judgement:
ivil Appeals Nos.
1895 1896 1907 of 1974.
(From the Judgment and Decree dated the 14 10 1974 of the Madras High Court in Election Petitions Nos. 1 and 2 of 1974).
R. N. Choudhary and Mrs. V.D. Khanna, for the appellant in CAs 1896/74.
Y.S. Chitley, T.N.S. Srinivasavaradacharya & G. Ramas wamy, C. Lakshminarain, S.R.L. Narain and Vineet Kumar, for the appellant in CA 1907/74.
T.N.C. Srinivasavaradacharya, S.C. Lakshminarain, S.R.L.Narayan, M.S. Narasimahan, for respondent No. 10 in CA 1895, Resp.
No. 6 in CA 1896 and respondent No. 7 in CA 1907.
A. V. Rangam and Miss A. Subshashini, for respondent No. 1 in all the appeals and for respondent No. 2 in 1907.
J. M. Khanna, for respondent No. 8 in CAs.
1895 1896.
The Judgment of the Court was delivered by SARKARIA, J.
The basic facts giving rise to these appeals being common, the same will be disposed of under one judgment.
Notice calling for nominations to be filed before 3 P.M. 11 3 1974, for filling six vacancies to the Rajya Sabha from the State of Tamil Nadu in the biennial elections was issued on March 4, 1974, Eleven candidates filed their nominations.
On scrutiny which was held on March 12, 1974.
all those nominations were found to be valid.
On 541 14 3 1974, which was the last date fixed for withdrawal, three candidates withdrew their nominations leaving eight in the field.
The poll was held on 21 3 1974.
Counting of votes took place on the same date.
The result was published, according to which, the contesting candidates secured the votes noted against their names as follows: 1.
Shri Khadar Sha . 3500 2.
Shri Khaja Mohideen . 3700 3.
Shri V. Subrahmanyam . 300 4.
Shri C.D. Natarajan . 3500 5.
Shri R. Mohanarangam .
Nil 6 .Shri section Ranaganathan . 4100 7.
G. Lakshmanan . 3600 8.
D.C. John @ Valampuri John . 3700 The requisite quota to secure the election of a candidate was fixed at 22,400/(6+1) +1 =3201 and candidates mentioned at serial Nos. 1, 2, 4, 6, 7 and 8 were declared elected.
Two Election Petitions were filed by the unsuccessful candidates.
Election Petition 1 of 1974 was filed by Shri R. Mohan Rangam and Election Petition 2 of 1974 by Shri V. Subrahmanyam.
The petitioners prayed that the election of Shri D.C. John be declared void and set aside under section 100 of the Representation of the People Act, 1951.
Each of the petitioners claimed that in the event of Shri John 's elec tion being set aside, he be declared elected under section 101 of the Act.
In addition to the Returning Officer, the Elec toral Registration Officer and the Chief Election Commis sioner, all the seven contestants were impleaded as respond ents.
The election of Shri John was assailed on the ground that on March 9, 1974, the date of the scrutiny of his nomination, he was less than 30 years ' of age and as such, did not possess the qualification as to age laid down in Article 84(b) of.the Constitution.
On these premises it was pleaded that the nomination of Shri John was improperly accepted and in consequence thereof, the result of the election has been materially affected.
A recriminatory petition No. 1/74 under section 97 read with section 83 of the Act was also filed by Shri V. Subrahmanyam petitioner in E.P. 2/ 74, opposing Mohana Rangam 's relief for declaration under section 101.
The recriminator alleged that since the petitioner in E.P. 1/74 had not secured any vote, he.
in the event of the election of Shri John being set aside, was entitled to be declared elected in the place of Shri John.
The learned trial Judge of the High Court tried all the three petitions together and decided them by a common judg ment.
8 502SCI/77 542 The trial Court held that on the date of the scrutiny of his nomination, Shri John being less than 30 years of age, was not qualified under article 84(b) of the Constitution, to contest the election to the Rajya Sabha.
On this short ground his election was set aside and the Election Petitions were accepted pro tanto.
The trial Court, however,declined to grant the further declaration under section 101 in favour of either of the election petitioners.
Aggrieved by that judgment, Shri John, has filed in this Court Civil Appeals 1895 1896 of 1974, and Shri V. Subrah manyam Civil Appeal 1907 of 1974.
The first question that fails to be determined in these appeals is: Whether Shri John Was born on May 14, 1946, as has been found by the Court below, or on May 14, 1943 as contended by him ? Mr. Chowdhary appearing for the appellant (Shri John) contends that the burden of proving that Shri John, was at the material date below 30 years of age was on the elec tion petitioner and that the latter had failed to discharge such burden.
Further grievance of Shri Chowdhary is that the High Court had wrongly rejected the oral and docu mentary evidence produced by Shri John.
We find these contentions wholly devoid of merit.
While it is true that the onus of proving that on the date fixed for the scrutiny of nominations, Shri John was less than 30 yea.rs of age, was on the election petitioners, they had amply discharged this onus by bringing on record overwhelming documentary evidence of a cogent and convinc ing character.
This documentary evidence includes no less than a dozen previous admissions and declarations made by Shri John himself about his age, between March 1964 and July 1973.
These documents containing such declarations consti tuting Shri John 's admissions are: (i) exhibit
P.7 Application for Pre University Examination.
(ii) exhibit
P 9 Application for B.A. Examination.
(iii) exhibit P l4 Application for appearing in University Examination.
(iv) exhibit
P l5 Application for the first B.G.L. Examination.
(v) exhibit
P l7 Application for admission to B.G.L. Examina tion.
(vi) exhibit
P l8 Application for second B.G.L. Examination April 1972.
(vii) exhibit
P 19 Application for second BGL Examination, Octo ber 1972.
(viii) exhibit
P 21 Application for admission into Law Col lege.
(iv) exhibit 22 Application for B.L. Degree Examination.
543 (x) Ex.
P 23(a), (b) & (c) Applications dated 23 71973 for enrolment as Advocate submitted to the Bar Council.
(xi) Ex.
P 27 Voters Card containing declaration of his age as 28 years signed by Shri John.
(xii) exhibit
P 87 a Book written by Shri John, containing a passage on its page 18 suggesting the inference that Shri John was born in 1946.
All these documents aforesaid contain admissions made by Shri John that he was born in 1946.
In several of these documents he declared 14 5 1946 as his date of birth.
It is well settled that a party 's admission as defined in Sees.
17 to 20, fulfilling the requirements of Sec. 21, Evidence Act, is substantive evidence proprio vigore.
An admission, if clearly and unequivocally made, is the best evidence against the party making it and though not conclu sive, shifts the onus on to the maker on the principle that "what a party himself admits to be true may reasonably be presumed to be so" and until the presumption was rebutted the fact admitted must be taken to be established.
The above principle will apply with greater force in the instant case.
Here, there are a number of clear admissions in prior declarations precisely and deliberately made in solemn documents by Shri John.
These admissions were made ante litem motam during the decade preceding the election in question.
These admissions were entitled to great weight.
They had shifted the burden on the appellant (Shri John) to show that they were incorrect.
The appellant had miserably failed to show that these admissions were incor rect.
Apart from the evidence of these prior admissions the election petitioners had brought other documentary evidence, also, pointing to the conclusion that Shri John was born on 14 5 1946 and not 14 5 1943.
This evidence consisted of 1.
(a) Exhibit P 1 an entry in the records of St. Xavier 's College School, wherein the date of Shri John 's birth is recorded as 14 5 1946; (b) exhibit
P.3 which purports to have been signed by the guardian of Shri John, declar ing his age as 14 5 1946; (c) Ex.
P 2, the E.Ss.
L.C. signed by Rama Prabhu, the Secretary to the Commission for Government Examinations.
This Certificate was issued under the authority of law.
exhibit
P 4 Secondary School Leaving Certifi cate wherein Shri John 's date of birth is entered as 14 5 1946.
544 3.
exhibit
P 50, copy of the Fort St. George Gazette, dated 19 2 1964 showing Shri John 's date of birth as 14 5 1946.
(a)Ex.
P 5 the transfer certificate issued by the St. Xavier 's High School.
(b) exhibit
P 10 transfer certificate issued by the Principal of the College.
(c) exhibit
P 13 entry in the admission register of the College for joining the first year B.G.L. (d) exhibit
P 16 entry in the admission regis ter of the College, for admission to second year B.G.L. Class.
(e) exhibit P 10 entry in admission register of the College, 5.
Bar Council Records relating to exhibit 'P 23. 6.
Marriage Register, exhibit
P 29, containing in the column captioned "Age" as against the name of Shri John, the entry "26 years" and the date of his baptism as 19 10 1946.
Ex.P.30, Periodical report from the Church es regarding marriages solemnised therein, required under the , showing that Shri John 's marriage was solemnised in St. Francis Xavier 's Church ' Madras, on 6 4 1972 by Fr. G.K. Swami, and that on the date of this marriage he was 26 years of age.
Exhibits P11, P 11(a), P 12 and P l2(a) records T.E.L.C. Kabis High School showing Shri John 's date of birth as 14 6 1946.
9. Ex.p 28 Book Varalatril Kalaignar Writ ten by Shri John containing biographical sketch.
Therein, his date of birth is men tioned as 14 10 1946.
The petitioner had also examined witnesses who testi fied with regard to these documents and the facts appear ing therein.
The learned trial Judge has carefully dis cussed and evaluated this documentary and oral evidence.
No material error or illegality on the part of the learned Judge in appreciating this evidence has been pointed out.
The learned Judge found that the entries, Ex.P.29, in the Marriage Register are of great evidentiary value.
Mr. Chaudhury assails this finding.
According to him, no legal provision or rule of practice requires that the date of Baptism should be entered in such Register.
Secondly, it is urged that the date of baptism given therein is 19 10 1946, which stands falsified by the evidence of Rev. Fr. Rosario, the Parish Priest who had baptised Shri John about 7 days after his birth in 1943.
It is further argued that the best evidence as to Shri John 's date of birth could be that of the entry in the Public Birth Register maintained under authority of law and that the election petitioner on whom the onus lay, did not produce that evidence.
545 We find no substance in these contentions.
In the witness box both Shri John (RW. 1 ) and his eider brother (RW 3 )admitted their respective signatures on this entry (Ex.P. 29) in the Marriage Register.
They however, con tended that the information about the date of baptism was not supplied by them to the Priest who solemnised the mar riage and made this entry.
The eider brother (RW. 3) howev er, admitted that they had signed the Register, notwith standing the fact that the age of Shri John was mentioned therein as 26 years.
Both the brothers however, admitted that Shri John 's marriage was solemnised in St. Francis Xavier Church on 6 4 1972.
In view of the admissions of RWs 1 and 3, the High Court was right in holding that Ex.P.29 stood proved, and the entries therein were entitled to great weight.
As regards the Birth Register of 1946, the election petitioner made repeated attempts to get the same summoned and produced in Court.
The process issued by the Court was returned with the report that the Register of 1946 was untraceable.
Thereafter, a direction was issued by the Court to trace and produce it.
A search for this record was made by the record remained untraceable.
The Election Petitioner contended before the High Court that Shri John had by the exercise of his influence, prevented the produc tion of this record.
The High Court found this charge to be incorrect.
Nevertheless, it held that the Public Birth Register of 1946 had been lost long ago.
This being the case, the non production of the Birth Register of 1946, must be held to be a neutral circumstance.
The discrepancy pointed out by Shri Choudhury as to the date of the baptism of Shri John, takes us to the evidence produced by him.
Shri John brought on the record three documents, R1, R2 and R4.
R 1 is an extract from the Bap tism Register kept by the Ovari Tuticorin Diocese.
The document R 1 according to the High Court was induct ed in a questionable manner, without even an application for it.
This was issued by the Parish Priest, Peter Royan (RW 5), and purports to be a copy of an entry in the Baptism Register, which according to the admission wrung out from RW 5, had itself been re written and copied from the original.
The Parish Priest conceded that he had burnt the original because it was in a very bad condition.
The High Court found and we think rightly that this explanation of non production of the original was thoroughly unsatisfactory, and unbecoming of any Christian, more so, one connected with Church affairs, that by this 'unholy act ' of burning the register which was a violation of.
Canon 777, Paragraph 676, the witness (RW 5) had done great disservice to Christianity and greater disservice to the cause of truth".
Since R 1 was only a copy of a copy (R 4), the prepara tion of which was itself suspect and the explanation about the non production of the original was palpably unbelieva ble, these documents were rightly ruled out of evidence.
R.W. 2, Rev. Fr.
Rosario stated that he positively remembered that in the year 1943 when he was the Parish Priest, he had baptised Shri John.
The witness was an old man.
He had no Baptism Regis 546 ter or any other contemporaneous record to refresh his memory with regard to an event which took place more than a quarter of a century back.
He was deposing to a fact in issue merely from memory.
Human memory being fallible, it was hazardous to accept his ipse dixit.
The oral evidence of the witness could not be preferred to the entry in the Marriage Register, exhibit P 29, showing that Shri John on the date of his marriage, which took place in 1972, was 26 year old and had been baptised in 1946.
It is true that there is a slight discrepancy between the date of his baptism as entered in the Marriage Register and the date of his birth as admitted by him in the various applications he submitted for admission to various classes in College or for enrolment as an Advocate.
But there is no discrepancy with regard to the year of birth as well as baptism being 1946.
In exhibit
P. 29, the date of his baptism is entered as 19 10 1946.
The biodata appearing in the book exhibit
P.28, which, according to the publisher, RW 4, was entered by him on the basis of information derived from Shri John, gives his date of birth as 14 10 1946, while all the numerous public records, the declarations constituting the prior admissions of Shri John, produced in evidence by the Election Petitioner, consistent ly show Shri John 's date of birth as 24 5 1946.
We have been taken through the oral evidence rendered by Shri John (RW 1) and his eider brother (RW 3).
Their inter ested testimony makes interesting reading.
Shri John was asked in cross examination to state how he came to contest the Rajya Sabha elections ? He replied that, as usual, in his village Ovari, he was having a dis cussion with the members of his community to settle a dispute between owners of catamaran and mechanised boats.
A suggestion was made to him that he should contest an elec tion to Parliament as a representative of the fishermen community.
Shri John told them that ". an election to the Council of States is fast approaching and the only thing is I cannot enter the Rajya Sabha, because I have not complet ed the age of 30 years." Shri John was further questioned by the Counsel: "Then what happened ?" He replied: "My eldest brother was one among those who were assembled there.
He told me along with another elderly gentleman, whose name I am not able to recollect now: "What non sense are you talking? You have compleated 30 years positively." Moreover they told me in adition : We have to refer to the Registers kept in the Church ' ".
With this idea put into his head, the witness next morning along with his brother visited the village Church and met Rev. Fr.
Peter (R.W. 5) and asked for the Baptism Register relating to the witness.
Rev. Fr.
Peter took out the Register, exhibit R 4, and turned .the leaves, and to the surprise of the witness, he saw his date of birth noted therein as 14 5 1943.
Thereafter, Shri John approached the Chief 547 Electoral Officer, Madras, and made an application (Ex.P.23) on 26 2 1974 for correction and change of the date of his birth, as noted in the Electoral Roll, from '14 5 1946 ' to '14 5 1943 '.
His application was allowed and the entry in the Electoral Roll as to age wag amended accordingly on the 6th or 7th March 1974.
On further cross examination, Shri John frankly conceded that before seeing the Baptism Register in the second week of February 1974, he had all along been under the genuine impression that he was born on 14 5 1946.
It was only on seeing the Register that he came to believe that he was born in 1943.
It is to be remembered that this Baptism Register (R. 4) is the same, which was found by the High Court to be a suspicious record, prepared in suspicious circumstances, wholly unworthy of reliance.
3, the eider brother of Shri John also stated that when the elders of the village asked him to contest the election, he replied that he had not attained the proper age, i.e. "31 years" which was necessary to contest the election.
Immediately, the witness intervened: "What non sense you are talking ? You have attained the proper age . you must go and refer in the Church".
About their going to Priest Rev. Fr.
Peter Royan at the village Church and scrutinising the Baptism Register his version is more or less the same as of RW 1.
This witness, as already noticed, admitted that at the time of his broth er, Shri John 's marriage, he had also signed the entry, exhibit
P 29, in the Marriage Register on 6 4 1972.
He further conceded that in this entry exhibit P 29, the age of the bride groom, Shri John, was mentioned as 26 years.
He further conceded that in exhibit P. 29, the date of Shri John 's baptism is noted as 19 10 1946.
But the witness, wanted the Court to have it believed that he had signed this entry without looking into it.
This version was too incredible to be swallowed without demur.
The conclusion was inescapable that on 6 4 1972, Shri J.D. Mohan, RW 3, the eldest brother of Shri John, whose parents were dead, knew that the particulars of this entry.
showing his age to be 26 years on 6 4 1972, and the date of his baptism in 1946, were true.
That is why he and his brother John, without raising any objection, affixed their signatures thereto in token of its correctness.
We need not dilate on the question of Shri John 's age further.
All aspects of this issue have been discussed threadbare by the High Court.
Suffice it to say, that from the evidence on record it stood clearly established that on the date of the scrutiny of the nominations, Shri John was less than 30 years of are and in view of Article 84(b) of the Constitution he was not competent to contest the elec tion for the Rajya Sabha.
His nomination was therefore improperly accepted by the Returning Officer, and this improper acceptance has, in so far as it concerned the returned candidate, Shri John, materially affected the result of the election.
Shri John 's election was thus rightly set aside by the High Court.
Now we come to the second question, whether Shri V. Subramanyan, appellant in C.A. 1907 of 1974, is entitled to be declared elected in lieu of Shri John whose election has been set aside ? 548 Shri Ramaswami, learned Counsel for this appellant, has advanced alternative arguments.
It is submitted that since Shri Mohana Rangam did not secure any vote at all, he had ceased to be a continuing candidate and stood ' automatically excluded, leaving only Shri Subramanyam, sole continuing candidate in the field.
It is emphasised that Shri Rangam has not filed any recriminatory petition.
In this situa tion, it is maintained, Shri Subramanyam would be deemed to have been elected, although he had secured only 300 votes.
Reference in this connection has been made to Rule 81(2) of the Conduct of Election Rules, 1961.
The alternative argument of Shri Ramaswami is that since Shri John was not a qualified candidate, the votes cast in his favour have to be treated as thrown away, and even if both Shri Mohan Rangam and Shri Subramanyam are assumed to be continuing_ candidates, the surplus votes cast in favour of the five successful candidates had to be trans ferred and redistributed in favour of these continuing candidates.
It is urged that for this purpose the Court should send for and scrutinise the ballot papers for further counting.
Shri Ramaswami further pointed out that the observations of this Court in Viswanatha Reddy vs Konap pa Rudrappa Nadganda(1) to the effect, that the votes cast in favour of the disqualified candidate are to be treated as thrown away, are equally applicable to the elections for filling vacant seats in the Council of States, notwithstand ing the fact that these elections are held according to the system of proportional representation with a single trans ferable vote whereunder there is no question of obtaining majority of valid votes, but only the required quota.
In support of his contentions Shri Ramaswami has copi ously referred to the treatise, the Single Transferable Vote by K.V. Krishnaswamy Aiyar published in 1946, and the rele vant provisions of the Conduct of Election Rules, 1961 (for short, referred to as the Election Rules).
The provisions material for our purpose are contained.in Part VII of the Election Rules.
Shri K.V.
Krishnaswamy Aiyar m his book,The Single Transferable Vote (1946 Edn.) page 23, sums up the general principles of this mode of election, thus: "The single vote is transferable from one nominee to another and that takes place in two contingencies where there would otherwise be a wastage of votes.
They are: (1 ) when a candidate obtains more than what is required for his success and therefore has an unnecessary surplus; (2) When a candidate polls so few votes that he has absolutely no chance and therefore the votes nominating him are liable to be wasted." Relevant Rules in Part VII of the Election Rules are modulated on the principles enunciated by Shri Aiyar in the aforesaid book.
The (1) A.I.R. 1969 S.C. 604.
549 material provisions are contained in Rule 2(1)(c), 67, 70, 71, 73 to 81 and 85.
Under the scheme and system envisaged by these Election Rules, each elector has only one vote, irrespective of the number of seats to be filled.
But that single vote is transferable from one candidate to another.
The ballot paper bears the names of the candidates, and the elector marks on it his preferences for the candidates by denoting it with the figures 1, 2, 3, 4 and so on against the names chosen by him and this denotation is understood to be alter native in the order indicated (vide Aiyar 's The Single Transferable Vote), The figure 1 set by the elector opposite the name of a candidate means "first preference"; the figure 2 set opposite the name of a candidate, the "second prefer ence", and so on [Rule 71(ii)].
The minimum number of valid votes requisite to secure the return of a candidate at the election is called the quota.
At an election where only one seat is to be filled, every ballot paper is deemed to be of the value of 1 at each count, and the quota is determined by adding the values credit to all the candi dates, and dividing the total by 2, and adding 1 to the quotient, ignoring the remainder, if any, and the resulting number is the quota, vide, Rule 75 (1 ).
At an election where more than one seat is to be filled, every ballot paper is deemed of the value of 100 and the quota is determined by adding the values credited to all the candidates, and divid ing the total by a number which exceeds by 1 the number of vacancies to be filled, and adding 1 to the quotient ignor ing the remainder, if any, and the resulting number is the quota (Rule 76).
The computation in the preliminary process is as under: The returning officer first deals with the covers containing the postal ballot papers, and then opens the ballot boxes, counts the ballot papers and sorts out and rejects the ballot papers found invalid.
A ballot paper is deemed invalid on which (a) the figure 1 is not marked; or (b) the figure 1 is set opposite the name of more than one candidate or is so placed as to render it doubtful to which candidate it is intended to apply; or (c) the figure 1 and some other figures are set opposite the name of the same candi date; or (d) there is any mark or writing by which the elector can be identified (Rule 73).
After rejecting the invalid papers, the returning officer (a) arranges the remaining ballot papers in parcels accord ing to the first preference recorded for each candidate; (b) counts and records the number of papers in each parcel and the total number; and (c) credits to each candidate the value of the papers in his parcel.
He then determines the quota in accordance with Rule 75(1), or Rule 76, if the election is to fill one seat or more than one seat, as the case may be.
550 If (at any election held for filling more than one seat) at the end of any count or at the end of the transfer of any parcel or sub parcel of an excluded candidate the value of ballot papers credited to a candidate is equal to, or great er than the quota, that candidate shall be declared elected (Rule 78).
if at the end of any count the value of the ballot papers credited to a candidate is greater than the quota, the surplus is transferred in accordance with the provisions of Rule 79, to the continuing candidates indicat ed in the ballot papers of that candidate as being next in order of the electors ' preference [Sub Rule (1 ) of Rule79] "Surplus" means the number by which the value of the votes original and transferred, of any candidate exceed the quota [Sub rule (6) of Rule 71].
"Continuing candidate" means any candidate not elected and not excluded from the poll at any given time [Sub rule (1 ) of Rule 71].
If more than one candidate have a surplus, the largest surplus is dealt with first and the others in order of magnitude, but every sur plus arising on the first count is dealt with before those arising on the second count and so on.
Where there are more surpluses than one to distribute and two or more surpluses are equal, regard shall be had to the original votes of each candidate and the candidate for whom most original votes are recorded shall have his surplus first distributed; and if the values of their original votes are equal,.
the returning officer decides by lot which candidate shall have his sur plus first distributed.
[Sub rules (2) & (3) of Rule 78]. "Original Vote", in relation to any candidate, means a vote derived from a ballot paper on which a first preference is recorded, for such candidate.
If the surplus of any candidate to be transferred arises from original votes only, the returning officer shall exam ine all the papers in the parcel belonging to that candi date, divide the unexhausted papers into sub parcels accord ing to the next preferences recorded thereon and make a separate sub parcel of the exhausted papers [Clause (a) of sub rule (4) of Rule 78].
"Exhausted paper" means a ballot paper on which no further preference is recorded for a continuing candidate, provided that a paper shall be deemed to have become exhausted whenever (a) the names of two or more candidates, whether continuing or not, are marked with the same figure and are next in order of preference; or (b) the name of the candidate next in order of preference, whether continuing or not, is marked by a figure not falling consecutively after some other figure on the ballot paper or by two or more figures [Sub Rule (3) of Rule 71].
The Returning Officer has to ascertain the value of the papers in each sub parcel and of all the unexhausted papers.
If the value of the unexhausted papers is equal or less than the surplus, he shall transfer all the unexhausted papers at the value at which they were received by the candidate whose surplus is being transferred.
If the value of the unex hausted paVers is greater than the surplus, he shall trans fer the sub parcels of unexhausted papers and the value at which each paper shall be transferred shall be ascertained by dividing the surplus by the total number of unexhausted Papers [Sub Rule (4) of Rule 78].
Sub Rule (5) indicates the procedure where the surplus of any candidate to be transferred arises from transferred as well as orginal votes; All papers in the parcel or sub parcel of an elected candidate not tansferred under this rule have to set apart as finally dealt with [Sub Rule (7) of Rule 78].
551 Rule 80 speaks of exclusion of candidates lowest on the poll.
It reads: "80.
Exclusion of candidates lowest on the poll.
(1) If after all surpluses have been transferred as hereinbefore provided, the number of candidates elected is less than the required number,, the returning officer shall exclude from the poll the candidate lowest on the poll and shall distribute his unexhausted papers among the continuing candi dates according to the next preferences re corded thereon; and any exhausted papers shall be set apart as finally dealt with.
(2) The papers containing original votes of an excluded candidate shall first be trans ferred, the transfer value of each paper being one hundred.
(3 ) The papers containing transferred votes of an excluded candidate shall then be transferred in the order of the transfers in which, and at the value at which, he obtained them.
(4) Each of such transfers shall be deemed to be a separate transfer but not a separate count.
(5) If, as a result of the transfer of papers, the value of votes obtained by a candidate is equal to or greater than the quota, the count then proceeding shall be completed but no further papers shall be transferred to him.
(6) The process directed by this rule shall be repeated on the successive exclusion one after another of the candidates lowest on the poll until such vacancy is filled either by the election of a candidate with the quota or as hereinafter provided.
(7) If at any time it becomes necessary to exclude a candidate and two or more candi dates have the same value of votes and are the lowest on the poll, regard shall be had to the original votes of each candidate and the candidate for whom fewest original votes are recorded shall be excluded; and if the values of their original votes are equal the candi date with the smallest value at the earliest count at which these candidates had unequal values shall be excluded.
(8) If two or more candidates are lowest on the poll and each has the same value of votes at all counts the returning officer shall decide by lot which candidate shall be excluded.
" Rule 81 deals with the filling of the last vacancies.
It may also be extracted in full because a good deal of argument is founded on it.
It provides: "81.
Filling the last vacancies. (1) When at the end of any count the number of continuing candidates is reduced to the number of vacancies remaining unfilled, the continu ing candidates shall be declared elected.
552 (2) When at the end of any count only one vacancy remains unfilled and the value of the papers of some one candidate exceeds the total value of the papers of all the other continuing candidates together with any sur plus not transferred, that candidate shall be declared elected.
(3 ) When at the end of any count only one vacancy remains unfilled and there are only two continuing candidates and each of them has the same value of votes and no sur plus remains capable of transfer, the return ing officer shall decide by lot which of them shall be excluded; and after excluding him in the manner aforesaid, declare the other candi date.
to be elected.
" The stage is now set for dealing with the contentions canvassed before us.
The first question that falls to be considered is: Whether Shri Mohana Rangam, on account of his failure to secure any vote in the first count is to be treated as excluded from the poll ? In other words, had he ceased to be a 'continuing candidate ' within the contempla tion of the Election Rules ? We have already referred to the definition of 'Continuing Candidate ' in Rule 71(1).
The definition has two elements which must be satisfied before a candidate can be said to be a continuing candidate.
He should be a "candidate not elected" and further.
he must not have been excluded from the poll at any given time.
Shri Mohann Rangam fulfils both these conditions.
Shri Ramaswami however,, contended that this definition is to be interpreted and applied in the light of what has been said in Rules 74 and 81.
The argument is that an essential pre requisite to the continuance of a candidate is the allotment of a "basket" or "parcel" under Rule 74, and only such candidate is entitled to the allotment of a 'ba sket ' who at the end of the count, gets some vote to his credit and opens his account.
Since Shri Rangam proceeds the argument did not get any vote whatever, he stood auto matically excluded and no question of allotting any "parcel" to him arose.
The contention must be repelled.
There is nothing in Rule 74 or any other Rule which, at an election to fill more than one seat, requires or empowers the returning officer to exclude a candidate from the poll merely on the ground that in the counting of the first preferences, he has not secured any valid vote.
SubRule (3) of Rule 75, to which reference was made at one stage, has no application to the instant case.
That sub rule which requires the returning officer to exclude from the poll a candidate whose score is the lowest governs the counting of votes where only one seat is to be filled and at the end of any count, no candidate can be declared elected.
Such is not the case before us.
Rule 80 also can have no application because it comes into operation at a stage "after all sur pluses have been transferred".
That stage never arrived in the instant case because in the first counting itself, all the six seats were filled up, six candidates 553 (including Shri John) having secured the requisite quota of first preference votes.
Nor did the stage for applying Rule 81 arise, because at the end of the first count, no vacancy remained unfilled.
We therefore, repel the contention of the learned coun sel and hold that Shri Mohana Rangam did not get automati cally excluded.
Both he and Shri Subramanyan were 'contin uing candidates '.
Shri Subramanyan could not be declared elected as he had not obtained the required quota of 3,201 votes.
This takes us to the next question.
Should all the votes that had polled in favour of the candidate (Shri John) who has been found by the Court to be statutorily disquali fied for election,, be regarded as thrown away, and in consequence, the appellant, Shri Subramanyan, who secured 300 votes as against none obtained by Shri Mohana Rangam, be declared elected ? Again, the answer to this question, in our opinion, must be in tire negative.
It is nobody 's case that the electors who voted for Shri John, had at the time of election, knowl edge or notice of the statutory disqualification of this candidate.
On the contrary, they must have been under the impression that Shri John was a candidate whose nomination had been validly accepted by the returning officer.
Had the electors notice of Shri John 's disqualification, how many of them would have voted for him and how many for the other continuing candidates, including Sarv Shri Subramanyan and Mohan Rangam, and in what preferential order, remains a question in the realm of speculation and unpredictability.
In the view we take, we are fortified by the observa tions in this Court 's decision in R.M. Seshadri vs
G.V. Pai (1).
In that case, the election of R.M. Seshadri to the Madras Legislative Council was set aside on the ground that he was guilty of the corrupt practice of hiring or procuring motor vehicles to carry voters.
The total votes polled were 12,153.
Since the voting was by a single transferable vote, three out of the five candidates were eliminated at different counts with the result that their votes were transferred to the second candidate named in the ballot.
At the final count Seshadri received 5643 votes and his nearest rival, G.V. Pal received 5388 votes.
The number of the voters who were carried in the hired or procured vehicles could not be ascertained.
Before this Court, it was contended that the election of Seshadri having been set aside, G.V. Pai who had polled the next highest number of votes should be declared elected.
Hidayatullah C.J. speaking for the Court, rejected this contention with these observations: "This (question) will depend on our reaching the conclusion that but for the fact that voters were brought through this cor rupt practiee to the polling booths, the result of the election had been materially affected In a single transferable vote, it is very difficult to say how the voting would have gone; , , at page 701 554 because if all the votes which Seshadri had got, had gone to one of the other candidates who got eliminated at the earlier counts, those candidates would have won.
We cannot order a recount because those voters were not free from complicity.
It would 'be speculating to decide how many of the voters were brought to the polling booths in car.
We think that we are not in a position to declare Vasanta Pai as elected, because that would be merely a guess or surmise as to the nature of the voting which would have taken place if this corrupt practice had not been perpetrated.
" The position in the instant case is no better.
It is extremely difficult, if not impossible, to predicate what the voting pattern would have been if the electors knew at the time of election, that Shri John was not qualified to contest the election.
In any case, Shri Subramanyan.
was neither the sole continuing candidate, nor had he secured the requisite quota of votes.
He cannot therefore, be declared elected.
The dictum of this Court in Viswanatha vs Konappa (supra) does not advance the case of the appellant, Shri Subramanyan.
In that case, the election in question was not held according to the system of a single transferable vote.
There were only two candidates, in the field for a single seat, and one of them was under a statutory disqualifica tion, Shah J. (as he then was) speaking for the Court, held that the votes cast in favour of the disqualified candidate may be regarded as thrown away, even if the voters who had voted for him were unaware of the disqualification, and the candidate securing the next highest number of votes was declared elected.
The learned Judge was however careful enough to add: "This is not to say that where there are more than two candidates in the field for a single seat, and one alone is disquali fied, on proof of disqualification all the votes cast in his favour will be discard ed and the candidate securing the next highest number of votes will be declared elected.
In such a case, question of notice to the voters may assume, significance, for the voters may not, if aware of the disqualification, have voted for the disqualified candidate" The ratio decidendi of Viswanatha vs Konappa is applicable only where (a) there are two contesting candidates and one of them is disqualified,.
(b) and the election is on the basis of single non transferable vote.
Both these condi tions do not exist in the present case.
As already dis cussed, Shri Subramanyan appellant was not the sole surviv ing continuing candidate left in the field, after exclusion of the disqualified candidate, Shri John.
The election in question was not held by mode of single transferable vote according to which a simple majority of votes secured en sures the success of a candidate, but by proportional repre sentation with single transferable vote, under which system the success of a candidate normally depends on his securing the requisite quota.
555 However, the principle underlying the obiter in Viswanatha vs Konappa, which we have extracted, is.
applica ble to the instant case because here, after the exclusion of the disqualified candidate, two continuing candidates were left in the field.

summary/full:
In the biennial elections of 1974 for filling six vacancies to the Rajya Sabha from the State of Tamil Nadu, there were eight contestants, including both the appellants and one R. Mohanarangam, the petitioner in Election Petition No. 1 of 1974.
The requisite quota to secure the election of a candidate was fixed at (22400 +1)/6+1 +1 =3201 and the appellant John secured 3700 votes.
While the appellant Subrahmanyam secured 300 votes, Mohanarangam failed to secure any.
The rest of them secured more than the quota, thus leaving "surplus votes" for transfer within the mean ing of Rule 71 (6) of the Conduct of Election Rules.
In the election petitions filed by Mohanarangam and Subrahmanyam, the election of Sri John was assailed on the ground that on March 12, 1974, the date of the scrutiny of the nominations, he was less than 30 years of age and as such he did not possess the qualifications as to age laid down under article 84(b) of the Constitution that the improper acceptance of John 's nomination has materially affected the election.
The petitioners prayed that the election of Sri John be declared void and set aside under section 100 of the Representation of Peoples Act, 1951.
Each of the petition ers claimed that in the event of Sri John 's election being set aside, he be declared elected under section 101 of the Act.
A recrimination petition No. 1/74 under section 97 read with section 83 of the Representation of Peoples Act was also filed by the appellant Subramanyam, opposing Mohanarangam 's relief for the declaration under section 101 of the Act, alleging that since the petitioner Mohanarangam in E.P. 1/74 had not secured any vote, he, in the event of the election of Sri John being set aside, was not entitled to be declared elect ed in the place of John.
The trial Judge of the High Court held that on the date of the scrutiny of nominations Sri John being.less than 30 years of age was not qualified under article 84(b) of the Constitution to contest the election to,the Rajya Sabha and accepting the election petition pro tanto set aside John s election.
The trial Judge, however, declined t.o grant further declaration under section 101 in favour of either of the election petitioner.
Dismissing the appeals, the Court, HELD: (1) From the evidence on record it stood clearly established that on the date of the scrutiny of nominations Sri John was less than 30 years of age 539 and in view of article 84(b) of the Constitution he was not competent to contest the election for the Rajya Sabha.
His nomination was, therefore, improperly accepted by the Re turning Officer, and this improper acceptance has, in so far as ' it concerned the returned candidate, Sri John materially affected the result of the election.
[547 F G] (2) The onus of proving that on the date fixed for the scrutiny of nominations, a contestant was less than 30 years of age was on the election petitioners.
In the instant case, the petitioners had amply discharged this onus by bringing on record over whelming documentary evidence of a cogent and convincing character.
This documentary evidence includes no less than a dozen previous admissions and declarations made between March 1964 and July 1973 by Sri John himself about his age, to the effect that he was born in 1946 and that his date of birth was 14.5.1946.
Apart from the evidence of these prior admissions the election petitioners had brought other documentary evidence viz., the school record purport edly signed by John 's guardian, Secondary School Leaving Certificate 'and various other documents of the educational institutions, Marriage Register Bar Council Record and Church records etc.
pointing to the conclusion that Sri John was born on 14.5.1946 and not on 14 5 1943.
[542 D H, 543 A B F] (3) It is well settled that a party 's admission as de fined in sections 17 to 20 fulfilling the requirements of section 21, Evidence Act is substantive evidence proprio vigore.
An admission, if clearly and unequivocally made is the best evidence against the party making it and though not conclusive, shifts the onus on to the maker on the principle that "what a party himself admits to be true may reasonably be presumed to be so" and until the presump tion was rebutted the fact admitted must be taken to be established.
In the instant case, there are a number of clear admissions in prior declarations precisely and delib erately made in solemn documents by Shri John.
These admis sions were made ante litem motam during the decade preceding the election in question.
These admissions were entitled to great weight.
They had shifted the burden on the appellant (Shri John) to show that they were incorrect.
The appel lant had miserably failed to show that these admissions were incorrect.
[543 C E] (4) Under Rule 71(1) of the Conduct of Election Rules, 1961, "Continuing candidate" means any candidate not elected and not excluded from the poll at any given time.
Two elements must, therefore, be satisfied before a candidate can be said to be a Continuing candidate.
He should be a "candidate not elected" and further he must not be excluded from the poll at any given time.
In the instant case Sri Mohanarangam fulfils both these conditions.
[550 B, 552 C] (5) The contention that an essential prerequisite to the continuance of a candidate is the allotment of a "bas ket" or "parcel" under Rule 74 and only such candidate is entitled to the allotment of a basket who at the end of the count gets some vote to his credit and opens his account, and since Mohanarangam did not get any vote whatever he stood automatically excluded is not correct.
There is nothing in Rule 74 or any other Rule which, at an election to fill more than one seat, requires or empowers the Return ing Officer to exclude a candidate from the poll merely on the ground that in the counting of the first preferences, he has not received any valid vote.
[552 E H] (6) Sub Rule (3) of Rule 75 which requires the Return ing Officer to exclude from the poll a candidate.
whose score is the lowest governs the counting of votes where only one seat is to be filled and at the end of any count, no candidate can be declared elected.
Sub Rule (3) of Rule 75 has no application to the instant case.
[552 G] (7) Rule 80 can have n6 application because, it comes into operation at a stage "after all surpluses have been trans ferred.
That stage never arrived in the instant case because in the first counting.
itself all the six seats were filled up six candidates (including Shri John) having received the requisite quota of first preference votes.
Nor did the stage for applying Rule 81 arise, because at the end of the first count, no vacancy remained untitled.
In the instant case, shri Mohanarangam did not get automatically excluded.
Both he and Sri Subrahmanyam were continuing candidates.
Sri Subrahmanyam could not be declared elected as he had not obtained the required quota of 3201 votes.
[522 H; 553 A] 540 (8) The ratio decidendi of Viswanatha vs Konappa is applica ble only where, (a) there are two contesting candidates and one of them is disqualified (b) and the election is on the basis of single non transferable vote.
In the instant case the election in question was not held by mode of single non transferable vote according to which a simple majority of votes secured ensures the success candidate, but by proportional representation with single transferable yore under which system the success of a candidate normally depends on his securing the requisite quota.
Shri Subrah manyam was not the sole surviving continuing candidate left in the field, after exclusion of the disqualified candi date, Shri John.
[554 G H, 555 A] Wiswanatha vs Konappa AIR 1969 S.C. 604, distinguished.
All the votes that had polled in favour of Shri John who has been found by the court to be statutorily disqualified for election cannot be regarded as thrown away and in conse quence, the appellant Shri Subrahmanyam who secure 300 votes as against none obtained by Shri Mohanarangam cannot be declared elected.
Shri Subrahmanyam was neither the sole continuing candidate not had be secured the requisite quota of votes.
It is nobody 's case that the electors who voted for Shri John had at the time of election knowledge or notice of the statutory disqualification of this candidate.
On the contrary, they must have been under the impression that Shri John was a candidate whose nomination had been validly accepted by the Returning Officer.
Had the electors notice of Shri John 's disqualification, how many of them would have voted for him and how many for the other continu ing candidates including Sarvashri Subrahmanyam and Mohana rangam and in what preferential order, remains a question in the realm of speculation and unpredictability.
[553 B E] R.M.
Seshadri vs
G.V. Pai ; @ p. 701, fol lowed.


judgement:
Civil Appeal No. 89 of 1975.
(From the Judgment and Order dated the 4th May 1973 of the Madras High Court in Tax Case No. 183 of 1967).
N.A. Palkhivala, R. Balasubramanian, LB.
Dadachanji, A.C. Moneses, Mrs. A.K. Verma, C.R. Dun, Ravinder Narain and O.C. Mathur, for the appellant.
R.M. Mehta, and R.N. Sachthey, for the respondent.
K.R. Ramamani and 1.
Ramamurthi, for the Intervener.
The Judgment of the Court was delivered by UNTWALIA, J.
This is an appeal by certificate from the decision of the Madras High Court in a Reference made by the Income tax Appellate Tribunal under section 66(1) of the Income Tax Act, 1922 hereinafter referred to as the Act.
M/s Carborandum Co. of the United States of America hereinafter called the American ' Company or the Assessee Company, is: the appellant.
The Central Board of Revenue has declared it a Company under section 2(5A) of the Act.
It has specialized in the manufacture of bonded abra sive and coated abrasive products.
For the improvement and advancement in the line of its manufacture, it has a Re search Wing also.
The results of the research are incorpo rated in pamphlets prepared from time to time.
The Assessee Company entered into an agreement dated June 22, 1955 with M/s Carborandum Universal Ltd. hereinaf ter called the Indian company, having its registered office at Madras.
As per the terms of the agreement the American Company was to render and did render to the Indian Company certain technical and know how services of the following nature : (i) furnishing of technical information and know how" with respect to the manufacture of bonded abrasive and coated abrasive products; (ii) providing technical management including factory design and lay out, plant and equipment production, purchase of. mate rials, manufacturing specifications and quali ty of product; 4 502 SCI/77 478 (iii) furnishing comprehensive technical information of all developments in the manu facture of the special products; (iv) providing the Indian company With a resident factory manager for starting the plant and superintending its operations during its initial production stages, as also other technical personnel necessary for the operation of the plant; (v) training Indian personnel to replace the foreign technical personnel as quickly as possible.
In lieu of all the services aforesaid, as per the agreement, the American company was to receive from the Indian company an annual service fee equal to 3 per centum on the net sale proceeds of the products manufactured by the latter each year.
During the year of account relevant to the assessment year 1957 58 the assessee company received a sum of Rs. 95,762/ from the Indian company as its service fee.
A good slab of it was deducted at source by the Indian company on account of income tax and super tax payable .on the said sum.
The American company filed a Return of income for the year in question with an application for refund of the entire tax deducted at source.
The Income tax Officer took the view in his assessment order that 5% of the technical fee paid to the American company was earned by it in India and Only that small amount was assessable to income tax.
Consequently, he directed the refund of a major portion of the tax deducted at source to the assessee company.
The Commissioner of Income tax in exercise of his power under section 338 of the Act revised the order of the Income tax Officer and took the view that at least 75 % of the techni cal fee earned by the assessee company during the year of account had accured or arisen in India.
In the main, the basis of his order was that even though the technical infor mation was supplied by the assessee company from outside India, the information received by the Indian company was put to use only in the taxable territory and the technical fee paid by it was mainly on account of such use.
The Commissioner was also of the view that the technical person nel furnished by the assessee company to the Indian company although worked under the control of and was paid for by the latter, the situs of the services so rendered was in India.
Treating the technical fee in the nature of royalty paid, it directed the Income tax Officer to revise the assessment on the basis that 75% of it should be taken as income accruing or arising in India to the assessee company.
The American company went up in appeal to the Appellate Tribunal from the revisional order of the Commissioner.
The Tribunal Set aside the said order and restored that of the Income tax Officer, even though it seems to be of the view that even 5% of the technical fee could not be taken as income of the assessee company taxable under the Act.
But since the assessee company had not gone .in appeal because of the smallness of the amount of tax payable on the basis of 5%, the Tribunal was obliged to maintain the order of the Income tax Officer.
479 The Tribunal took some new materials into consider ation at the appellate stage in order to ascertain the true nature of the service rendered by the American company to the Indian company as per the term of the agreement and the place of rendering such service.
The findings of the Tribu nal are: (1) The American company rendered service to the Indian company for the starting of the factory in India in the shape of exami nation of the factory design and lay out prepared by the latter and sending its advice by post.
These services were not proved to have been rendered in India.
(2) The pamphlets and bulletins incorporating the results of research made by the American company were also furnished to the Indian company by post and thus.
the said service was also rendered outside India.
(3) That the services of the .foreign technical personnel were made available to the Indian company by the American company outside the country.
The former employed such person nel in India on the basis of the various agreements of employment entered between the Indian company and such personnel.
They were the employees of the Indian company under its Control for their day today working.
(4) The training of the Indian per sonnel directly by the employees of the asses see company was imparted outside India.
The Tribunal did not agree with the views of the Commissioner that the payment of the teChniCal fee of 3% was dependent upon the use of the information in India or on the volume and extent of such use.
The use of the technical assistance and knowhow given by the American Company and made use of by the Indian Company in the taxable territory could not make the former liable to payment of income tax on the amount of technical fee received by it nor was it any royalty.
A new stand taken before the Tribunal on behalf of the Revenue that the assessee company must be deemed to be working in conjunction with the Indian company in the manufacture of the products in question was also rejected.
The Commissioner of Income tax the respondent in this appeal, asked for a reference and the Tribunal referred the following question of law for the opinion of the High Court: "Whether on the facts and in the circumstances of the case, the technical fee in excess of 5 per cent received by the asses see company from the Indian company during the account year relevant to the assessment year 1957 58 has accrued or arisen in India?" Before the High Court on behalf of the Revenue the point of conjunction between the American company and the Indian company in the manufacture of abrasive products was put in the fore front.
480 Finding this stand unsustainable in face of the agreement between the two companies and in absence of any other mate rial in support of it, the High Court rejected this stand outright.
It, however, felt persuaded to permit the Revenue to change its stand even at the reference stage and to urge that the agreement Clearly established a business connection between the two companies; the technical fee received by the assessee company had accrued or arose from such business connection and hence it was assessable to income tax under section 4(1 ) (c) read.
with section 42 of the Act.
The objection of the assessee company to the entertainment of the new point at the reference stage that it did not arise out of the Tribunal 's order was over ruled by the High Court on the ground that the question referred was in general terms and comprehensive enough to embrace within its ambit the point of applicability of section 42(1) of the Act to the 'transactions in question.1 Upholding this stand taken on behalf of the Revenue the High Court answered the ques tion referred to ' it in its favour and against the assessee company.
Hence this appeal.
Mr. N.A. Palkhivala, learned counsel for the appellant company urged the following four points in support of this appeal : (1) That the High Court could not go into the matter of business connection between the two companies when .such a question was never raised or in issue at any earlier stage.
(2) That the High Court was wrong in founding the tax liability of the assessee company on the basis of the alleged business connection.
Its finding or view in that regard is wholly erroneous.
(3) That even assuming that the High Court was right in its view of basing the tax li ability of the assessee company on the alleged business connection, it failed to examine the question of apportionment under section 42(3) of the Act.
(4) That apportionment under section 42(3) and determination of the tax liability of the assessee company in pursuance thereof could not be more than the liability to pay tax on 5% of the total technical fee as found by the Income tax Officer and upheld by the Tribunal.
Certain other companies have intervened in this appeal and some argument was advanced on their behalf too in sup port of the main argument of Mr. Palkhivala, Section 4(1) of the Act provides : "Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which . . . . . . (c) if such person is not resident in the taxable territories during such year, accrue or arise or are deemed to.
accrue or arise to him in ' the taxable territories during such year :" 481 The income assessable to income tax, therefore, is of two kinds viz (i) accruing or arising in the taxable territories and (ii) deemed to accrue or arise to the non resident in the taxable territory.
The concept of actual accrual or arising of income in the taxable territories, although not dependent upon the receipt of the income in the taxable territories, is quite distinct and apart from the notion of deemed accrual or arising of the income.
The High Court does not appear to have kept this distinction inview and mixed the one with the other while deciding the reference in question.
Section 42 of the Act concerns itself with a deemed accrual or arising of the income within the taxable territories.
Under sub section (1) "All income, profits or gains accruing or arising, whether directly or indirectly, through or from any business connection in the taxable territories . . . shall be deemed to be income accruing or arising within the taxable territories, and where the person entitled to the income, profits or gains is not resident in the taxable territories, shall be chargeable to income tax either in his name or in the name of his agent, and in the latter case such agent shall be deemed to be, for all the purposes of this Act, the assessee in re spect of such income tax :" If the whole of the deemed income can be roped in for the levy of tax under section (1) of section 42, no question of any apportionment arises.
If not, sub section ( 3 ) is attracted.
It says.
"In the case of business of which all the operations are not carried out in the taxable territories, the profits.
and gains of the business deemed under this section to accrue or arise in the taxable territories shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in the taxable territo ries.
" In Commissioner of Income Tax, Bombay vs Scindia Steam Navigation Co. Ltd.(1) it has been pointed out that when a question of law was neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it.
In the instant case the question of law based upon the theory of business connection was neither raised before the Tribunal nor considered by it, nor did it arise on the findings of fact recorded by it.
The High Court, therefore, was wrong in entertaining this new point at the reference stage on the basis of the allegedly general and compendious nature of the question referred to it by the Tribunal.
But we do not propose to rest our judgment only on this technical aspect of the matter as we find that even on merits the assessee company has a good case to succeed before us.
The High Court agreed with the Tribunal that the techni cal information furnished by the assessee company by post was a.service which could not be said to have been rendered in India; putting it to use in India is not relevant as opined by the Commissioner.
But in regard to the fact of the foreign technicians having been l.employed by the (1)42 I.T.R. 589.
482 Indian company on payment of salary in India, it took the view that the service was rendered in India as foreign technicians were deputed by the assessee company.
In the opinion of the High Court it did amount to some activity or service in India.
Then the High Court proceeds to say:" Therefore, we are of the view that the assessee having rendered at least some services in India which amounts to a business activity the technical fee should be taken to have accrued through or from its business Connection in India.
" Even though, according to the High Court, the finding aforesaid was sufficient to rope in the entire receipts of the assessee company as income having accrued or arisen in India as a result of its business connection, it felt obliged to make the apportionment to the extent of 75% because of the apportionment so made by the Commissioner.
In our judgment the High Court went wrong in its approach to the question raised before it and did not quite correctly appreciate the scope and applicablity of section 42 of the Act.
On a plain, reading of sub sections (1) and (3) of section 42 it would appear that income accruing or arising from any business connection in the taxable territories even though the.
income may accrue or arise outside the taxable territories will be deemed to be income accruing or arising in such territory provided operations in connection with such business, either all or a part, are carried out in the faxable territories.
If all such opera tions are carried out in the taxable territories, sub sec tion (1 ) would apply and the entire income accruing or arising outside the taxable territories but as a result of the operations in connection with the business giving rise to the income would be deemed to accrue or arise in the taxable territories.
If, however, all the operations are not carried out in the taxable territories the profits and gains of the business deemed to accure or arise in the taxable territories shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in the taxable territories.
Thus comes in the question of apportionment under sub section (3) of section 42.
In Commissioner of Income lax Punjab vs B.D. Aggarwal and Co. and another,(1) Shall J, as he then was, speaking for this Court said at page 24: "A business connection in section 42 involves a relation between a business carried on by a non resident which yields profits or gains and some activity in the taxable ferri tories which contributes directly or indirect ly to the earning of these profits or gains.
It predicates an element of continuity.
be tween the business of the non resident and the activity in the taxable territories: a stray or isolated transaction is normally not to be regarded as a business connection.
Business.
connection may take several forms: it may include carrying on a part of the main busi ness or activity incidental to the main busi ness of the non resident through an agent, or it may merely be a relation between the busi ness of the nonresident and the.
activity in the taxable territories, which facilitates or ' assists the carrying on of that business.
In each case the ' question whether there is a business connection (1) 483 from or through which income., profits or gains arise or accrue to non resident must be determined upon the facts and circumstances of the case.
" The learned Judge says further "A relation to be a "business connec tion" must be real and intimate, and through or from which income must accrue or arise whether directly or indirectly to the nonres ident.
But it must in all cases.
be remem bered that by section 42 income, profit or gain which accrues or arises to a non resident outside the taxable territories is sought to be brought within the net of the income tax law, and not income, profit or gain which accrues or arises or is deemed to accrue or arise within the taxable territories.
Income received or deemed to be received or accruing or arising or deemed to be accruing or arising within the taxable territories in the previous year is taxable by section 4(1) (a) and (c) of the Act, whether the person earning is a resident or non resident.
If the agent of a non resident receives that income or is enti tled to receive that income, it may be taxed in the hands of the agent by the machinery provision enacted in section 40 (2).
Income not taxable under section 4 of the Act of a non resident becomes taxable under section 42 (1 ) if there subsists a connection between the activity in the taxable territories and the business of the non resident, and if throug or from that connection income directly or indirectly arises.
" The High Court was wrong in its view that activities.
of the foreign personnel lent or deputed by the American compa ny amounted to business activity .carried on by that company in the taxable territory.
The finding of the Tribunal in that regard was specific and clear and was unassailable in the reference in question.
The American company has made the services of the foreign personnel available to the Indian company outside the taxable territory.
The latter took them as their employees, paid their salary and they worked under the direct control of the Indian company.
The service rendered by the American company in that connection was wholly and solely rendered in the foreign territory.
Even assuming, however, that there was any business connec tion between the earning of the income in the shape of the technical fee by the American company and the affairs of the Indian company, yet no part of the activity or operation could be said to have been carried on by the American compa ny in India.
And in absence of such a sustainable finding by the High Court the provision of section 42, either of sub section (1) or of sub section (3), were not attracted at all.
The judgment of the High Court under appeal reported in Commissioner of Income Tax, Madras J, vs Carborandum Compa ny(1) is not correct.
It has rightly been pointed out by the Bombay High Court in Commissioner of Income Tax Bombay City I vs Tara Chemicals Ltd.(2) with reference to the similar or almost ( 484 identical provisions in section 9(1) of the Income tax Act, 1961 that in order to rope in the income of a non resident under the deeming provision it must be shown by the Depart ment that some of the operations ,were carried out in India in respect of which the income is sought to be assessed.
The finding of fact recorded by the Tribunal being against the department in that connection the Bombay High Court refused to call for a reference.
For the reasons stated above we hold that on the facts and in the circumstances of the case the technical service fee received by the Assessee company from the Indian company during the accounting year relevant to the assessment year 1957 58 did not accrue or arise in India nor could it be deemed to have accrued or arisen in India.
But since 5 % of the technical service fee was brought to tax by the Income Tax Officer and no appeal was filed against it 'on behalf of the Assessee Company, we cannot interfere with.
the addition of this 5% but if must be held that the technical leo in excess of 5 % was not taxable.
We accordingly allow the appeal, set aside the judgment of the High Court and answer the question referred by .the Tribunal in favour of the assessee and against the Revenue.
The Commissioner will pay the costs of the appeal as also of the reference to the assessee.
S.R. Appeal allowed.

dataset_name: IN-Abs

summary/full:
The appellant a foreign company within the meaning of section 2(5A) of Income Tax Act, entered into an agreement with M/s. Carborandum Universal Ltd., having its registered office at Madras on June 22, 1955 and rendered certain technical and knowhow services.
In view of the said serv ices it was to 'receive from the Indian company an annual service fee equal to 3 per centum of the net sale proceeds of the products manufactured by the latter.
During the year of account relevant to the assessment year 1957 58 the appellant company received a sum of Rs. 95,762/ from the Indian company as its service fee.
A good slab of it was deducted at source on account of incometax and super tax.
The appellant company fried its return of income for the year in question with an application for refund of the entire tax deducted at source.
The income tax officer took the view in his assessment order that 5% of the technical fee paid to the American company was earned by it in India and only that small amount was assessable to in come tax and directed the refund of major portion of the tax deducted at source to the assessee company.
The Commission er of Income tax in exercise of his revisional powers under section 33B of the Act took the view that at least 75% of the technical fee earned by the assessing company during the year of account had accrued or .arisen in India even though the technical information was supplied by the assessee company from outside India and the technical personnel furnished by the assessee company to the Indian company although worked under the control of and was paid for by the latter inasmuch as the situs of the services so rendered was in India.
Treating the technical fee in the nature of royalty paid, it directed the Income tax Officer to revise the assessment on the basis that 75% of it should be taken as income accruing or arising in India to the assessee company.
On appeal, the Appellate Tribunal set aside the said order and restored that of the Income tax Officer even though it was of the view that even 5% of the technical fee could not be taken as income of the assessee.
company taxa ble under the Act.
The Tribunal held that the use of the technical assistance and know how given by the American Company and made use of by the Indian Company in the taxable territory could not make the former liable to payment of income tax on the amount of technical fee received by it nor was it any royalty.
It also rejected a new stand taken by the Revenue that the assessee company must be deemed to be working in conjunction with the Indian Company in the manu facture of its products.
On reference under section 66( 1 ).
of the Act the Revenue.
took another new plea that the agree ment clearly established a business connection between the two companies and as such technical fee received by the assessee company had accrued or arose from such business connection assessable to income tax under section 4(1)(c) read with section 42 of the Act.
The objection of the assessee.
company to the entertainment of the new point at the refer ence stage that it did not arise out of the Tribunal 's order was over ruled by the High Court on the ground that the question referred to was in general terms and comprehensive enough to embrace within its ambit the point of applicabili ty of section 42(1) of the Act to the transactions in question.
Upholding the stand taken on behalf of the Revenue the High Court answered the question referred to it in its favour against the assessee company.
On appeal by certificate the appellant contended: 476 (1) That the High Court could not go into the matter of business connection between the two companies when such a question was never raised or in issue at any earlier stage; (2) That the High Court was wrong in rounding the tax liability of the assessee company on the basis of the alleged business connection.
Its finding or view in that regard is wholly erroneous.
(3) That even assuming that the High Court was right in its view of basing the tax li ability of the assessee company on the alleged business connection, it failed to examine the question of apportionment under section 42(3) of the Act.
(4) That apportionment under section 42(3) and determination of the tax liability of the assessee company in pursuance thereof could not be more than the liability to pay tax on 5% of the total technical fee as found by the Income taxOfficer and upheld by the Tribunal, HELD: (1) The technical service fee received by the assessee company from the Indian company during the accounting year relevant to the assessment year 1957 58 did not accrue or arise in India.
Since 5% of the technical service fee was brought to tax by the I.T.O. and no appeal was filed against it on behalf of the assessee company, the technical fee in excess of 5% was not taxable.
[484 B D] (2) The High Court did not keep in view the distinction between the concept of actual accrual and the notion of deemed accrual evidenced from section 4(1) (c) & section 42 but mixed the one with the other while answering the reference in question.
The income assessable to income tax section 4(1)(c) is of two kinds viz. (1) accruing or arising in the taxable territories and (ii) deemed to accrue or arise to the non resident in the taxable territory.
The concept of actual accrual or arising of income in the taxable territories, although not depending upon the receipt of the income in the taxable territories is quite distinct and apart from the notion of deemed accrual or arising of the income.
[481 A B].
(3) The High Court was wrong in entertaining at the reference stage on the basis of the alleged general and compendious nature of the question referred to it by the Tribunal the new point based upon the theory of business connection, which was neither raised before the Tribunal nor considered by it; nor did it arise on the findings of fact recorded by it.
[481 F G] Commissioner of Income Tax, Bombay vs Scindia Steam Navigation Co. Ltd. ; , followed.
(4) The High Court went wrong in its approach to the question raised before it and did not quite correctly appre ciate the scope and applicability of section 42 of the Act.
On a plain reading of sub sections (1) and (3) of section 42, it would appear that income accruing or arising from any busi ness connection in the taxable territories even though the income may accrue or arise outside the taxable territories will be deemed to be income accruing or arising in such territory, provided operations in connection with such business, either all or a part, are carried out in the taxable territory.
If all such operations are carried out in the taxable territory, sub section (1.) would apply and the entire income accruing or arising outside the taxable territory but as a result of the operations in connection with the business giving rise to the income would be deemed to accrue or arise in the taxable territories.
If, however, all the operations are not carried out in the taxable terri tories, the profits and gains of the business deemed to accrue or arise in the taxable territories shall be only such 'profits and gains are reasonably attributable to that part of the operations carried out in the taxable territo ries.
Thus comes in the question of apportionment under subsection (3) of section 42.
[482 C F] Commissioner of Income Tax, Punjab vs R.D. Aggarwal & Co. and Anr.56 ITR 20, referred to.
(5) In the instant case the High Court was wrong in its view that activities of the foreign personnel lent or deput ed by the American company amounted to a business activity carried on by that company in the taxable territory.
The service rendered by the American company in that connection was wholly and 477 solely rendered in the foreign territory.
No part of the activity or operation could be said to have been carried on by the American company in India, even if there was any business connection between the earning of the income in the shape of the technical fee by the American company and the affairs of the Indian company.
In the absence of such a sustainable finding, the provisions of section 42 either of sub section (1) or of sub section (3):were not attracted at all.
In order to rope in the income of a non resident under the deeming provision it must be shown by the Department that some of the operations were carried out in India in respect of which the income is sought to be assessed.
[483 E H] Commissioner of Income Tax, Madras I vs Carborandum Co. overruled.
C.I.T. Bombay City IV.
Tata Chemicals Ltd. , approved.