judgement:
Civil Appeal No. 1795 of 1970.
From the Judgment and order dated the 15th October, 1968 of the Madras High Court in Writ Petition No. 2252 of 1965.
section T. Desai and T. A. Ramachandran, for the appellant.
N. D. Karkhanis and section P. Nayar, for the respondent.
The Judgment of the Court was delivered by CHANDRACHUD,J.
The appellant filed a writ petition in the High Court of Madras under Article 226 of the Constitution to challenge an assessment order dated August 22, 1963 made by the respondent, levying additional surcharge on its residual income.
The High Court dismissed the writ petition by its judgment dated October IS, 1968 but it has granted to the appellant a certificate to file an appeal to this Court under Articles 133(a) and (c) of the Constitution.
The appellant is a co operative society engaged in the business of banking.
Its total income for the assessment year 1963 64 was computed by the respondent at Rs. 10,00,098.
Out of this, Rs. 9,48,335 was its business income while Rs. 51,763 was its income from other sources.
Since, under section 81(i)(a) of the Income tax Act, 1961 a co operative society engaged in the business of banking is not liable to pay income tax on its business income the tax amounting to Rs. 23,845.47 was charged on Rs. 51,763 only though for the purposes of rate the income was taken at Rs. 9,48,335 in view of section 110 of the Act.
Applying the Finance Act, XIII of 1963, the respondent computed the residual income of the appellant at Rs. 5,39,386 and levied on it an additional surcharge of Rs. 52,828.60.
Thus the total tax levied on the appellant came to Rs. 23,845.47 plus Rs. 52,828.60 i.e., Rs. 76,674.07.
The main grievance of the appellant before the High Court was that whereas its taxable income was only Rs. 51,763, a tax of Rs. 76,674.07 was imposed on it.
The relevant provisions of the Finance Act were accordingly said to be invalid as they could not subject to additional surcharge an income which was exempt from tax under the provisions of the Income tax Act.
The additional surcharge, it was contended, was intended as an additional levy on the income 139 tax and had no independent existence apart from it.
These contentions were rejected by the High Court and hence this appeal.
Section 81 of the Income tax Act, 1961 was deleted by the Finance Act, XX of 1967, with effect from April 1, 1968 but its provisions were incorporated by the same Finance Act in section 80P.
Section 81 (i)(a) read thus: "81.
Income of co operative societies.
Income tax shall not be payable by a co operative society (i) in respect of the profits and gains of business carried on by it, if it is (a) a society engaged in carrying on the business of banking or providing credit facilities to its members;" It is indisputable that by reason of this provision, the tanking income of the appellant amounting to Rs. 9,48,335 is exempt from income tax.
It is equally clear that by reason of section 99(1)(v) of the Act of 1961, the appellant is not liable to pay supertax on its business income.
That section provides that where the assessee is a co operative society, super tax shall not be payable by it on any income in respect whereof no income tax is payable by it by virtue of the provisions of section 81.
The dispute really centers round the provisions of Finance Act, VIII of 1963.
The provisions of that Act which are relevant for our purpose are sections 2(1)(a), 2(8), 3, Paragraph A(ii) of Part I of the First Schedule, and clause (c) of that` portion of Part 1, called ` 'Surcharges on Income Tax." Section 2(1)(a) of the Finance Act, 1963 provides that: 2.
Income tax and super tax (1) Subject to the provisions of sub section (2), (3), (4) and (5), for the assessment year commencing on the 1st day of April, 1963, (a) income tax shall be charged at the rates specified in Part I of the First Schedule and, (i) in the cases to which paragraphs A,C,C and E of that Part apply, shall be increased by a surcharge for purposes of the Union and, except in the cases to which the said paragraph applies a special surcharge, calculated in either case in the manner provided therein; and (ii) in the cases to which paragraphs A and of the aforesaid Part apply, shall further be increased by an additional surcharge for purposes of the Union (hereinafter referred to as additional surcharge) calculated in the manner provided in the said Schedule;" Section 2 (8) provides that: For the purposes of paragraphs A and of Part I of the First Schedule, the expression "residual income" means the amount of the total income as reduced by 140 (a) the amount of the capital gains, if any, included therein; and (b) the amount of tax (exclusive of additional surcharge) which would have been chargeable on such reduced total income if it had been the total income no part of which had been exempt from tax and on no portion of which deduction of tax had been admissible under any provisions of the Income tax Act or this Act.
" Section 3 provides that: "Notwithstanding anything contained in the provisions of Chapter VII or Chapter VIII A or section 110 of the Income tax Act or sub section (5) of section 2 of this Act, in calculating any relief rebate or deduction in respect of income tax payable on the total income of an assessee which includes any income on which no income tax is payable or in respect of which a deduction of income tax is admissible under any of the aforesaid provisions, no account shall be taken of the additional surcharge.
" The First Schedule of the Finance Act, 1963 consists of three parts out of which we are only concerned with Part I. Part I which is called "Income tax and surcharges on income tax" consists of Paragraphs A, B, C, and out of which we are concerned with Paragraph A only.
Clause (ii) of Paragraph A prescribes rate of income tax for incomes accruing, inter alia, to "association of persons".
Since a co operative society is an association of persons, Paragraph A of Part I would apply to the case of the appellant for`the purposes of section 2(1)(a)(ii) of the Finance Act oil 1963, though not for the purpose of bringing its exempted business income to income tax.
That portion of Part I, Paragraph A, called "Surcharges on Income Tax" provides: "The amount of income tax computed at the rates hereinbefore specified shall be increased by the aggregate of the surcharges calculated as under".
Clause (a) provides for a surcharge for the purposes of the Union at the rates mentioned in sub clauses (i), (ii) and (iii).
Clause (b) provides for the levy of a special surcharge.
Clause (c) with which we are concerned provides for the levy of "an additional surcharge for the purposes of the Union calculated on the amount of the residual income" at the rates mentioned therein.
The grievance of the appellant, which appears to have been pressed before the High Court with some earnestness, that the tax levied upon it exceeds its taxable income can afford no true guide to the construction of the relevant provisions of the Income tax Act or the Finance Act.
Harshness of a taxing statute, apart from a possible challenge to it under Article 13 of the Constitution, cannot be an invalidating circumstance.
But the grievance on this score is basically misconceived.
It assumes, what has to be examined, that no part of the income exempted from income tax and super tax under the Income tax Act can be brought to tax by a Finance Act.
The total income of the appellant was computed 141 at Rs. 10,00,098.
By reason of sections 81 (i) (a) and 99 (1) (v) of the Income tax Act, 1961 the appellant enjoys an exemption from income tax and super tax in respect of its business income which amounts to Rs. 9,48,335.
The balance, viz. Rs. 51,763 which was the appellant 's income from other sources was alone taxable under the Act of 1961 and a tax of Rs. 23,845.47 was imposed on that income; The Finance Act of 1963 subjects 'residual income ' to certain charges and such in come was computed, admittedly correctly, at Rs. 5,39,386.
An additional surcharge of Rs. 52,828.60 was levied on the residual income.
Thus on the assumption that the Finance Act, validly and on a true interpretation, imposes the additional surcharge on residual income, the tax imposed on the appellant is Rs. 23,845.47 plus Rs. 52,828.60.
The total tax of Rs. 76,674.07 thus imposed is far less than the.
appellant 's total taxable income arrived at by the addition of its non business income and the residual income.
That leads to the inquiry first as regards the scope of a Finance Act and then as regards the interpretation of the Finance Act of 1963.
Learned counsel for the appellant, during the course of his arguments, gave up the challenge to the power of the Parliament to impose a new charge by a Finance Act.
This concession was properly made.
By Article 246(1) of the Constitution, Parliament has the exclusive power to make laws with respect to any of the matters in List I of the Seventh Schedule.
Entry 82 in List I relates to "taxes on income other than agricultural income".
The Income tax Act, 1961 and the annual Finance Acts are enacted by the Parliament in exercise of the power conferred by Article 246(1) read with Entry 82 of List I.
Once the Parliament has the legislative competence to enact a law with respect to a certain subject matter, the limits of that competence cannot be judged further by the form or manner in which that power is exercised.
Accordingly, though it would be unconventional for the Parliament to amend a taxing statute by incorporating the amending provision in an Act of a different pith and substance, such a course would not be un constitutional.
Much more so can the Parliament introduce a charging provision in a Finance Act.
True, as said in Kesoram Industries and Cotton Mills Ltd vs Commissioner of Wealth Tax, (Central) Calcutta(1), that the Income tax Act is a permanent Act vs while the Finance Acts are passed every year and their primary purpose is to prescribe the rates at which the income tax will be charged under the Income tax act.
But that does not mean that a new and distinct charge cannot be introduced under the Finance Act.
Exigencies of the Financial year determine the scope and nature of its provisions.
If the Parliament has the legislative competence to introduce a new charge of tax, it may exercise that power either by incorporating that charge in the Income tax Act or by introducing it in the Finance Act or for the matter of that in any other Statute.
The alternative in this regard is generally determined by the consideration whether the new charge is intended to be more or less of a permanent nature or whether its introduction is dictated by the financial exigencies of the particular year.
Therefore, what is not 'income ' under 142 the Income tax Act can be made 'income ' by a Finance Act, an exemption granted by the Income tax Act can be withdrawn by the Finance Act or the efficacy of that exemption may be reduced by the imposition of a new charge.
Subject to constitutional limitations, additional tax revenue may be collected either by enhance the rate or by the levy of a fresh charge.
The Parliament, through the medium of a Finance Act, may as much do the one as the other.
In McGregor and Balfour Ltd., Calcutta vs C.I.T., West Bengal(1), which was affirmed by this Court in Chakravartti C.J. delivering the judgment of a Division Bench observed that the Finance Acts though annual Acts are not necessarily temporary Act for they may and often do contain provisions of a general character which are of a permanent operation.
In Hari Krishna Bhargav vs Union of India and Anr.(2) an assessee challenged the scheme of Annuity Deposits of the ground that the Parliament has no competence to incorporate ill the Income tax Act a provision which was substantially one relating to borrowings by the Central Government from a class of tax payers.
That scheme was introduced by Finance Act 5 of 1964 which incorporated Chapter XXII A containing section 28 A to section 28 X in the Income tax Act, 1961.
The challenge was repelled by this Court on the ground that if the parliament had the legislative competence to pass an Act for collecting Annuity Deposits from tax payers, nothing contained in the Constitution disentitled it "as a matter of legislative arrangement to incorporate the provisions relating to borrowing from tax payers in the Income tax Act or any other statute".
This discussion became necessary in spite of the appellant 's concession on the Parliament 's legislative competence because for a proper understanding of the provisions of the Finance Act 1963, it is essential to appreciate that a Finance Act may not only prescribe rates but also introduce a new charge.
We will now proceed to consider the provisions of the Finance Act, 1963 under which the respondent has levied additional surcharge on the appellant 's residual income.
The question for consideration is whether clause (c) of the portion "Surcharges on Income Tax" occurring in Paragraph A of Part I introduces a new charge in the shape of additional surcharge so that the said charge, can be levied even on a part of the appellant 's income which is exempt from income tax and super tax under sections 81(i)(a) and 99(1)(v) of the Act of 1961.
The history of Indian income tax, according to appellant 's counsel, shows that surcharges by way of increase in the amount of income tax are nothing but income tax and therefore the expression "income tax" occurring in sections 4 and 81 of the Act of 1961 and in section 2 and the First Schedule of the Finance Act, 1963 includes surcharges.
To put it differently, the argument is that the exemption granted by section 81(i)(a) extends to surcharges also as a result whereof a co operative society engaged in the business of banking is neither liable to pay income tax nor any of the surcharges on its business income.
143 In C.I.T., Kerala vs K. Srinivasan(1) on which the appellant relies, this Court has traced the history of the concept of 'surcharge ' in tax laws of our country.
After considering the report of the Committee on Indian Constitutional Reforms, the provisions of the Government of India Act, 1935, the provisions of Articles 269, 270 and 271 of the Constitution and the various Finance Acts, this Court held, differing from the High Court, that the word "income tax" in section 2(2) of the Finance Act, 1964 includes surcharges and the additional surcharge.
This case does not touch the point before us.
In that case, the assessee 's income for the accounting year ending March 30, 1964 consisted mainly of his salary.
Section 2(2)(a) of the Finance Act, 1964 did not by itself refer to any surcharge but it provided that in making the assessment for the assessment year commencing on April 1, 1964 the "income tax" payable by the assessee on his salary income shall be an amount bearing to the total amount of "income tax" payable according to the rates applicable under the operation of the Finance Act, 1963 on his total income, the same proportion as the salary income bears t the total income.
The question which arose for consideration was under the total income.
The question which arose for consideration was whether the words "income tax payable according to the rates applicable under the operation of the Finance Act, 1963" included surcharges which were leviable under the Act of 1963.
The question was answered by this Court in the affirmative.
As the judgment shows, "the essential point for determination" was whether surcharge is an additional mode or rate for charging income tax" (p. 351).
The Court held that it was.
The question before us is whether, even if the surcharger is but an additional mode or rate for charging income tax, the Finance Act of 1963 authorises by its terms the levy of additional surcharge on income which is exempt from income tax under the Income tax Act, 1961 In K. Srinivasans case the Court declined to express any opinion on the distinction made by the High Court that surcharges are levied under the Finance Act while income tax was levied under the Income tax Act (p. 351).
In the instant case it is not disputed by the revenue that a surcharge partakes of the essential characteristics of income tax and is an increase in income tax.
What we have to determine is whether the Act of 1963 provides for the levy of additional surcharge.
Granting that the word "income tax" includes surcharges, it may be arguable that the exemption from the payment of income tax under section 81 (i) (a) of the 1961 Act would extend to surcharges.
But the matter does not rest with what section 81 (i)(a) says.
Even if that section were to grant an express exemption from surcharges on business income the Parliament could take away that exemption or curtail the benefit available under it by making an appropriate provision in the Finance Act.
If while legislating on a matter within its competence the Parliament can grant an exemption, it is surely competent to it to withdraw that exemption in exercise of the self same power.
The Finance Act, 1963, like its annual counterparts, contains provisions not only prescribing rates of taxation but making extensive and important modifications in the Income tax Act itself.
By sections 4 to 144 20 of the Act of 1963, various provisions of the income tax Act have been amended.
By these amendments, some of which are given retrospective effect, old provisions are deleted, new ones are added and indeed new concepts of taxation altogether are introduced.
Such innovations fall within the legitimate scope of Finance Acts.
Section 11 (14) of the Indian Finance Act, 1946 made in the amount of excess profits tax repaid under section 28 of the U.K. Finance Act, 1941, "income" for the purpose of the Indian Income tax Act and further provided that "income shall be treated for purposes of assessment to income tax and super tax as the income of the previous year.
It was held by this Court in McGregor and Balfour Ltd. vs C.I.T. West Bengal(1) that section 11(14) charged the amount with a liability to tax by its own force.
It was further held that the particular provision, framed as it was, applied to subsequent assessment years just as it applied to the assessment year 1946 47.
Having seen the nature and scope of Finance Acts, the specific question which we have to consider is whether, as contended by the appellant, section 2 read with Paragraph A, Part I of the First schedule of the Finance Act, 1963 merely lays down a method of computation in cases where income tax is in fact payable or whether, as contended by the revenue, the Finance Act provides for the levy of a new and independent charge.
According to the appellant, these provisions of the Finance Act do not, directly or indirectly, bring about any amendment to section 81(i)(a) of the Income tax Act but merely prescribe that in cases where the income tax is payable, "The amount of income tax. shall be increased by the aggregate of the surcharges".
The heading "Surcharges on income tax" under which provision is made in the Finance Act for the calculation of a surcharge, a special surcharge and an additional surcharge is also said to bear out the contention that the levy of additional surcharge on the residual income cannot be disassociated from the main charge of income tax.
We are unable to accept this contention Article 269(1) of the Constitution provides that the duties and taxes mentioned therein shall be levied and collected by the Government of India but shall be assigned to the States in the manner provided in clause (2).
Article 270(1) provides that Taxes on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the States in the manner provided in clause (2).
By Article 271, notwithstanding anything in Articles 269 and 270, Parliament may increase any of the duties or taxes referred to in those Articles by a surcharge for purposes of the Union.
Surcharges leviable under section 2(1) of the Finance Act.
1963 are relatable to Article 271 of the Constitution.
Section 2(1)(a)(ii) of that Act provides, in so far as relevant, that for the assessment year commencing on April 1, 1963 income tax shall be charged at the rates specified in Part I of First Schedule and in cases to which Paragraph A of Part I applies, the income tax shall further 145 be increased by an additional surcharge for purposes of the Union calculated in the manner provided in the First Schedule.
`Clause (c) of Paragraph prescribes the manner in which the additional surcharge is to be calculated.
It provides that additional surcharge for purposes of the Union shall be calculated "on the amount of the residual income '.
at the rates mentioned in that clause.
Thus both the purpose and concept of the additional surcharge are different from those of income tax.
The additional surcharge is leviable exclusively for purposes of the Union so that the entire proceeds of such surcharge may under Article 271 of the Constitution, from part of the Consolidated Fund of India.
taxes and duties mentioned in Article 269(1), though levied and collected by the Government, have to be assigned to the States in the manner provided in clause (2) of that Article.
Then again, the additional surcharge levied for purposes of the Union is to be calculated not on total income like the income tax but it is to be calculated on the residual income.
Section 2(8) of the Act of 1963 defines residual income as total income reduced by (a) capital gains, if any, included in that total income and (b) the amount of tax (exclusive of additional surcharge) which would have been chargeable on such reduced total income if it had been the total income no part of which had been exempt from tax and on no portion of which deduction of tax had been admissible.
In order that the exemption granted to co operative banks by section 81 (i) (a) may not lose its meaning and content, section 2(8) of the Finance Act introduces the concept of residual income on which alone the additional surcharge is payable.
The residual income is not the same as the business income of a co operative bank, which is exempt under section 81(i)(a) from income tax.
For ascertaining the residual income the total income is reduced by the amount of capital gains and further by the amount of tax (other than additional surcharge) which would have been charged on such reduced total income on the assumption that the whole of it was liable to be brought to tax.
Thus in the instant case the additional surcharge is not levied on the appellant 's business income of Rs. 9,48,335 which is exempt from income tax and super tax.
It is levied on the residual] income of Rs. 5,39,386 which is arrived at after deducting Gross taxes (exclusive of additional surcharge) amounting to Rs. 4,60,712 from the assessee 's gross income of Rs. 10,00,098.
By section 3 of the Finance Act of 1963 no account can be taken of the additional surcharge in calculating any relief, rebate or deduction in respect of income tax payable on the total income of an assessee which includes any income on which no income tax is payable or in respect of which a deduction of income tax is admissible.
Section 3, by its terms, has precedence over anything contained in Chapter VII or Chapter VIII A or in section 110 of the Income tax Act or section 2(5) of the Finance Act itself.
Additional surcharge is treated in this way as falling in a separate category.
Thus, additional surcharge is a district charge.
not dependent for its leviability on the assessee 's liability to pay income tax or super tax.
Such a qualification cannot be read into section 2(1)(a)(ii) of the Act of 1963 as argued by the appellant.
That section uses the language that "income tax. shall further be increased by an additional sur 146 charge", not for making the assessability to surcharge dependent upon Assessability to income tax but for the simple reason that if an assessee`s total income includes income on which no tax is payable, tax has all the same to be computed for purposes of rate Section 110 of the Income tax Act, 1961 provides that where there is included in the total income of an assessee any income on which no income tax is payable, the assessee shall be entitled to deduction, from the amount of income tax with which he is chargeable on his total income, of an amount equal to the income tax calculated at the average rate of income tax on the amount on which no income tax is payable.
The income tax computed at a certain rate is by section 2(1)(a)(ii) to be further increased by an additional surcharge for purposes of the Union.
This becomes clearer still from the language of Paragraph A, under the heading .
Surcharges on Income Tax".
It says: "The amount of income tax computed at the rate hereinbefore specified shall be increased by the aggregate of the surcharges,".
If the intention was to limit the liability to pay additional surcharge to income which can be brought to income tax, appropriate language could have been used to convey that simple sense.
The weakness of the appellant 's contention becomes manifest when it is realised that were the contention right, the appellant would not be liable to pay additional surcharge even on that portion of its non business income which is contained in the residual income.
By the definition in section 2(8) of the Act of 1963, residual income means the total income as reduced and therefore, the non business income which is chargeable to income tax must form a component of the residual income.
Concededly, the appellant is liable to pay additional surcharge on its non business income.
This is so not because additional surcharge is payable by law on non business income but because it is payable on residual income and residual income, by definition, includes non business income as reduced.
In fact, it consists of the amount of total income as reduced by the amounts mentioned in clauses (a) and (b) of section 2(8).
Relying on United Commercial Bank Ltd. vs Commissioner of Income tax, West Bengal(1), East India Housing and Land Development Trust Ltd. vs Commissioner of Income tax West Bengal(2), and K. V. Al.
M. Ramanathan Chettiar vs Commissioner of Income tax, Madras(3), the appellant 's counsel urged that income tax is a single levy, that it is one tax and not so many taxes separately levied on several heads of income.
This partly is the same argument in a different disguise that an assessee who is not liable to pay income tax cannot be made liable to pay additional surcharge under the Finance Act, 1963.
We have rejected that contention.
Partly, the argument is designed to establish correlation with section 146 of the income tax Act, 1961 by which, when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Act, the Income tax office has to serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable.
This provision presents no 147 difficulty for, if an assessee is liable to pay additional surcharge but no income tax or super tax, the notice of demand will mention the particular amount payable as tax due.
The appellant being liable to pay tax on its non business income and additional surcharge on its residual income, the demand notice will call for payment of the total amount due from the appellant by way of tax.
The interpretation put by us on the Finance Act, 1963 does no violence to section 4 of the Income tax Act, 1961 under which income tax at the rates prescribed by the Finance Act is to be charged "in accordance with, and subject to the provisions of." the Income tax Act.
The Income tax Act exempts the assessee 's business income from income tax and super tax.
The Finance Act brings to tax its residual income.
The decision of the Allahabad High Court in Allahabad District Co operative Bank Ltd. vs Union of India and Ors.(1) is directly in favour of the appellant and naturally, learned counsel for the appellant relies on it very strongly.
But that case, in our opinion, is incorrectly decided.
The learned Judges were in error in holding that section 2 of the Finance Act, 1963 does not provide for the levy of a tax other than income tax" and that therefore additional surcharge is not payable to the extent of the income which is exempt under section 81 of the Income tax Act.
One of the difficulties which the learned Judges felt in accepting the revenue 's contention was that if "the additional surcharge mentioned in the Finance Act of 1963 was not partake of the nature of income tax it will not be possible to demand and realise it under the provisions of the income tax Act, and the notice of demand and recovery proceedings would be vitiated on that account".
The very assumption of this observation is falacious because additional surcharge indubitably partakes of the nature and essential characteristics of income tax.
It is a tax on residual income and by reason of the definition contained in section 2(8) of the Act of 1963, "residual income" would include non business income which under the Income tax Act is charge able to income tax.
Thus, the additional surcharge, though levied by the Finance Act, 1963 independently of the Income tax Act, is but a mode of levying tax on a portion of the assessee 's income computed in accordance with the definition in section 2(8) of the Act of 1963.
Therefore, the notice of demand under section 156 of the Income tax Act can lawfully call for the payment of amount due from an assessee by way of additional surcharge.
For these reasons, we confirm the judgment of the High Court but in the circumstances there will be no order as to costs.
P.H.P. Appeal dismissed.

summary/full:
The appellant is a Cooperative Society engaged in the business of banking According to section 8] (i) (a) of the Income 'Tax Act, 1961, a Cooperative Society engaged in the business of banking is not liable to pay income tax on its business income.
The Finance Act, 1963, however, by section 2(i) (a), 2(8), 3, paragraph A(ii) of Part I of the First Schedule and clause of that portion of Part I called surcharge on Income Tax provides for levy of additional surcharge for the purposes of the Union calculated on the amount of the residual income at the rates mentioned therein.
The total income of the appellant for the assessment year 1963 64 was Rs. 10,00,098.
Out of this Rs. 9,48,335 was its business income. 'The tax amounting to Rs. 23,845 was charged on Rs. 51,763 Applying the Finance Act of 1963, the residual income of the appellant was computed at Rs. 5.39,386 and a surcharge thereon was levied of Rs. 52,828 Thus, the total tax imposed on the appellant came to Rs. 76,674.
The assessment order passed by the Income Tax officer levying the tax as aforesaid was challenged by the appellant in the High Court by a Writ Petition.
The main grievance of the appellant before the High Court was that whereas its taxable income was only Rs. 51,763, a tax of Rs. 76,674 was imposed on it.
The relevant provisions of the Finance Act were challenged as invalid on the ground that(i) they imposed additional surcharge on income which was exempt from tax under the provisions of the Income Tax Act and that (ii) the additional surcharge was intended as additional levy on the income tax and had no independent existence apart from it The High Court rejected these contentions.
On an appeal by certificate, dismissing the appeal, ^ HELD : 1.
It is indisputable that the appellant is not required to pay income tax on the banking income.
In view of section 81.
It is also not liable to pay surcharge on its business income in view of section 99(1)(v).
[139C] 2.
The, grievance of the appellant that the tax levied upon it exceeds its taxable income can afford no true guide to the construction of the relevant provisions of the Income Tax Act or the Finance Act.
Harshness of a taxing statute, apart from a possible challenge to it under article 13 of the Constitution cannot be an invalidating circumstance.
But, the grievance on this score is misconceived.
It assumes what has to be examined that no part of the income exempted from Income Tax and Super Tax under the Income Tax Act can be brought to tax by a Finance Act, [140G H] 3.
The concession of the counsel for the appellant giving up challenge to the power.
of the Parliament to impose a new charge by Finance Act was Properly made.
Under article 246(11) of the Constitution, Parliament has the exclusive power to make laws with respect ' 'o any of the matters in List of the Seventh Schedule.
Entry 82 in List I relates to tax on income other than agricultural income.
The Income Tax Act, 1961 and the annual Finance Acts are enacted by the Parliament in exercise of the powers conferred by Art 246(1) read with entry 82 of List I.
Once the Parliament has the legislative competence to enact a law with respect to certain subject matter, the limits of 136 that competence cannot be judged further by the form or manner in which that power is exercised.
Exigencies of the Financial year determine the scope and nature of the provisions of the Finance Act.
The primary purpose of the Finance Act is to describe the rates at with the Income Tax will be charged under the Income Tax Act but that does not mean that new and distinct tax cannot be charged under Finance Act.
Therefore, what is not income under the Income Tax Act can be made income by the Finance Act.
An exemption granted by the Income Tax A, t can be withdrawn by the Finance Act or the efficacy of that exemption may be reduced by the imposition of a new charge.
[141D E; G H] 4.
The contention of the appellant that surcharges are nothing but income tax and, therefore, expression income tax occurring in Sec. 4 and 81 of the Act includes surcharges and AS such exempted cannot be accepted.
The case of the C.I.T. Kerala vs K. Srinivasan distinguished.
There the essential point for determination was whether surcharge is additional mode or rate for charging income tax.
The Court held there that it was so.
The question before us is whether even if the surcharge is an additional mode or rate for charging income to the Finance Act of 1963 authorises by its terms the levy of additional surcharge on income which is exempt from income tax under the Income Tax, Act, 1961.
The residual income as defined by the 1963 Finance Act is not the same as the business income of a Cooperative Bank which is exempted under see.
The additional surcharge is a distinct charge not dependent for its leviability on the assessee 's liability to pay income tax or Super Tax.
The decision of Allahabad High Court in Allahabad District Co operative Bank Ltd vs Union of India over ruled.
[143D E] 5.
The additional surcharge though levied by the Finance Act 1963 independently of the Income Tax Act is but a mode of levying tax on a portion of the assessee 's income computed in accordance with the definition in section 2(8) of the Finance Act 1963.
[147F] ARGUMENTS For The Appellant 1.
Under section 81 read with section 4 of the Income tax Act, 1961, income tax is not payable by the appellant.
a Co operative Society, in respect of its income from banking business.
Similarly super tax is not payable under section 99(i)(v) read with section 4. 2.
The primary purpose of the annual Finance Acts as envisaged by section 4 of the Income tax Act is to prescribe the rates of income tax on the total income of an assessee, and this function as contemplated by section 4 is to be "subject to the other provisions of this Act", namely, the Income tax Act, 1961, which would include, inter alia, section 81. 3.
The history of Indian income tax shows that surcharges by way of increase to the amount of income tax, which are added to the basic amount, in view of article 271 of the Constitution of India, are nothing other than income tax and a part of income tax alone.
Therefore the expression 'income tax ' in section 4 and 81 of the Income tax Act, 1961, and section and Schedule I, Part 1 of the Finance Act, 1953, includes surcharges.
Section 2 of the Finance Act, 1963, and Schedule I, Part I, Paragraph A all clearly contemplate that the surcharge.
special surcharge and additional surcharge are all only by way of increase of the amount of income tax and not only partake of the character of income tax but are actually a part of income tax.
They are merely rates of income tax.
The main part of section 2(1) (a) says that "Income tax shall be charged at the rates specified in Part I of the First Schedule" and clause (ii) of that section provides in the ease referred to therein that income tax "shall further be increased by an additional surcharge for the purpose of the Union calculated in the manner provided in the First Schedule.
Similarly in Paragraph A of Part I of the First Schedule the heading to the provisions prescribing rates of surcharge is "surcharges on income tax" in the plural.
The main part in the heading also provides that "the amount of 137 income tax. shall be increased by the aggregate of the surcharges calculated as under " Clause (c) thereafter provides for the additional surcharge for the purpose of the Union.
Paragraph A also therefore clearly indicates that the three surcharges are only of the same nature and that all the three surcharges are only by way of increase of the amount of income tax; in other words part of the income tax.
Is either section 2 nor paragraph A of Part I of the First Schedule can even remotely be said to contemplate any separate levy of additional surcharge other than income tax.
From the assessment order it is seen that the following have been charged only on the real taxable income of the appellant namely Rs. 51,763: (i) income tax (ii) surcharge on income tax (iii) special surcharge on income tax (iv) super tax and (v) surcharge on super tax.
These items have not been charged on the total income of Rs. 10,00,098, because income tax is not payable on the balance of the total income under section 81.
The Income tax officer has sought to impose only additional surcharge under clause (c) in respect to the total income of Rs. 10,00,098.
In view of section 81 no additional surcharge is payable on the total income of Rs. 10,00,098.
It is payable only on the taxable income of Rs. 51,763.
Section 2 read with Paragraph A Part I of Schedule I to the Finance Act merely purports to lay down the method of computation where income tax is payable.
It does not either dire thy or by implication make any amendment or modification in section 81. 7.
Section 3 of the Finance Act ]963 also applies to a stage of computation only and in regard to relief, rebate etc.
It does not impose any liability or any tax.
It operates only where additional surcharge is payable and not other wise, and where relief, rebate etc.
is to be given from the tax payable by the assessee, e.g. deduction of tax based on life insurance premia provident fund contribution.
donations to charitable institution etc.
Section 81 does not provide for any such relief or rebate.
Section 2(8) of the Finance Act, 1963, defining "residual income" which requires deduction from the total income of income tax, surcharge and special surcharge to ascertain residual income also does not have the effect of imposing any liability or any tax but merely provides for computation.
In a taxing Act one has to look merely at what is clearly said.
There is no room for any intendment.
There is no equity about a tax.
There is no presumption as to tax.
Nothing is to be read in, nothing is to be implied." "In a case of reasonable doubt.
the construction most beneficial to the subject is to be adopted.
" The court will be very slow in reading an implied amendment in a tax law because there is no intendment.
Income tax is one tax, not several taxes on several heads or several items of income: For the Respondent 1.
It is open to the Parliament to pass an Act relating to more than one topic or field of operation, covered by the Entries in List 1.
It is not as if there must be as many Enactments as the topics which the enactment covers.
The legislature has a wide range of selection and freedom in appraisal not only in the subjects of taxation and the manner of taxation but also in the determination of the rate or rates applicable.
If production were always to be taken into account there will have to be a settlement for every year and the tax will become a kind of income tax.
The burden of proving discrimination is always heavy and heavier still when a taxing statute is under attack.
The burden is on the person complaining of discrimination.
The burden is proving not possible 'inequality ' but hostile 'unequal ' treatment.
This is more so when uniform taxes are levied.
The State cannot be asked to demonstrate equality.
Income which is exempt from taxation is income which is assessable to tax and therefore liable to tax but tax is not imposed on account of the exemp 138 tion.
This exemption can by subsequent legislation be wholly or partially withdrawn both as regards items of income and levies imposed for the purpose of taxation.
Thus where the Income tax Act 1961 says that business income of a co operative society will be exempt from income tax it would be open to the Parliament by enactment of the Finance Act of 1963 to say that this exemption shall be partially withdrawn as regards residual income and this partial exemption will operate only for the purpose of income tax but not surcharge on residual income.
The net result of the partial withdrawn of the exemption would mean that though the business income of a co operative society will be exempt from tax the residual income which is only a part of the exempted business income could be subjected to surcharge on income tax only. 4.
Income tax and surcharge on income tax are two different levies though the computation of the latter is based upon a percentage of the former.
The to are inclusive for the purpose of imposing tax but they are not one levy only.


judgement:
Civil Appeal No. 1877 of 1970.
From the judgment and order dated the 10th January, 1968 of the Madhya Pradesh High Court at Jabalpur in Misc.
Civil Case No. 221 of 1962.
V. section Desai, B. B. Ahuja and section P. Nayar, for the appellant.
M. C. Chagla, B. Sen, A. K. Chitale, A. K. Verma, Ravinder Narain J. B. Dadachanji and O.C. Mathur, for respondent.
The Judgment of the Court was delivered by MATHEW, J.
This is an appeal from the judgment of the High Court of Madhya Pradesh in a reference made at the instance of the assessee M/s. Sutlej Cotton Mills Supply Agency Ltd. (hereinafter referred to as the 'assessee ') by the Income Tax Appellate Tribunal (hereinafter referred to as the 'Tribunal ') under section 66(1) of the Indian Income Tax Act.
The question referred was: Whether the inference of the Tribunal that the profit of Rs. 2,13,150/ arising from the sale of 1,58,200 shares of the Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd., is assessable as business profit is correct ?".
When the reference came up for hearing before the High Court, the High Court found that although the Tribunal was of the view that the question referred was a mixed question of law and fact, it had not stated all the facts and circumstances on which it based its conclusion that the profit of Rs. 2,13,150/ was a business profit and so the Court called for a supplementary statement of the case and a supplementary statement of the case was submitted to the Court by the Tribunal.
The material facts in the statement of the case were as follows.
The assessee is a public limited company and it is controlled by the Birlas.
the assessee applied for certain shares of the Gwalior Rayon Silk Manufacturing (Weaving) Company Limited (hereinafter referred to as the "Rayon Company"), also a company controlled by the Birlas.
This company was floated on 25 8 1947 with a paid up capital of Rs. 5 lakhs made up of 50,000 ordinary shares of Rs. 10/ each.
in the year ending 31 12 1951, the Rayon Company issued certain new shares for paid up capital of Rs. 1,17,25,000/ made up as follows: Rs. 7,60,000 Ordinary shares of Rs. 10/ each 76,00,000 fully paid up.
1 50,000 Ordinary shares of Rs.10/. each 3,75,000 with paid up at Rs. 2/8/ each.
1,50,000 6% preference shares of Rs. 100/ 37,50,000 each paid up at Rs 25/ each (redeemable at par at the company 's option after specified date by giving one Year 's notice).
129 The assessee which was interested in the Rayon Company and which had already purchased 1,000 ordinary shares, subscribed for 3,49,000 shares of the new issue and paid Rs. 8,72,500/ as application money on the 25th and 21th February, 1951, and paid Rs. 26,17,500/ as final call money on 10 8 1951.
These purchases were authorized by a resolution of the assessee dated 7 2 1951.
The assessee sold a part of its stock viz., 1,58,200 shares at a profit of Rs. 2,13,150/ .
For the assessment year 1956 57 (accounting year ending on 31 3 1956), the Income Tax Officer sought to assess the amount on the basis that it was profit accruing to the assessee from an adventure L in the nature of business.
The assessee contended that the amount re presented capital gain as the shares were purchased by way of investment and that the same cannot be taxed as revenue receipt.
The Income Tax Officer rejected the contention.
the assessee filed in appeal before the Appellate Assistant Commissioner.
He confirmed the order.
The assessee then went up in appeal before the Appellate Tribunal.
The Tribunal came to the conclusion, after considering all the circumstances, that the transaction was in the nature of a business ad venture and that profits were liable to be taxed.
The reasons which induced the Tribunal to come to this conclusion were: The assessee was authorised by clauses 12, 13, 28 and 29 of paragraph 3 of its Memorandum of Association to buy and sell shares; there were specific resolutions of the Company authorising a director of the assessee to purchase and sell these shares; the assessee had included the profit of Rs. 2,13,150/ in the profit and loss account without taking it to any reserve account or specifically set it apart for any other purpose; the assessee had purchased the shares from borrowed funds and not with money readily available to it; the assessee did not make the sales on account of any pressing necessity to meet existing liabilities but had in fact kept a part of the sale proceeds as liquid cash in the United Commercial Bank Ltd.; the assessee had.
in the past, dealt in shares as business transaction and had claimed for the assessment year 1951 52 Rs. 1.29,214/ as loss on account of its dealing in shares of M/s. Titagarh Paper Mills Ltd.; it also claimed Rs. 6,30,000/ as loss on account of devaluation of the shares of M/s. Pilani Investment Corporation though that was not allowed; there had recently grown a business practice of investing large sums of money in shares in new ventures with an eye on their appreciation for obtaining by sale substantial pro fits in future.
The High Court, in its judgment, said that there was no provision in clauses 10, 12, 13, 28 and 29 of paragraph 3 of Memorandum of Association of the assessee which authorised the carrying on of the business of purchasing and selling shares, although some of these clauses did authorise the assessee to acquire and sell shares in other similar companies.
that the inclusion of the profit of Rs. 2,13,150/ in the profit and loss account without taking it into any reserve specifically was not conclusive of the question whether it was a capital asset or a revenue receipt; that the true nature and character of the moneys received was to be determined not by the manner in which the assessee treated it but by its inherent character, and, that it was wholly immaterial 130 as to how the assessee treated the amount in question; and that there was no evidence that the shares were purchased out of borrowed funds as the assessee had a fixed deposit of Rs. 31,75,000/ in the United Commercial Bank Ltd. and a deposit of Rs. 8,76,008 2 0 in the current account of the Bank.
The High Court was of the view that the finding of the Tribunal that the sale of shares in 1955 was made not on account of any pressing necessity to meet existing liabilities was based on materials placed before the Tribunal.
The Court, however, said: "It may be that, at that time, the liabilities of the assessee company existed, but it is quite another matter to say that it was obliged to sell the shares in order to meet those liabilities.
" The High Court was also of the view that the conclusion of the Tribunal that the assessee had claimed Rs. 1,29,214/ as loss on account of dealing in shares of M/s. Titagarh Paper Mills Ltd. for the assessment year 1951 52 and that the claim was allowed by the Income Tax officer must be accepted as correct, but said that this solitary transaction cannot be taken as conclusive of the fact that the sale of shares in question here was an adventure in the nature of trade.
The main reason which impelled the High Court to hold that the transaction was not an adventure in the nature of trade was that the dominant intention of the assessee in acquiring the shares was to boost the shares of a sister concern viz, the Rayon Company, and thus render it assistance for setting it up as a going concern and when that was accomplished, the assessee started selling the investment which had in the mean time enhanced in value.
The question which the Tribunal had to consider in the appeal and which was referred to the High Court was a mixed question of law and fact, namely.
whether the profit from sale of the shares in question was a revenue or a capital receipt.
The distinction between capital accretion and income has been explained by Rowlatt, J. in Thew vs South West Africa Cc.
Ltd.(1).
The learned judge said that for the purpose of ascertaining whether profits made upon a sale of an article are taxable profits.
the question to be asked is: "Is the article acquired for the purpose of trade ?.
If it is, the profit arising from its sale must be brought into revenue account and that the profit is chargeable as capital gains if the sale is of a capital asset, and as business profit if the sale is in the course of business or the transaction constitutes an adventure in the nature of trade.
The line between capital sales and sales producing income has been drawn by Lord Justice Clerk in Californian Copper Syndicate vs Harris(2) in a passage which has become classical: "It is quite a well settled principle in dealing with questions of assessment of income tax that where the owner of an Ordinary Investment chooses to realise it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit. assessable to income tax.
but it is equally well established that enhanced values obtained from realisation or conversion of securities may be so assessable where what is done is not merely a realisation or change of investments but an act done in what is truly the carrying on, l I or carrying out, of a business.
What is the line which 131 separates the two classes of cases may he difficult to define, and each case must be considered according to its facts.
the question to be determined being Is the sum of gain that ha been made a mere enhancement of value by realising a security or is it a gain made in an operation of business in carrying, out a scheme for profit making ?" In the absence of any evidence of trading activity in cases of purchase and resale of shares, it has been held that profit arising from the resale is an accretion to the capital.
If a transaction is in the assessee`s ordinary line of business there can be no difficulty in holding that it is in the nature of trade.
But the difficulty arises where the transacting is outside the assessee 's the of business and then, it must depend upon the facts and circumstances of each case whether the transaction is in the nature of a trade.
It is not necessary to constitute trade that there should be a series of transactions both of purchase and of sale.
A single transaction of purchase and sale outside the assessee 's line of business may constitute an adventure in the nature of trade.
Neither repetition nor continuity of similar transactions is necessary to constitute a transaction an adventure in the nature of trade.
If there is repetition and continuity, the assessee would be carrying on a business and the question whether the activity is an adventure in the nature of trade can hardly arise.
A transaction may be regarded as isolated although a similar transaction may have taken place a fairly long time before [see 1.
R. vs Reinhold(1)].
The principles underlying the distinction between a capital sale and an adventure in the nature of trade were examined by this Court In Venkataswami Naidu & Co. vs C.l.
T.(2), where this Court said that the character of a transaction cannot be determined solely in the application of any abstract rule, principle or test but must depend upon all the facts and circumstances of the case.
Ultimately, it is a matter of first impression with Court whether a particular transaction is in the nature of trade or not it has been said that a single plunge may be enough provided it is shown to the satisfaction of the Court that the plunge is made in the waters of the trade; but mere purchase/sale of shares if that is all that is involved in the plunge may fall short of anything in the nature of trade.
Whether It is in the nature f trade will depend on the facts and circumstances.
Where the purchase of any article or of any capital investment, for instance, shares.
is made without the intention to resell at a profit.
a resale under changed circumstances would only be a realisation of capital and would not stamp the transaction with a business character [see C.l.
T. vs P.K.N. Co., Ltd.(3)].
Where a purchase is made With the intention of resale, it depends upon the conduct of the assessee and the circumstances of the case whether the venture is on capital account or in the nature of trade.
A transaction is not necessarily in the nature of trade because the purchase 132 was made with the intention of resale [see Jenkinson vs Freeland(1); Radha Debi Jalan vs C.l.
T.(2); India Nut Co. Ltd. vs C.l.
T.(3); M/s. Sooniram Poddar vs C.l.
T.(4); Ajax Products Ltd. vs C.l.
T.(5); Gustad Irani vs C.l.T.(5); and Mrs. Alexander vs C.l.
T.(7);].
A capital investment and resale do not lose their capital nature merely because the resale was foreseen and contemplated when the investment was made and the possibility of enhanced values motivated the investment [see Leeming vs Jones(8) and also the decisions of this Court in Saroj Kumar Mazumdar vs C.l.
T.(9) and Janki Ram Bhadur Ram vs C.I.T.(10)].
In I. R. vs Fraser(11) Lord Norman said: "The individual who enters into a purchase of an article or commodity may have in view the resale of it at a profit, and yet it may be that this is not the only purpose for which he purchased the article or the commodity nor the only purpose to which he might turn it if favourable opportunity for sale does not occur.
An amateur may purchase a picture with a view to its resale at a profit, and yet he may recognise at the time or afterwards that the possession of the picture will give him aesthetic enjoyment if he is unable ultimately, or at his chosen time, to realise it at a profit . " An accretion to capital does not become income merely because the original capital was invested in the hope and expectation that it would rise in value.
if it does so rise, its realisation does not make it income.
Lord Dunedin said in Leeming vs Jones(8) at p. 360: "The fact that a man does not mean to hold an investment may be an item of evidence tending to show whether he is carrying on a trade or a concern in the nature of trade in respect of his investments, but per se it leads to no conclusion whatever." This Court laid down in Venkataswami Naidu & Co. vs C.l.
T.(12) that the dominant or even sole intention to resell is a relevant factor and raises a strong presumption, but by itself is not conclusive proof, of an adventure in the nature of trade.
The intention to resell would, in conjunction with the conduct of the assessee and other circumstances, point to the business character of the transaction.
In the light of the principles above referred to, it is necessary to examine whether the Tribunal had approached the question from the right perspective, viz., whether on the basis of its finding on questions of fact, the inference that the transaction was an adventure in the nature of trade was justified.
133 The Tribunal relied on the following circumstances for coming to the conclusion.
The assessee has been dealing in shares from 1951 to 1953.
For the assessment year 1951 52, the assessee claimed a sum of Rs. 1,29,214/ which was shown in the profit and loss account and the balance sheet of the company for the year ending 31 3 1951 as a loss in the dealing of shares of M/s. Titagarh Paper Mills Ltd. This claim was allowed by the Income Tax officer.
According to the Tribunal, this would show that the assessee had been buying and selling shares even though as an isolated adventure in the nature of business The High Court has not upset this finding, but has only said that this is an isolated transaction.
That apart, in the same year, a sum of Rs. 6,30,000/ was debited to the profit and loss account on devaluation of the shares of M/s. Pilani Investment Corporation.
Such a debit was permissible only on the footing that the shares constituted the stock in Trade of the assessee.
It is no doubt true that the Department did not allow this claim.
But that was on the basis that the claim that the shares leave fallen in value was not proved to the satisfaction of the Income Tax officer, and not on the basis that the shares were not held as stock in trade as the High Court wrongly thought.
The Tribunal also referred to the resolutions passed by the assessee authorising one of its directors to purchase and sell the shares in the Rayon Company The finding of the High Court that the clauses of the Memorandum o Association viz., clauses 10, 12, 13, 28 and 29 and not authorize the company to acquire and sell shares as business has no relevance in view of the aforesaid resolution of the assessee and of the fact that it had been dealing in shares in a commercial spirit as is evident from its claim for loss in dealings in the shares of M/s. Titagarh Paper Mills Ltd. and devaluation of shares of M/s. Pilani Investment Corporation on the basis that they had fallen in value.
Secondly, the Tribunal said that from 1947 to 1956, no dividend had been declared by the Rayon Company and that the money which went into the purchase of these shares was borrowed by the assessee.
In other words, the view of the Tribunal was, it was with borrowed funds that the assessee purchased the shares.
It is no doubt true that there was no evidence to show that the money was specifically borrowed for the purpose of buying shares.
But there was evidence before the Tribunal for its finding that the liabilities of the assessee exceeded its assets.
The finding, therefore, that the shares were purchased with borrowed funds on which the assessee was paying interest, was a finding supported by evidence.
The reasoning of the Tribunal that it is most improbable that the assessee would be investing borrowed money on which interest would have to be paid in shares which yielded no dividend, was correct.
We cannot say that this was not a relevant circumstance for the Tribunal to take into consideration for coming to the conclusion that the transaction was an adventure in the nature of business.
Looking into all the circumstances, the Tribunal negatived the case of the assessee that it had invested its funds with a view to earn dividend.
The case of the assessee throughout was that the purchase of the shares was by way of investment and the sale was forced by necessity because the creditors were pressing for repayment of the loan.
The 134 Tribunal found that the shares were not sold to liquidate the debts of the assessee as the balance sheet as on 21 3 1956 showed that the proceeds were kept is liquid cash in the United Commercial Bank Ltd. As already stated, the main reason why the High Court came to a different conclusion.
is stated as follows in the judgment : " .
Undoubtedly, there are some elements which are contra indicative of investment but there are other considerations which detract from their value as elements indicating an adventure in the nature of trade, the main being, that the assessee company, which is controlled by the Birlas, purchased the shares with a view to assisting a sister company controlled by the same persons, and not to embark upon a venture in the nature of trade.
" At no time had the assessee a case that the shares were purchased with a view to help a sister company controlled by the Birlas.
No such case was set up by the assessee either before the Income Tax officer or the Appellate Assistant Commissioner; nor was it urged before the Appellate Tribunal.
Nowhere in the statement of case or the supplementary statement of case prepared by the Tribunal and filed in the High Court was there any finding on the question.
The whole conclusion of the High Court is based on unwarranted assumption of facts which must have been taken from the argument of the assessee before the High Court.
The danger of failing to recognize that the jurisdiction of the High Court in these matters is only advisory and that conclusion of facts are conclusions on which the High Court is to exercise the advisory jurisdiction is illustrated by this case.
Mr. Chagla for the respondent contended that the only question to be asked and answered is : What was the dominant intention of the assessee when it purchased the shares ? If the dominant intention was to carry on an adventure in the nature of business, the profit can be taxed.
Otherwise not.
In other words, the question is whether the assessee purchased the shares in a commercial spirit with a view to make profit by trading in them.
The Tribunal found, after taking in to account all the relevant circumstances that the dominant intention of the assessee was to make profit by resale of the shares and not to make an investment.
The finding that loss or profit is a trading loss or profit is primarily a finding of fact, though in reaching that finding the Tribunal has to apply the correct test laid down by law When we see that the Tribunal has considered the evidence on record and applied the correct test there is no scope for interference with the finding of the Tribunal (see C. 1.
T. vs Ashoka Marketing Co.(l).
We do not think that the High Court was right in interfering with the judgment of the Tribunal.
In the result we reverse the judgment of the High Court and allow the appeal with costs.
P.B.R. Appeal allowed.

dataset_name: IN-Abs

summary/full:
The assessee acquired shares in a newly floated sister concern and later sold a part of its stock at a profit.
The Income tax officer assessed the profit to tax on the basis that i was profit accruing to the assessee from an adventure in the nature of business, and the order was confirmed by the Appellate Assistant Commissioner.
On appeal the Appellate Tribunal held that the transaction was in the nature of business adventure; that the assessee by its Memorandum of Association was authorised to buy and sell shares.
that there was a specific resolution to buy and sell shares.
that the assessee included the profit on the sale of shares in its profit and loss account without showing it in any reserve account, that the shares were purchased from borrowed funds and not with ready cash.
that the sales were not on account of any pressing necessity; that it kept the profit in cash in a bank and that the assessee had in the past dealt with shares as a business transaction.
On reference, the High Court held that there was no provision in the Memorandum of Association which authorised the carrying on or the business of purchasing and selling shares; that the inclusion of the profit in the profit and loss account was not conclusive of the question whether it was capital asset or revenue receipt.
that the nature and character of the money should be determined by its inherent character.
that there was no evidence that the shares were purchased out of borrowed funds; that a solitary transaction could not be taken as conclusive of the fact that the sale of shares was an adventure in the nature of trade and that in any case the dominant intention of the assessee in acquiring the shares was to boost the shares of a sister concern and when once that was achieved the assessee started selling the investments.
On appeal to this Court it was contended by the respondent that the profit can be taxed only if the dominant intention of the assessee was to carry on an adventure in the nature of business and not otherwise.
Allowing the appeal, ^ HELD: The Tribunal found, after taking into account all the relevant circumstances, that the dominant intention of the assessee was to make profit by resale of the shares and not to make an investment.
[134F] (1) (a) The finding that loss or profit is a trading loss or profit is primarily a finding of fact though in reaching that finding the Tribunal has to apply the correct test laid down by law.
When the Tribunal has considered the evidence on record and applied the correct test, there is no scope for any interference with the finding of the Tribunal.
[134G] C.I.T. vs Ashoka Marketing Co. , referred to.
(b) The whole conclusion of the High Court was based on an unwarranted assumption of facts.
The danger of falling to recognise that the jurisdiction of the High Court in these matters is only advisory and that conclusions of facts are conclusions on which the High Court is to exercise the advisory jurisdiction is illustrated by this case At no time had the assessee a case that the shares were Purchased with a view to help a sister concern.
Nowhere in the statement of the case or the supplementary statement of case prepared by the Tribunal and filed in the High Court was there a finding on the question.
[134E; D] 127 (2) The tests for the purpose of ascertaining whether profits made upon a sale of an article are taxable profits are: (i) if a transaction is in the assessee 's ordinary line of business it is in the nature of trade.
[131B C] (ii) it is not necessary, to constitute trade, that there should be a series of transactions, both of purchase and sale.
A single transaction of purchase and sale outside the assessee 's line of business may constitute an adventure in the nature of trade; [131C D] Venkataswami Naidu & Co. vs C.l.T. [1959] 35 I.T.R. 594, followed.
I. R. vs Reinhold , 392 referred to.
(iii) where the purchase of any article or of any capital investment is made without the intention to resell at a profit the resale under changed circumstances would only be a realisation of capital and would not stamp a transaction with a business character.
[131G] C.I.T. vs P. K. N. Co. Ltd. referred to.
(iv) a transaction is not necessarily in the nature of trade because the purchase was made with the intention of resale.
[131H] Jenkinson vs Freeland ; Radha Debi Jalan vs C.l.T. [1951] 20 l.
T.R. 176; India Nut Co. Ltd. vs C.l.
T. Sooniram Poddar vs C.l.T. ; , 478 9; Ajax Products Ltd. vs C.l.
T. I.T.R. 297, 310; Gustad India vs C.l.
T. and Mrs. Alexander vs C.l.
T. 402.
referred to.
(v) a capital investment and resale do not lose their capital nature merely because the resale was foreseen and contemplated when the investment was made and the possibility of enhanced value motivated the investment [132B] Leeming vs Jones ; Saroj Kumar Mazumdar vs C.l.
T. [19591 , 250 1; I. R. vs Fraser 24 T. C. 498, 502.
Jankiram Bhadur Rant vs C.I.T. [1965] 57 I.T.R. 21, referred to.
(vi) the accretion to capital does not become income merely because the original capital was invested in the hope and expectation that it would rise in value.
[132D E] Leeming vs Jones , referred to.
(vii) The intention to resell would, in conjunction with the conduct of the assessee and other circumstances, point to the business character of the transaction.
[132F G] In the instant case, the assessee had been dealing in shares.
(i) In an earlier assessment year the assessee had shown in its profit and loss account and the balance sheet a loss in dealing of shares which showed that the assessee had been buying and selling shares even though as an isolated adventure in the nature of business.
The debit on account of devaluation of shares shown in the profit and loss account was permissible only on the footing that the shares, constituted the stock in trade of the assessee, (ii) in view of the resolution of the assessee authorising the director to purchase and sell shares the view of the High Court that the memorandum of association did not authorise the company to acquire and sell shares had no relevance: (iii) the finding that the shares were purchased with borrowed funds on which the assessee was paying interest was a finding supported by evidence.
The Tribunal was correct in holding that the assessee had not invested its funds with a view to earn dividend: (iv) the Tribunal found that the shares were not sold to liquidate the debts of the assessee as the balance sheet showed that the proceeds were kept as cash in bank.
[133A H] 128


judgement:
Civil Appeal No. 2034 of 1970.
Appeal by special leave from the Judgment and order dated the 8th July, 1969 of Calcutta High Court in I.T.R. No. 60 of 1968.
D. N. Gupta, for the appellant.
G. C. Sharma, O. P. Dua and section P. Nayar, for the respondent.
The Judgment of the Court was delivered by GUPTA, J.
This appeal by special leave turns on the true meaning and scope of explanation 2 to sec.
24(1) of the Income Tax Act, 1922.
The appellant (hereinafter referred to as the assessee) is a private limited company carrying on business in tea garden tools and requisites and also acting as agents for selling tea; in fact the bulk of its income was from selling commission on tea.
The assessment year in question is 1959 60.
in the relevant previous year which ended on June 30,1958, the assessee for the first time in its history entered into certain transactions in jute.
On April 17, 1958 the assessee had contracted to purchase 1100 bales of B Twill and 2500 bales of corn sacks: the contract for B Twill was with two parties, M/s. Raghunath & Sons (P) Ltd. for 500 bales and M/s. Mahadeo Ramkumar for 600 bales.
The corn sacks were all purchased from Tulsider Jeweraj under three contracts for 800 bales, 1000 bales and 700 bales respectively.
On June 18, 182 1958 the assessee entered into a contract with M/s. Lachhminarain Kenoria & Co. to sell the aforesaid quantities of Twill and corn sacks.
The assessee had no godown for keeping the goods and had not handled them.
The goods were in the godown of the mills and only the delivery orders addressed to the mills changed hands.
The amount realised on sale to M/s. Lachhminarain Kanoria & Co. came to Rs. 10,49,865/ .
The assessee had however purchased the corn sacks and B Twill for Rs. 11,48,399.
The transactions thus resulted in a loss of Rs. 98,534/ to the assessee and the assessee claimed adjustment of this loss in the computation of its income for the assessment year 1959 60.
The Income tax officer held that the transactions involving mere transfer of delivery notes and not actual delivery of the goods were of a speculative character as contemplated in explanation 2 to sec.
24(1) and the loss could be set off only against speculation profits, and as there were no speculation profits in that year he held that the loss would be carried forward and set off against speculation profits in the future.
The Appellate Assistant Commissioner on appeal by the assessee held that the transactions were not speculative and the loss should be treated as business loss relying on two decisions of this Court: Bayana Bhimayya and Sukhdevi Rathi vs The Govt.
of Andhra Pradesh (1) and duni Chand Rataria vs Bhuwalke Brothers Ltd. (2) The Department took an appeal to the Tribunal and the Tribunal relied on the decision of the Calcutta High Court in D. M. Wadhwana vs Commissioner of Income tax, West Bengal(3) to hold that this case came within the scope of sec.
24 (1) read with explanation 2 and restored the order of the Income tax Officer.
On the application of the assessee the Tribunal referred to the High Court the following question of law .
"Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the transactions described above entered into by the assessee were speculative transactions within the meaning of explanation 2 to section 24( 1)".
The High Court answered the question in the affirmative and against the assessee.
The correctness of that decision is challenged in this appeal.
Section 24(1) so far as it is material for the purpose of this appeal is in these terms: "Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year.
Provided that in computing the profits and gains charge able under the head 'profits and gains of business, profession or vocation ', any loss sustained in speculative transactions 183 which are in the nature of a business shall not be taken into account except to the extent of the amount of profits and gains, if any, in any other business consisting of speculative transactions: (The second proviso is not relevant for the present purpose.) Explanation 1: Where the speculative transactions carried on are of such a nature as to constitute a business, the business shall be deemed to be distinct and separate from any other business.
Explanation 2: A speculative transaction means a transaction in which a contract for purchase and sale of any commodity including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips.
(The rest of the section is also not relevant.)" Before us both sides admitted that the question is covered by the decision of this Court in Raghunath Prasad Poddar vs Commissioner of Income tax, Calcutta(1) where it was held that such transactions were not speculative transactions within the meaning of explanation 2 to sec.
24(1).
The learned counsel for the revenue however prayed for re consideration of the decision on a fresh examination of the problem.
In Raghunath Prasad Poddar vs Commissioner of Income tax, Calcutta (supra) the assessee, a company dealing in jute and jute goods, purchased pucca delivery orders (in short P.D.Os.) in respect of gunny bags from various parties after paying the full price of the goods covered by the delivery orders and transferred those P.D.Os.
to buyers after receiving the price fixed for the sale of those goods.
The Tribunal following the decision in D. M. Wadhwana vs Commissioner of Income tax (supra) held that the sales in question were speculative and consequently the losses suffered by the assessee in these transactions could not be set off against the profits made by the assessee 's non speculative business High Court on reference following its earlier decisions in D. M. Wadhwana 's case and Manalal M. Verma & Co. (P) Ltd. vs Commissioner of Income tax(2) answered the questions referred to it, which are similar to the question formulated in this case, in favour of the revenue.
This Court reversed the decision on appeal.
The view taken in Raghunath Prasad 's case appears to be based on three earlier decisions of this Court.
Duni Chand Rataria vs Bhuwalke Brothers Ltd. (supra) Beyanna Bhimayya and sukhdevi Rathi vs The Government of Andhra Pradesh (supra) and State of Andhra Pradesh vs Kolla Sreeramamurthy(2).
The reasoning in Raghunath Prasad 's case proceeds like this: 184 To effect a valid transfer of any commodity, it is not necessary that the transfer in question should be followed up by actual delivery of the goods to the transferee.
Even if the goods are delivered to the transferee 's transferee, the first transfer also will be a valid transfer.
What has to be seen in such cases is whether the ultimate purchaser of the P.D.Os has taken actual delivery of the goods sold.
lt is erroneous to think that if any transfer of the P.D.Os. is not followed up by actual delivery of the goods to the transferee, that transaction is to be considered as speculative.
The following observation in Duni Chand Rataria vs Bhuwalke Brothers Ltd. (supra) was relied on in support of the view taken: "The sellers handed over these documents (like delivery orders) to the buyers against cash payment, and the buyers obtained these documents in token of (delivery of possession of the goods.
They in turn passed these documents from hand to hand until they rested with the ultimate buyer who took physical or manual delivery of possession of those goods.
The constructive delivery of possession which was obtained by the intermediate parties was thus translated into a physical or manual delivery of possession in the ultimate analysis eliminating the unnecessary process of each of the intermediate parties taking and in his turn giving actual delivery of possession of the goods in the narrow sense of physical or manual delivery thereof." In Duni Chand Rataria 's case this Court was interpreting the words "actual delivery of possession" occurring in sec. 2(1)(b)(i) of West Bengal Jute Goods Future ordinance, 1949.
The question for determination in that case was whether certain contracts between the appellant and the respondents could be called contracts involving actual delivery of possession of the goods concerned.
Referring to the definition of "delivery" in sec.
2(2) of the Indian it was observed that this would include actual delivery as also symbolic or constructive delivery, and having regard to the mischief which was sought to be averted by the promulgation of the ordinance to prevent persons who dealt in differences only and never intended to take delivery under any circumstances it was held that the intendment of the ordinance was that "actual delivery of possession" was actual delivery as contracted with mere dealings in differences and such actual delivery included within its scope symbolic and constructive delivery of possession.
With respect, these observations made in quite a different context do not appear to us to be of assistance in interpreting explanation 2 to sec.
24(1) of the Indian Income Tax Act, 1922 The other decision referred to in Raghunath Prasad 's case, Bayanna Bhimayya and Sukhdevi Rathi vs The Government of Andhra Pradesh (supra) was a case under the Madras General Sales Tax Act, 1939.
The appellant in that case who dealt in gunnies entered contracts with two mills agreeing to purchase gunnies at a certain rate 185 for future delivery and also entered into agreements with third parties by which they charged something extra from the third parties and handed over to them the delivery orders described as kutcha delivery orders.
The mills however did not accept the third parties as contracting parties but only as agents of the appellants.
The tax authorities treated the transaction between the appellants and the third parties as a fresh scale and sought to levy sales tax on this as well, to which 13 the appellants objected saying that there was only one sale.
It was held that a delivery order being a document of title to the goods cover cd by it, possession of the document not only gave one the right to recover the goods but also to transfer them to another by endorsement or delivery, and that there being two separate transactions of sale, one between the mills and the original purchasers, and the other between the original purchasers and the third parties, tax was payable at both the points.
In reaching this conclusion the court observed: "At the moment of delivery by the mills to the third par ties, there were, in effect, two deliveries, one by the mills to the appellants, represented, in so far as the mills were concerned, by the appellants ' agents, the third parties, and the other, by the appellants to the third parties as buyers from the appellants.
These two deliveries might synchronise in point of time, but were separate, in point of fact and in the eye of law.
" Here also the only question was whether on the facts of the case there were two separate transactions of sale so that tax was payable at both the points under the Madras General Sales Tax Act, 1939.
The observation made in this context does not also seem to us relevant to the question under consideration in the appeal before us.
Another authority on which the decision in Raghunath Prasad 's (supra) case relies is State of Andhra Pradesh vs Kolla Sreeramamurthy, (supra) which is also a case under the Madras General Sales Tax Act, 1939.
The respondent in that case, a dealer in gunny bags, purchased gunnies from the mills on terms of written contracts which were on printed forms.
These contracts were entered into by brokers acting for the respondent who sent him 'Bought Notes ' setting out the terms upon which the purchases had been effected from the mills.
The mills having received a part of the purchase money in terms of the contract issued delivery orders directing the delivery of goods as per the contract.
Instead of taking delivery himself, the respondent endorsed the delivery orders and these passed through several hands before the ultimate holder of the delivery orders presented them to the mills and obtained delivery of the gunnies on payment.
The question that arose for decision was whether the transactions entered into by the respondent were mere sales of delivery orders or sales of goods so as to bring them to charge under sec.
3 of the said Act.
At the date of the contract for purchase by the respondent, the goods which were the subject matter of the purchase were not appropriated to the contract so that there was no completed sale since no property passed, but only an agreement for sale.
In considering the effect of 186 the position that the property in the goods passed to the ultimate endorsee of the delivery orders, Mr. Justice Ayyangar speaking for the Court relied on an English decision, Butterworty vs Kingsway(1) to hold that though the respondent and his transferees had not acquired any title to the goods, the title acquired by the ultimate endorsee of the delivery orders went to feed their previously defective titles and ensured to their benefit.
His Lordship further observed that this was the principle that formed the basis of the decision in Bayanna Bhimeyya 's (supra) case.
Here again, the question that was considered has hardly any connection with sec.
24 of the Indian Income Talc Act 1922, and the observations made in this case cannot be a guide to the solution of the problem arising in the case before us Sec.
6 of the Indian Income Tax Act, 1922 enumerates the heads of income chargeable to income tax.
24(1) of the Act provides that where an assessee sustains a loss under any of these heads in any year, he shall be entitled to have the loss set off against his income, profits or gains under any other head in that year.
This general provision is qualified by the first proviso which permits the set off of a loss in speculative business against the assessee 's profits and gains, i any, in a similar business only.
explanation 1 says that where the speculative transactions are of such a nature as to constitute a business, I) the business shall be deemed to be distinct and separate from any other business.
Explanation 2 defines a speculative transaction as a transaction in which a contract for purchase and sale of any commodity is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity.
The words actual delivery in explanation 2 means real as opposed to notional delivery.
For income tax purposes speculative transaction means what the definition of that expression in explanation 2 says.
Whether a transaction is speculative in the general sense or under the Contract Act is not relevant for the purpose of this explanation.
The definition of "delivery" in sec.
2(2) of the which has been held to include both actual and constructive or symbolical delivery has no bearing on the definition of speculative transaction in the explanation.
A transaction which is otherwise speculative would not be a speculative transaction within the meaning of explanation 2 if actual delivery of the commodity or the scrips has taken place; on the other hand, a transaction which is not otherwise speculative in nature may yet be speculative according to explanation 2 if there is no actual delivery of the commodity or the scrips.
The explanation does not invalidate speculative according to explanation 2 if there is no actual delivery meaning to that expressing for purposes of income tax only.
In D. M. Wadhwana vs Commissioner of Income tax (supra) on which the Tribunal 's decision in this case is based, the Calcutta High Court observed: "The explanation to sec.
24(1), however, does not pre vent persons from entering into contracts in which the buyers and sellers may not actually hand over the goods physically.
The explanation is only designed at segregating for 187 income tax purposes loss sustained in transactions of a certain kind.
It may be that such transactions arc not speculative in the light of sec.
30 of the Contract Act.
In enacting the explanation 2 of sec.
24(1) of the Income Tax Act, the legislature did not intend to affect any transaction of sale wherein the goods were not physically delivered by the seller to the buyer but only laid down that if there was no actual or physical delivery, the loss, if any, would be a loss in a speculative transaction which could be allowed to be set off only against a profit in a transaction of the same nature.
The object of the explanation is not to invalidate the transaction which are not completed by actual deli very of the goods but only to brand them as speculative transactions so as to put them in a special category for income tax purposes.
" In our opinion this is a correct statement of the law.
This aspect o the matter was not considered in Raghunath Prasad Poddar vs Commissioner of Income tax, Calcutta.
(supra) we think the law on the point was correctly stated in D. M. Wadhwana vs Commissioner of income tax, (supra) and in our opinion the question referred to the High Court in the present case has been correctly answered.
The appeal is accordingly dismissed but in the circumstances of the case without any order as to costs.

summary/full:
The appellant company which carried on business in tea garden tools and requisites and also acted as agents for selling tea, derived the bulk of its income from selling commission on tea.
The assessment year in question is 1950 60.
In the relevant previous year which ended on June 30, 1958 the assessee for the first time in its history entered into certain transactions in jute.
On April 17, 1958 the assessee had contracted to purchase 1100 bales of B Twill and 2500 bales of corn sacks.
the contract for B Twill was with two parties, M/s. Raghunath Sons (P) Ltd. for 500 bales and M/s. Mahadeo Ramkumar for 600 bales.
The corn sacks were all purchased from Tulsider Jewaraj under three contracts for 800 bales, 1000 bales and 700 bales respectively.
On June 18, 1958 the assessee entered into a contract with M/s. Lachhminarain Kanoria & Co. to sell the aforesaid quantities of B Twill and corn sacks.
The assessee had no godown for keeping the goods and had not handled them.
The goods were in the godown of the mills and only the delivery orders addressed to the mills changed hands.
The amount realised on sale to M/s. Lachhminarain Kanoria & Co. came to Rs. 10,49,865/=.
The assessee had however purchased the corn sacks and D Twill for Rs. 11,48,399/ .
The transactions thus resulted in a loss of Rs, 98,534/=/ to the assessee and the assessee claimed adjustment of this loss in the computation of its income for the assessment year 1959 60.
The Income tax officer held that the transactions involving mere transfer of delivery notes and not actual delivery of the goods were of a speculative character as contemplated in explanation 2 to sec.
24(1) and the loss could be set off only against speculation profits, and as there were no speculation profits is that year, he held that the loss would be carried forward and set off against speculation profits in the future.
The appellate Commissioner on appeal by the assessee held that the transaction were not speculative and the loss should be treated as business loss.
In appeal by the Department, the Tribunal held that this case came within the scope of Sec.
24(1 ) read with explanation 2 and restored the order of the Income tax officer.
In reference, the High Court answered the question formulated by the Tribunal in the affirmative and against the assessee.
Section 24(1) of the Indian Income tax Act, 1922, provides 'that where an assessee sustains a loss under any of the heads of income chargeable to income tax as enumerated in 9. 6 of the Act in any year, he shall be entitled to have the loss set off against his income, profits or gains under any other head in that year.
This general provision is qualified by the first proviso which permits the set off of a loss in speculative business against the assessee 's profit and gains, if any, in a similar business only.
Explanation 1 says that where the speculative transactions are of such a nature as to constitute a business, the business shall be deemed to be distinct and separate from any other business.
Explanation 2 defines a speculative transaction as a transaction in which a contract for purchase and sale of any commodity is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity.
This appeal has been preferred by the assessee company after obtaining special leave from this Court, Dismissing the appeal, 181 ^ HELD: The words actual delivery in explanation 2 means real as opposed to notional delivery.
For the income tax purposes speculative transaction means what the definition of that expression in explanation 2 says.
Whether a transaction is speculative in the general sense or under the Contract Act is not relevant for the purpose of this explanation.
The definition of "delivery" in section 2(2) of the which has been held to include both actual and constructive or symbolical delivery has no bearing on the definition of speculative transaction in the explanation.
A transaction which is otherwise speculative would not be a speculative transaction within the meaning of explanation 2 if actual delivery of the commodity or the scrips has taken place; on the other hand, a transaction which is not otherwise speculative in nature may yet 'be speculative according to explanation 2 if there is no actual delivery of the commodity or the scrips.
The explanation does not invalidate speculative transactions which are otherwise legal but gives a special meaning to that expression for purpose of income tax only.
The question referred to the High Court in the present case has been correctly answered.
[186E G; 187D] D. M. Wadhwana vs Commissioner of Income tax West Bengal , approved.
Raghunath Prasad Poddar vs Commissioner of Income fax, Calcutta , over ruled.
Duni Chand Rataria vs Bhuwalka Brothers Ltd. ; Bayana Bhimayya and Sukhdevi Rathi vs The Government of Andhra Pradesh ; and The State of Andhra Pradesh vs Kolla Sreeramamurthy, ; , held inapplicable.
Manalal M. Varma & Co. (P) Ltd. vs Commissioner of Income tax, and Butterworty vs Kingsway, , referred


judgement:
Civil Appeal No. 481 of 1973.
From the Judgment and order dated the 9th February 1973 of the Mysore High Court at Bangalore in W.P. No. 1922 of 1970.
H. B. Datar and K. N. Bhat, for the appellant.
section section Javali and B. P. Singh, for the respondents Nos. 1, 3 13 The Judgment of the Court was delivered by GOSWAMI, J.
This appeal by special leave is directed against the judgment of the Mysore High Court (now High Court of Karnataka) of February 9" 1973, rejecting the appellant 's writ petition under article 226 of the Constitution by which the orders of the State Transport Appellate Tribunal and the Mysore Revenue Appellate Tribunal had been challenged.
189 Briefly the facts are as follows : The appellant was granted a stage carriage permit under section 48 of the (briefly the Act) for the route Devenagere to Shimoga via Honnali by the Regional Transport Authority, Shimoga, by its order dated May 3/4, 1963.
Some of the respondents preferred appeals against the said order to the State Transport Appellate Tribunal and obtained stay of the order The appeals were, however, dismissed on September 27, 1963.
Again, some of the respondents preferred further appeals to the Mysore Revenue Appellate Tribunal against the order of the State Transport Appellate Tribunal.
This time also the appeals met with the same fate and were dismissed on February 27, 1967.
It appears, however, that c no order of stay was granted by the Mysore Revenue Appellate Tribunal.
On April 25, 1967, the Secretary to the Regional Transport Authority, Shimoga, called upon the appellant to produce the relevant documents and the certificate of registration for making necessary entry in the permit.
The appellant produced the same on April 26, 1967, and the permit was issued on the same day.
Against the order of the issue of the permit, respondents 4 to 13 preferred appeals to the State Transport Appellate Tribunal on the ground that the Secretary to the Regional Transport Authority, Shimoga, had no jurisdiction to issue a permit under rule 119 of the Mysore Motor Vehicles Rules, 1963 (briefly the Rules) after a lapse of such a long time from the date of the grant of the permit.
It was contended that the issue of the permit was made beyond the prescribed period of limitation under rule 119.
It may be mentioned that at the time of the grant of the permit the Mysore Motor Vehicles Rules, 1945 (old Rules) were in force and rule 151 of the old Rules was replaced by rule 119 with effect from July 1, 1963.
It was contended by the appellant before the appellate authorities that there was no period of limitation under rule 151 of the old Rules, which was applicable to his case, for the issue of a permit.
The appeals of the respondents were allowed by the State Transport Appellate Tribunal by majority on January 29, 1969.
The District Judge Member, however, dissented.
An appeal filed by the appellant to the Revenue Appellate Tribunal against the order of the State Transport Appellate Tribunal was dismissed which led to the unsuccessful writ application in the High Court and hence this appeal.
The point that arises for consideration is whether any appeal lay under section 64 of the Act to the State Transport Appellate Tribunal against the issue of a permit in pursuance of an earlier resolution of the Regional Transport Authority granting the permit.
It is only necessary to read section 64(1) (a) which is material for the purpose of this appeal: 64(11 (a): "Any person aggrieved by the refusal of the State or a Regional Transport Authority to grant a permit, or by any condition attached to a permit granted to him may within the prescribed time and in the prescribed man 190 ner, appeal to the State Transport Appellate Tribunal constituted under sub section (2), who shall, after giving such person and the original authority an opportunity of being heard, give a decision thereon which shall be final".
We are not required to consider the other clauses of section 64(1) which are admittedly not relevant.
Section 64 has to be read with rule 178 of the Rules which prescribes the procedure for appeal to the various authorities Appeal is a creature of the statute.
There is no dispute that section 64 of the Act is the only section creating rights of appeal against the grant of permit and other matters with which we are not concerned here.
There is no appeal provided for under section 64 against an order issuing a permit in pursuance of the order granting the permit.
Issuance of the permit is only a ministerial act necessarily following the grant of the permit.
The appeals before the State Transport Appellate Tribunal and the further appeal to the Mysore Revenue Appellate Tribunal are, therefore, not competent under section 64 of the Act and both the Tribunals had no jurisdiction to entertain the appeals and to interfere with the order of the Regional Transport Authority granting the permit which had already been affirmed in appeal by the State Transport Appellate Tribunal and further in second appeal by the Mysore Revenue Appellate Tribunal.
There was, therefore, a clear error of jurisdiction on the part of both the Tribunals in interfering with the grant of the permit to the appellant.
The High Court was, therefore, not right in dismissing the writ application of the appellant which ought to have been allowed.
Although arguments were addressed by counsel with regard to old rule 151 and rule 119 of the Mysore Motor Vehicles Rules, 1963 we do not feel called upon to pronounce upon the legal effect of these rules in this appeal.
In the result the appeal is allowed.
The order of the High Court is set aside and necessarily the order of the State Transport Appellate.
Tribunal of January 29, 1969 and the order of the Mysore Revenue Appellate Tribunal of May 8, 1970, also fall.
The order granting the permit to the appellant stands restored There will be no order as to costs .
V.P.S. Appeal allowed.

summary/full:
The appellant was granted a stage carriage permit by the Regional Transport Authority in May, 1963.
Appeals against the grant to the State Transport Appellate Tribunal and further appeals to the Mysore Revenue Appellate Tribunal were dismissed.
Thereafter, in April, 1967, the Secretary of the Regional Transport Authority after calling upon the appellant to produce the relevant documents, issued the permit.
Appeals by the respondents of the State Transport Appellate Tribunal against the issue of the permit to the appellant were allowed on the ground of limitation.
The appeal of the appellant to the Revenue Appellate Tribunal was dismissed.
The appellant 's writ petition to the High Court was also dismissed.
Allowing the appeal to this Court, ^ HELD: There was a clear error of jurisdiction on the part of the State Transport Appellate Tribunal and the Revenue Appellate Tribunal in interfering with the issue of permit to the appellant.
The High Court was, therefore, not right in dismissing the writ application.
[190D E] Appeal is a creature of the statute.
Section 64 of the , is the only section creating rights of appeal against the grant of permit and other matters.
But there is no appeal provided against an order issuing a permit in pursuance of an order granting the permit.
Issuance of the permit is only a ministerial act necessarily following the grant of the permit.
Hence, the appeal to the State Transport Appellate Tribunal and the further appeal are not competent under the section.
[190B D]