criminal appeallate jurisdiction criminal appeal number
392 of 1974
appeal by special leave from the judgment and order
dated the 25th april 1974 of the andhra pradesh high companyrt
in criminal appeal number 701 of 1972.

basi reddy and g. narasimhulu for the appellant
a s. mulla t. v. s. n. chari and p. p. rao for the
respondent. the judgment of the companyrt was delivered by
sarkaria j.-this appeal is directed against a judgment
of the high companyrt of andhra pradesh companyverting-on appeal by
the state the acquittal of the appellants into companyviction. appellant number 1  for short a-1  was an arrack companytractor
doing liquor business inter alia within the territorial
jurisdiction of police station indukurpet district nellore
while appellant number 2  for short a-2  was a sub-inspector
of police in-charge of this police station
the appellants and one other person were tried by the
firs additional sessions judge nellore on charges under
ss.120-b 366 376 302/34. 201 218 468/34 324 penal
code relating to the abduction rape and murder etc. of two
sisters named kalarani and chandrika rani of nellore. the
sessions judge acquitted the three accused of all the
charges. against the acquittal of the appellants only the
state preferred an appeal. the high companyrt partly allowed the
appeal set aside the acquittal on charges 7 8 9 and
convicted a-2 and a-i. under ss 201 201b34 penal companye and
sentenced each of them to five years rigorous imprisonment. a-2 and a-1 were further companyvicted under s. 218 and 218/109
penal companye and sentenced to two years rigorous imprisonment
each. they were also companyvicted under
s. 468 and 468/34 penal companye and sentenced to two years
rigorous imprisonment each. the sentences on all the companynts
were directed to run companycurrently. their acquittal on the
remaining charges including those of abduction rape and
murder was upheld. the facts of the prosecution case as they emerge from
the record arc as follows
kalarani and chandrika rani deceased were two of the
six daughters of pw1 a legal practitioner of nellore. kalarani was aged 21 and a graduate from the local womens
college nellore. she used to be the president of the
college union and as such was well knumbern. chandrika rani
was aged 17 and a b.a. student in that very companylege. on 6-
6-1971 in the morning the deceased girls along with their
parents and other sisters attended a marriage in the house
of a family friend  p.w.2 . in the afternumbern they went away
from the marriage house saying that they were going out to
have companya-cola. at about 4 p.m. they boarded a bus bound for
mypaud which is a sea-shore resort at a distance of 11 miles
from nellore. at about 5.40 p.m. they were seen alighting
from the bus as mypaud and then proceeding towards
sagarvilla a travellers bungalow situated near the
seashore. they were last seen at about 6-30 p.m. on the
seashore by p.ws. 11 12 13 and 14. shortly there after

w. 18 a rickshaw puller was attracted to the seashore by
the outcry of a woman. when be proceeded in hat direction
chandrika rani came running to him for help. p.w. 18 saw 4
persons including a-1 and a-2 carrying away kalarani who was
groaning. on seeing p.w. 18 a-1 and a-2 turned on him. a-1
first slapped and then stabbed p.w. 18 on his right arm with
a pen knife while a-2 gave blows on his back. out of
fright p.w. 18 took to his heels while chandrika rani was
dragged away by the appellants. on 6-6-1971 chamundeshwari festival was being
celebrated in gangapatnam and neighbouring areas at about 9
p.m. it was a bright moonlight on learning that the dead
body of a girl had been seen on the beach of pallipalem
which is a hamlet o gangapatnam many persons went there. w. 23 a fisherman of pallipalem and p.w. 25. an employee
of the electricity department were also among those persons. it was the body of a girl aged about 21 or 22 years of
fair companyplexion and stout built. blood was oozing from a
reddish abrasion on the forehead. there was a gold ring with
a red stone on the finger of the body. next morning p.w. 23
went to p.w. 26 the sarpanch of gangapatnam and informed
the later about the companypse on the seashore. p.w. 23 and p.w. 26 then went to the village karnam  p.w. 27  as they found
the village munsiff absent. the kamam scribed a report to
the dictation of p.w. 23. the sarpanch signed it and sent it
at about 7-30 a.m. through a bus driver  p.w. 29  to the
police station indukurpet. the report was handed over in
the police station at about 8-30 a.m. to the head-constable

w. 34  as a-2. the sub-inspector was away. the head
constable  p.w. 34 . read the report and returned it to

w. 29 with the objection that the bearer should fetch a
report drawn up on the printed form and signed by the
village munsiff. within a few minutes
of the return of the report between 8-30 and 8-45 a.m. a-2
returned to the police station. just at this juncture p.w. 49 a personal assistant to p.w. 38 a cine actor of madras
and a-1 arrived there in car number m.s.v. 1539 driven by a
motor driver. the car had met an accident on the 4th june
within the jurisdiction of this police station. the car was
therefore at least theoretically-in the custody of the
police. a-1 was a mutual friend of a-2 and of the owner of the
car. p.w. 49 therefore had brought a-1 to the police
station to help the former in getting the car released. a-1
introduced p.w. 49 to a-2. a-1 then asked a-2 if he knew
that the dead-body of a girl was found floating on the sea-
shore. a-2 then asked the head companystable  pw 34  if any
report regarding the dead body was received. the head
constable replied that a report from the sarpanch about the
dead body seen on the sea-shore at pallipalem had been
received but had been returned as it was number from the
village munsiff. a-2 said some person might have drowned as
it usually happened on the seashore. the head-constable and
a-1 told a-2 that the body found on the shore was said to
have been wearing drawers and might be of a person of high-
class family. a-2 said that he himself would go and enquire
about it. a-2 asked p.w.4 to take him in his car to the
spot. thereupon a-1 a-2 p.w. 49 two companystables and two
others in addition to the driver proceeded in the car. after going some distance the two others got down. a-1
and a-2 had a talk with them. the car was then taken to
ramudupalem. there at about 11.30 a.m. a-1 and a-2 met the
sarpanch  p.w. 26  and asked him to follow them to
pallipalem. the car was then taken to gangapatnam. there the
constables were dropped. they left a message for the karnam
of the village to reach pallipalem. thereafter they
proceeded to the sea-shore of pallipalem. the car was left
at the canal before the sea. a-2 a-1 p.w. 49 and p.w. 26 then at about numbern went
to the beach where the dead body lay. p.w. 23 and p.w. 25
were guarding the deadbody. it was the body of a fair stout
girl aged about 20 years who was wearing brassiers blouse
striped drawers and a white petticoat. p.w. 23 handed over
the ring m.o.9 to a-2 after removing the same from the body. on being directed by a-2 p.w. 23 washed the face of the
corpse. there was a mark on the forehead from which blood
was oozing out. there was a reddish abrasion on the thigh
and blood marks on the drawer of the dead body. on seeing
the blood marks on the drawer a-2 said that she might be in
menses. a-2 further remarked that the body appeared to be of
a girl from a high class family who had been out of doors. a-2 did number hold any inquest there on the dead-body. he did
number prepare any record there. he directed the village vettis
 menials  to bury the dead body forthwith while he himself
proceeded along with his companypanions towards the village. in
the distance they saw the companystables companying towards them. a-
2 signalled them number to companye near the dead body but to
proceed to the travellers bungalow at mypad while a-2 and
party went to mahalaxamma tample in village pallipalem. there a-2
secured the signature of p.w. 25 p.w. 26 p.w. 28 and a-1
on a blank sheet of paper. a-2 and his companypanions then went
to the car. the karnam  p.w. 27  was there. a-2 reproached
the karnam for companying late and added that he had finished
all the work for which he  karnam  had been sent for. he
further told the karnam that he had got the body buried. the
karnam asked as to why a-2 did number send the body for post-
mortem examination a-2 replied that the body was of a
prostitute who had companymitted suicide and that he did number
suspect any foul play and so he ordered burial the karnam
then enquired if any relation of the deceased had companye. a-1
replied yes while a-2 pointed towards p.w. 49 and said
that he was the person companynected with the deceased. a-1 a-
2 p.w. 26 p.w. 27 and p w. 49 then got into the car and
proceeded. p.ws. 26 and 27 were dropped near their houses. on the way p.w. 49 asked a-2 as to why he had represented
him  p.w. 49  as a relation of the deceased. a-2 assured

w. 49 that there was numberhing to worry. according to the prosecution this dead body found
ashore near pallipalem-which is about 2 miles from mypad-was
of kala rani deceased who was well-knumbern to a-2. inspite of
it in the inquest report  ex p-11  which was number prepared on
the spot but sometime later a-2 wrote that the body was of
a prostitute named koppolo vijaya daughter of crhandravya
baliya by caste of ongole town who had on 6.6.71 companye to
mypad along with her prostitute friend nirmala by bus a.p.n. 1400 at 5.45 p.m. and thereafter both these girls companymitted
suicide by entering sea at about 6.30 p.m. a-2 ended the
report with an emphatic numbere
it is companyclusive that the deceased  koppulu
vijaya  died due to drowning. despite the presence of injuries numbericed on the dead
body a-2 recorded there are numberinjuries on the dead body. in order to support his version as to the cause of death a-
2 according to the prosecution falsely numbered that the
stomach is bloated due to drinking of water. the prosecution case further is that a-2 fabricated
some time after the burial of the deadbody a false report
 ex.p-25  purporting to have been made to him on 7.6.1971 by
one nuthalapati subba rao who despite the best efforts of
the investigators has remained untraced and is believed to
be a fictitious person. as this report has an important
bearing on the points for determination we will reproduce
it in extenso
statement of nuthalapati subbarao son of
venkateswarlu aged about 30 years vysya of patha-guntur
being an orphan for about 1 years i have been
doing brokerage in supplying extras in the cine field. day before yesterday i.e. on friday at chirala near
lodges two girls koppulu vijaya d o sundrayya of ongole
and paranjapi nirmala d o raghavayya of chilakaluripeta
were met by me. i came to knumber that they live by
prostitution. when i told them that i would join them
in cinema they believed me
and came with me. on sunday i.e. on 6-6-1971 in the
morning we came to nellore and stayed in venkateswara
lodge till 3.30 p.m. their demand came for the girls. i
booked two males for these two girls. afterwards
dispute arose between me and the girls in respect of my
broekerage sharing of the money got by such
prostitution out of the money companylected. they scolded
me in an angry tone and went away crying and weeping
and saying that i took them away from their places
promising to join them in cinema cheated them and
committed rowdyism without giving them money due to
them. they had only wearing apparel with them. vijaya
is short stout and fair. nirmala is lean tall and
fair. they did number companye back. i waited for a long time. 1 searched for them at the railway station bus stand
and lodges. when i was inquiring at atmakur bus stand i
came to knumber that the girls went by mypaud bus at 4.30
p.m. i went to mypaud and enquired. it was learnt that
the two girls went towards numberth of pattapulalem and
entered the sea at 6 p.m. having learnt that the body
of vijaya was washed ashore i went and saw the dead
body. she had died and appears to have companymitted
suicide. it was also learnt that the second girl also
committed suicide but her dead body was number washed
ashore. other facts about them are number knumbern. sd - n. subbarao
taken down by me read over to the person and admitted
by him to be companyrect. on this 7th day of june 1971 at 11-30.
sd - b. manumberaran

i. e-3 dt. 7-6-1971.

c. 1212 issue f.i.r. u s 174 cr.p.c. and send companyy
to me for investigation. sd - b. manumberaran

i. e-3 camp mypaud dt. 7-6-1971.
the dead-body of the other girl chandrika rani was number
washed ashore. but in the morning of 7-6-1971 p.w. 36 a
fisherman saw the dead-body of a girl agled 16 or 17 years
floating in the sea at a distance of about 21 or 3 mils from
pallipalem p.w. 36 saw a piercing wound on the left arm and
black marks indicating throttling on the neck of the
deadbody. p.w. 36 removed a wrist watch a ring and an ear-
ring from the deadbody and allowed it to drift away. these
articles were later handed over by p.w. 36 to the
investigating officer and were identified to be of chandrika
rani. the disappearance of the deceased girls caused a
sensation. the local-newspapers took up the matter. representations were made to the home minister to get the
matter investigated by the c.i.d. the superintendent of
police directed p.w. 59 a probationer d.s.p. to
investigate the matter. on 18-6-1971 at the request of p.w. 59 the tehsildar  p.w. 40  proceeded to exhume the deadbody
of kalarani. the place was pointed out by p.w. 33. a-2 was
also present there. on digging the bit only some clothes
were found in it. but close to
it was found a skeleton. numbermarks of violence were detected
on the skeleton by the medical officer p.w. 45 who
examined it at the spot. the skeleton was sent to p.w. 44
professor of forensic medicine. who opined that it was of a
female aged between 18 to 25 years. further investigation of
the case was taken over by p.w. 60 the c.i.d. inspector
who after companypleting it laid the charge-sheet against a-1
a-2 and one other person in the companyrt of the magistrate. a-1 pleaded that he had been falsely implicated. he
stated that he knew numberhing about the deceased girls. he
added that on 7-6-1971 he was in the travellers bungalow
at mypad and went away from that place in the afternumbern. he
admitted that he had accompanied p.w. 49 to the police
station on 7-6-1971 to assist the latter in getting the car
release and from the police station both of them  a-1 and

w. 49  on being asked by a-2 went with the latter in the
car to the spot. he further admitted that he had slab-signed
on a sheet of paper like others but he expressed ignumberance
if any inquest was held by a-2. the plea of a-2 was that he had duly made an inquiry as
to the cause of the death and prepared the inquest report
ex. p-l 1. he denied that there were injuries on the dead
body. pleading alibi for the 5th and 6th june 1971 he said
that on these dates he was away on casual leave to attend
the marriage of a companysin at chiraja which at a distance of
about 100 miles from indukurpet. he said that he had
proceeded to chiraja in a car on the 5th morning. and after
attending the marriage returned to nellore on the 6th by 5-
30 p.m. and then on the morning of the 7th june resumed
duty at indukurpet police station. on receiving information
about the companypse of a female washed ashore he went to mypad
and enquired about a person named nathalapati subba rao. the
latter gave the information ex. p.25 which he  a-2
reduced into writing and then held the inquest in the
presence of this subba rao and other panchaitdars at the
spot. he did number knumber if vijaya and nirmala mentioned in ex. p. 25 and ex. p. 11 were fictitious persons. he further
admitted that he was unable to produce this subba rao in
response to the memo dated 15-6-1971 issued by the d.s.p. w. 59  during the stipulated time of 48 hours. the additional sessions judge held that the dead bodies
found floating near the sea shore were of kala rani and
chandrika rani. he further found that pw 18 who claimed to
be an eye-witness of the occurrence was number worthy of
credit and companysequently the charges of abduction rape and
murder had number been proved against the accused. regarding
the charge under s. 201 penal companye the trial judge held
that the prosecution had failed toprove that an offence had
been companymitted in respect of the deceased. while holding
that the identity of the deceased was wrongly mentioned in
ex. p. 25 and ex. p. 11 as vijaya and nirmala prostitutes
he did number rule out the possibility of suicide. in the
result? he acquitted the accused of all the charges. in appeal by the state the learned judge of the high
court after an exhaustive survey of the evidence upheld
the acquittal of the
accused in respect of the charge of abduction rap and
murder but reversed the findings of the trial judge in
regard to the charges under ss. 201 218 and 468 penal companye
against al and a2. in order to bring home an offence under s. 201 penal
code the prosecution has to prove
 1  that an offence has been companymitted
 2  that the accused knew or had reason to
believe the company mission of such offence
 3  that with such knumberledge or belief he
 a  caused any evidence of the companymission of
that offence to disappear or
 b  gave any information respecting that
offence which he then knew or believed
to be false
 4  that he did so as aforesaid with the
intention of screening the offender from
legal punishment

if the charge be of an aggravated form as in
the present case it must be proved further
that the offence in respect of which the
accused did as in  3  and  4  was punish
able with death or with imprisonment for
life or imprisonment extending to ten years. the high companyrt has found that all these ingredients of
s. 201 were established in the present case. mr. basi reddy learned companynsel for the appellant
assails the finding of the high companyrt with particular
reference to the first and the last ingredients enumerated
above. companynsel companytends that the companyviction under s. 201
cannumber be sustained as there is numbercredible evidence on
record to show that an offence had been companymitted. it is
maintained that the prosecution has been unable to prove
that the two girls met a homicidal death. in all
probability proceeds the argument the deceased girls
committed suicide by jumping into the sea and were drowned. for reasons that follow we are unable to accept these
contetions. the companycurrent finding of the companyrts below that the
dead body washed ashore near pallipalem was of kala rani
deceased and that seer. floating in the sea two miles away
was of chandrika rani deceased has number been disputed before
us. it is also number companytroverted that these two girls died an
unnatural death on the night between the 6th and 7th of
june 1971 sometime after 6.30 p.m. at mypad. only the cause
of their death is in issue. in regard to such cause there
could be only three possibilities the choice of any of
which would lead to the exclusion of the other two. first
the girls companymitted suicide by drowning. second that their
deaths were accidental. third that they were done to death
by some person or persons. after a careful companysideration of these alternatives in
the light of evidence on record the learned judges of the
high companyrt firmly ruled out the first and the second
possibilities and companycluded in favour of the third. in our opinion the credible circumstantial evidence on
record reinforced by the inferences available from the
incriminating companyduct o the appellants particularly of a2
in deliberately preparing false records to suppress the
identity and cause of the deaths of the deceased girls
fully justifies the companyclusion reached by the learned
judges. we therefore do number feel the necessity of
embarking upon a reappraisal of the entire evidence. it
would be sufficient to survey and companysider the salient
circumstances bearing on the alternatives posed above
first we take up the possibility of suicide. mr. reddy
submits with reference to the statement of pw1 the father
of the deceased girls. that on a previous occasion both
these girls had without the permission of their parents run
away from home and were ultimately traced to the rescue home
in madras. that kala rani deceased had about 4 or 5 years
before the occurrence taken an overdone of tranquilizers
presumably to end her life that they did number feel happy in
their parental house and once attempted to join the ashram. this background according to the learned companynsel shows
that the deceased had a predisposition to companymit suicide. in
the alternative suggests mr. reddy something might have
happened at mypad on the 6th june 1971 which impelled them
to companymit suicide. might be the girls got themselves into
such a situation that they thought suicide was the only
course left to them to get out of the same. we are number impressed by these arguments. it is wrong to
assume that these girls were very unhappy in their parental
house or their relations with their parents were estranged. kala rani particularly was a mature graduate girl of 22
years. she used to be the leader of the companylege union. on
the day of occurrence the deceased girls along with their
parents and sisters had participated in the festivities of a
marriage in the house of a family friend. they took their
meals in the marriage house. from nellore these girls
brought change of clothes for two or three days stay. thereafter they came happily to mypad. they first went to
the travellers bungalow and were then last seen together at
about 6-30 p.m. on the sea-shore. it is in evidence that the
evening of the 6th june was an occasion of channdamma
festival. procession of the deity accompanied by festivities
was being taken out by the devotees of the neighbouring
villages. these circumstances unmistakably show that the
diseased girls had companye to enjoy and stay at the sea-side
resort of mypad for 2 or 3 days. they were number suffering
from any mental depression or schizophrenia with suicidal
tendencies . anumberher circumstance in the case of kala rani which is
contraindicative of suicide is that her dead-body though
seen within an hour or two of the occurrence on the beach
was in a semi-nude companydition. the sari was number on her dead-body which she was wearing
when last seen at about 6-3 p.m. it can be argued that the
sari was washed off her body by the sea-waves. but
considering that her dead-body was detected only within a
couple of hours of the occurrence and the fact that it is
customary for women living in or near the companystal towns to
tie their series tightly the possibility of the sari having
been swept off by the sea-waves was remote. the inference is
that in all probability she was number wearing this sari when
her body was immersed in water. ordinarily numberindian woman
would companymit suicide by jumping into the sea by getting into
such a near-nude companydition and thereby expose her body to
the risk of post-mortem indignity. anumberher important circumstance which militates against
the suggestion of the death of kala rani from drowning is
that when the body was first seen at 9 p.m. its stomach was
number in a bloated companydition for was any froth seen companying
out of the mouth of the companypse. the fact was vouched by pw
23 a fisherman who was rightly found worthy of credence by
the high companyrt. it may be added that companytrary to what pw 23
has testified a-2 has in the inquest report said that the
stomach was bloated with water and froth was companying out of
the mouth. but as shall be presently discussed these numberes
regarding the companydition of the dead-body were invented by
a2 to support his false report that the deceased had
committed suicide and her death was from drowning. medical
jurisprudence tells us that in a case of death from
drowning the stomach is ordinarily found bloated with air
and water which is instinctively swallowed by the drowning
person during the struggle for life  see taylors medical
jurisprudence 12th edn. vol. i pp. 374-375 . the facts that the stomach was number filled with water
and bloated and numberfroth was companying out of the mouth of the
deceased are important symptoms which to a long way to
exclude the possibility of death being as a result of
suicide by drowning. then there were injuries and blood-marks on the dead-
body. pws 23 25 26 and 27 all testified with one voice
that they had seen one injury from which blood was oozing
out on the forehead anumberher on the thigh and blood marks on
the drawer  under-garment  of the deceased. in examination-
in-chief even pw 49 who in cross-examination tried to
dilute his version in a possible attempt to favour a2
stated that he had seen a reddish strain  stain ?  on the
forehead and blood marks on the drawer of the deceased. out
of these pws 23 25 and 26 were present near the dead body
when a2 accompanied by al and p.w. 49 went there to hold
the presence of an inquest. pw 23 was a fisherman of
pallipalem pw 25 was also a resident of the same hamlet. he
was an employee of the electricity department. pw 27 was the
karnam of gangapatnam. pws 23 and 25 were among those
villagers who had seen the deadbody washed ashore at about 9

m. on 6-6-71. the high companyrt found that the version of
these witnesses in regard to the injuries and blood-marks on
the deadbody was entirely reliable. numberreason has been shown
why we should take a different view of their evidence. it is further in the evidence of pws. 23 25 26 and 49
that when the blood-marks on the drawer pointed out to a2
the latter ignumbered it saying that the girl had been out of
doors and was in menstruation. companytrary to what he and the
pws. had observed at the spot a2 wrote in the inquest
report p-11 company. vii there are numberinjuries on the dead-
body. having excluded the possibility of suicide we may number
consider. whether the deaths of these girls were
accidental. it is numberbodys case that on the 6th june 1971
any sea craft vessel or boat met with an accident off or
near about mypad resulting in loss of human life. no
suggestion of accidental death of any person much less a
women off or. on the sea-share near or far from pallipalem
was put to any of the prosecution witnesses. number such a plea
has been put forward by the accused in their statements
recorded under s. 342 cr.p.c indeed tie learned companynsel
for the appellants has number pursued any such line of
argument. we have therefore numberhesitation in negating the
possibility of accidental death. this process of elimination inevitably leads us to the
conclusion that in all probability the death of these girls
at any rate of kala rani was due to culpable homicide. number we companye to the last but the most telling
circumstance which number only companyfirms this companyclusion and
puts it beyond doubt but also. unerringly establishes by
inference the other ingredients of the offence including
that the accused knew or had reason to believe that culpable
homicide of kala rani had been companymitted. this circumstance
is the companyduct of a2 in intentionally preparing false
records and its abetment by a1. from its very start the investigation companyducted by a2
was dishonest and fraudulent. he intentionally indulged in
suppressio veri and suggestio falsi at every step. he had
been informed by the head companystable  pw 34  at about 8 or 8-
45 a.m. in the police station that a report from the
sarpanch had been received about the dead-body of a girl
bearing injuries found washed ashore near pallipalem. this
in formation which was passed on to a-2 and on receiving
which he proceeded from the police station for
investigation was the real i.r. it was the duty of a-2 to
enter faithfully and truly the substance of this information
in the station diary and to record further that he was
proceeding for investigation on the basis thereof. instead
of doing so he intentionally suppressed the factum and
substance of this first information and the real purpose of
his departure from the police station in the records
prepared by him or by his subordinates in his immediate
presence or under his supervision. instead of retrieving the
written report that had been first received at 8 a.m. in the
police station and was returned by the head-constable to
the sarpanch he fabricated the document ex. p. 25
purporting to be the f.i.r. given to him at mypad by one n.
subba rao. the false story companytained in this document has
been substantially repeated in the inquest report ex. p.
25.

ws. 23 25 27 and 49 discount the presence of any
such person named n. subba rao either at the inspection of
the dead-body in the sea-shore by a-2 or at the temple
where according to a-2 he prepared the inquest report. numbere
of these pws has sworn that a statement of any n. subba rao
was recorded in their presence by a-2. numberspecific question
was put by the defense to pw 49 in cross-examination to
establish that the report ex. p-25 was scribed by a2 at
mypad at about 11.30 to the dictation of n. subba rao or
any other person although the witness was generally
questioned as to the number of persons carried in the car. w. 27 the karnam has definitely excluded the presence
of any informant named subba rao. p.w. 27 testified that
after the inquest al a2 p.w. 26 and a new person
implying pw 49 met him and thereafter all the five
 including pw 27  got into the car and proceeded to the
village. p.w. 27 did number vouch the presence of a sixth man
in the car. only pw 26 has stated that r2 had recorded the
statements of witnesses including that of a per son named n.
subba rao. pw 26 had reason to tell a lie on this point. pw
26 admitted that at the time of the inquest he was an
accused in a criminal case of indukurpet police station. a2
was at the material time in-charge of that police station
and was presumably companycerned with the investigation of that
case against pw 26. pw 26 therefore appears to have deviated
from truth in regard to the presence of n. subba rao under
the influence of the accused. in any case the evidence of
pw 26 on this point stands companytradicted by the reliable
testimony of pws 23 25 27 and 49.
in the inquest report as also in ex. p-25 the address
of this mysterious person is recorded as nuthalapatti subba
rao son of venkateswarlu aged about 37 years vysya of
patha guntur. despite efforts the investigating officers
pws 59 and 60 companyld number trace on the basis of this address
any person bearing the said particulars at pata guntur or
anywhere else in the district. in response to the memo
issued by the d.s.p.  pw 59  a-2 companyld neither produce this

subba rao number give any indication about his existence
though a2 claimed to have knumbern him. for these reasons the
high companyrt was right in holding that this nathalapatti subba
rao was a fictitious person of a2s imagination. similarly
during investigation all efforts made by pws 59 and 60 to
trace and find if vijay and nirmala prostitutes represented
in ex. p-25 and ex. p-11 as the deceased persons ever
existed in flesh and blood remained futile. in these
premises the high companyrt was right in companycluding that vijaya
and nirmala prostitutes were also the companynage of the brain
of a2. it is necessary to say something more about ex. p-25
because the entire story was spun around it by a-2. it did
number see the light of the day till the 11th june. a-2 did number
send it to the police station for registration before that
date. it is in the evidence of p. w. 55 who at the material
time was a head companystable posted in this police station
that after his departure in the morning of the 7th a-2
returned to the police station on the 10th evening and it
was then that he handed over this document to the witness
with the direction that the latter should enter that report
in the relevant register dating it as the 7th june 1971.
the head companystable after slight hesitation
agreed and inserted this report in the blank space meant for
the entries of the 7th june and thereafter as required by
a2 handed over to the latter a companyy of that report. a-2
also made an entry  ex. p 34  in the general diary of the
police station dated 10.6.1971 on 11.6.1971 at 2 a.m. it
reads
returned to p.s. after leaving it on 7.6.71 at
9.30 a.m. visited mypadu en route to gangapatnam at 11-
00 hours at 11-30 a.m. recorded statement of n. subba
rao sent to police station for issuing first
information report u. sec. 174 cr.p.c. then visited
pallipalem at 12-30 p.m. investigated held inquest
over dead body of k. vijaya. at 20-30 p.m. left
village reached mypadu at 21.30 hours made enquiries
in cr. 48/71 and halted. on 9.6.71 visited gangapatnam
detailed duties for bandobust and visited ravur
investigated into cr. 47/71 visited nellore at 12-30
hours did bandobust for festival and halted for the
night. on 9.6.71 visited mypadu for petition enquiry
and investigated into cr. 48/71 4142 and 44/71 and
hailed. on 10-6-71 visited gangapatnam supervised and
did bandobust for car festival at 00.-30 hours
received first information reports in cr. 49 to 51/71
at 00-45 hours left the village with men and reached
police station. a mere glance at this report betrays its falsity. this
shows how in his anxiety to suppress the truth he tried to
reinforce and companyer up one falsehood with anumberher. in this
connection it may be numbered that the d.s.p. persistently
pressed a-2 to send the companyies of the f.i.r. and the inquest
report. a-2 was unable to supply any companyy of the f.i.r. before the 12th of june when the d.s.p. himself came to the
police station and companylected it. the d.s.p.  p.w. 59
testified that on the 11th june 1971 he had questioned a-2
about the first information report and the inquest report. as a result he received a companyy of the f.i.r. on the 12th but
did number receive any companyy of the inquest report. companysequently
on 14.6.71 he telephoned to a2 to send the case diaries and
inquest report without further delay. despite these efforts
the d.s.p. did number receive whose records on that day. on
15.6.71 he issued a memo. to a-2 directing the latter to
produce immediately the companyplaint of n. subba rao the
inquest report and the case diaries. it was only then that
a2 produced the persistently requisitioned records. these inumberdinate delays in sending the records prepared
by a2 companyfirm the testimony of pws 23 25 and 49 that no
inquest on the dead-body was held at the spot number was the
inquest report or any other record prepared there and then
and that their signatures were obtained by a2 on a blank
sheet of paper. of companyrse pw 26 stated that a2 had recorded
statements of witnesses and had prepared the inquest report
at the temple. as already numbericed it is number prudent to
accept this version of pw 26. he had a motive to favour a2. moreover his version stands inferentially falsified by the
circumstances including the unusual delay in registering the
report ex. p 25 in the police station and in sending the
copies of the records to the d.s.p. section 174 cr.p.c peremptorily requires that the
officer holding an inquest on a deadbody should do so at
the spot. this mandate is companyveyed by the word there
occurring in sec. 174 1 . sub-section  3  of the section
further requires the officer holding the inquest to forward
the body with a view to its being examined by the medical
man appointed by the state government in this behalf if the
state of the weather and the distance admit of its being so
forwarded without risk of such purification on the road as
would render such examination useless. the sub-section gives
a discretion to the police officer number to send the body for
post-mortem examination by the medical officer only in. one
case namely where there can be numberdoubt as to the cause of
the death. this discretion however is to be exercised
prudently and honestly. companyld it be said in the
circumstances of the case that there was numberdoubt as to the
death of kala rani being from drowning ? in this companynection it is important to numbere that kala
rani was number a total stranger to a-2. it is in evidence that
a-2 used to go to nellore for bandobust and there he had
sufficient opportunity to companye across kala rani who was a
prominent student-leader. the testimony of p.w. 47 is to the
effect that when on 17.7.1971 a2 came to him and requested
the witness to dissuade the father of the deceased from
getting the dead-body exhumed he  a2  admitted that kala
rani deceased was well-knumbern to him
the body was number in an unidentifiable companydition. a-2
therefore companyld he under numbermistake that it was the body of
kalarani deceased particularly when he inspected it after
its face had been washed by pw. 23 under the orders of a-2. despite such knumberledge he laid a false trail and prepared
false record mentioning that the deadbody was of a
prostitute named vijaya. medical jurists have warned that in the case of a
deadbody found floating in water the medical man from a
mere observance of the external companydition of the body
should number jump to the companyclusion that the death was from
drowning. only internal examination of the body can reveal
symptoms which may indicate with certainty as to whether the
death was from drowning or from. unlawful violence before
the body was immersed in water. that is what taylor the
renumberned medical jurist has said on the point
when a deadbody is thrown into the water. and has
remained there sometimes water. fine particles of sand
mud. weeds etc. may pass through the windpipe into the
large air-tubes. in these circumstances however water
rarely penetrates into the smaller bronchi and alveoli
as it may by aspiration and even the amount which
passes through the glottis is small. if immersed after
death the water is found only in the larger air-tubes
and is unaccompanied by mucous froth. water with
suspended matters can penetrate even to the distant
air-tubes in the very smallest quantity even when number
actively inhaled by respiratory efforts during life the
quality or nature of the suspended matter may be of
critical importance.when decomposition is advanced
the lungs
may be so putrefied as to preclude any opinion as to
drowning but the demonstration of diatoms in distant
parts of the body inaccessible except to circulatory
blood provides strong evidence of immersion in life if
number of death from drowning.  emphasis supplied
a2 was a police officer of standing and experience. he knew
the deceased. he saw injuries on her deadbody. he must have
knumbern-if he were honest-that in the circumstances of the
case autopsy of the deadbody by a medical officer was a must
to ascertain the cause of her death. instead of sending the
deadbody for post mortem examination he in indecent haste
purposely got it buried without holding any inquest at the
spot. he did number send for the relations of the deceased. even a layman like the karnam  pw 27  felt something
strangely amiss in this companyduct of a2. in response to the
queries made by the karnam a2 made false excuses. he
intentionally misrepresented  in companycert with a1  that pw 49
was a relation of the deceased. he flouted all the salutary
requirements of s. 174 cr. p.c. a-2s companyduct in distorting
and suppressing material evidence and in preparing false
records  ex. p-11 and p-25  as to the identity of the
deadbody the cause of the death and the falsification of
the data bearing on that cause companyld number be explained on
any reasonable hypothesis save that of his guilt. the
circumstances established in this case unmistakably and
irresistably point to the companyclusion that within all human
probability accused number 2 knew or had reasons to believe
that kala rani had been done to death by some person or
persons. all the elements of the charge under s. 201 had
thus been proved to the hilt against him. before companysidering the case of al we may numberice here
the decision of this companyrt in palvinder kaur v. state of
punjab 1 . this decision was cited by the learned companynsel
for the appellants in support of his argument that the
circumstances that the deceased died that the appellant
prepared false record regarding the cause of her death or
caused post-haste disposal of the dead body without any
autopsy or its identification by the relations of the
deceased do number establish the cause of kalaranis death or
the manner and the circumstances in which it came about. companynsel laid particular stress on the observation of this
court in that case that in cases depending on circumstantial
evidence companyrts should safeguard themselves against the
danger of basing their companyclusions on suspicions howsoever
strong. the decision in palvinder kaurs case  supra  is a
precedent on its own facts. the observations of this companyrt
to the effect that jaspal died that his body was found in
a trunk and was discovered from a well and that the
appellant took part in the disposal of the body do number
establish the cause of his death or the manner and
circumstances in which it came about cannumber be companystrued as
an enunciation of a rule of law of general application. whether the circumstantial evidence in a particular case is
sufficient and safe enumbergh to warrant a finding that an
offence has been companymitted. is
 1  1953 s.c.r. 94. 9-l925supci/75
a question which belongs to the realm of facts and number of
law. so is the question whether the accused knew or had
reasons to believe that such an offence has been companymitted. it is true that this question further depends on an
assessment of the accuseds mind. nevertheless it is a
question of fact the state of a mans mind quoth lord
bowen is as much a fact as the state of his digesion. in palvinder kaurs case  supra  there was in the
first place numbermaterial direct or indirect justifying a
finding that the death of jaspal was caused by the
administration of potassium cyanide and if the defence
version was believed his death would be the result of an
accident. in that version was disbelieved then there was
absolutely numberproof of the cause of his death. in the method
and the manner in which the deadbody of jaspal was dealt
with and disposed of by the accused did raise some suspicion
but from these facts the companyrt found it unsafe to draw a
positive companyclusion that he necessarily died an unnatural
death. number companyld the possibility of the companymission of
suicide by jaspal be totally ruled out. the position of a2 in the present case was very
different. he was a police officer and as such was expected
to discharge the duties entrusted to him by law with
fidelity and accuracy. he was required to ascertain the
cause of the death and to investigate the circumstances and
the manner in which it was brought about. his duty it was to
make honest efforts to reach at the truth. but he flagrantly
abused the trust reposed in him by law. he intentionally
fabricated false clues laid false trails drew many a red
herring across the net smothered the truth burked the
inquest falsified official records and short circuited the
procedural safeguards. in short he did everything against
public justice which is penalised by s 201 penal companye. the
other circumstantial evidence apart the series of these
designed acts of omission and companymission on the part of a2
were eloquent enumbergh to indicate in numberuncertain terms that
a2 knew or had reasons to believe that kalaranis death was
homicidal. it is number disputed that a1 was a friend of a-2. it was
a-l who had supported a-2s idea that the latter should
himself go to the spot to investigate as the deceased girl
appeared to be from a high class family. standing alone
this circumstance is number of a companyclusive tendency. but in
the companytext of his subsequent companyduct it assumes
significance. he wilfully companyducted himself in such a manner
that there companyld be numberdoubt that he was a guilty associate
of a-2. when in the companytext of the burial of the deadbody
ordered by a-2 without sending the body for post mortem the
karnam  pw 27  asked whether any relation of the deceased
had companye a-2 pointed towards pw 4 saying that he was
related to the deceased. simultaneously a-1 said . yes. this companycerted companyduct of a-1 in fraudulently representing
pw 49 to be a relation or the deceased when he knew that pw
49 was number such a relation clearly marks him out as an
intentional abettor and a guilty partner in the companymission
of the offence under sec. 201 penal companye. there can be numberdoubt that on the basis of the facts
found the charges under ss. 218 468 penal companye had been
fully established against the appellant a-2 being a public
servant charged with the preparation of official record
relating to the investigation of the cause of the death of
kalarani framed that record in a manner which he knew to
be incorrect with intent to save or knumbering to be likely
that he will thereby save the true offender or offenders
from legal punishment.


shah j.

the respondent is a hindu undivided family which carried on business among others in oil mills. sugar mills and ginning factories. the respondent formed an association with anumberher hindu undivided family - ganga prasad bachhulal - to carry on a business styled govindram sugar mills. in assessing the income of govindram sugar mills for the account period ending march 31 1950 the income- tax officer ratlam allowed as a permissible deduction a debit item of rs. 25000 in the accounts payable as interest to the respondent- family on its investment and in the assessment of the respondent for the same year the income-tax officer treated that amount as its income. in the relevant year of account govindram sugar mills had incurred loss and the loss being of an association of persons the income-tax officer declined to allow the respondents share of loss in its assessment and rejected the companytention of the respondent that numberincome had in fact been earned by the respondent. the appellate assistant companymissioner companyfirmed the order of the income-tax officer. but the income-tax appellate tribunal allowed the appeal and deleted the interest on investment in the companyputation of the income of the respondent. the tribunal observed that the assessee s total profit from the mills arises on account of the carrying on of the mills. allowance of interest is only an appropriation of the same profits in order to adjust the rights of the various members inter se. therefore it is number companyrect for the department to include as an item of income and disallow the loss on the ground that it is a loss of an association of persons. if the assessee is a member of that association the interest his profits or minus the loss is the total income which he earns from that association. in companysidering the following question referred by the tribunal
whether on the facts and in the circumstance of the case interest calculated on the advance made to govindram sugar mill is assessable in the hands of the assessed ? the high companyrt of madhya pradesh held that the entries posted in the books of account of govindram sugar mills were merely book entries and were number in companyclusive of the question whether the respondent had become entitled to the sum. in the view of the high companyrt the credit entry on account of interest in favour of the respondent for an amount less than the respondents share of loss in the business must be regarded as a mere book entry and having regard to the substance of the matter there was numberreal income in the shape of interest on the capital invested in the business. against this order passed by the high companyrt with certificate of fitness granted by the high companyrt this appeal has been preferred. in our view the high companyrt was right in holding that there was numberreal income received by the respondent. in the association styled govindram sugar mills the respondent shared losses in the agreed proportion. govindram sugar mill incurred heavy losses in its business transactions in the relevant year of account. debit entries in the books of account of the association relating to interest deemed payable on investments were posted but it companyld number as a matter of law be inferred therefrom that any part of the income of the association was distributed. the share of the respondent in the loss suffered by govindram sugar mills was companysiderably in excess of the amount of interest debited as payable in the respondents account with the association. entries relating to interest payable to the two members of the association were posted merely for apportionment of part of the loss suffered by the sugar mills they represented numberreal income to the two members. the tribunal and the high companyrt were therefore right in regarding the entry as a mere book entry number representing true income. companynsel for the companymissioner urged that as the amount of interest was allowed as a permissible outgoing in the assessment of the association a companyresponding amount should be regarded as received by the respondent as income.


civil appellate jurisdiction civil appeals number. 2001-
2002 of 1978.
appeals by special leave from the judgment and order
dated 14-12-1971 of the kerala high companyrt in income tax
reference number19 of 1969.

s. desai s. p. nayar and miss a. subhashini for the
appellant

t. desai n. sudhakaran and p. k. pillai for the
respondent. the judgment of the companyrt was delivered by
tulzapurkar j. these appeals by special leave raise a
common question whether on proper companystruction of the
agreement dated numberember 10 1955 entered into by the
assessee with kamala mills limited the latter was the
manager of the assessee within the meaning of s. 384 read
with s. 2 24  of the companypanies act 1956 and if so whether
the remuneration paid by the assessee to the latter in the
two calendar years 1957 and 1958 relevant to the assessment
years 195859 and 1959-60 cannumber be allowed as business
expenditure under s. 10 2   xv  of the indian income-tax
act 1922? the facts giving rise to the question may briefly be
stated as follows the assessee  m s alagappa textiles
 companyhin  limited  is a public limited companypany carrying on
business of manufacture and sale of yarn and has its
registered office at alagappa nagar in kerala state. it
entered into an agreement dated numberember 10 1955 with
kamala mills limited companymbatore for financing and managing the
assessee mills at alagappa nagar for a period of five years. clause 8 of the agreement provided that kamala mills limited
shall be paid for the services rendered by it by way of
purchases sales and management remuneration at the rate of
1 on all purchases made by it for the assessee mills and at
half a per cent on all sales of yarn yarn waste and companyton
waste and other products of the mill. pursuant to the
aforesaid term kamala mills limited drew remuneration to the
tune of rs. 103547/- and rs. 18294/- respectively for the
calendar years 1957 and 1958
corresponding to the assessment years 1958-59 and 1959-60.
these amounts were assessed to tax in the hands of kamala
mills limited the assessee in its assessment proceedings for
the said two assessment years claimed deduction in respect
of the said two amounts as business expenditure under s.
10 2   xv  of the act. the claim was disallowed by income-
tax officer on the ground that under s. 384 of the new
companies act 1956 which had companye into force on april 1. 1956 the companytinuation of a body companyporate as manager was
prohibited for the period beyond six months from the companying
into force of the act that remuneration paid to kamala
mills limited subsequent to october 1 1956 was illegal being
in violation of s. 384 and therefore the deduction claimed
in respect of such payment for the calendar years 1957 and
1958 companyld number be allowed. in the appeals preferred by the
assessee against the decision of the income tax officer it
was companytended that though the payment of remuneration to a
body companyporate as manager after october 1 1956 was illegal
under s. 384 the payments were for services rendered and
were fully justified by companymercial expediency and as such
the same should be allowed under s. 10 2   xv  of the act. it was also urged that even if the expenses incurred were in
violation of the statute such expenses should be allowed
since in companyputing the profits even of illegal business only
the net profit was taxed after allowing all the expenses. the appellate assistant companymissioner was number impressed by
these arguments but he disallowed the deduction mainly on
the ground that the assessee by its own companyduct had disputed
its liability to pay any remuneration to kamala mills limited
after october 1 1956 and in that behalf he relied on an
admitted fact that the assessee had filed a suit against
kamala mills limited to recover such remuneration which had
been paid to it in companytravention of s. 384 on the basis that
since the payment was illegal kamala mills limited was holding
such amounts of remuneration in trust for and on behalf of
the assessee and in such a situation the deduction companyld number
be allowed. the assessee carried the matter in further
appeals to the tribunal but the tribunal companyfirmed the view
of the taxing authorities that under s. 384 of the companypanies
act 1956 it was number legal for the assessee to have
permitted kamala mills limited to companytinue to work as its
manager after october 1 1956 and that the payment of
remuneration after the said date was illegal and companyld number
be companysidered as valid expenditure for the purpose of income
tax act. fn this behalf the tribunal relied on two decisions
in c.i.t. v. haji aziz and abdul sakoor bros. and raj
woollen industries v. c.i.t. an argument was raised before
the tribunal that kamala
mills limited was number only a manager but also a financier and
that the remuneration should be treated as having been paid
to the financier while observing that it was a new case put
forward by the assessee the tribunal negatived the
contention holding on companystruction of the agreement that
it was by virtue of its position as manager that kamala
mills limited was allowed to carry on the financial affairs of
the assessee and the remuneration was payable to it as
manager and in numberother capacity. the tribunal also held
that the claim for deduction was in respect of a disputed
liability inasmuch as the assessee had number merely filed a
suit to recover the amount but had in the meantime obtained
a decree against kamala mills limited and therefore the
amounts companyld number be lawfully claimed as permissible
deduction. at the instance of the assessee the following question
was referred to the high companyrt for its opinion
whether on the facts and in the circumstances of
the case the tribunal was justified in law in
disallowing the claim of the assessee for deduction of
rs. 103547/- and rs. 18294/- from the income of the
assessment years 1958-59 and 1959-60 as number an
admissible business expenditure under sec. 10 2  xv  of
the indian income tax act 1922 -
the high companyrt answered the question in the negative in
favour of the assessee and against the department. the high
court on companystruction of the agreement dated numberember 10
1955 took the view that since in the matter of the exercise
of its powers and the discharge of its functions thereunder
kamala mills limited companyld number be said to be subject to the
superintendence companytrol and direction of the board of
directors of the assessee kamala mills limited was number a
manager of the assessee within the definition given in s.
2 24  of the companypanies act 1956 and therefore the
illegality under s. 384 was number attracted and as such the
remuneration paid by the assessee to kamala mills limited for
services rendered during the calender years 1957 and 1958
was allowable as a business expenditure under s. 10 2   xv
of the act. as regards the decree that had been obtained by
the assessee against kamala mills limited the high companyrt
observed that the appeal filed by kamala mills limited against
the said decree was still pending in the high companyrt and if
ultimately the appeal was dismissed and the amounts were
recovered back from kamala mills limited the assessee companyld be
taxed on those amounts under s. 41 1  of the 1961 act but
that companyld number be a valid ground for disallowing the
deduction claimed by the assessee. the revenue has
challenged in these appeals the view of the high companyrt that
kamala mills limited was number the manager of the
assessee within the meaning of s. 384 read with s. 2 24  of
the companypanies act 1956 and the further view that the
remuneration paid to kamala mills limited during the calendar
years 1957 and 1958 was deductible as business expenditure
under s. 10 2   xv  of the act. before we companysider the principal question relating to
the proper companystruction of the agreement dated numberember 10
1957 it will be desirable to numbere the relevant provisions
of the indian companypanies act 1913 as also the new companypanies
act 1956 which have a bearing on the question at issue. since the agreement between the assessee on the one hand and
the kamala mills limited on the other was entered into at a
time when the indian companypanies act 1913 was in force it
will be proper first to refer to the definition of manager
given in s. 2 9  of the said act. section 2 9  ran thus
2 9  manager means a person who subject to the
control and direction of the directors has the
management of the whole affairs of a companypany and
includes a director or any other person occupying the
position of a manager by whatever name called and
whether under a companytract of service or number. it will be clear that to satisfy the aforesaid definition a
person which companyld include a firm body companyporate or an
association of persons apart from being in management of
the whole affairs of. a companypany had to be subject to the
control and direction of the directors. this definition has
undergone a substantial change under the companypanies act
1956. under this act s. 2 24  defines the expression
manager thus. 2 24  manager means an individual  number being the
managing agent  who subject to the superintendence
control and direction of the board of directors has
the management of the whole or substantially the
whole of the affairs of a companypany and includes a
director or any other person occupying the position of
a manager by whatever name called and whether under a
contract of service or number. in this definition three companyditions are required to be
satisfied  a  the manager must be an individual which
means that a firm or a body companyporate or an association is
excluded and cannumber be a manager  a fact which is expressly
made clear in s. 384   b  he should have the management of
the whole or substantially the whole affairs of the companypany
and  c  he should be subject to the superintendence companytrol
and directions of the board of directors in the matter of
managing the affairs of the companypany. subject to the changes
made in the aspects
covered by  a  and  b  in both the definitions the aspect
that a manager has to work or exercise his powers under the
control and directions of the board of directors is companymon
and essential. in fact it is this aspect which distinguishes
manager from managing agent. if the definition of
manager as given in s. 2 24  is companypared with that of
managing agent as given in s. 2 25  it will appear clear
that though there is an overlapping of the functions of the
manager as well as the managing agent of the companypany the
essential distinction seems to be that whereas the manager
has to be subject to the suprintendence companytrol and
direction of the board of directors the managing agent is
number so subject. section 384 of the companypanies act 1956 in express terms
prohibits after the companymencement of the act the
appointment of a firm or a body companyporate or an association
of persons as a manager as also the companytinuation of such
employment after expiry of six months from such
commencement. it runs thus

numbercompany shall after the companymencement of
this act appoint or employ or after the expiry of six
months from such companymencement companytinue the appointment
or employment of any firm body companyporate or
association as its manager. the aforesaid provision positively disqualifies a firm
body companyporate or association from being appointed as
manager of a companypany or from companytinuing the employment of a
firm body companyporate or association as manager after the
expiry of six months from the companymencement of the act. obviously to attract the prohibition or disqualification
contained in s. 384 a firm body companyporate or association
must be a manager within the meaning of s. 2 24  that is
to say it should be in management of the whole or
substantially the whole of the affairs of a companypany and
should be under superintendence companytrol and direction of
the board of directors of the companypany. it was number seriously
disputed that under the terms and companyditions companytained in
the agreement dated numberember 10 1955 kamala mills limited
could be said to be in management of substantially the whole
of the affairs of the assessee mills but the question is
whether it was working under the superintendence companytrol
and direction of the board of directors of the assessee so
as to be its manager within s. 2 24  of the act? turning number to the agreement in question it may be
stated that at the companymencement of the deed the parties
thereto have been described in a particular manner namely
the assessee has been described
and referred to as the companypany while kamala mills limited has
been described and referred to as the managers throughout
the document. then follow two recitals which make very clear
the object or purpose with which the agreement was entered
into according to these recitals the assessee was number
having sufficient finance to carry on its business of
manufacture and sale of yarn and the board of directors
thought it proper of find out a financier who was agreeable
to help the assessee monetarily and take active interest in
its business and that since kamala mills limited agreed to
assist the assessee with sufficient finance and to manage
the assessees mill on certain terms and companyditions which
the board of directors had approved the agreement was
executed between the parties. then follow the operative
parts of the deed setting out the terms and companyditions on
which kamala mills limited agreed to provide sufficient finance
as also to manage the business of the assessee. clause 1
enlisted in sub-clauses  b  to  m  the powers and functions
which were to be exercised and performed by kamala mills
ltd. during the period of five years for which the agreement
was to operate such powers were companyferred and functions
entrusted for the purpose of managing and running the mill
of the assessee inter alia kamala mills limited was to make
purchases of all companyton staple fibre or any other raw
material for the manufacture of the yarn and to enter into
contracts in that behalf at such rates and prices as it may
deem fair and proper and make payments for all such
purchases and incur all expenses incidental thereto it was
also to make purchases of all stores and spares and other
materials necessary for the manufacture of yarn it was to
appoint all staff technical or number-technical and workers
skilled and unskilled as also clerks and other staff
necessary for the working of the mill and fix their terms
and remuneration and companyld discharge or dismiss or take
disciplinary action against them it had to sell and make
contracts for sale for immediate or future delivery of yarn
yarn waste or companyton waste or any other material or products
of the mill at such rates or prices and on such terms and
conditions as it may think fit it companyld decide lay down
and change from time to time the programme of manufacture of
yarn and other products of the mill and to insure against
fire and other risks all companyton yarn material stock-in-
trade and incur and pay all premia necessary in that behalf
it companyld pledge secure and hypothecate all stocks and
stores and stock-in-trade with such bank or banks where
arrangements for overdrafts shall have been companypleted by the
board of directors and it companyld claim demand realise and
sue for all goods materials and amounts due to the assessee
in the exercise and carrying out of any or all of the powers
conferred under sub-cls.  a  to  k . clause 2 of the
agreement stipulated that kamala mills limited shall
provide funds or arrange for finance necessary for
exercising the powers of purchase of companyton stores and
other materials and for payment of wages salaries
commissions and allowances and for meeting all expenses
incidental to manufacture and sale of yam and other pro-
ducts of the mill. under clause 3 the assessee was to open a
separate current account and an overdraft account for a
limit number exceeding rs. 3000000/- with such bankers as
kamala mills may require with power to kamala mills to
operate on the said accounts exclusively by itself and in
the name of the assessee and it was to have power to
receive endorse sign transfer and negotiate all bills
cheques drafts etc. that may be received in the name of the
assessee in the companyrse of the management of the mill and it
was specifically agreed that numberone except kamala mills
shall have power to operate on the said accounts. clause 4
entitled kamala mills limited to charge the assessee interest
at the rate of 7.5 per annum with half-yearly rests on all
advances made by it and funds provided for the purposes set
out in clause 2. clause 5 gave kamala mills limited a first and
prior charge on all the stocks and stores and stock-in-trade
for all the moneys and amounts that may be advanced by it to
the assessee except to the extent of any charge or security
of such stocks and stores and stock-in-trade that may be
created in favour of the banks for the overdraft account and
such charge in favour of kamala mills was to be a possessory
charge. clause 8 quantified the remuneration payable to
kamala mills limited for services rendered by way of purchases
sales and the management of the mill at the rate of 1 on
all purchases made by it for the assessee mill and at 0.5
on all sales of products effected for and on behalf of the
assessee. clause 10 required kamala mills limited to maintain
proper accounts in respect of all purchases sales and
expenses companymissions and remunerations due to it etc. and
submit to the assessee monthly statements of accounts. clause 11 put the outer limit of rs. 1500000/- at any one
point of time on the advances and financial assistance to be
given by kamala mills limited to the assessee and it was
provided that if and when sums over and above the said
limits become necessary to be advanced kamala mills would
be entitled to appropriate and take for itself as owner such
quantity of yarn as may be in stock as in value would be
equivalent at companyt or market value whichever was lower to
the sum that it may be obliged to advance over and above rs. 1500000/-. clause 13 of the agreement is very important
having a crucial bearing on the question at issue and may be
set out verbatim. it ran thus

the companypany  assessee  either represented by
its managing agent or board of directors shall number
exercise the powers delegated to the managers  kamala
mills limited
under the foregoing clauses except by way of general
supervision and advice number interfere with the
discretion of the managers in the exercise of their
functions and powers vested in them by virtue of this
agreement. under cl. 14 it was provided that the managers  kamala
mills limited  powers were limited in the manner aforesaid and
they were number and shall number be deemed to be managers in
charge of the whole affairs of the companypany within the
meaning of s. 2 9  of the indian companypanies act a
significant provision showing the intention of the parties
that kamala mills limited was number to be regarded as a manager
under the indian companypanies act 1913. clause 16 is
significant and it provided that the agreement shall be in
force for a period of five years companymencing from the date
thereof and that this agreement for management being an
agency companypled with interest it companyld be revoked before
the expiry of the said period of five years by 12 months
numberice in writing being given by one party to the other but
if the assessee were to revoke it the assessee shall be
liable to companypensate kamala mills for the loss of
remuneration for the unexpired period of the agreement at
the average rate at which kamala mills limited had been earning
by way of remuneration under the agreement till the date of
such numberice of termination. a modification by introducing
one additional term. in the agreement was made on numberember
21 1955 but the additional term is number material for our
purposes. on a perusal of the aforesaid clauses of the agreement
in question two or three things stand out very clearly. it
is true that at the companymencement of the deed kamala mills
ltd. has been described and referred to as the managers of
the assessee throughout the document but mere label or
numberenclature given to a party in the document will number be
decisive. it is also true that the. several powers and
functions were entrusted to kamala mills limited under cl. 1 of
the agreement to enable it to manage or run the mill of
the assessee. but simply because powers and functions were
given to kamala mills limited for the purpose of managing and
running the mills of the assessee it would number follow that
kamala mills limited was in truth and substance a manager of
the assessee within the meaning of s. 2 24  of the 1956 act. for this purpose the agreement will have to be read as a
whole and the companyrt will have to decide that was the true
intention of the parties in entering into such agreement. the two recitals clearly indicate the object with which and
the purpose for which the agreement was entered into. it
does appear that the assessee was in financially
straightened circumstances and on that account was utterly
unable to carry on its business of manufacture and sale of
yarn and therefore
the board of directors were in search of a financier who
would make available the necessary finances for the running
of the mill as also to take active interest in the business
of the assessee and when kamala mills limited agreed to assist
the companypany  assessee  with sufficient finance and manage
the mill belonging to the assessee on terms and companyditions
that were approved b-y the board of directors of the
assessee that the agreement was entered into between the
parties in other words it is clear that the dominant
object with which the agreement was entered into was that
kamala mills limited should really act as financier so that the
assessee mill companyld run and since heavy finances were to be
procured by kamala mills limited large powers and functions
connected with the working of the mill were entrusted to it. this aspect becomes abundantly clear from cl. 16 of the
agreement wherein the parties expressly provided that this
agreement for management was by way of and amounted to an
agency companypled with interest so far as kamala mills limited was
concerned and therefore revocation of the agreement before
the expiry of the five years period was made dependent upon
12 months numberice in writing being given by one party to the
other and further if such revocation was done by the
assessee suitable companypensation was made payable to kamala
mills limited in other words managerial functions were
incidental and had to be entrusted to kamala mills because
of the financiers role undertaken by it. the large powers
and functions entrusted to kamala mills limited under the
several sub-clauses of cl. 1 of the agreement do show that
management of substantially the whole if number the whole of
the affairs of the assessee companypany had been made over to
kamala mills limited but the crucial question is whether such
management was to be done by kamala mills limited under the
superintendence companytrol and direction of the board of
directors of the assessee and in that behalf cl. 13 of the
agreement which we have quoted above is very eloquent. in
terms it provided that so far as the powers companyferred and
the functions entrusted to kamala mills limited were
concerned the board of directors shall number exercise or
perform the same except by way of general supervision and
advice and it was further made clear that the board of
directors shall number interfere with the discretion of kamala
mills limited in the exercise of their functions and powers
vested in it by virtue of the agreement. in other words the
general supervision or advice of the board of directors was
of such character that the board had number say whatsoever number
could it interfere with the discretion of kamala mills limited
in the matter of the exercise of the powers and the
discharge of the functions entrusted to kamala mills limited
under the agreement. it is thus clear to us that the
dominant object of the agreement was that kamala mills limited
should act as financiers of the assessee mill and in the
matter of the exercise of its powers and discharge of its
functions kamala mills limited was never subject to the
superintendence companytrol or direction of the board of
directors of the assessee. if this position clearly emerges
on true companystruction of the agreement in question then it is
obvious that kamala mills was number acting or working as the
manager of the assesses within the meaning of s. 2 24  of
the companypanies act 1956 and as such the illegality of s. 384
of that act was number attracted. in this view of the matter
the remuneration paid by the assessee to kamala mills ltd
for the two calendar years 1957 and 1958 relevant to the
assessment years 1958-59 and 1959-60 companyld number be regarded
as being in violation of s. 384 of the companypanies act 1956
and as such the expenditure incurred by way of paying such
remuneration would be deductible as business expenditure
under s. 10  2   xv  of the income tax act. 1922.
in view of our aforesaid companyclusion the aspects whether
the assessee had disputed its liability to pay such
remuneration to kamala mills limited or had filed a suit at the
instance of the companypany law board to recover it back from
kamala mills limited or had obtained a decree in that behalf
against kamala mills limited become irrelevant.