judgement:
iminal Appeal No. 40 of 1965.
Appeal by special leave from the judgment and order dated August 4, 1964 of the Andhra Pradesh High Court in Criminal Revision Case No 479 of 1964.
P. Ram Reddy and B. Parthasarathy, for the appellant.
A.S.R. Chari, K. Rajendra Chaudhuri and K.R. Chaudhuri, for the respondents.
The Judgment of the Court was delivered by Hidayatullah, J.
The State of Andhra Pradesh appeals by special leave against the judgment of the High Court of Andhra Pradesh in which, accepting a reference by the Sessions Judge, the conviction of the respondents under sections 4 and 5 of the Hyderabad Gambling Act (2 of 1305F) ordered by the 5th City Magistrate at Secunderabad has been set aside.
The short question in this case is whether the premises of a Club known as the "Crescent Recreation Club" situated in Secunderabad were being used as a common gambling house and whether the several respondents who were present at the time of the raid by the police could be said to be gambling therein.
The facts of the case are as follows : On May 4, 1963, the police headed by Circle Inspector Krishnaswami raided the premises of the club.
They found respondents 1 5 playing a card game known as "Rummy" for stakes.
At the time of the raid, there were some counters on the table as also money and of course the playing cards with the players.
Respondent No. 6, the Treasurer of the Club, was also present and was holding the stake money which is popularly known as "kitty".
The 7th respondent is the Secretary of the Club and he has been joined as an accused, because he was in charge of the management of the club.
The kitty which the sixth respondent held was Rs. 74.62nP and a further sum of Rs. 218/ was recovered from the table of the 6th respondent.
66 counters were on the table and some more money was found with the persons who were indulging in the game.
The evidence of the Circle Inspector is that he had received credible information that the premises of the club were being used as a common gambling house and he raided it and found evidence, because instruments of gambling were found and the persons present were actually gambling.
The Magistrate convicted all the seven respondents and sentenced them to various fines, with imprisonment in default.
The respondents 389 then filed an.
application for revision before the Sessions Judge, Secunderabad who made a reference to the High Court under section 438 of the Code of Criminal Procedure, recommending the quashing of the conviction and the setting aside of the sentences.
This recommendation was accepted by the learned single Judge in the High Court and the present appeal is brought against his judgment by special leave granted by this Court.
The Hyderabad Act follows in outline the provisions of the Public Gambling Act, 1867 in force in India.
Section 3 of the Act defines a "common gambling house".
The translation of the Urdu text placed before us was found to be inaccurate but we have compared the Urdu definition with the definition of "common gaming house" in the Public Gambling Act, and we are of opinion that represents a truer translation than the one included in the official publication.
We accordingly quote.
the definition from the Indian Act, adding thereto the explanation which is not to be found in the Indian Act. "Common gambling house" according to the definition means: "any house, walled enclosure, room or place in which cards, dice, tables or other instruments of gaming are kept or used for the profit or gain of the person owning, occupying, using or keeping such house, enclosure; room or place, whether by way of charge for the use of the instruments of gaming, or of the house enclosure, room or place, or otherwise howsoever? ' Explanation :"The word 'house ' includes a tent and all enclosed space." The contention in regard to this definition is that the evidence clearly disclosed that the club was being used as a common gambling house and therefore the penal provisions of the Act were clearly attracted.
We are concerned additionally with several sections from the Gambling Act which need to be seen.
Section 4, which follows in outline the corresponding section in the Public Gambling Act, provides for penalty for an owner, occupier or person using common gambling house and includes within the reach of the section persons who have the care or the management of or in any manner assist in conducting, the business of.
any such house, enclosure or open space.
The members of the club which is a ("Members ' Club") would prima facie be liable but as they are not before us, we need not consider the question whether they should also have been arraigned in the case or not.
The Secretary and the Treasurer, who were respectively accused Nos. 7 and 6 were so arraigned as it was thought they came within the reach of section 4 because they were in the care and management of the club itself.
Then there is section 6 which again is similar 390 but not entirely similar to section 5 of the Public Gambling Act.
This provides for entry for search and entry by police.
It lays down as follows : "If the District Magistrate or the Magistrate of the First Class or the District Superintendent of Police or the Inspector of Police in the city and the suburbs of Hyderabad, on credible information and after such enquiries as he may deem necessary, has reason to believe that any house or premises or enclosure or an open space is used as a common gambling house he shall be empowered to enter or authorise any police officer, not below the rank of a Sub Inspector to enter with such assistance as may be found necessary, by night or by day, and by force, if necessary, any such house or premises or enclosure or open space, and it shall be proper to arrest all persons whom the said Magistrate or the Superintendent or Inspector of Police finds therein or to allow the Police Officer so authorised to arrest such persons whether or not they are actually gambling.
and Seize or authorise the said Officer to seize all instruments of gambling and all moneys and securities for money and valuable articles, reasonably suspected to have been used or intended to be used for the purpose of gambling and which are found therein, and search or authorise such Police Officers to search all parts of the house or premises or enclosure or open space, which he or such officer shall have so entered when he or such officer has reason to believe that any instruments of gambling are concealed therein and also the persons whom he or such officer had so arrested and seize and keep in his possession all such instruments of gambling as are found in the search.
Explanation: . ." Here the Circle Inspector was an officer authorised to enter upon and search the premises of the club and therefore his action was fully covered by the section.
He effected the arrest of all the persons who were present(respondents 1 6) and added to the number the Secretary who although not present on the premises at the time was, according to him, responsible for the offence under section 4 of the Oct. Session 7 of the Act then provides for a presumption which the law allows to be drawn from the finding of cards, etc.
in a house in which a search according to the terms of section 6 of the Act as taken place.
That section reads as follows : 391 "When any cards or dice or table or other instruments or means of gambling have been found in any house or premises or enclosure or open space entered or searched, in accordance with the provision of section 6 or have been found with any of the persons therein, it shall be evidence, until the country is proved, that such house, premises or enclosure or open space is used as a common gambling house and the persons found therein were present for the purpose of gambling although no play was actually witnessed by the Magistrate or the police officer or an3 ' of his assistants.
" This section gives rise to a presumption from the fact of a search under section 6 after credible information that persons present in the house are there for the purpose of gambling even though no play may be actually witnessed by the raiding party.
In the present case on the appearance of the police, it is admitted, the players stopped their play and the arrests were promptly made of all the persons present round the table who had cards, counters and the money with them.
The learned Magistrate who tried the case was of the opinion that the offence was proved, 'because of the presumption since it was not successfully repelled on behalf of the present respondents.
In the order making the reference the learned Sessions Judge made two points: He first referred to section 14 of the Act which provides that nothing done under the Act shall apply to any game of mere skill wherever played and he was of opinion on the authority of two cases decided by the Madras High Court and one of the Andhra High Court that the, game of Rummy was a name of skill and therefore the Act did not apply to the case.
He also held that there was no profit made by the members of the club from the charge for the use of cards and the, furniture and the room in the club by the players and therefore the definition of common gambling house ' did not apply to the case.
In accepting the reference, the learned single Judge in the High Court did not express any opinion upon the question whether the game of Rummy can be described as a game of skill.
_ He relied upon 'the second part of the proposition which the Sessions Judge had suggested as the ground for acquitting the accused.
namely, that the club was not making a profit but was only charging something as a service charge and to this we shall now refer.
Mr. Ram Reddy relies, firstly, upon the definition of 'common gambling house ' in the Hyderabad Act and contends that in this case there is ample evidence to prove that the club was making a profit or gain from the persons who play Rummy on its premises, pointing out at the same time that the charge was But upon strangers to 'the club as well as members.
He also submits 392 that the presumption which arises under section 7 of the Gambling Act has not been successfully repelled and on the other hand it has been confirmed by the making of this charge by the club.
In support of his case that the club was making a profit or gain from the game of Rummy he draws attention to four matters which in his opinion bring this club within the said definition.
The first was a charge of 5 points per game which according to him was being levied on each game of Rummy.
He next points out that playing cards were supplied to the players by the club at an extra charge of Rs. 3/ and there was a sitting fee of Re. 1/ per person from those who joined the game.
He points out further that if the game continued beyond a certain time in the night, a late fee was also levied.
In addition, he says, that non members were also required to pay and, therefore, this club must fall within the definition of a common gambling house.
In support he relies upon a decision of the Madras High Court 1n re Somasundaratn Chettiar(1) In our opinion the points made by Mr. Ram Reddy do not prove this club to be a common gambling house.
The presumption under section 7, even if it arises in this case, is successfully repelled by the evidence which has been led, even on the side of the prosecution.
To begin with, there is nothing to show that a fee of 5 points per game was being charged.
Only the Sub Inspector (P.W. 6) deposes to it but there is nothing to show what his source of information was.
At the time the game was going on, he was not present and when he arrived on the scene, the game had stopped.
The account books of the club do not show any such levy from the persons and in the absence of any entry, we cannot hold this fact to be sufficiently proved.
As regards the extra.charge for playing cards we may say that clubs usually make an extra charge for anything they Supply to their members because it is with the extra payments that the management of the club is carried on and other amenities are provided.
It is commonly known that accounts have to be kept, stocks have to be purchased and maintained for the use of the members and service is given.
Money is thus collected and there is expenditure for running of each section of the establishment.
Just as some fee is charged for the games of billiards, ping pong, tennis, etc, an extra charge for playing cards (unless it is extravagant) would not show that the club was making a profit or gain so as to render the club into a common gambling house.
Similarly, a late fee is generally charged from members who use the club premises beyond the scheduled time.
This is necessary, because the servants of the (1) A I R. 393 club who attend on the members have to be paid extra remuneration by way of overtime and expenditure on light and other amenities has to be incurred beyond the club hours.
Such a charge is usual in most of the clubs and we can take judicial notice of the fact.
This leaves over for consideration only the sitting fee as it is called.
In this connection, the account books of the club have been produced before us and they show that a fee of 50 paise is charged per person playing in the card room.
This to our opinion is not such a heavy charge in a Members ' Club as to be described as an attempt to make a profit or gain for the club.
Of course, if it had been proved that 5 points per game were charged, that might have been considered as an illegal charge sufficient to bring the club within the definition.
As we have already pointed out, the levy of that charge has not been proved.
The other charges which the club made do not establish that this was a common gambling house within the definition.
It is submitted by Mr. Ram Reddy that non members also play and further that the club provides no other amenities besides making it possible for members and non members to play the game of Rummy on the premises.
We think that the evidence on this part is not quite satisfactory.
No doubt one witness has stated that chess is also played, but that does not prove that amenities other than card games are catered for by the club.
But on the other side also there is no definite evidence that there is no other amenity in this club but the playing of card games.
In these circumstances, to hold that the club does not provide other amenities is tantamount to making a conjecture which is not permissible in a criminal case.
We are also not satisfied that the protection of section 14 is not available in this case.
The game of Rummy is not a game entirely of chance like the 'three card ' game mentioned in the Madras case to which we were referred.
The 'three card ' game which goes under different names such as 'flush ', 'brag ' etc.
is a game of pure chance.
Rummy, on the other hand, requires certain amount of skill because the fall of the cards has to be memorised and the building up of Rummy requires considerable skill in holding and discarding cards.
We cannot, therefore, say that the game of Rummy is a game of entire chance.
It is mainly and preponderantly a game of skill.
The chance in Rummy is of the same character as the chance in a deal at a game of bridge.
In fact in all games in which cards are shuffled and dealt out, there is an element of chance, because the distribution of the I cards is not according to any set pattern but is dependent upon how the cards find their place in the shuffled pack.
From this alone it cannot be said that Rummy is a game of chance and there 394 is, no skill involved in it.
Of course, if there is evidence of gambling in some other way or that the owner of the house or the club is making a profit or gain from the game of Rummy or any other game played for stakes, the offence may be brought home.
In this case, these elements are missing and therefore we think that the High Court was right in accepting the reference it did.
The appeal fails and is dismissed.
Y.P. Appeal dismissed.

summary/full:
The police raided the premises of a club and found respondents 1 5 playing "Rummy" for stakes, counters and money on the table and playing cards with the players.
Respondent 6 the Treasurer of the Club, was holding the stake money.
Respondent 7 the Secretary of the club was not present then.
All the respondents were convicted by the Trial Court, but the conviction was set aside by the High Court.
In appeal to this Court, the appellant State contended that this club was a common gambling house as.
a fee of 5 points per game was charged by the club, the playing cards.
were supplied at an extra charge of Rs. 3.
there was a sitting fee of Re. 1 per person who joined the game, and if the game continued beyond a certain time a late fee was levied; and further that.
the presumption under section 7 of the Gambling Act had not been repelled;but on the other hand it had been confirmed by the making of this charge by the club.
Dismissing the appeal HELD: This club was not a common gambling house.
The presumption under section 7 even if it arises in this case, was successfully repelled by the evidence which had been led.
[392 D] Just as some fee is charged for the games of billiards, ping pong, tennis etc.
an extra charge for playing cards (unless it is extravagant) would not show that the club was making profit or gain so as to render the club into a common gambling house.
Similarly, a late fee is generally charged from members who use the club premises beyond the scheduled time This is necessary because the servants of the club who attend on the members have to be paid extra remuneration by way of overtime, and expenditure on light and other amenities has to be incurred beyond club house.
The accounts showed that the sitting fee of 50 raise was charged per person.
This was not such a heavy charge in a Members ' Club as to be described as an attempt to make a profit or gain for club.
Of course, if it had been proved that 5 points per game was charged, that might have been considered as an illegal charge sufficient to bring the club within the definition.
[392 G 393 C] The protection of section 14 was not available in this case.
Rummy is not a game entirely of chance like the 'three card ' game.
It requires certain amount of skill because the fall of the cards has to be memories and the building up of Rummy requires considerable skill in holding and discarding cards.
It is mainly and preponderantly a game of skill.
The chance in Rummy is of the same character as the chance in a deal at a game of bridge.
In fact in all games in which cards are shuffled and dealt out, there is an element of chance, because the distribution of the cards is not according to any set pattern but is dependent upon how the cards find their place in the shuffled pack.
From this alone it cannot be said that Rummy is a game of chance and there is No. skill involved in it of course, if there is evidence of gambling in some other way or 387 388 the owner of the house or club is making a prOfit or gain from the game of Rummy or any other game played for stakes, the offence may be brought home.
[393 F 394 B]


judgement:
s Nos. 109 to 114, 117, 118, 120, 121, 128 to 133, 142, 143, 186, 190 and 191 of 1967.
Petitions under article 32 of the Constitution of India for the enforcement of the fundamental rights.
M.K. Ramamurthi, for the petitioners (in W. Ps.
109, 142 and 143 of 1967).
section Shaukat Hussain, for the petitioners (in W. Ps.
Nos. 110114 and 118 of 1967).
Janardan Sharma, for the petitioners (in W. Ps.
Nos. 117, 120, and 121 of 1967).
R.C. Prasad, for the petitioners (in W. Ps.
128 133 of 1967) M.K. Ramamurthi and Vineet Kumar, for the petitioners (in W. Ps.
Nos. 186, 190 and 191 of 1967).
C.K. Daphtary, Attorney General, R.H. Dhebar and S.P. Nayar, for the respondent (in W. Ps.
109, 142 and 143 of 1967).
G.R. Rajagopal, R.H. Dhebar and section P. Nayar, for the respondent (in W.P. No. 110 of 1967).
R. Gopalakrishnan and section P. Nayar, for the respondent (in W. Ps.
111 to 114, 117, 118, 120, 121.
128 to 133, 186, 190 and 191 of 1967).
The Judgment of WANCHOO, C.J., SHAH, BACHAWAT, MITTER and HEGDE, JJ. was delivered by WANCHOO, C.J., HIDAYATULLAH, J. delivered a separate Opinion.
Wanchoo, C.J.
These twenty one petitions under article 32 of the Constitution for a writ of habeas corpus raise common questions of law and will be dealt with together.
It is enough to set out the facts in one of the petitions (No. 142 of 1967), for the facts in other petitions are almost similar.
The petitioner was arrested on November 11, 1966 and detained under an order passed under r. 30(1)(b) of the Defence of India Rules, 1962 (hereinafter referred to as the Rules).
It appears that though the order was reviewed after the period of six months, no opportunity was given to the petitioner to represent his case before the reviewing authority.
In consequence the detention of the petitioner be came illegal after the first period of six months in view of the judgment of this Court in P.L. Lakhanpal vs Union of India(1).
The State Government realising this defect, cancelled the order dated November 11, 1966 on August 3, 196 '7, and on the same day a fresh order of detention was passed and it is this order which (1) ; L 1O Sup CI/67 17 230 is being challenged before us.
It is not in dispute that in view of the judgment of this Court in Jadev Singh vs State of Jammu and Kashmir(1), it was open to the State Government, in view of the formal defect in making the review, to pass a fresh order of detention after revoking the earlier order, which in any case became ineffective after the first six months, if the circumstances which led to the detention originally still continued.
The main attack of the petitioners is on the order of the President passed on November 3, 1962, as amended on November 11, 1962, under article 359(1) of the Constitution.
By this order the President declared that the right to move any court for 'the enforcement of the fundamental rights conferred by articles 14, 21 and 22 of the Constitution would remain suspended for the period during which the Proclamation of Emergency issued under article 352(1), was in force, if any person was deprived of such right under the Defence of India Ordinance (No. 4 of 1962) or any rule or order made thereunder.
The argument in support is put this way.
The President is an "authority" within the meaning of article 12 and therefore is comprised within the definition of the word "State" and the order passed under article 359 is a law within the meaning of article 13(2) of the Constitution.
Consequently an order passed by the President under article 359 is liable to be tested on the anvil of the fundamental rights enshrined in Part Ill of the Constitution: Secondly, it is urged that an order passed under article 359 is made in the context of the Emergency and therefore enforcement of only such fundamental rights can be suspended which have nexus with the reasons which led to the Proclamation of Emergency.
In consequence, the President can only suspend the enforcement of fundamental rights under article 22 and article 31 (2) under an order passed under article 359 and no others.
Thirdly, it is urged that even if the President can suspend the enforcement of any fundamental right, the order passed can still be tested under the very fundamental right enforcement of which has been suspended.
Fourthly, it is urged that an order passed under article 359 can in any case be challenged under article 14, and if so the order passed in the present case is violative of article 14 because some persons can be detained under the Defence of India Act, 51 of 1962 (hereinafter referred to as the Act) and the Rules while others can be detained under the Preventive Detention Act.
As the Act and the Rules give more drastic powers for detention as compared to the powers conferred by the Preventive Detention Act, there is discrimination, for there is no indication as to when detention should be made under the Act and the Rules and when under the prevention law, and the matter is left to the arbitrary discretion of the executive.
Fifthly, it is urged that in view of the language of the order under article 359, there should have been an ; 231 express provision in the Act and the Rules to the effect that enforcement of fundamental rights under articles 14, 21 and 22 was suspended and in the absence of such an express provision, the Presidential order under article 359 cannot stand in the way of the detention order being tested under Part III of the Constitution.
Sixthly, it is urged that article 22 (5 ) provides that grounds of detention should be furnished to a detenu and the order of the President did not do away with the necessity of furnishing the grounds.
Besides these main contentions, three subsidiary contentions have also been raised in one petition or another and they are (1) that the fresh order had not been communicated to the detenues and was therefore of no avail; (ii) that the order was not in the form as required by article 166 of the Constitution and it is therefore for the State Government to prove that it was passed by the authority which had the power to do so; and (iii) that the fresh order was mala fide.
The petitions have been opposed on behalf of the State Government.
It is unnecessary to set out in detail the contentions in reply to the main points raised on behalf of the petitioners.
It is enough to say that the contention on behalf of the State is that once the President has passed an order under article 359 suspending the enforcement of any fundamental right, it is not open to rely on that fundamental right for any purpose, so long as the order under article 359 stands and such an order cannot be tested in any manner by the very fundamental right the enforcement of which it has suspended.
Further as to the subsidiary points, the State contends that the fresh order of detention was communicated to each detenu and that the order was in the form required by the Constitution of Jammu and Kashmir and that article 166 has no application to the State of Jammu and Kashmir.
It was finally denied that the order was mala fide in any of the cases.
Part XVIII deals with Emergency Provisions and begins with article 352 which provides for making a declaration that "a grave emergency exists whereby the security of India or of any part of the territory thereof is threatened, whether by war or external aggression or internal disturbance", if the President is so satisfied.
articles 353 and 354 provide for the effect of the Proclamation of Emergency; but it is unnecessary to refer to them for present purposes.
Article 358 lays down that during the period that a Proclamation of Emergency is in operation, Article 19 shall remain suspended, Article 359 with which we are particularly concerned lays down that where a Proclamation of Emergency is in operation, the President may by order declare that the right to move any court for the enforcement of such of the rights conferred by Part III as may be mentioned in the order and all proceedings pending in any court for the enforcement of the rights so mentioned shall remain L10Sup.
C1/67 18 232 suspended for the period during which the Proclamation is in force or for such shorter period as may be specified in the order.
" The order made under article 359 may extend to whole or any part of the territory of India and has to be laid, as soon as may be after it is made, before each House of Parliament.
It will be seen from the terms or article 359 that it gives categorical powers to the President during the period when a Proclamation of Emergency is in operation to suspend the enforcement of any of the fundamental rights conferred by Part III.
It is for the President to decide the enforcement of which of the fundamental rights should be suspended during the operation of the Proclamation of Emergency.
There is nothing in article 359 which in any way limits the power of the President to suspend.
the enforcement of any of the fundamental rights conferred by Part III.It is to our mind quite clear that the President has the power to suspend the enforcement of.
any of the fundamental rights conferred by Part III and there is nothing thereunder which makes any distinction between one fundamental right or another.
As article 359 stands, it seems to us, it clearly envisages that once a Proclamation of Emergency has been issued, the security of India or any part of the territory thereof may require that the President should suspend the enforcement of any of the fundamental rights conferred by Part III.
There is in our opinion no scope for inquiry into the question whether the fundamental right the enforcement of which the President has suspended under article 359 has anything to do with the security of India which is threatened whether by war or external aggression or internal disturbance, for article 359 posits that it may be necessary for the President to suspend any of the fundamental rights in Part HI for the sake of the security of India.
There is thus a basic assumption in article 359 that it may be necessary for the President to suspend the enforcement of any of the fundamental rights conferred by Part III in the interest of the security of India.
If he considers that necessary, it is unnecessary in the face of that basic assumption to inquire whether enforcement of a particular fundamental right suspended by the President has anything to do with the security of India, for that is implicit in article 359.
It follows therefore that it is open to the President to suspend the enforcement of any of the fundamental rights conferred by Part III by an order under article 359 and this Article shows that wherever such suspension is made it is in the interest of the security of India and no further proof of it is necessary.
This brings us to the main ground ' raised on behalf of the petitioner that an order under article 359 is a law made by the State within the meaning of article 13(2) and has therefore to be 233 tested under Part III of the Constitution.
We may assume for present purposes that the President is comprised within the word "State" in article 12.
We may also assume that the order made by the President under article 359 is a law in its widest sense.
The question however is whether such an order can be considered to be a law for the purpose of article 13(2) and tested thereunder.
Article 13(2) and article 359 being parts of the same Constitution stand on an equal footing and the two provisions have to be read harmoniously in order that the intention behind article 359 is carried out and it is not destroyed altogether by article 13(2).
It follows that though an order under article 359 may be assumed to be law in its widest sense, it cannot be law within the meaning of article 13(2), for if that were so, article 359 would be made nugatory.
The Constitution through article 359 says that the President may suspend the enforcement of any of the fundamental rights in Part III where a Proclamation of Emergency is in force and that means that during the period of Emergency the fundamental rights, enforcement of which is suspended, cannot be enforced.
If the order is a law within the meaning of article 13(2), the result would be that though the order says that the enforcement of a particular fundamental right is suspended during the period of Emergency the order can still be tested with the aid of article 13(2) on the anvil of the same fundamental right, the enforcement of which it suspends.
That would in our opinion result in making article '359 completely nugatory, for then a declaration made there under that the enforcement of certain fundamental rights is suspended during the period of Emergency would have no meaning whatsoever. ' Therefore, applying the principle of harmonious construction we are of opinion that an order passed under article 359.
cannot be law for the purpose of article 13(2), assuming it to be law in its widest sense.
It follows therefore that an order under article 359 derives its force from article 359 itself and takes effect in accordance with its tenor and cannot be affected by article 13 (2), and cannot be tested under any of the provisions of Part III of the Constitution which it suspends.
Reliance in this connection is placed on the judgment of this Court in Ghulam Sarwar vs Union of India(1), where the majority made a distinction between the President 's order itself under article 359 and the effect of that order.
In that case it was observed that "there is a clear distinction between deprivation of fundamental rights by force of a constitutional provision itself and such deprivation by an order made by the President in exercise of a power conferred on him under a constitutional provision.
" It was further observed.
that "Article 359(1) does not operate by its own force.
The President has to make an order declaring that the right to move a court in respect of a fundamental right (1) ; 234 or rights in Part III is suspended.
He can only make an order which is a valid one.
" It was further observed that an order making an unjustified discrimination in suspending the right to move a court under article 14, would be void at its inception and would be a still born order.
We must say with greatest respect that it is rather difficult to understand how an order under article 359 which suspends the enforcement of a fundamental right can be tested under that very fundamental right.
It is true that there is a distinction between article 358 and Art 359(1).
Article 358 by its own force suspends the fundamental rights guaranteed by article 19; article 359(1) on the other hand does not suspend any fundamental right of its own force but it gives power to the President to suspend the enforcement of any fundamental right during the period of Emergency.
But that cannot mean that an order passed under article 359(1 ) suspending the enforcement of a particular fundamental right has still to be tested under the very fundamental right which it suspends.
That would in our opinion be arguing in a circle and make Art 359 completely nugatory.
It seems that the majority in Ghulam Sarwar 's(1) case was also conscious of the fact that the reasoning on which it came to the conclusion that an order made under article 359 could be tested under article 14.
though it suspended that Article, was open to the criticism that it was an argument in a circle.
The argument was however met by making a distinction between the order and the effect of that order and it was observed that if the order did not violate article 14 it could validly 'take away ,the right to enforce the fundamental right under article 14.
With greatest respect it is difficult to appreciate this reasoning and the distinction on which it is based.
It seems to us that if article 359 is to have any meaning at all and is not to be wiped out from the Constitution an order passed thereunder suspending a fundamental right cannot possibly be tested under ' that very fundamental right which it suspends.
If that were permissible no order under article 359 could really be passed.
If article 359 is not to be rendered nugatory, it must be held that an order passed thereunder cannot be tested under the very fundamental right the enforcement of which it suspends.
We must therefore respectfully differ from the view taken in Ghulam Sarwar 's case(1) and hold that an order passed under article 359(1) cannot be tested with the aid of article 13(2) under that very fundamental right the enforcement of which it suspends.
There is therefore no force in the first point raised on behalf of the petitioners.
We ,also see no force in the second point raised by the petitioners.
As we have already indicated article 359 envisages that an (1) ; 235 order passed thereunder for suspension of the enforcement of particular fundamental right is for the sake of security of India It is therefore not necessary to enquire whether there is any nexus between a particular fundamental right suspended and the security of India.
Article 359 itself posits that it may be necessary in the interest of the security of India to pass an order suspending the enforcement of any fundamental right thereunder.
This is clear from the fact that article 359(1), provides for the suspension of the enforcement of the fundamental rights in Part III of the Constitution only during the period of Emergency meaning thereby that suspension of the enforcement of any of the fundamental rights which the President considers necessary is for the security of India.
We fail to see why only fundamental rights under article 22 or under article 31(2) can be suspended under article 359; Article 359 clearly shows that any fundamental right in Part Ill can be suspended during an Emergency and we cannot limit Article 359 in the face of the unambiguous and express words thereof and say that only the enforcement of fundamental right under Articles 22 and 31(2) can be suspended.
It may be that prima facie these two fundamental rights appear to have a clearer nexus with security of India; but it does not follow that other fundamental fights may not in an Emergency have such a nexus.
In any case article 359 itself proceeds on the basis that the suspension of the enforcement of all or any of the fundamental rights is for the sake of security of India and so gives the power to the President to suspend such enforcement if he considers it necessary for that purpose.
The second contention raised on behalf of the petitioners must also be rejected.
As to the third contention, we have already indicated that an order passed under article 359(1) suspending the enforcement of a particular fundamental right cannot be tested under that very fundamental right.
We cannot see how if the order under Art 359 suspends article 14 its validity can still be tested under that very Article.
We have already expressed our respectful dissent from the view taken in Ghulam Sarwar 's case(1) and must reject this contention.
As the enforcement of the fundamental right under article 14 was suspended by the President 's order under article 359, no question of that order being bad under that Article can arise even if we assume that the provisions for detention under the Act and the Rules are more stringent than the provisions for detention under the Preventive Detention Act.
The fourth contention also fails.
As to the fifth contention it is urged that on.
the words of the order passed by the President suspending the enforcement of fundamental rights under articles 14, 21 and 22, there had to be a 236 provision in the Act and the Rules expressly to the effect that these fundamental rights would not be enforceable.
We cannot understand how any provision could have been made in the Act and Rules to this effect.
Such a provision in the Act 43r the Rules would be clearly unconstitutional.
It is only because article 359(1)provides that the President may suspend the enforcement of a particular fundamental right that it is possible for the enforcement of any fundamental right to be suspended during the Emergency.
What the President has provided in the present case is that the enforcement of fundamental rights under articles 14, 21 and 22 would be suspended if any person has been deprived of such right under the Defence ' of India Ordinance (later replaced by the Act) or the Rules or orders made thereunder.
It is necessary to emphasis that the President 's order speaks of suspension under the Ordinance (later replaced by the Act) or the Rules or orders made thereunder.
It does not say that the enforcement of such right is suspended if any person is deprived of it by the Ordinance the Rules or orders made thereunder.
Therefore it was not necessary that there should be any express provision in the Act or the Rules suspending the enforcement of fundamental rights under articles 14,21 and 22.
The clear intendment of the President 's order is that if any fundamental right of any person under articles 14, 21 and 22 was invaded by any action taken under the Ordinance (later replaced by the Act), or any rule or order thereunder, that action could not be tested on the anvil of those fundamental rights.
It was therefore not necessary to make any express provision in the Act or the Rules for the suspension of the enforcement of the fundamental rights under articles 14, 21 and 22.
The fifth contention must also fail.
The sixth contention is that article 22(5) which lays down that grounds of detention must be communicated to the person detained must still be applicable.
We have not been able to understand this argument at all.
If the President 's order is validly made as we hold it to be and if it suspends article 22 as it does we fail to see how clause (5 ) continues, for it is only a part of article 22 which has been suspended.
There is no question therefore of furnishing any ground under article 22(5) to the detenu if the detention is under the Act on the Rules, for the entire article 22 has been suspended.
The argument under this head is also rejected.
This brings us to the subsidiary points raised on behalf of the petitioners.
It is first said that the fresh order was not communicated to the detenues.
This has been denied on behalf of the State.
We see no reason why the fresh order which was passed on the same day on which the earlier order was cancelled would not have been communicated.
Nothing has been shown to us to disbelieve the statement on behalf of the State that the fresh order was 237 communicated in each case and.
therefore any argument based on its not being communicated must fail.
Then it is argued that the order is not in the form as required by article 166.
It is enough to say that article 166 does not apply to the State of Jammu and Kashmir.
We have to look to the Constitution of Jammu and Kashmir to see whether the form of the order is in accordance therewith.
It is clear that the order is in the form required by section 45 of the Constitution of Jammu and Kashmir.
The presumption must therefore be made that it was passed validly unless the petitioners can show that it was not passed as required by law.
No attempt has been made on behalf of the petitioners to show that.
The contention on this head must therefore also be rejected.
Lastly, it is urged that the orders in these cases were mala fide.
This has been denied on behalf of the State.
No grounds have been shown which may lead us to the conclusion that the fresh orders which were passed were mala fide.
The necessity for fresh orders arose because the review was not made in accordance with the manner indicated by this Court in Lakhanpal 's case(1).
The fresh order that was made was on the same facts and must in the circumstances be held to be valid in view of the judgment of this Court in Jagdev Singh 's case(2).
The petitions therefore fail and are hereby dismissed.
Hidayatullah, J. I agree that the petitions be dismissed.
As I was a member of the Constitution Bench which decided Ghulam Sarwar 's(2) case I wish to say a few words in explanation.
The judgment of Subba Rao, C.J. to which I was a party has expressed itself somewhat unhappily on ,the point on which it has been overruled in the judgment just delivered.
The former Chief Justice upheld the extension of G.S.R. 1418/30 10 62 (which suspended the benefits of articles 21 and 22 to a foreigner) by G.S.R. 1275/27 8 3965.
The latter order suspended article 14 in addition to the two articles already suspended.
This 'suspension was upheld on the ground that there was a clear classification between citizens and foreigners and in a state of war and emergency foreigners could be treated as a class.
In other words, the order was tested on the ground of article 14 itself which the order of the President sought to suspend.
In the judgment just delivered it has been said that the reasoning in Ghulam Sarwar 's(3) case is difficult to understand and that the suspension of article 14 precludes examination of the order under that article.
I should have thought that I had sufficiently explained my position during the discussion of the draft judgment (1) ; (2) ; (3) ; 238 in Ghulam Sarwar 's(1) case but it appears that in spite of my doubts about the width of language in that judgment, the decision to which I became a party continued to bear the meaning now attributed to it.
If I may say with, great respect, the judgment just delivered also suffers from a width of language in the other direction.
The truth lies midway.
Although a suspension of a fundamental right under article 359(1) may be made either for the whole of India or any part of the territory of India, Ghulam Sarwar 's(1) case points out that there is nothing to prevent the President from restricting the scope of the order to a class of persons provided the operation of the order is confined to an area and to a period.
As the order was applicable to the whole of India and for the duration of the emergency although it affected a class, namely, foreigners, it was upheld.
This was not the application of article 14.
This was said because the argument was that the order could only be with reference to the whole or a part of the territory of India and not with respect to a class such as foreigners.
That meant that the Order was considered in relation to the words of article 359(1).
Room was, however, to be left for the play of article 14 for those theoretically possible (and fortunately 'only theoretically possible) cases in which the exercise of the power itself may be a cloak for discrimination, in other words, cases of mala fide action and clear abuse of the power for some collateral purpose.
This strict reservation only was intended to go into the judgment in Ghulam Sarwar 's(1) case but if a wider meaning can be spelled out from that judgment I dissent from it and say that I never intended to 'be a party to such a wide statement.
The examination under article 14 of the suspension of the article itself, as expressed in the judgment of Subba Rao C.J. gives a very different impression.
For the same reason I cannot subscribe to the width of language in the judgment just delivered which apparently 'does not make any reservation at all.
Therefore I agree to the order proposed but reserve my reasons.
R.K.P.S. Petitions dismissed.

dataset_name: IN-Abs

summary/full:
By a petition under Art.32 of the Constitution,the petitioner challenged an order of detention passed against him under r. 30(1)(b) of the Defence of India Rules, 1962.
It was contended on his behalf, inter alia, (i) that the order of the President passed on November 3. 1962 as amended on November 11, 1962 under article 359(1) of the Constitution, suspending the right to move any court for the enforcement of the fundamental rights conferred by articles 14, 21 and 22 if any person was deprived of such right during the period of the Emergency under the Defence of India Ordinance No. 4 of 1962 or any rule or order made thereunder, was a law within the meaning of article 13(2) of the Constitution and could therefore be tested against the fundamental rights in Part III of the Constitution including the very fundamental right the enforcement of which is suspended; that only such fundamental rights can be suspended which have nexus with the reasons which led to the Proclamation of Emergency, i.e., the President can only suspend enforcement of fundamental rights under articles 22 and 31(2) by an order under article 359; that the order under article 359 in the present case was violative of article 14 as it enabled the executive to decide.
in exercise of an arbitrary discretion, whether to detain a person under the more drastic provisions of the Defence of India Act 51 of 1962 or the Preventive Detention Act; (ii) that in view of the language of article 359 there should have been an express provision in the Defence of India Act and the Rules that the enforcement of fundamental rights under articles 14, 21 and 22 was suspended and in the absence of such a provision the order passed under article 359 cannot stand in the way of the detention order being tested under Part III of the Constitution; (iii) that article 22(5) requires that grounds of detention should be furnished to the detenu and the President 's order of November 1962 does not do away with this requirement which was not satisfied in the present case; and (iv) that the order of detention was not in the form required by article 166 of the Constitution and the State Government therefore had to prove that it was passed by the authority empowered to do so.
Held: (by the Court) :The petitions must be dismissed.
Per majority: (i) An order passed under article 359(1) cannot be tested with the aid of article 13(2) under that very fundamental right the enforcement of which it suspends.
Even if an order under article 359 is assumed to be law in its widest sense, it cannot be a law within the mean 228 ing of article 13(2), for if that were so, the Article would be made nugatory.
article 359 gives categorical powers to.
the President during the period when a Proclamation of Emergency is in operation to suspend the enforcement of any of the fundamental rights conferred by Part III.
There is nothing in it which in any way limits the power of the President and it is for him to decide the enforcement of which of the fundamental rights should be suspended during the Emergency.
[234D G; 232B D] There is a basic assumption in article 359 that it may be necessary for the President to suspend the enforcement of any of the fundamental rights in the interest of the security of India and in the face of that basic assumption, there is no scope for enquiry into the question whether the fundamental right the enforcement of which the President has suspended under article 359 has anything to do with the security of India which is threatened whether by war or external aggression or internal disturbance.
It cannot be said that only fundamental rights under article 22 or article 31 (2) can be suspended under article 359.
[232 F, G; 235C D] Even if the provisions for detention under the Defence of India Act and the Rules are more stringent, after the suspension of article 14 under article 359, no question of the order under article 359 being bad under article 14 can arise.
[235H] Ghulam Sarwar vs Union of India ; ; dissented from.
(ii) The clear intendment of the President 's order is that if any fundamental right of any person under articles 14, 21 and 22 was invaded by any action taken under the Ordinance (later replaced by the Act), or any rule or order thereunder, that action could not be tested on the anvil of those fundamental rights.
It was therefore not necessary to make any express provision in the Act or the Rules for the suspension of the enforcement of the fundamental rights under articles 14, 21 and 22.
[236E] (iii) As the President 's order suspending article 22 was validly made, there was no question of furnishing any ground under article 22(5) to the detenu if the detention was under the Defence of India Act or the Rules, for the entire article 22 was suspended.
[236G] (iv) Article 166 has no application to the State of Jammu & Kashmir and as the detention order was made in the form required by section 45 of the Constitution of Jammu & Kashmir, it must be presumed to have been validly made.
[237B] Per Hidayatullah, J.
Although a suspension of a fundamental right under article 359(1) may be made either for the whole of India or any part of the territory of India, Ghulam Sarwar 's case points out that there is nothing to prevent the President from restricting the scope of the order to a class of persons provided the operation of the order is confined to an area and to a period.
As the order was applicable to the whole of India and for the duration of the emergency although it affected a class, namely, foreigners, it was upheld.
This was not the application of article 14.
This was said because the argument was that the order could only be with reference to the whole or a part of the territory of India and not with respect to a class such as foreigners.
That meant that the order was considered in relation to the words of article 359(1).
The meaning now attributed to the decision in Ghulam Sarwar 's case is in view of the width of language used in that case and the decision of the majority in the present also suffers from a width of language in the other direction whereas the truth ties midway.
[238A F] 229


judgement:
Appeals Nos.
581 to 584 of 1966.
Appeals by special leave from the judgment and order dated March 26.
1964 of the Calcutta High Court in Income tax Reference No. 6 of 1961.
K. Sen, Bishan Narain, R.K. Chaudhuri and B.P. Maheshwari, for the appellant (in all the appeals).
Niren De, Solicitor General, T.A. Ramachandran, R. N. Sachthey and S.P. Nayar, for the respondent (in all the appeals) 354 The Judgment of the Court was delivered by Bhargava, J.
These appeals came up before this Court on the 17th April, 1967, when an order of remand was made by this Court, asking the Income tax Appellate Tribunal to submit a further statement of the case.
The question that has come up.
for consideration is : "Whether on the facts and circumstances of the case, the surplus derived by the assessee in the sale of its shares and securities in the relevant previous years was a revenue receipt and as such taxable under the Income Tax Act.
" The facts and circumstances under which the question was referred by the Tribunal for the opinion of the High Court are mentioned in that order of remand and need not be repeated.
In the order of remand, it was pointed out that it was not possible to find out from the statement of the case whether the Tribunal accepted the explanation of the assessee that, in the previous year relevant to the assessment year 1953 54, the control of McLeod & Co. Ltd. went out of the hands of the Directors of the assessee and it was for this reason that the assessee sold the shares of McLeod & Co. It was also pointed out further that the Tribunal had not stated what was the object of the assessee in buying 6,900 ordinary shares of McLeod & Co. It appeared from the order of the Income tax Officer that these shares were purchased in a number of lots from the year 1948 to 1950, and it was also not stated as to what was the object in buying other securities, and why did the assessee confine its activities mostly to the shares of McLeod & Co. Ltd. and the companies managed by McLeod & Co. Ltd. It was in the light of these omissions that the Tribunal was asked to send a supplementary statement.
That supplementary statement has now been received and the answer to the question has to be given on the basis of the facts contained in the original statement of the case as well as this supplementary statement.
The relevant facts which emerge out of these statements of the case are that the principal activity of the assessee was investment of its capital in shares and stocks.
It changed its investments by sale of its shares and stocks from time to time.
The income of the Company was primarily derived from dividends on shares and interest received by it on the investments.
These activities were covered by Clauses (1), (3) and (4) of the Memorandum of Association.
The activity mentioned as the object in Clause (2) is: "to acquire,hold, sell and transfer shares, stocks, Debentures, 'Debenture Stocks, Bond, obligations and 355 securities issued or guaranteed by any company constituted or carrying on business in British India and in the United Kingdom or in any colony, or dependency or possession thereof or in any foreign country and Debenture Stocks, Bonds, obligations and securities, issued or guaranteed by any Government, Sovereign, Ruler, Commissioners, public body or authority supreme, Municipal ' Local or otherwise whether at home or abroad." In the supplementary statement, the Tribunal has recorded the finding that, in its opinion, the purchases and sales of the shares in question were in pursuit of this clause (2) in the Memorandum of Association.
The Tribunal has further stated that the assessee had not placed any evidence as to the object behind the acquisition of the shares of McLeod & Co. Ltd and the shares of companies managed by McLeod & Co. Ltd., nor had the Income tax Officer ascertained the object behind such acquisitions.
The Tribunal was also unable to find out why the assessee had more or less confined its activities mostly to the shares of McLeod & Co. Ltd. and the companies managed by McLeod & Co. Ltd. The facts proved showed that, in the account year relevant to the assessment year in question, 21,046 shares were held by the Kanoria group, including 6,977 shares in McLeod & Co. Ltd. held by the assessee.
Mr. C.L. Kanoria resigned his office as Director of McLeod & Co. Ltd. on 17th March, 1952, and the approval of the Government to his resignation was given by the Central Government on 16th October, 1952.
Thereafter, Sri C.L. Bajoria joined the Directorate of McLeod & Co. Ltd. 6,900 shares.
were sold by the assessee to Sri C.L. Bajoria or his nominees on 27th May, 1952, at a time when Sri C.L. Kanoria had already sent in his resignation from the office of Director, but the resignation had not yet been accepted by the Government.
It has also, been found that Sri C.L. Bajoria acquired 12,440 shares in all.
including 6,900 shares purchased from the assessee; but there was no material on the record to prove that his group obtained a controlling interest in McLeod & Co. Ltd. as a result of acquisition of ' these shares.
As a fact, it was held that after the resignation of Sri C.L. Kanoria, Messrs C.L. Bajoria and Baijnath Jalan, both ; of M/s. Soorajmull Nagarmull, became Directors of McLeod & Co. Ltd. These are the principal facts on the basis of which it has to be determined whether the sale of these shares by the assessee resulted in a revenue receipt or in a capital gain.
It appears to us that the facts and circumstances in this case can lead to.
no other conclusion, except that these shares were purchased and sold by the assessee with the motive of earning a profit by such purchases and sales and not with the object of investing its capital in these shares in order to derive 356 income from that investment.
It is true that the principal business of the assessee was to invest capital and to derive income from dividends on shares and interest on other investments; but at the same time, the object contained in the Memorandum of Association of the assessee Company clearly showed that one of the objects was also to deal in shares, stocks, debentures, etc., by acquiring, holding, selling and transferring them.
In the years prior to the assessment year, the case put forward by the assessee that the various acquisitions and sales of shares were in the nature of investments was accepted by The Department but such a decision given in the earlier years is not binding in the proceedings for assessment during subsequent years.
The particular shares no,in question.
it appears, were purchased between 31st March,1948 and 31st March, 1952.
The earliest purchases in March.1948 were at an average price of Rs. 267 13 0 per share.
In the next two years ended 31st March, 1949 and 31st March, 1950.the average purchase price was Rs. 201 8 0 and Rs. 182 10 0.and the last purchase in the year ended 31st March, 1952 was at the rate of Rs. 128 14 0.
On 1st April.
1952, the assessee 's total holding of shares in McLeod & Co. Ltd. was 6,977 at a total cost of Rs./4,29,587 4 0 out of the total holding of shareS, including shares in other companies, of the value of Rs. 17,58,741 4 0.Thus, on that date, the holdings in McLeod & Co. Ltd. formed the major part of the share holdings of the assessee.
It is significant that the shares were purchased during a period when their market price was continuously falling.
The earliest purchases in the year ended 31st March, 1948 were at an average price Rs. 267 13 0, while in the last of these three years ended 31st March 1952, the average price was Rs. 128 14 0.
The largest block of 4,757 shares was purchased in the year ended 31st March, 1950, when the average price was Rs. 182 10 0.
The assessment order of the Income tax Officer also shows that the shares were not only purchased in a rapidly falling market, but, in order to make these purchases the assessee had taken loans amounting to about Rs. 8 lacs at interest varying from 31/2% to 5 %.
The dividend being declared was at a very low rate, so that the return on this investment, after taking into account the interest paid and super tax to be paid, came to a very small percentage.
being less than 1%.
This circumstance that the shares were purchased at a time when their prices were falling and the return on investments was not at all substantial while loans had been taken to purchase these shares strongly points to a conclusion that the shares could not have been purchased as an investment to earn income from dividends and that the purchases of these shares were with the object of selling them subsequently at a profit.
The shares were in fact, sold at considerable profit subsequently and that is how the question of charging that profit to tax as revenue receipt has arisen.
The explanation sought to be given by the 357 assessee that the shares were, in fact, being held as investment and were sold simply because the control of McLeod & Co. Ltd. went out of the hands of the Directors of the assessee has not been proved, according to the supplementary statement of the case submitted by the Tribunal.
In fact, the Tribunal was not satisfied that even the purchasers, viz., the Bajoria group on buying these shares from the assessee acquired a controlling interest in McLeod & Co. Ltd. or in the companies managed by that Company.
The object of the sale as given by the assessee has therefore, remained unproved, whereas the fact that the purchases of the shares were made at a time when they were not expected to give a good return as investment and were actually sold at a very good profit leads to the reverse inference that the purchases and sales of these shares were an adventure in the nature of trade.
Even the sequence of events does not bear out the contention of the assessee.
Sri C.L. Kanoria first resigned on 17th March, 1952 and he sold his shares while his resignation was still pending for approval by the Government.
The sale took place on 27th May 1952, at a time when the resignation not having received the approval of the Government, the control of McLeod & Co. Ltd. group of companies was still with the Kanoria group.
The resignation was accepted on 16th October, 1952, about five months after the sale of the shares.
There is no evidence.
to show that, as a result this sale.
the control in the McLeod & Co. group of companies passed to the Bajoria group though M/s. C.L. Bajoria and Baijnath Jalan did subsequently loin the Directorate of McLeod & Co. Ltd. On these facts, it is not possible to hold that the Tribunal was incorrect in recording it5 conclusion that the sale of these shares by the assessee was not the result of control of the McLeod & Co. Ltd. passing from the. hands of Kanoria group to the Bajoria group.
In fact the Kanoria group was holding a majority 21,046 shares out of 40,000 shares in McLeod & Co. Ltd. even at the time when these shares were sold on 27th May, 1952.
The assessee thus having failed to prove the object of the sale of these shares, the inference that the shares were sold with the sole object of earning profit is justified.
This conclusion is further strengthened by the conduct of the assessee as found by the Tribunal in subsequent years.
In the year ended 31st March, 1955, the assessee again purchased a large number of shares of McLeod & Co. Ltd. These purchases were made between 23rd August, 1954 and 29th September, 1954.
The first purchases were made at a rate of Rs. 150/ per share.
and the purchases were continued even in the month of September when the rate rose to nearly Rs. 250/ per share.
This purchase of shares of McLeod & Co. Ltd. in the account year 1954 55.
when there was a rising market and when the control was no longer with the Kanoria group and having already passed to the 358 Bajoria group, clearly shows that the Tribunal was not wrong in inferring that the purchases of shares of McLeod & Co. Ltd. were not for the purpose of keeping controlling interest in that Company or for investment, but that the shares were being purchased and sold for earning profit, so that the transactions were an adventure in the nature of trade in these shares of McLeod & Co. Ltd. In this connection, Mr. A.K. Sen, learned counsel for the appellant drew our attention to the following view expressed in the remand order : "We are unable to answer the question referred because the mere fact that an investment company periodically varies its investments does not necessarily mean that the profits resulting from such variation is taxable under the Income tax Act.
Variation of its investments must amount to dealing in investments before such profits can be taxed as income under the Income tax Act.
" Reliance was also.
placed on the observations of this Court in Bengal and Assam Investors Ltd. vs Commissioner of Income tax, West Bengal(1), which were quoted in the remand order and are as follows : "It seems to us that, on principle before dividends on shares can be assessed under section 10, the assessee, be it an individual or a company or any other entity, must carry on business in respect of shares; that is to say, the assessee must deal in those shares.
It is evident that if an individual person invests in shares for the purpose of earning dividend, he is not carrying on a business.
The only way he can come under section 10 is by converting the shares into stock in trade, i.e., by carrying on the business of dealing in stocks and shares as did the assessee in Commissioner of Income Tax vs Bai Shirinbai K. Kooka(2) ' '.
It was urged that, in this case, the Tribunal has recorded no finding at all that the shares in McLeod & Co. Ltd. which were sold by the assessee were converted by it into stock in trade, nor has it been held that the variation of its investments by the assessee amounted to dealings in investments.
The facts that we found above show that, so far as the shares of McLeod & Co. Ltd. and the allied companies which were sold by the assessee and the income from which has been taxed as revenue income are concerned, the assessee, in fact, dealt with them as stock in trade.
It (1) (2) 359 is true that in the account books they were never shown as such; but we have indicated how the evidence and the material in this case lead to the conclusion that the shares were in fact purchased even initially not as investments, but for the purpose of sale at profit and that they were actually sold with the purpose of earning profit, so that the transactions amounted to an adventure in the nature of trade.
Learned counsel also referred ,to the decision of this Court in Ram Narain Sons (Pr.) Ltd. v Commissioner of Income tax, Bombay(1) to urge that the principal consideration in determining whether income from sale of shares is revenue income or capital gain, is to find out what was the purpose of purchase of those shares, and, if the purpose was investment, the fact that.
in varying the investment, the sale of those shares resulted in a profit will not.
make that profit revenue income.
The principle is perfectly ' correct, but is not applicable to.
the case before us on the finding mentioned by us above that even the initial purchase of these shares by the assessee was not for the purpose of investment for earning income from dividends, but was with a view to earn profit by resale of those shares.
In these circumstances we hold that the High Court was right in arriving at the conclusion that, on the facts and circumstances of the present case, the income derived by the assessee from the sale of its shares and securities in the relevant previous years was revenue receipt and as such taxable under the Income tax Act.
The appeals fail and are dismissed with costs.
One hearing fee.
Y.P. Appeals dismissed.

summary/full:
The principal activity of the assessee was investment of its capitals in shares and stocks.
It changed its investments by sale of its shares and stocks from time to time.
The assessee 's income was primarily derived from dividends on shares and interest derived by it on the investments.
The assessee purchased the shares of a company when their prices were falling by taking loan at interest and the return on investment was not at all substantial.
The assessee 's explanation that the shares were, in fact, being held as investment and were sold simply because the control of the company went out of the hands of the Directors of the assessee.
was not accepted by the Tribunal.
HELD: The income derived by the assessee.
from the sale of these shares was revenue receipt and as such taxable under the, Income tax Act.
From the evidence about the course of dealings and conduct of the assessee the conclusion followed that the purchases of the shares were not for the purpose of keeping controlling interest in that company, or for investment, but shares were being purchased and sold for earning profit, so that the transactions were an adventure in the nature of trade in these shares.
[359 A B] The acceptance by the Revenue, in the earlier years, that the acquisitions and sales of shares were in the nature of investments, was not binding in the proceeding for assessment during subsequent years.
[356 B C] Bengal and Assam Investors Ltd. vs Commissioner of income tax,West Bengal, and Commissioner of Income tax vs
Bai Shrinbai K. Kooka, , referred to.
Ram Narain Sons (P) Ltd. vs Commissioner of Income tax, Bombay. , held inapplicable.