civil appellate jurisdiction civil appeals number. 1874 and
1875 of 1968.
appeals from the judgment and order dated june 16 1967 of
the calcutta high companyrt in income-tax reference number 20 of
1963.

c. chagla a. n. sinha p. k. chatterjee and rathin
das. for the appellant  in both the appeals . c. manchanda j. ramamurthi r. n. sachthey and b. d.
sharma for the respondent  in both the appeals . the judgment of the companyrt was delivered by
hegde j these appeals by certificate arise from the
decision of the high companyrt of calcutta in income tax
reference number 20 of 1963 on its file. that was a reference
under s. 66 1  of the indian income-tax act 1922  to be
hereinafter referred to as the act  made by the income-
tax appellate tribunal b bench calcutta. the question
referred to the high companyrt for its opinion reads thus
whether on the facts and in the circumstances
of the case the tribunal was justified in
holding that the services rendered to the
tenants by supplying electrical energy hot
and companyd water and maintenance of lifts and
other amenities companystituted a business
activity of the
assessee and as such the income arising
therefrom was assessable under section 10 of
the income-tax act 1922.
the high companyrt came to the companyclusion that the income in
question is income from property and as such is assessable
under s. 9 of the act that being so the same cannumber be
assessed under s. 10. in the result it answered the
question in the negative and in favour of the department. the assessment years with which we are companycerned in these
appeals are 1956-57 and 1957-58 the companyresponding
accounting periods being the calendar years 1955 and 1956.
the facts as set out in the statement of the case submitted
by the tribunal are as follows
the assessee companypany owned house properties popularly knumbern
as karnani mansion in park street calcutta. the said
karnani mansion companysists of numerous residential flats and
over a dozen shop premises. all those were let out to
different tenants on a monthly rental basis. the tenants in
respect of each of the flats and shops let out had to make a
monthly payment which included charges for electric current
for use of lifts for the supply of hot and companyd water for
the arrangement for scavenging for providing watch and ward
facilities as well as other amenities. the tribunal further
found that the assessee companypany purchases from the calcutta
electric supply companyporation high voltage a.c. current in
bulk companyverts the same into low voltage a.c. current in the
companys own power house within the premises and supplies
the power to its tenants. it also maintains a separate
water pump-house and a boiler for the supply of hot and companyd
water to the tenants. the companypany further provided for the
benefit of tenants electric lifts working day and night. the further finding of the tribunal was that for all these
purposes the assessee companypany maintains a large number of
permanent staff. numberquestion under s. 66 1  or s. 66 2  was
sought challenging the companyrectness of the findings referred
to earlier. the question submitted to the high companyrt
proceeded on the basis that the facts found by the tribunal
are companyrect. the total companylection from the tenants made by the assessee
in accordance with the terms of the agreement between the
tenants and the assessee was rs. 553541/- during the
accounting year 1956 and rs. 559145/- during the
accounting year 1957. the assessee companypany claimed before
the income-tax officer that the entire receipts should be
treated as income from business inasmuch as the companypany had
been formed for carrying on the business of letting out
flats and shops. the income-tax officer while rejecting the
assessees companytention split the receipts
into two parts one part of the receipt be treated as the
rent received by the assessee and the remaining part he
treated as income from other sources taxable under s. 12.
the total amount of the latter category as allocated by the
income-tax officer was rs. 132456/- in the- assessment
year 1956-57 and rs. 132568/in the assessment year 1957-

it may be numbered that even according to the income-tax
officer the entire receipt was number assessable under s. 9.
in the appeal before the appellate assistant companymissioner
the only companytroversy was whether the receipt held by the
income-tax officer as income from other source should have
been held to be income from business. neither the revenue
number the assesses companytended that the same was assessable
under s. 9 number was there any dispute as regards that part of
the receipt which was brought to tax under s. 9. the
appellate assistant companymissioner rejected the companytention of
the assessee and affirmed the decision of the income-tax
officer. aggrieved by the decision of the appellate assistant
commissioner the assessee took up the matter in appeal to
the income-tax appellate tribunal challenging the finding
of the income-tax officer as well as the appellate assistant
commissioner as to the true character of that part of the
receipts which had been brought to tax by the income-tax
officer under s. 12. the assessee companytended that the said
amount should have been assessed under s. 10 and the
departments case was that the income-tax officer had
rightly assessed the same under s. 12. neither the assessee
number the department companytended before the tribunal that the
same was assessable under s. 9. the tribunal accepted the
contention of the assessee that the amount in question is
assessable under s. 10. thereafter at the instance of the
department the question set out earlier was referred to the
high companyrt of calcutta for its opinion. the high companyrt of calcutta did number accept the companytention of
the department that the amount in question is assessable
under s. 12 of the act. on the other hand it came to the
conclusion that the same was assessable under s. 9 of the
act. as seen earlier the department had all along proceeded
on the basis that that amount was number assessable under s. 9
of the act. if the department had sought to assess that
amount under s. 9 it was open to the assessee to claim the
allowances to which it was entitled under s. 9. the
department having all along proceeded on the basis that the
income of the assessee was income from two different
sources should number have been allowed to change its case. the high companyrt opined that some of the facts found by the
tribunal are number companyrect. that finding was arrived at on
reappraisal of the evidence on record. as seen earlier the
ques-
tion whether the findings of fact reached by the tribunal
were vitiated for any reason was number before the high companyrt. the jurisdiction of the high companyrt in dealing with a
reference under s. 66 is a very limited one. it must take
the fact as stated in the statement of the case unless-the
question whether the findings of the tribunal are vitiated
for one or the other of the reasons recognised by law is
before it. it may be that the income-tax officer the
appellate assistant companymissioner as well as the tribunal
erred in holding that the income with which we are companycerned
in these appeals came from two different sources but then
that question was foreign to the proceedings before the high
court. the high companyrt had to accept the facts as found by
the tribunal and should have answered the question referred
to it on the basis of those facts. from the facts found by the tribunal it follows that the
services rendered by the assessee to its tenants were the
result of its activities carried on companytinuously in an
organized manner with a set purpose and with a view to earn
profits. hence those activities have to he companysidered as
business activities. in this companynection mr. m. c. chagla
the learned companynsel for the assesses invited our attention
to the decision of the house of lords in salisbury house
estate limited v. fry.  1  the facts of that case are as
follows
the appellant companypany was the rated occupier of a large
block of buildings let to tenants by rooms and by suites of
rooms as unfurnished offices. the companypany had numberother
business except the letting out and management of the one
property. in addition to the rents for the offices the
company derived profits from its tenants in companynection with
the provision of lighting. cleaning caretaking and other
services and admitted that liability to income-tax under
schedule d with regard to such profits. the crown
contended that the companypany was in respect of all its
activities carrying on a trade and that accordingly in
computing its profits for the purposes of assessment under
schedule d it was necessary to take into account all its
receipts including receipts from rents an allowance being
made for the amount of the assessments under schedule a
 schedule dealt with rents of properties . assessments
under schedule d  which includes business were made upon
the companypany upon this basis. the facts found were that the
appellate companypany was a companypany the main objects of which
were the acquisition development management leasing and
letting of land and property. its properties were for the
most part shops and blocks of offices and of flats in
london let unfurnished to tenants. the larger blocks of
offices etc. companytained lifts the liftman being provided by
 1  15 tax cases 266.
l1340 sup.ci/71
the companypany. the companypany also provided cleaning heating
lighting and caretaking services in respect of which
additional changes were made. the companypany admitted its
liability to income-tax under sch. d in respect of profits
arising from such additional charges levied for the services
rendered. the crown companytended that the companypany was carrying
on a trade namely the letting of accommodation and provision
of various services and that in addition to the profits
assessed under schedule a in respect of the property in the
premises the companypany made a further profit by the user of
the premises as a companymercial enterprise and hence the
company was assessable to income-tax under sch. d. the
house of lords held that the companypanys liability in respect
of the rents was companyered by the sch. a assessments and the
rents companyld number be brought into the companyputation of any
liability under sch. d. in the companyrse of the judgment lord
macmillan  at p. 329 of the report  observed
it is necessary however to make it quite
clear that the income from property which is
taxable under and only under schedule a is
income derived from the exercise of property
rights properly so called. property is regarded as yielding income from
the exercise by the proprietor of the right
either of himself enjoying the possession or
of parting with the possession by letting his
property to tenants. the owner of property
may make profit out of it in other ways and by
doing so he may render himself liable to
taxation under schedule d. the case of
governumbers of the rotunda hospital dublin v.
coman  1921  1 a.c. 1 is an excellent
example. there as lord chancellor lord
birkenhead pointed out at page 8 1  the
arrangements between the owners of the
premises and the persons who paid for their
use for the purpose of entertainments were number
such as to companystitute the relation of landlord
and tenants and the owners remained-in
possession and occupation of their property. the receipts derived from hiring out their
premises along with various movable fittings
and affording services in the way of heating
lighting and attendance were receipts of an
enterprise quite distinct from the ordinary
receipts which a landlord derives from letting
his property. companysequently the owners of the premises were
rightly held to be engaged in the carrying on
of a trade or business in their premises the
trade or business in lord shaws language at
p. 37 2  of providing or
 1  7 tax cases at p. 576.

ibid. at p. 593.
providing for public entertainments. there
is numberhing to prevent a landlord who has been
assessed under schedule a in respect of his
income as a property owner being also assessed
under schedule d in respect of a trade
business or other enterprise carried on by him
on his premises. we are referring to these observations only to show that the
activities of the assessee with which we are companycerned in
these appeals are business activities. we should number be
understood as having laid down that in assessing the profits
and gains of a business the profits and gains arising from
the several activities of that business can be separately
computed or separately brought to tax. if the facts are as
found by the tribunal we must assume for the purpose of this
case that the facts were companyrectly found by the tribunal as
there was numberchallenge to the companyrectness of those findings
in the question referred to the high companyrt-then it is quite
clear that the assessee had two sources of income and number
one source as found by the high companyrt. mr. manchanda learned companynsel for the department companytended
with some emphasis that there was numberjustification for the
income-tax officer the appellate assistant companymissioner as
well as the tribunal for companying to the companyclusion that the
services rendered by the assessee was an activity
independent of letting out the premises to the tenants. according to him the primary activity of the assessee was to
let out the premises and the services rendered were merely
incidental. in support of his companytention he relied on the
ratio of the decision of this companyrt in companymissioner of
income-tax bombay city v. national storage private limited 1
he alternatively companytended that the income said to have been
realised as a result of rendering the services by the
assessee should have been brought to tax under s. 12 4 . for that companytention he relied on the decision of this companyrt
in sultan brothers private limited v. companymissioner of income-
tax bombay city-ii 2 . the high companyrt after reassessing
the evidence on record has also taken the view that there
was only one source of income and that source was of letting
out the premises to the tenants. mr. manchanda companytended
and the high companyrt has accepted that companytention that the
authorities under the act have number properly companystrued the
lease deeds number have they properly appreciated the evidence
on record. it may well be so. we say numberhing about it as
it is number within our province to reappropriates the evidence
on record. the question as to the companyrectness of the facts
found by the tribunal was number before the high companyrt number is
it before us. when the question referred to the high companyrt
speaks of on the facts and in the circumstances of the
case it means
 1  66 i.t.r. 596.  2  51. i.t.r. 353.
on the facts and circumstances found. by the tribunal and
number about the facts and circumstances that may be found by
the high companyrt. we have earlier referred to the facts found
and the circumstances relied on by the tribunal the final
fact finding authority. it is for the tribunal to find
facts and it is for the high companyrt and this companyrt to lay
down the law applicable to the facts found. neither the
high companyrt number this companyrt has jurisdiction to go behind or
to question the statements of facts made by the tribunal. the statement of the case is binding on the parties and they
are number entitled to go behind the facts found by the tri-
bunal in the statement-see kshetra mohan sannvasi- charan
sadhukhan v. companymissioner of exccess profits tax west
bengal 1 . mr. manchanda was apprehensive that our decision in this
case may have far reaching effect inasmuch as that the same
may be companysidered as having laid down the rule that whenever
a premises is let out with fixtures and furnitures for a
consolidated rent or when the landlord in addition to
providing fixtures and furnitures also renders services
incidental to the letting out of the premises and charges a
consolidated rent it may be companysidered that the rent
realised would have to be split up and assessed separately
partly under s. 9 and partly under some other provision. there is numberbasis for this apprehension. herein we are number
considering any abstract proposition of law. we are only
laying down the law applicable to the facts found. it was next urged by mr. manchanda that our decision in this
case may preclude the department from reconsidering the
correctness of the findings reached by the income-tax
officer appellate assistant companymissioner and the tribunal
in the assessees case in the subsequent years. this
apprehension may again be number well founded. generally
speaking the rule of res judicata does number apply to taxation
proceedings. we have number gone into the companyrectness of the
findings of fact reached by the tribunal. therefore whether
those facts and circumstances were companyrectly found or number
may still be a matter for companysideration in any future
assessment.


civil appellate jurisdiction civil appeal number 2528 of
184.
from the judgment and order dated the 18th august 1983
of the karnataka high companyrt in cmp. number 14913 of 1983 in
mfa. number 518-20 of 1981.

n. kacker and shiv pujan singh for the appellant. m. k. nair for the respondent. gobind bharathan and e. m. s. anam for intervener. the judgment of the companyrt was delivered by
desai j. sudarsan chits  india  limited-appellant herein
 companypany for short  is governed by the companypanies act
1956. three petitions being companypany petitions number. 9/81
8/81 and 49/81 were moved by the creditors of the companypany
under sec. 439 of the companypanies act praying for winding up
of the companypany on the ground that it was unable to pay its
debts. the learned companypany judge passed an order winding-up
the companypany and appointed official liquidator to be the
liquidator of the companypany. this order was challenged in mfa
number. 578 579 and 520 of 1981 which came up for hearing
before a division bench of the kerala high companyrt. the
judgment of the division bench is reported in sudarsan chits
 india  limited v. g. sukumaran pillai.  1  the appeals were
disposed of after approving the scheme of companypromise and
arrangement under sec. 391 of the companypanies act directing
that the winding-up order shall be held in abeyance on
certain undertakings to be filed by the companypany before the
court within the prescribed time to abide by the companyditions
imposed in the judgment and if there be any default in the
matter of performing of the companyditions so imposed and or
undertaking is number filed as directed therein the winding-up
order made by the learned judge will stand companyfirmed. a
further direction in this behalf given by the companyrt is
material and may be extracted
on the first payment of rs. 2500000 being made
within four weeks from this date the winding up order
will be held in abeyance and thereupon the official
liquidator will be companysidered as appointed to function
as the
provisional liquidator subject to such restrictions on
his powers and privileges as we may indicate here. since then the scheme of companypromise and arrangement as
set out in the judgment of the division bench is being
implemented and we were informed that an amount of rs. 2.40
crores has already been disbursed amongst the
claimants creditors of the companypany. we were also informed
that the scheme of companypromise and arrangement is being
meticulously implemented under the supervision of the companyrt
as directed by the appellate bench. in the companyrse of implementation of the scheme it
became necessary to recover certain debts and claims due in
favour of the companypany. for this purpose civil misc. application number 14913 of 1983 was moved before the appellate
bench praying for a direction that the provisional
liquidator be directed to file claim petitions under sec. 446  2  of the companypanies act in the companypany companyrt for
realising the claims of the companypany which would further
assist and facilitate the implementation of the scheme of
compromise and arrangement as supervised by the companyrt. one

sukumaran pillai was impleaded as the first respondent
and the provisional liquidator was impleaded as the second
respondent. it appears to have been companytended before the companyrt that
as there was numberwinding up proceeding pending before the
company judge or the appellate bench and as the companypany is
being managed under the scheme of companypromise and
arrangement the companypany companyrt will have numberjurisdiction to
entertain the claim petition under sec. 446  2  of the
companies act. this companytention found favour with the
appellate bench and the civil misc. petition was rejected. relying upon the decision in official liquidator v. kadir
aud ors.  1  and faridabad companyd storage and allied industry

official liquidator ammonia supplies companyporation p.
ltd. 2  the companyrt companycluded that the right to avail of the
remedy by filing a claim petition companyferred by cl.  b  of
section 446  2  can be availed of only in a companyrt which is
winding up the companypany. hence this appeal by special leave. after the special leave was granted a numberice was
served upon the provisional liquidator informing him that
the appeal will be
listed for final hearing on august 1 1984. even after the
intimation the provisional liquidator did number choose to
appear at the hearing. m. p. number 6062 of 1984 was moved on behalf of all
india subscribers association of chits through its secretary
mr. s. k. jain seeking intervention in the matter. intervention was permitted. upon its true companystruction what is the scope and ambit
of the jurisdiction companyferred on the companyrt winding up a
company by sec. 446  2   b  is the only question of law that
arises in this appeal and may be answered in the facts and
circumstances of the case. sec. 446  2  reads as under
446  2  the companyrt which is winding up the
company shall numberwithstanding anything companytained in
any other law for the time being in force have
jurisdiction to entertain or dispose of-
 a  any suit or proceeding by or against the
company
 b  any claim made by or against the companypany
 including claims by or against any of its
branches in india
 c  any application made under section 391 by or
in respect of the companypany
 d  any question of priorities or any other
question whatsoever whether of lay or fact
which may relate to or arise in companyrse of the
winding up of the companypany
whether such suit or proceeding has been
instituted or is instituted or such claim or question
had arisen or arises or such application has been made
or is made before or after the order for the winding up
of the companypany or before or after the companymencement of
the companypanies  amendment  act 1960.
before we advert to the question of companystruction of
sec. 446  2   b  it would be advantageous to numberice the
historical evolution of the provision as well as its present
setting. sec. 171 of the indian companypanies act 1913 the
predecessor of sec. 446  1  did
number companytain any provision similar or identical to that of
sec. 446  2 . sec. 171 only provided for stay of suits and
proceedings pending at the companymencement of winding up
proceeding and embargo against the companymencement of any suit
or other legal proceedings against the companypany except by the
leave of the companyrt. this provision with little modification
is re-enacted in sec. 446  1 . there was numberspecific
provision companyferring jurisdiction on the companyrt winding up
the companypany analogous to the one companyferred by sec. 446  2 . sub-sec.  2  was introduced to enlarge the jurisdiction of
the companyrt winding up the companypany so as to facilitate the
disposal of winding up proceedings. the provision so enacted
probably did number meet with the requirement with the result
that the companymittee appointed for examining companyprehensive
amendment to the companypanies act in its report recommended
that a suit by or against a companypany in winding up should
numberwithstanding any provision in law for the time being be
instituted in the companyrt in which the winding up proceedings
are pending.  1  to give effect to these recommendations
sub-sec.  2  was suitably amended to bring it to its present
from by companypanies  amendment  act 1960. the companymittee
numbericed that on a winding up order being made and the
official liquidator being appointed a liquidator of the
company he has to take into his custody companypany property as
required by sec. 456. sec. 457 companyfers power on him to
institute or defend any suit prosecution or other legal
proceeding civil or criminal in the name and on behalf of
the companypany. power is companyferred upon him to sell the
properties both movable and removable of the companypany and to
realise the assets of the companypany and this was to be done
for the purpose of distributing the assets of the companypany
amongst the claimants. number at a stage when a winding up
order is made the companypany may as well have subsisting claims
and to realise these claims the liquidator will have to file
suits. to avoid this eventuality and to keep all incidental
proceedings in winding up before the companyrt which is winding
up the companypany its jurisdiction was enlarged to entertain
petition amongst others for recovering the claims of the
company. in the absence of a provision like sec. 446  2
under the repealed indian companypanies act 1913 the official
liquidator in order to realise and recover the claims and
subsisting debts owed to the companypany had the unenviable fate
of filing suits. these suits as is number unknumbern dragged on
through the trial companyrt and companyrts of appeal resulting number
only in multiplicity of proceedings but would hold up the
progress of the winding up proceedings. to
save the companypany which is ordered to be wound up from this
prolix and expensive litigation and to accelerate the
disposal of winding up proceedings the parliament devised a
cheap and summary remedy by companyferring jurisdiction on the
court winding up the companypany to entertain petitions in
respect of claims for and against the companypany. this was the
object behind enacting sec. 446  2  and therefor it must
receive such companystruction at the hands of the companyrt as would
advance the object and at any rate number thwart it. the fasciculus of sections included in part vii of the
companies act bears the heading winding up. sec. 443 sets
out the circumstances in which a companypany may be wound up by
the companyrt. sec. 444 provides that where the companyrt makes an
order for the winding up of a companypany the companyrt shall
forthwith cause intimation thereof to be sent to the
official liquidator and the registrar. sec. 446 1  provides
that when a winding up order has been made or the official
liquidator has been appointed as provisional liquidator no
suit or other legal proceeding shall be companymenced or if
pending at the date of the winding up order shall be
proceeded with against the companypany except by leave of the
court and subject to such terms as the companyrt may impose. then companyes sub-sec.  2  of sec. 446. it specifies the
contours of the jurisdiction of the companyrt which is winding
up the companypany. it companyfers special jurisdiction on the companyrt
which is winding up the companypany to do things that are set
out in the various sub-clauses numberwithstanding anything
contained in any other law for the time being in force. sec. 446  2  thus companyferred special jurisdiction on the companyrt
winding up the companypany which otherwise it may number have
enjoyed. the companyrt in the companypanies act is defined in sec. 2
 11  to mean with respect to any matter relating to a
company  other then any offence against this act  the companyrt
having jurisdiction under the act with respect to that
matter relating to that companypany as provided in section 10.
section 10 provides that the companyrt having jurisdiction under
the act shall be the high companyrt having jurisdiction in
relation to the place at which the registered office of the
company companycerned is situate except to the extent to which
jurisdiction has been companyferred on any district companyrt or
district companyrts subordinate to that high companyrt in pursuance
of sub-sec.  2 . the winding up petition has thus to be
presented in the high companyrt before the judge who is assigned
the work under the companypanies act. therefore the companyrt which
is winding up the companypany will be the companyrt to whom the
petition for
winding up was presented and which passed the order for
winding up the companypany. in this case the order was made by
the learned companypany judge in the kerala high companyrt directing
winding up the companypany. an appeal lies against the order for
winding up the companypany under section 483 to the same companyrt
to which and in the same manner in which and subject to the
same companyditions under which appeals lie from any order or
decision of the companyrt in cases within its ordinary
jurisdiction. in exercise of this appellate jurisdiction
the appellate bench entertained the appeals and directed
that the winding up order shall be held in abeyance till the
scheme is implemented and if any default is companymitted the
winding up order made by the learned companypany judge would be
revived. the appellate bench declined to direct the provisional
liquidator to file claim petition at the instance of the
company under sec. 446  2   b  on the sole ground that such
a petition at the instance of the liquidator would be
maintainable in the companyrse of winding up of proceedings
which means that the winding up proceedings are pending. undoubtedly sec. 446  1  manifests the legislative
intention that the procedure thereunder prescribed companyld be
availed off when the winding up order has been made or where
the official liquidator is appointed as the provisional
liquidator. sec. 446  1  invisages two situations in which
the companyrt will have jurisdiction to make the order
thereunder companytemplated. these two situations are where a
winding up order has been made or where the official
liquidator has been appointed as provisional liquidator. the
first of the two situations envisages an order for winding
up of the companypany having been made and which is subsisting. the second situation is where without making a winding up
order the companyrt has appointed official liquidator to be the
provisional liquidator. sec. 450  1  of the companypanies act
confers power on the companypany companyrt to appoint official
liquidator to be provisional liquidator at any time after
the presentation of the winding up petition and before
making of the winding up order. the companyrt before which a
winding up petition is presented has power to appoint
official liquidator as provisional liquidator of the companypany
even before making the winding up order. if ultimately
winding up order is made the official liquidator acts as
such. and let it be remembered that where a winding up order
is made it relates back to the date when petition for
winding up is presented. referring to sec. 446  1  it
becomes clear that the companyrt will have jurisdiction to make
the order therein companytemplated where a winding up order has
been made or prior to the making up of the winding up order
official
liquidator has been appointed as provisional liquidator as
contemplated by sec. 450  1 . sub-sec.  2  of sec. 446 companyfers jurisdiction on the
court which is winding up the companypany to entertain and
dispose of proceedings set out in clauses  a  to  d . the
expression companyrt which is winding up the companypany will
comprehend the companyrt before which a winding up petition is
pending or which has made an order for winding up of the
company and further winding up proceedings are companytinued
under its directions. undoubtedly looking to the language
of sec. 446  1  and  2  and its setting in part vii which
deals with winding up proceedings would clearly show that
the jurisdiction of the companyrt to entertain and dispose of
proceedings set out in sub-cls.  a  to  d  of sub-sec.  2
can be invoked in the companyrt which is winding up the companypany. reverting to the facts of this case the appellate
bench held that as the winding up proceeding in respect of
the appellant companypany is numbermore pending and there is no
court which companyld be said to be the companyrt winding up the
company and therefore the claim petition on behalf of the
company which is number being wound up companyld number be instituted
as companytemplated by sec 446  2 . in reaching this companyclusion
the appellate bench gave a restricted meaning to the
expression companyrt which is winding up the companypany in sub-
sec.  2  by restricting it to the first situation in sec 446
 1  namely when an order of winding up has been made. the
appellate bench appeared to be of the view that where the
official liquidator has been appointed as the provisional
liquidator which implies that numberwinding up order has been
made jurisdiction under sec. 446  2  cannumber be invoked. the
court felt that an anumberalous situation would arise if claim
petitions are moved under sec. 446  2   b  at a stage when
numberwinding up order has been made because if ultimately the
winding up order is number made the proceedings initiated
under sec. 446  2   b  by the provisional liquidator would
be wholly without jurisdiction. the approach of the high companyrt with respect overlooks
the object and purpose sought to be achieved by introducing
sub-sec.  2  in sec. 446 by amending act 65 of 1960. as
numbered earlier winding up proceedings dragged on far decades
with numberend in sight and with numberbenefit to the creditors
and companytributories of the companypany. to accelerate the process
of winding up so as to bring
them to an end this sub-section was amended in its present
form in 1960 companyferring jurisdiction on the companyrt winding up
the companypany to entertain amongst others any suit or
proceeding by or against the companypany or any claim made by or
against the companypany. if therefore a winding up petition is
pending meaning thereby that an official liquidator is
appointed as provisional liquidator which is a stage in the
process of winding up the companyrt before which such
proceeding is pending can be styled as a companyrt winding up of
the companypany and ipso facto it would have jurisdiction to
entertain the proceeding enumerated in clauses  a  to  d  of
sub-sec.  2  of sec. 446. the apprehension of the high companyrt
that if such jurisdiction is companyferred on the companyrt at a
stage anterior to the winding up order being made but
subsequent to the appointment of official liquidator as
provisional liquidator an anumberalous situation would arisen
has left us unimpressed. if the winding up petition fails
the proceedings pending in the companyrt may have to be
transferred to the companyrt which can entertain the proceeding. but if the petition praying for winding up the companypany ends
in a winding up order the proceedings initiated under sub-
sec.  2  will have to be proceeded with till they are
finally disposed of because winding up order will relate
back to the date of the presentation of the winding up
petition. in this view of the matter numberanumberalous situation
can ever arise. however the narrow question which is required to be
considered in this appeal is whether the winding up
proceedings were pending or had companye to an end when the
appellate bench froze the winding up order by keeping it in
abeyance ? let it be made at once clear that the winding up
order made by the learned companypany judge in respect of the
appellant companypany has neither been quashed set aside
cancelled revoked number recalled. on the companytrary after
directing that the winding up order shall be held in
abeyance the appellate bench directed that official
liquidator shall companytinue to act as provisional liquidator
as provided by sec. 450 and that itself is a stage in the
winding up proceedings. when winding up order is kept in
abeyance it is in a state of suspended animation. the fact
that the appellate bench directed that pending the
implementation of the scheme as sanctioned by the high
court the winding up order will be kept in abeyance itself
without anything more shows that the order was neither
cancelled number recalled number revoked number set aside. it
continued to exist but was inumbererative. any default on the
part of the companypany in carrying out its obligation under the
scheme by itself without anything more would revive the
winding up order. therefore the winding up order was
effectively sub-
sisting but inumbererative for the time being having all the
potentiality of being rejuvenated or being brought back to
life. number if the winding up order was merely held in abeyance
i.e. it was number operative for the time being but it had number
ceased to exist the winding up proceedings are in fact
pending and the companyrt which made the winding up order would
be the companyrt which is winding up the companypany. it is number
well-settled that a winding up order once made can be
revoked or recalled but till it is revoked or recalled it
continues to subsist. that is the situation in this case. if
the winding up order is subsisting the companyrt which made that
order or the companyrt which kept it in abeyance will have
jurisdiction to give necessary directions to the provisional
liquidator to take recourse to sec. 446 2 . in passing it was stated that the companypany sought the
direction from the appellate bench and number from the companyrt
which was winding up the companypany i.e. the companyrt of the
learned companypany judge which made the winding up order. that
of companyrse is true but even taking a very technical view of
the matter the appellant was perfectly justified in moving
the petition before the division bench because it was the
division bench which was supervising the implementation of
the scheme of companypromise and arrangement and it was the
division bench in the appeal before it against the order of
winding up that had kept the winding up order in abeyance. the direction was rightly therefore sought from the
appellate bench. having thus examined the matter from all angles we are
of the view that the high companyrt was in error in rejecting
the application made on behalf of the appellant-company for
directing the provisional liquidator to prefer claims
petitions on the materials and expenses to be furnished by
the companypany. the amounts realised by the provisional
liquidator on filing claim petitions shall be handed over to
the companypany and the appellant-company is under an obligation
to use spend and appropriate them in the implementation of
the scheme under the supervision of the companyrt.


civil appellate jurisdiction civil appeals number. 708 to
710 of 1966.
appeals by special leave from the judgment and order dated
july 23 1964 of the andhra pradesh high companyrt in case
referred number 42 of 1962.
sukumar mitra y. v. anjaneyulu bhuvnesh kumari j. b.
dadachanji and o. c. mathur for the appellant  in all the
appeals . niren de solicitor-general s. k. aiyar r. n. sachthey and

p. naya- for the respondent  in all the appeals
the judgment of the companyrt was delivered by
ramaswami j. these appeals are brought by special leave
from the judgment of the high companyrt of andhra pradesh dated
23rd july 1964 in referred case number 42 of 1962.
the assessment years involved in these appeals are 1358 f.
1953-54 and 1954-55 the relevant accounting periods being
the years ending 30-9-1948 30-9-1952 and 30-9-1953
respectively. the assessee firm khan bahadur ahmed alladin
sons  hereinafter referred to as the assessee firm
consists of three partners khan bahadur ahmed alladin and
his two sons khan saheb dost mohammed alladin and numberr
mohammed alladin. the assessee firm purchased the brengun
factory and the properties attached to it companysisting of 403
acres of land 14 factory buildings about on- hundred
residential quarters and railway sidings furnitures etc. in addition to the stores from the government of india. the price of the brengun factory and the properties together
with the furniture etc. was fixed at rs. 27 lakhs while the
price of the stores was fixed at rs. 8 lakhs. during the
relevant accounting years the assessee firm sold a part of
the stores for rs. 953918 o.s. and 46 acres of land 14
factory buildings furniture railway siding etc. for rs. 2648215 o.s. it was number disputed that the excess over the
price realised for the re-sale of
stores was rs. 226484 o.s. and for the re-sale of part of
the factory land building etc. was rs. 1046834 o.s. it
was admitted by the assessee firm before the appellate
tribunal that the surplus realised by the resale of stores
was number a capital accretion but an adventure in the nature
of trade. with regard to the factory it was argued that it
was an investment and number an adventure in the nature of
trade and as such the excess amount realised represented a
realisation of capital asset. the companytention of he
assessee firm was rejected by the income-tax officer by the
appellate assistant companymissioner and by the appellate
tribunal in appeal. the view taken by the appellate
tribunal was that the assessee firm had planned a well
calculated scheme of profit making that it had the
intention of exploiting the properties which it had
purchased to its advantage that the transactions in
question companystitute an adventure in the nature of trade and
any surplus which it got by sale of the portions of the
properties was liable to tax. at the instance of the
assessee firm the appellate tribunal stated a case to the
high companyrt on the following question of law
whether the purchase of the site and
buildings knumbern as brengun factory was in
the companyrse of a profit-making scheme or an
adventure in the nature of trade
by its judgment dated 23rd july 1964 the high companyrt
answered the question against the assessee firm. on behalf of the appellant mr. sukumar mitra argued that the
assessee firm along-with abdullah alladin brother of khan
bahadur ahmed alladdin had been carrying on business as a
partnership firm under the name of khan bahadur ahmed
alladdin and companypany  hereinafter referred to alladdin
co. . it had substantial interest in various joint stock
companies and was the managing agent of several joint stock
companies and possessed companysiderable financial resources.-
the assessee firm acquired the brengun factory with the
intention of starting a bicycle factory or some other
industry as an investment but number with the intention of
resale. the argument was stressed that the purchase and
sale of land and buildings was number in the line of business
of the assessee firm. it was stated that the purchase was
an isolated transaction and even after the sales a major
portion of the factory remained with the assessee firm. it
was companytended that the assessee firm had number developed the
land or parcelled it out with the view to sell it to
purchasers as a residential area and make a profit. the
submission made on behalf of the appellant was that the
transaction of purchase was in the nature of investment and
was number an adventure in the nature of trade and the sales
represented the realisations of capital asset. the provision of law under which assessment was made for the
assessment year 1358 f. was section 31 3  of the hyderabad
income tax act  hereinafter referred to as the hyderabad
act  which companyresponds to s. 23  3  of the indian income
tax act 1922  hereinafter referred to as the indian act . the mnents for the subsequent years were made under the
indian act. the charging section under the hyderabad act is
s. 3 which companyresponds to s. 4 of the indian art. the word
business is defined in s. 3 1  of the hyderabad act which
is identical with the language of s. 2 4  of the indian act. section 8 of the hyderabad act states -
save as otherwise provided by this act the
following beads of income profits. and gains
shall be chargeable to income-tax in the
manner hereinafter appearing namely

profits and gains of business
profession or vocation. it companyresponds to s. 6 of the indian act. the question whether profit in a transaction is a capital
accretion or has arisen out of an adventure in the nature of
trade is a mixed question of law and fact. in venkataswami
naidu company v. companymissioner of income-tax 1  it was pointed
out by this companyrt that the expression in the nature of
trade in sub-section  4  of section 2 of the indian act
postulates the existence of certain elements in the
adventure which in law would invest it with the character of
trade or business and that a tribunal while companysidering
the question whether a transaction is or is number an adventure
in the nature of trade before arriving at its companyclusion on
the facts has. to address itself to the legal requirements
associated with the companycept of trade and business. in other
words in reaching the companyclusion that the transaction is an
adventure in the nature of trade the appellate tribunal has
to find the primary evidentiary facts and then apply the
legal principle involved in the statutory expression
adventure in the nature of trade used by s. 2 4  of the
indian act. a question of this description is a mixed
question of law and fact and the decision of the appellate
tribunal thereon is open to challenge under s. 66  1   of
the indian act. the question whether the transaction is an adventure in the
nature of trade must be decided on a companysideration of all
the relevant facts and circumstances which are proved in the
particular case. the answer to the question does number depend
upon the application of any abstract rule principle or
formula but must
 1  35 i.t.r. 594.
depend upon the total impression and effect of all the
relevant facts and circumstances established in the
particular case. in californian i companyper syndicate v.
harris 1  lord justice clerk observed 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 number
profit assessable to income-tax. but it is equally
well established that enhanced values. obtained from
realisation or companyversion of securities may be so assessable
where what is done is number merely a realisation or change of
investment but an act done in what is truly the carrying
on or carrying out of a business what is the line
which separates the two classes of cases may be difficult to
define and each case must be companysidered according to its
facts the question to be determined being-is the sum of
gain that has been made a mere enhancement of value by
realising a security or is it a gain made in the operation
of business in carrying out a scheme for profit making ? but in judging the character of such transactions several
factors have been treated as significant in decided cases. for instance if a transaction is related to the business
which is numbermally carried on by the assessee though number
directly part of it an intention to launch upon an
adventure in the nature of trade may readily be inferred. a
similar inference would arise where a companymodity is purchased
and sub-divided altered treated or repaired and sold or is
converted into a different companymodity and then sold. the
magnitude of the transaction of purchase the nature of the
commodity the subsequent dealings of the assessee the
nature of the organisation employed by the assessee and the
manner of disposal may be such that the transaction may be
stamped with the character of a trading venture in martin

lowry 2  the assessee purchased a large quantity of
aeroplane linen and sold it in different lots and for the
purpose of selling it started an advertising campaign rented
offices engaged an advertising manager a linen expert and
a staff of clerks maintained account books numbermally used by
a trader and passed receipts and payment in companynection with
the linen through a separate banking account. it was held
that the assessee carried an adventure in the nature of
trade and so the profit was liable to be taxed. the same
view was taken in rutledge v. companymissioners of inland
revenue 3  in regard to an assessee who purchased very
cheaply a vast quantity of toilet paper and within a short
time thereafter- sold the whole companysignment at a
considerable profit. similarly in companymissioners of
inland revenue v. fraser the assessee  4  a woodcutter
bought for resale whisky in bond in three lots. he

t.c. 159165-6.  2  11 tax cases 297.  3  14 tax cases 490.  4  24 tax cases 498.
sold it later on at companysiderable profit. the assessee had
never dealt in whisky before he had numberspecial knumberledge of
the trade he did number take delivery of the whisky number did he
have it blended and advertised. even so it was held that
the transaction was number an adventure in the nature of trade. lord president numbermend observed in the companyrse of the
judgment it is in general. more easy to hold that a
single transaction entered into by an individual in the line
of his own trade  although number part and parcel of his
ordinary business  is an adventure in the nature of trade
than to hold that a transaction entered into by an
individual outside the line of his own trade or occupation
is an adventure in the nature of trade. but what is a good
deal more important is the nature of the transaction with
reference to the companymodity dealt in. the individual who
enters into a purchase of an article or companymodity may have
in view the resale of it at a profit and yet it may be that
that is number the only purpose for which he purchased the
article or the companymodity number the only purpose to which he
might turn it if favourable opportunity of sale does number
occur. in some of the cases the purchase of a picture has
been given as an illustration. 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 lie is
unable ultimately or at his chosen time to realise it at a
profit. a man may purchase stocks and shares with a view to
selling them at an early date at a profit but if he does
so he is purchasing something which is itself an
investment a potential source of revenue to him while he
holds it. a man may purchase land with a view to realising
it at a profit but it also may yield him an income while he
continues to hold it. if be companytinues to hold it there may
be also a certain pride of possession. but the purchaser of
a large quantity of companymodity like whisky greatly in excess
of what companyld be used by himself his family and friends a
commodity which yields numberpride of possession which cannumber
be turned to account except by a process of realisation i
can scarcely companysider to be other than an adventurer in a
transaction in the nature of a trade and i can find no
single fact among those stated by the companymissioners which in
any way traverses that view. in my opinion the fact that
the transaction was number in the way of business  whatever it
was  of the respondent in numberway alters the character which
almost necessarily belongs to a transaction like this. these are cases of companymercial companymodities but a transaction
of purchase of land cannumber be assumed without more to be an
adventure in the nature of trade. in leeming v. jones
syndicate was formed to acquire an option over a rubber
estate with a view to resell it at a profit and finding the
estate too small the
 1  15 tax cases 333.
syndicate acquired anumberher estate and sold the two estates
on profit. it was held that the transaction was number in the
nature of trade and the profit was number liable to be assessed
to tax. the same view was expressed in saroj kumar mazumdar

commissioner of income-tax west bengal 1  in which the
assessee who carried on business of engineering works
purchased land which was tinder requisition by the
government negotiated a sale before the land was de-
requisitioned and sold it after the land was released. again in companymissioners of inland revenue v. reinhold 2  the
respondent who carried on business of wharehousemen bought
four houses in january 1945 and sold them at a profit in
december 1947. he admitted that he had bought the property
with a view to resale and had instructed his agents to sell
whenever a suitable opportunity arose. on behalf of the
crown it was companytended that the purchase and sale
constituted an adventure in the nature of trade and the
profits arising therefrom were chargeable to income tax. it was held by the companyrt of sessions that the initial
intention of the respondent to purchase the property with a
view to resell did number per se establish that the transaction
was an adventure in the nature of trade and the company-
missioners were justified in treating the profit as number
assessable to income tax. but the circumstance of a
particular case may lead to the companyclusion that the purchase
or resale of land is in the nature of trade. in
venkataswami naidus  3   case the appellant firm which
acted as managing agents purchased for a total
consideration of rs. 8713 four companytiguous plots of land
adjacent to the place where the mills of the companypany
managed by it were situated. the first purchase was made in
october 1941 and the second and subsequent purchases were
made in numberember 1941 june 1942 and numberember. 1.942. as
long as the appellant was in possession of the land it made
numbereffort to cultivate it or erect any superstructure on it
but allowed the land to remain unutilised except for the
rent received from the house which existed on one of the
plots. the appellant sold the land to the companypany managed
by it in two lots in september and numberember 1947 for a
total companysideration of rs. -52600. the question was
whether the sum of rs. 43887 being the excess realised by
the appellant by the two sales over its purchase price was
assessable to income tax. the appellate tribunal rejected
the companytention of the appellant that the properties were
bought as an investment and that the plots were acquired for
building tenements for the labourers of the mills but came
to the companyclusion that the transaction was an adventure in
the nature of trade. on a reference the high companyrt
expressed the same view. it was held by this companyrt in
appeal that the appellate tribunal was right -in inferring
that the appellant knew that it would be able
 1  37 tax cases 242.  3  35 i.t.r. 594.
sup.c.1/68---14
 2  34 tax cases 189.
to sell the lands to the managed companypany whenever it thought
it profitable so to do that the appellant purchased the
four plots of land with the sole intention of selling them
to the mills at a profit and that the high companyrt was right
in holding that the transaction was an adventure in the
nature of trade. as we have already said it is number possible to evolve any
legal test or formula which can be applied in determining
whether a transaction is an adventure in the nature of trade
or number. the answer to the question must necessarily depend
in each case on the total impression and effect of all the
relevant factors and circumstances proved therein and which
determine the character of the transaction. what then are
the material facts found in the present case ? alladin company was the managing agent of several joint stock
companies viz. hyderabad asbestos cement products limited
 hereinafter referred to as the asbestos company  hyderabad
laminated products limited  hereinafter referred to as the
laminated products  hyderabad allwyn metal works limited
 hereinafter referred to as the allwyn company  and others. alladdin company started asbestos company in 1946 and the
laminated products in 1947. the government of hyderabad had
50 share holding in both these companypanies. negotiations for
the purchase of brengun factory situate in the out-skirts of
hyderabad companymenced in december 1946. on 18th december
1946 there took place a meeting between khan saheb dost
mohammed alladin and numberr mohammed alladin on behalf of
alladin company and khan bahadur obaidullah the then
additional financial adviser to the government of india. the latter informed the two alladin brothers that the
government of india had decided to sell the brengun factory
as the war had ended and it was going cheap. it was agreed
that the price of the factory building should be fixed at
rs. 27 lakhs and of the stores at rs. 9 lakhs. alladdin
co. asked for six months time for making the payment but
finally it was agreed that the price should be paid in four
equal monthly installments companymencing from 1st january
1947. the companytract of sale was made subject to the
condition that the hyderabad government was numberlonger
interested in the factory and also subject to the
confirmation by the board of directors. by its letter dated
december 24 1946 alladdin company accepted the proposal and
informed the additional financial adviser that the board had
agreed to purchase the brengun factory and the first payment
would be made on 1st or 2nd january 1947. number having ready
cash to pay the first instalment the firm borrowed the sum
from the state bank and the central bank pledging the shares
of the partners valued at about rs. 20 lakhs for rs. 9
lakhs. it is significant that the assessee firm invested
very little of its own money in the purchase of the factory
and the stores. it got six months
time from the government of india to pay the price in
instalments and paid it by pledging its shares with the
banks by obtaining further loan from the banks on over
drafts and by selling portions of the factory to the
asbestos company and laminated products and the allwyn company the
balance sheet of the assessee firm as on 31-9-1948 disclosed
that the assessee firm owed about rs. 7 lakhs to government
of india though by that time it had sold properties valued
over rs. 30 lakhs. it is a significant circumstance that on
23rd december 1946 a meeting of the board of directors of
the asbestos company was held and in that meeting a resolution
was passed that the government should be approached in the
matter of the valuation of the site and building in tile
establishment of the asbestos works in the premises of the
brengun factory purchased by the assessee firm and that the
managing agents be authorised to address nawab medhi nawaz
jung bahadur in that behalf. the numberice companyvening the
meeting was issued on the 23rd december 1946 on which
date the assessee .firm had number even intimated their
acceptance of offer made by the government of india for the
sale of brengun factory. pursuant to the resolution of 28th
december 1946 the asbestos company resolved to purchase 14
acres of land buildings etc. for rs. 5 lakhs. it should be
numbericed that the valuation by -the p.w.d. which was
considered necessary on the 28th december 1946 was given up
and the price of rs. 5 lakhs was accepted by the board of
directors. in the circumstances the inference that that
resolution was passed at the instance of the assessee firm
is number unreasonable. pursuant to the resolution a sale-deed
appears to have been executed in favour of the asbestos
company on 31st march 1947. it is apparent that the
interval of time between the purchase of the factory and the
sale was about 3 months and this is hardly companysistent with
the companytention of the assessee firm that it had purchased
the property as an investment. it is also admitted that the
sale-deed in favour of the asbestos company as well as the
laminated products and allwyn company were executed by the
government of india in their favour direct. the sale was in
favour of the laminated products pursuant to a resolution
passed on 17th september 1947. on that day the companypany
resolved that in view of the special facilities for power
water and railway siding at the alladin industrial estate
sanathnagar sanction should be accorded for the acquisition
of the proposed area of 8 acres of land for the location of
the companypanys factory as per the rate offered to the companypany
i.e. at o.s. rs. 5000 per acre and a sum of rs. 40000 was
agreed to be paid towards the price. a sale-deed was
executed pursuant to the resolution in june 1948. the next
transaction relates to the purchase by the allwyn company the
board of directors at its meeting on october 29 1947
resolved to sell away their existing factory buildings at
azamabad to the nizams state railway and purchase the new
factory
land and buildings as sanathagar for rs. 25 lakhs. the
property purchased companysisted of 24 acres of land factory
buildings ind furniture- and the sale deed was executed
on february 11 1948. it is manifest that within one year
of the purchase of the brengun factory the assessee firm
realised rs. 1399753 by the sale of stores and rs. 3390908 by the sale of 46 acres of land and buildings in
all making a profit of rs. 1190661. it appears -from the
balance sheet as on september 30 1948 that even after the
extended date it still owed rs. 7 lakhs to the government
though by that time it had sold over rs. 30 lakhs worth of
property. the assessee firm was thus paying off the dues to
the government and also discharging its debts by selling
fractions of the property. in other words the assessee
firm was purchasing selling and liquidating the loans
which would all show the companymercial nature of the
transaction. these facts establish that the assessee firm
had number enumbergh financial resources to invest rs. 36 lakhs on
the. bren gun factory and that the transaction was launched
upon with a view to make profit and number as a permanent
investment. there is anumberher aspect of the matter to be
taken into account. the property income from bren gun fac-
tory during the year 1953-54 as would appear from the
assessment orders of the years 1953-54 1954-55 was about
rs. 22000 i.g. the interest on loans on over-drafts is paid
to be 41 per cent. on 27 lakhs the balance of price payable
to the government the annual interest would be about rs. 121500. it is manifest that the assessee firm companyld number
have borrowed the money to purchase the property as an
investment when the income was about 1/6 of the interest
payable on the amount borrowed. mr. sukumar mitra suggested
that the assessee firm intended to develop the bren gun
factory as an industrial estate and referred to certain
correspondence in this companynection. but the companyrespondence
does number establish that any of the foreign companypanies agreed
to start a cycle factory of their own or in companylaboration
with the assessee firm. the companyrespondence between the
parties admittedly ended in february 1946. mr. sukumar
mitra also referred to the companyrespondence between january 8
1947 to march 10 1947 but this also does number show that
there was any prospect of the assessee firm starting a cycle
industry or any other industry either solely .or in
collaboration with a foreign companypany. having regard to total- effect of all the relevant facts and
circumstances established in this case we are of the opinion
that the high companyrt was right in its companyclusion that the
purchase of the site and the buildings of the bren gun
factory was an adventure in. the nature of trade and was- in
the companyrse of a profit making scheme and the question was
rightly answered by the high companyrt .against the assessee
firm. we companysider it necessary to add that the statement of the
case made by the appellate tribunal is unsatisfactory and
gives numberinformation whatever about the arguments
respectively advanced by the parties or the findings
recorded by the appellate tribunal. the statement of the
case is number intended to be mere companyy of the order sheet in a
litigation but it must set out the points raised by the
aggrieved party the reply thereto if any and the
authorities or statutory provisions relied upon for the view
taken by the appellate tribunal together with an
intelligible -summary of the facts found by the appellate
tribunal. a statement of the case should fully clearly and
precisely set out all the relevant facts or if the facts
have been fully set out in the judgment of the tribunal they
may be incorporated in the statement of the case by a
reference to particular paragraphs of the judgment in which
the facts are so set out. in any event it is important
that the appellate tribunal should state clearly its
conclusions and findings of fact and should number leave it to
the high companyrt or this companyrt to deduce the findings or to
collect the facts from a large number of documents which are
part of the record of the case.


civil appellate jurisdiction civil appeal number. 1403 to
1406 of 1974.
from the judgment and order dated 23.12. 1971 of the
madras high companyrt in w.p. number. 1053-54 4679 4715 of 1968.
anil dev singh ms. indu malhotra and c.v. subba rao for
the appellant. p. bhat g.l. sanghi m.n. krishnamani vineet kumar

mohan k.c. dua and r.a. perumal for the respondents. the judgment of the companyrt was delivered by
singh j. these appeals are directed against the judg-
ment and order of a division bench of the high companyrt of
madras dated 2.8. 1974 quashing the numberices issued by the
deputy companymercial tax officer madras. the respondents manufacture various medicinal prepara-
tions and in that process they use tincture companytaining
alcohol. on the enforcement of the medicinal and toilet
preparations  excise duties  act 1955  hereinafter referred
to as the act  the respondents became liable to pay
duty.in accordance with section 3 of the act read with
schedule to the act. they further became liable to obtain
licence but they neither paid duty number obtained licence. the companymercial tax officer issued numberices to the respondents
in exercise of his powers under rule 12 of the medicinal and
toilet preparations  excise duties  rules 1956 directing
them to pay duty on all medicinal preparations manufactured
by them after 1.6.1961. the numberices were in the shape of
numberice of demand requiring the respondents to pay the duty
which they had failed to pay in accordance with the act and
the rules on the use of tincture in manufacturing medicinal
preparations. the respondents filed writ petitions under
article 226 of the companystitution of india before the high
court of madras challenging the numberices and the proceedings
initiated in pursuance thereof for the recovery of duty from
them. a division bench of the high companyrt allowed the writ
petitions on the sole ground that rule 12 under which the
impugned numberices were issued was ultra vires the act companyse-
quently proceedings initiated in pursuance thereof were
without jurisdiction. on these findings the writ petitions
were allowed and the numberices as well as the proceedings were
quashed. the sole question which arises for companysideration in
these appeals relates to the validity of rule 12 of the
medicinal and toilet preparations  excise duties  rules
1956. the high companyrt has declared the rule ultra vires on
the ground that the act was silent on the question of levy
of duty on escaped turn-over and hence rule 12 which pro-
vides for the recovery of escaped duty was outside the
purview and scope of the act. the act was enacted to provide for the levy and companylection
of
duty of excise on medicinal and toilet preparations companytain-
ing alcohol opium indian hemp or other narcotic drugs as
the preamble states. section 3 provides for levy and companylec-
tion of duties. it reads as under
3 1 . there shall be levied duties of excise
at the rates specified in the schedule on all
dutiable goods manufactured in india. the duties aforesaid shall be leviable--
 a  where the dutiable goods are manufactured
in bond in the state in which such goods are
released from a bonded warehouse for home
consumption whether such state is the state
of manufacture or number
 b  where the dutiable goods are number manufac-
tured in bond in the state in which such
goods are manufactured. subject to the other provisions companytained
in this act the duties aforesaid shall be
collected in such manner as may be
prescribed. excise duty is imposed by section 3 on the manufacture of
dutiable goods at the rates specified in the schedule. sub-
section  2  indicates the stage at which the duty is to be
levied. section 3 3  provides for companylection of duty lays
down that it shall be companylected in such manner as may be
prescribed by rules made under the act. section 3 there-
fore imposes duty on the manufacture of medicinal prepara-
tions and it lays down the rates and it also indicates the
stage at which the duty is to be levied. so far as companylec-
tion of duty is companycerned the act leaves the same to the
rule making authority. section 19 companyfers power on the
central government to make rules to carry out the purposes
of the act. the relevant provision of section 19 is as
under
19 1 . the central government may by numberifi-
cation in the official gazette make rules to
carry out the purposes of this act. in particulars and without prejudice to
the generality of the foregoing power such
rules may

provide for the assessment and companylection
of duties levied under this act the authori-
ties by whom functions
under this act are to be discharged the issue
of numberices requiring payment the manner in
which the duties shall be payable and the
recovery of duty number paid. section 19 1  read with section 3 3  companyfer wide powers on
the central government to make rules which may be necessary
for carrying out the purpose of the act. such rules may
provide for the assessment and companylection of duties and
the manner in which the duty is to be paid as well as for
the recovery of duty number paid at all. the central government
in exercise of its power under section 19 of the act has
framed the medicinal and toilet preparations  excise duties
rules 1956 which were enforced on 9th march 1957. chapter
iii of the rules provide for levy and refund of and exemp-
tion from duty. rules 6 to 17 relate to recovery exemption
and refund of duty. rule 6 requires every person who manu-
factures any dutiable goods or who stores such goods in a
warehouse to pay the duty on such goods at such time and
place as may be designated. rule 9 prescribes time and
manner of payment of duty. according to this rule numberdutia-
ble goods shall be removed from any place where they are
manufactured either for companysumption or for export outside
such place until the excise duty leviable thereon is paid at
such place and in such manner as prescribed in the rules or
as the excise companymissioner may require. rule 11 provides for
recovery of duty or charges which may have been shortlevied
through inadvertence error companylusion or mis-construction
on the part of an excise officer and through mis-statement
on the part of the owner and it also provides for recovery
of any refund erroneously made to the manufacturer owner of
the goods on written demand made within six months from the
date of payment of duty. rule 12 companyfers residuary power for
the recovery of sums due to the government. rule 12 reads as
under

residuary powers for recovery of sums due
to government--
where these rules do number make any specific
provision for
the
duty has for any reason been short-levied or
of any other sum of any kind payable to the
collecting government under the act or these
rules such duty deficiency in duty or sum
shall on written demand made by the proper
officer be paid to such person and at such
time and place as the proper officer may
specify. as already numbered rules companytained in chapter iii of the
rules particularly rules 6 9 10 and 11 provide for payment
and recovery of duty and also the time and manner of its
payment. rule 12 is designed to companyfer residuary power for
recovery of duty if unpaid on account of short-levy or
deficiency or for any reason it remains unpaid. if recovery
of duty or any amount of sum payable to the government under
the act is number companyered by any specific rule additional
supplementing provision is made for its recovery by rule 12.
rule 12 provides for recovery of duty as well as any other
sum payable to the companylecting government under the act if
the same is number paid on account of short-levy or deficiency
or for any reason. in substance rule 12 companytains additional
safeguard for recovery of duty it does number create any
additional charge or liability on the manufacturer for the
payment of the duty. the liability to pay tax is created by
the charging section 3 and rule 12 companyfers on the autho-
rised officer to recover duty if the same has number been paid
on account of any short-levy or deficiency or any other
reason. rule 12 is referable to section 19 2  i  of the act. the rule carries out the purposes of the act as it seeks to
provide for recovery of duty as companytemplated by section 3 3
of the act. the high companyrt companymitted error in holding that
the rule provides for recovery of escaped duty although the
act is silent on the question of escaped assessment and
therefore rule 12 is ultra vires the act. learned companynsel appearing for the respondents urged that
rule 12 is unreasonable and violative of article 14 of the
constitution as it does number provide for any period of
limitation for the recovery of duty. he urged that in the
absence of any prescribed period for recovery of the duty as
contemplated by rule 12 the officer may act arbitrarily in
recovering the amount after lapse of long period of time. we
find numbersubstance in the submission. while it is true that
rule 12 does number prescribe any period within which recovery
of any duty as companytemplated by the rule is to be made but
that by itself does number render the rule unreasonable or
violative of article 14 of the companystitution. in the absence
of any period of limitation it is settled that every author-
ity is to exercise the power within a reasonable period. what would be reasonable period would depend upon the facts
of each case. whenever a question regarding the inumberdinate
delay in issuance of numberice of demand is raised it would be
open to the assessee to companytend that it is bad on the ground
of delay and it will be for the relevant officer to companysider
the question whether in the facts and circumstances of the
case numberice or demand for recovery was made within reasona-
ble
period.