of the assessment year, it was contended on behalf of the Income Tax Officer that the notice issued by him was within the terms of the amended provision and was; therefore, a valid notice.
Now the notice issued on 27th March, 1957 was clearly within a period of two years from the end of the assessment year 1954 55 and if the amended provision, applied, the! notice would be a valid notice.
It was, however, held by this Court that notice was (1) 722 not a valid notice inasmuch as the right of the Income Tax Officer to reopen the assessment of the assessee under the unmended provision became barred on 31st March, 1956 and the amended provision did not operate against him so as to authorise the Income Tax Officer to commence proceedings for reopening the assessment of the assessee in a case where before the amended provision came into force, the proceedings had become barred under the unamended provision.
At page 240 of the Report, Shah, J. speaking for the Court observed as follows : "As we have already pointed out, the right to commence a proceeding for assessment against the assessee an agent of a non resident party under the Income Tax Act before it was amended, ended on March 31, 1956.
It is true that under the amending Act by section 18 of the Finance Act, 1956, authority was conferred upon the Income Tax Officer to assess a person as an agent of a foreign party under section 43 within two years from the end of th e year of assessment.
But authority of the Income Tax Officer under the Act before it was amended by the Finance Act of 1956, having already come to an end, the amending provision will not assist him to commence a proceeding even though at the date when he issued the notice it is within the period provided by that amending ACt.
This will be so, notwithstanding the fact that there has been no determinable point of time between the expiry of the time provided under the old Act and the commencement of the amending Act.
The legislature has given to section 18 of the Finance Act, 1956, 'only a limited retrospective operation, i.e. up to April 1, 1956 only.
That provision must be read subject to the rule that in ' the absence of an express provision or clear implication, the legislature does not intend to attribute to the amending provision a greater retrospective than is expressly mentioned, nor to authorise the Income Tax Officer to commence proceedings which before the new Act came into force had by the expiry of the period provided become barred".
In our opinion, the principle of this decision applies in the present Case and it must be held that on a proper construction of section 297(2)(d)(ii) of the new Act, the Income Tax Officer cannot issue a notice under section 148 in order to reopen the assessment of an assessee ,in a ease where the right to reopen the assessment was barred under the old Act at the.
date when the new Act came into force.
It follows therefore that the notices dated 13 11 1963 and 9 1 1964 issued by the Income Tax 723 Officer, Ahmedabad were illegal and ultra vires and were rightly quashed by the Gujarat High Court by the grant of a writ.
For the reasons expressed, we hold that the judgment of the.
High Court of Gujarat dated 14th/15th December, 2964 is correct and this appeal must be dismissed with costs.
V.P.S. Appeal dismissed.

summary/full:
Under section 297(2)(d)(ii) of the Income tax Act, 1961.
dealing with repeals and savings, notwithstanding the repeal of the 1922 Act, where in respect of any assessment year after the year ending on 31st day of March, 1940, any income had escaped assessment and no proceedings under section 34 of the repealed Act are pending at the commencement of the 1961 Act, a notice under section 148 of the 1961 Act may be issued for reopening the assessment.
The respondent was assessed to income tax for the assessment year 1947 48.
Thereafter the Income Tax Officer issued a notice under section 34(1)(a) of the Income tax Act, 1922, for reassessment.
There was no proper service of the notice, and despite the respondent 's objection, the Income tax Officer determined the total income of the respondent at Rs. 89,000.
The Appellate Assistant Commissioner allowed the respondent 's appeal by order dated 5th January, 1963 on the ground that there is no valid service of the notice.
On 1st April, 1962 the1922 Act was repealed and the Income tax Act.
1961 came into force, and the time for taking action for reassessment was enlarged.
from 8 years to 16 years.
By that date, the right of the Income Tax Officer to reopen the assessment under section 34(1)(a) of the 1922 Act became barred.
The Income Tax Officer however, issued a notice under section 148 of the 1961 Act for reopening the assessment.
The respondent, thereupon filed a writ petitioning the High Court for quashing the notice and the petition was allowed.
In appeal to this Court.
HELD: On a proper construction of section 297(2)(d)(ii) the Income Tax Officer cannot issue a notice under section 148 in order to reopen the assessment of an assessee in a case where the right to reopen the assessment under the 1922 Act was barred at the date when the 1961 Act came into force.
The reason is that unless the statute expressly so provides or there is a necessary implication, retrospective operation should not be given to it so as to affect, alter or destroy any right already acquired or to revive any remedy ' already lost by effluviums of time.
The 1961 Act does not disclose in express terms or by necessary implication that there was a revival of the right of the Income Tax Officer to reopen an assessment which was already barred under the 1922 Act and if the section is construed as reviving such a right it would be tantamount to giving it retrospective operation which is not warranted by its language.
The words 'where in respect of any assessment year after the year ending on 31st day of March, 1940, ' in the section, cannot take in their sweep all assessment years subsequent to the year ending on 31st March, 1940 without regard 715 to the question whether the fight to reopen the assessment in respect of any assessment year was or was not barred under the repealed Act.
The section must he read as applicable only to those cases where the right of the Income Tax Officer to reopen the assessment was not barred under the repealed section.
[720 H; 721 A D; 722 G H] S.S. Gadgil vs Lal & Co. , followed.