JUDGMENT <NAME>, J.

1. This is a petition under Article 226 of the Constitution of India for the quashing of an order of dismissal passed by opposite-party No. 2 and subsequently confirmed by opposite parties Nos. 3 and 1.

2. It appears that the applicant was a Sub-Inspector of Police appointed in December, 1948. In June, 1953, he happened to be posted at Sitapur. On 6-9-1953 the applicant was returning from a village known as Madhwapur where he had gone in connection with the investigation of a theft case when he saw a person who was subsequently found to be <NAME> coming from, the side of a canal and going hurriedly towards a field. The movements of <NAME> roused some suspicion in the mind of the applicant. One <NAME>, an ex-patwari also happened to be with the Sub-Inspector at that time.

<NAME> was called and it was found that he was carrying something in the folds of his Dhoti which he was trying to hide with his hand. The applicant asked him to produce the Potli which <NAME> had and on examination it was found to contain currency notes. They were examined by the applicant and were counted by him and <NAME> the ex-patwari. The notes were subsequently returned by <NAME> to <NAME>. <NAME> went away and when he counted the currency notes at his house he found that they were short by Rs. 250/-. He then made a complaint to <NAME> on 9-9-1953 in which he narrated the above facts. An inquiry was then made by <NAME> and ultimately departmental proceedings under Section 7 of the Police Act were taken against the applicant. These proceedings resulted in the dismissal of the applicant and he has, therefore, come up to this Court with this petition for the issue of a writ.

3. The first point on which the order of dismissal has been attacked by the applicant is that the provisions of paragraph 486 of the <ORG> Regulations had not been observed and as such the proceedings taken under Section 7 of the <ORG> Act were invalid and illegal. Paragraph 486 lays down the procedure and the conditions for departmental trial under Section 7 of the <ORG> Act. It is expressly provided that every information received by the <ORG> relating to the commission of a cognizable offence by a police officer shall be dealt with in the first place under Chapter XIV, Cr. P. C., according to law, and a case under the appropriate section will be registered in the police station concerned.

There is a proviso attached to Sub-paragraph I of Para. 486 which lays down certain exceptions. One of the exceptions is that no case will be registered by the police if the information is received, in the first instance, by a Magistrate and forwarded by the District Magistrate to the Police. The proviso, however, does not apply to the facts of the present case inasmuch, as there is no allegation that the information which was conveyed to <NAME> by means of the application made by <NAME> was given to a Magistrate in the first instance.

The other point which is material is whether the information was in respect of a cognizable offence. <NAME> had in his application made to the Superintendent of Police clearly mentioned that he had in his possession currency notes of the value of Rs. 650/- and the <ORG> containing these notes was given to the Sub-Inspector when he wanted to search and that the currency notes were returned to him after examination. The Sub-Inspector evidently never meant to take away the money but he wanted to examine the contents of the <ORG> as <NAME> was found to behaving in a Suspicious manner.

4. It has been contended on behalf of the opposite-parties that the misappropriation of a part of the money amounted in the present case, if at all, to an offence under Section 403 of the Indian Penal Code which is not a cognizable offence. The contention on behalf of the applicant, however, is that the misappropriation of the money under the circumstances mentioned above amounted to an offence under Section 409 , I. P. C. The main ground on which it has been contended on behalf of the opposite parties that the case fell under Section 403 , I. P. C. is that there was no entrustment made by <NAME> in favour of the applicant.

Some reported cases have also been cited on behalf of the opposite parties but it is not necessary to refer to all those cases as in everyone of those cases the property in the moveables made over or taken away by the accused ceased to vest in the person who parted with the property. <CITATION> , AIR 1953 SC 478 (A) a person gave a certain sum of money as illegal gratification to another person. As soon as the money was given it ceased to remain the property of the person who gave it and therefore, there was no question of an entrustment.

In Emperor v. <NAME>, AIR 1928 Sind 106 (B) a certain sum of money was given to a contractor for doing a certain act. In this case also the movable property ceased to be the property of the person who parted with it. There can be no doubt that there should be some entrustment of property or dominion over property in order to constitute an offence under Section 409 , I. P. C. but it is not necessary that this entrustment should be attended by all legal formalities required for the creation of a trust. If the parties or at least the person who takes away the property does not intend to take away the property as his own or for his own benefit but takes it away with the intention that it will continue to be the property of the person from whose possession it has been taken this conduct will evidently create an entrustment and if the person so taking away the property subsequently converts it to his own use it will be a case of criminal breach of trust and not of criminal misappropriation.

We are unable, therefore, to agree with the contention raised on behalf of the opposite parties that the complaint made by <NAME> to the Superintendent of Police amounted only to an offence under Section 403 , I. P. C. and not to an offence under Section 409 I. P. C. An offence under Section 409 I. P. C. is admittedly a cognizable offence and as the complaint made by <NAME> was in respect of a cognizable offence the provisions of police Regulations, Para 486, Sub-paragraph I applied to it.

It is not disputed that on the information received by the Superintendent of Police no case was registered by the Police nor was any report under Section 157 , Cr. P. C. submitted to the District Magistrate or was accepted by him. The procedure provided for in paragraph 486 of the Police Regulations clearly required the Superintendent of Police to register a case in the police station and to follow the procedure laid down in Section 173 , Cr. P. C. if there was no sufficient evidence in support of the complaint. Departmental action as laid down in paragraph 490 could be taken only after the final leport under Section 173 , Cr. P. C. had been accepted by the District Magistrate. No such report as mentioned above was made or accepted by the District Magistrate. Paragraph 493 of the Police Regulations is as follows :

"It will not be permissible for the Superintendent of Police in the course of a departmental proceeding against a police officer who has been tried judicially to re-examine the truth of any facts in issue at his judicial trial and the finding of the court on these facts must be taken as final".

This provision clearly indicates that the Superintendent of Police was bound to accept a finding on facts in issue arrived at a judicial trial. There having been no judicial trial the applicant was deprived of his right to establish the question of fact in his favour at a judicial trial before a court of law. There is, therefore, no doubt that the express provision laid down in paragraph 486 of the Police Regulations was ignored in the case of the applicant.

5. It has further been contended on behalf of the opposite parties that the Police Regulations are only rules of conduct laid down by the Inspector General of Police with the approval of the State Government and reliance has been placed on certain observations in, Niranj'an <CITATION> 1957 All LJ 233: ( (S) AIR 1957 SC 142) (C). It has been observed by their Lordships of <ORG> that the U. P. Police Regulations contain rules which are statutory as also rules which have no force of law and are only for the guidance of the officers and that an indication as to whether a particular rule has been framed under the provisions of some law has been given in the Regulations themselves.

Paragraph 486 finds a place in Chapter XXXII of the Police Regulations and paragraph 477 with which the Chapter starts indicates that the rules in Chapter XXXII have been made under Section 7 of the Police Act and apply only to officers, appointed under Section 2 of the Police Act (Act No. V of 1861). In view of the indication given in paragraph 477 of the Police Regulations the rules embodied in Chapter XXXII have been, framed under Section 7 of the Police Act and have the force of law and are not only directory or administrative.

The Superintendent of Police who conducted the departmental trial did not observe the provisions of paragraph 486 of the Police Regulations which have the force of law and as such a dismissal as a result of such departmental proceedings would be illegal. This view finds support in two Bench cases of this Court. One of them which has not yet been reported and to which one of us was a party was decided only on 23-12-1957. It is <NAME> v. State of Uttar Pradesh, Civil Misc. Appln. (O. J.) no. 36 of 1954 (All) (D). The other case is Sri <NAME> v. inspector General of Police, 1957 All LJ 603: ((S) AIR 1957 All 767) (E). In view of the fact that the departmental trial under Section 7 of the Police Act which resulted in the dismissal of the applicant was illegal the order of dismissal cannot stand and must be quashed. In view of this finding it is not necessary to enter into the other grounds taken up in the writ petition.

6. While the judgment was being dictated the learned Standing counsel drew our attention to a very recent case reported in <CITATION> ) AIR 1957 SC 882 (P) in which an observation has been made that a person whose services have been wrongfully terminated is entitled to institute an action to vindicate his rights and this circumstance should be taken into consideration while considering a petition for writ. Though their Lordships of <ORG> have made the above observation, yet they felt pressed by the fact that the order dismissing the respondent in that case having been made on 16-9-1954, an action to set aside that order would have been time-barred, and, therefore, they entered into the merits of the case.

In the present case also, the order of dismissal was passed as far back as the 19th of October, 1954 and this petition has been pending for over two years and possibly a suit by the petitioner would be time-barred and, therefore, we do not think that the relief should be refused to the petitioner in the present case and that he should be driven to the necessity of filing a regular suit after his petition has been pending for over two years in this Court.

7. As a result, the petition is allowed and the order of dismissal passed on 19-10-1954 and confirm ed by the Inspector General of Police in appeal on 28-2-1955 and against which a revision was dismiss ed by opposite party No. 1 in September, 1955, is, therefore, quashed. The petitioner shall get his costs from the opposite parties.


<NAME>, J.

1. This is an application to declare an award to be null and void.

2. The arbitration clause is contained in a contract dated 2-1-1952, for sale by the respondent to the petitioner of hessian cloth delivery April to June in equal monthly instalments.

3. The respondent tendered the goods to the petitioner on the due dates. The petitioner failed to take delivery and thereupon on due notice to the petitioner the respondent re-sold the goods for and on account of the petitioner. Bills of difference in price were duly submitted but the petitioner did not pay those bills. The petitioner maintained an unusual silence throughout and did not send any letters to the respondent in answer to the several demands made by the petitioner.

4. The respondent referred its claim to the arbitration of <ORG> on 7-7-1952. The petitioner did not file any statement before <ORG>. <ORG> thereupon made its award on 24-9-1952.

5. It is contended on behalf of the petitioner that there was no dispute between the parties prior to arbitration and that therefore <ORG> had no jurisdiction to make the award. This contention is raised in paras 9 and 17(c) of the petition.

6. The arbitration clause is as follows : "13. All matters, questions, disputes, differences and/or claims arising out of and/or concerning and/or in connection with and/or in consequence of or relating to this contract whether or not the obligations of either or both parties under this contract be subsisting at the time of such dispute and whether or not this contract has been terminated or purported to be terminated or completed shall be referred to the arbitration of <ORG> under the rules of its <ORG> for the time being in force and according to such rules of arbitration shall be conducted."

7. There is no doubt that the existence of disputes or differences contemplated by the arbitration clause is an essential condition of and prerequisite to the exercise of the jurisdiction by the Arbitrator.

A dispute implies an assertion of a right by one party and a repudiation thereof by <CITATION> ', AIR 1921 Cal 342 (A). The repudiation by the other party may be either express or implied and may be by words or by conduct.

8. Failure to perform the contract and to pay the amount claimed may take place under such circumstances as may justly lead to the inference of repudiation and denial of the right of the other party. Such conduct and stoic silence may be more eloquent than words and may show that the party is disputing his liability. Coupled with other circumstances a failure to pay a claim may constitute a difference between the parties. See -- '<ORG> v. <ORG>', 12 Ind Gas 188 (Sind) (B); -- 'Donald Graham & Co. v. <ORG>', 12 Ind Gas 187 (Sind) (C); -- '<ORG> v. Firm of Naroomal Khem-chand', AIR 1924 Sind 117 (D) at pp. 118-119; --'Tyebally Abdul Hussain v. <ORG>', AIR 1924 Sind 105 (2) (E) at p. 110.

Failure to pay under a claim of right is certainly a dispute. -- ' <CITATION> AIR 1920 Cal 143 (F). The claim of right need not necessarily be express. It may and should justly be inferred against the defendant from his sphinx-like silence in an appropriate case. It is not the law that a person who desires to evade arbitration may not write letters in answer to a claim explaining and justifying his conduct and then turn round and say there is no dispute.

I can well imagine that in certain circumstances the Court will not infer the existence of a dispute from a mere failure to pay (<NAME> on Arbitration, 14th Edn. 252). -- '<NAME> v. <NAME>', 53 Cal WN 873 (G) at p. 875.

9. If the defendant maintains complete silence in answer to demands made against him until a suit is instituted against him (he?) may have a very heavy burden of proving that there was a dispute prior to the institution of the suit necessitating a reference to arbitration when he subsequently applies for stay of the suit -- ' <CITATION> , or when he subsequently contends that the suit is barred by a special statute requiring previous recourse to arbitration. -- '<ORG> v. <NAME>', (1915) 2 KB 35 (1). The circumstances however are quite different.

10. In 'Chandanmull v. Donald Campbell', 23 Cal WN 707 (FN) (PC) (J), A drew bills on B on the basis of certain award made previously and binding upon A & B. B dishonoured the bills on presentation. A then made a further reference to arbitration: B did not appear before the arbitrators and an award was made against him. B then contended that the award was invalid. <ORG> negatived the suggestion of his counsel that there was no dispute prior to reference. Lord <NAME> observed thus -

"It is true that Mr. <NAME> when required to pay in accordance with the first award, preserved a sphinx-like silence. It is true also that it takes two to make a quarrel. But a dispute may perfectly well arise when only one disputant is articulate and the other stands mute when called upon to plead. What is required is that one party should affirm and the other deny and conduct will do this as well as words. The respondents said in effect "You owe the money and have no excuse for not paying it." The appellants to my mind in effect retorted nonetheless eloquently though he held his tongue. "I owe you nothing, I have a defence under the contract."

x x x It is suggested that the appellant really disputed nothing but simply could not, or would not pay; in other words he lacked either money or honesty. My Lords, I cannot assume in Mr. <NAME> favour that he was wanting in either. If it be the case that no further dispute arises out of the contract when nothing capable of being disputed is to be found and nothing is alleged to be disputable. I think still that if the appellant's attitude can be explained consistently with any recognition of his business application this should be done."

11. In the present case repeated demands for performance of contract were made upon the petitioner. He did not perform the contract and gave no explanation for his non-performance. Repeated demands for payment of the difference was made upon the petitioner. He did not pay the amount claimed and gave no answer why he was not making the payment. The petitioner is a firm apparently of good credit. In fairness to the petitioner it is to be assumed that he was disputing his liability on some ground. I cannot assume in his favour that he was dishonestly avoiding liability or that he was insolvent. In fact even now in the petition he maintains that the admission for performance was wrongful. The exact disputes need not be specified. If the dispute is a vague one the arbitrator has jurisdiction to call upon the parties to specify the disputes. The arbitrator can order points of claim and points of defence as also particulars. The arbitration clause is very wide and confers jurisdiction upon <ORG> to decide all matters, questions, disputes, differences and/or claims arising out of the contract. In my judgment there was a sufficient dispute or difference prior to the reference attracting the jurisdiction of <ORG> to arbitrate upon these disputes.

12. It is contended that the arbitrator was not selected, or appointed by the Registrar by his own hand. Reliance is placed upon Rule 6 of the rules of the arbitration of <ORG>. Rule 6 is as follows :

"6. Unless the agreement to refer the dispute or difference to the <ORG> or <ORG> otherwise expressly provides the <ORG> shall consist of two arbitrators, who shall be selected by the Registrar from the <ORG> and appointed in writing under his hand."

13. The argument here has proceeded upon the footing that the selection and appointment in writing was made under the hand of one Mr. <NAME>. Mr. <NAME> on behalf of the petitioner has conceded and formally admitted that Mr. <NAME> was at the relevant time a member of the secretarial staff of the <ORG> and acting for him at the relevant time.

14. Rule 1(6) of the Rules of Arbitration of the Bengal Chamber of Commerce is as follows :

"1. (6) "Registrar" -- The Registrar of the Tribunal shall be the Secretary for the time being of the <ORG> or such other member of the Secretarial staff of the <ORG> as shall be acting for him from time to time."

15. On the admission made by Mr. <NAME> it must be held that Mr. <NAME> was at the relevant point of time for the purpose of appointment and selection of arbitrators the Registrar and as such the appointment and selection of the arbitrators were duly made in accordance with Rule 6.

16. It is next contended that the arbitrators were guilty of misconduct because they refused to give an opportunity to the petitioner to submit its statement. This contention is raised in para 17 (e) and para 10 of the petition. I am satisfied that the petitioner had ample opportunity to place its case before <ORG> and there is no substance in the present contention.

17. The contention raised in para 17(d) is not pressed and expressly abandoned by Mr. <NAME>.

18. The only dispute, therefore, now outstanding for adjudication is that raised in para 17 (a) and paras 3, 4, 5 and 6 of the petition.

I adjudge and declare :

(a) That the award is not bad on the ground that there was no dispute between the parties prior to the reference.

(b) That the award is not bad on the ground that the arbitrators were not duly selected and appointed in accordance with the rules of <ORG>.

19. The petitioner must pay the costs of hearing of yesterday which I assess at 5 G. ms.

20. The disputes raised in para 17A and paras 4, 5 and 6 remain outstanding. I make cross order for discovery against both parties. Affidavit of documents shall be filed within one month from today disclosing all documents and books of account, bill books and contract register, if any, material to the case and in particular all entries in books of account, bill books and contract registers for three years preceding 2-1-1952, (a) relating to the sale and purchase and delivery of jute goods and (b) relating to the godown and other means and equipments necessary for the storage and supply of jute goods, if any, in possession and control of the parties. There will be an inspection forthwith thereafter. Within two months thereafter the respondent shall file a further affidavit annexing thereto copies of all documents and all the entries in books of account relied upon by the respondent, and stating further facts, if any relied on by him. Where the entry is in vernacular language a translation either official or non-official thereof shall be annexed to the affidavit.

If the respondent desires to call any further witness, the respondent shall as far as possible procure an affidavit from such witness and fite such affidavit. Within a fortnight thereafter the petitioner shall file a further affidavit annexing to such affidavit copies of all documents and entries in the books of account relied on by him and further facts if any relied on by him. Where the document is in vernacular language a translation either official or non-official thereof shall be annexed to the affidavit. If the petitioner desires to call any other witness, the petitioner shall as far as possible procure an affidavit from such witness and file the same. The matter will appear in the list for hearing on 3-4-1954. I leave it open whether the <ORG> will decide the disputes then on affidavits or whether the <ORG> will then take oral evidence. The parties must however be ready with all oral evidence on that date. The matter is adjourned until 3-4-1954 for adjudication of the outstanding disputes.

21. I direct that the matter be not treated as part heard before me. Liberty to apply.


JUDGMENT <NAME>, J.

1. In this case the appellants challenge the validity of an execution sale of a sixteen anna share in certain mouzahs appertaining to <NAME>. The sale took place on the 15th December, 1891, pursuant to an Order of Attachment of the 5th November, 1891, issuing out of <ORG> of Mozufferpur, and made in execution of a decree of the same Court passed on the 17th April, 1890.

2. There are two grounds upon which this case rests: the first that the decree of the 17th April, 1890, was, so far as it formed a foundation for the sale of this property, ultra virus; and, secondly, that at the date of the sale there was, in fact, another order existing for the sale of the same property. For reasons that their Lordships will state, they think there is no efficacy in either of these contentions.

3. The facts that preceded the litigation out of which this appeal has arisen are very simple, though they have been the cause of many legal complications. On the 24th March, 1888, <NAME> entered into a bond in favour of the members of the firm of <ORG>, to secure repayment of sums advanced to him by them up to the limit of Rs. 55,000 ; and, to secure this repayment, entered into a covenant to execute in their behalf a full and complete mortgage of the block and crop of the Buriarpur indigo concern.

4. <NAME> died a month after the execution of this deed on the 24th April, 1888, leaving a son by his first wife, his second wife (the appellant, <NAME>, his widow), and four illegitimate children by a Mohammedan concubine.

5. Questions arose about the right to obtain letters of administration to the estate of <NAME>, which are irrelevant to the present dispute, and on the 30th May, 1889, letters of administration were granted to <NAME>, the eldest of the illegitimate sons. On the 10th September, 1889, proceedings were taken by the firm of <ORG> against <NAME> as administrator of <NAME> Lal, claiming as equitable mortgagees upon the block and crop of the said indigo concern, by virtue of the deed of the 24th March, 1888, and asking for sale of the property, and application of the purchase money in

6. or towards satisfaction of the sum of Rs. 17,432, the amount then due upon the mortgage, together with interest and costs.

7. The decree asked for was made on the 17th April, 1890, and in addition to granting the necessary relief under the mortgage, it further provided that, if the proceeds of the sale were not sufficient to cover the amount secured by the mortgage with interest till the date of realisation, the defendant should pay the balance of the amount from the estate of the deceased, and if the assets were not admitted to be sufficient, the estate should be kept under the management of the <ORG>.

8. The sale of the mortgaged property took place on the 18th August, 1891, when it was sold for Rs. 7,000, the amount realised being obviously insufficient to clear the debt. On the 29th August, 1891, <ORG> further applied in execution of their decree for attachment and sale of the mouzahs in dispute in this suit, and on the 5th November, 1891, attachment was accordingly ordered, and the sale took place on the 10th December of the same year.

9. On the 5th April, 1904, the widow instituted the suit giving rise to this appeal in <ORG> in District Tirhut against the purchasers and other parties asking, together with other relief not now material, to set aside the sale. In this she failed, though on other points she succeeded, and the decree giving effect to the judgment of the Subordinate Judge was drawn up and dated 31st January, 1906.

10. Against this decree the plaintiff appealed to <ORG>, as also did certain of the defendants. <ORG> on the 19th May, 1908, heard both appeals together, and dismissed them both. The defendants have taken no further steps in the matter; but the plaintiff appealed to this hoard. She died on the 12th September, 1910, and the appeal has been continued by those who represent her original interest in the property. The respondents are the administrator of <NAME> and the representatives of the purchasers and the mortgagees.

11. Possibly as the result of deaths, or it may be for other reasons which their Lordships cannot ascertain, but which certainly are not in any way associated with lack of dispatch of business before this <ORG>, the appeal now comes on for hearing ten years after the date of the decree of <ORG>. The ground upon which the sale is disputed is that by virtue of Section 90 of the Transfer of Property Act, 1882, the decree of the 17th April, 1890, was inoperative so far as it ordered payment of the balance of the moneys and formed a foundation for the sale of property outside the mortgage. This argument turns on the languge of the section, which is in these terms: "When the nett proceeds of any such sale are insufficient to pay the amount due for the time being on the mortgage if the balance is legally recoverable from the defendant otherwise than out of the property sold, the Court may pass a decree for such sum."

12. The' appellants contend that the opening words establish as a condition precedent to the power of decreeing payment of the balance that the mortgaged property must first be sold and found insufficient to satisfy the debt. It is admittedly a strict and technical construction of the statute and one for which no reason can be assigned, and from which no advantage can possibly be derived by any mortgagor. It would be unfortunate if the statute by its terms rendered necessary the adoption of this contention; but in their Lordships' opinion it is not necessary so to construe the Act. The words of the section are, in their opinion, satisfied in cases where the <ORG> passes a decree that, on the happening of the event when the nett proceeds of the sale are found to be insufficient, the balance should be paid. The order, though made at the time of the decree for the sale of the mortgaged estate, operates at a future date, and is made in such terms that it can only operate when the sale has failed to satisfy the debt, and this is the event specified and defined in the section as the event when the decree can be made.

13. Their Lordships, therefore, think that the first ground is untenable. The second contention depends on this, that on the 18th August, 1891, the same property was purchased at an execution sale under a decree held by one <NAME>. No certificate of sale was issued in respect of the purchase, and on the 11th March, 1892, the purchasers framed a petition stating that they were not prepared to support the sale in question, and upon this petition on the 31st March, 1892, the sale was set aside.

14. <ORG> dealt effectively with the contention that in these circumstances there was nothing that could be sold on the 15th December, 1891, and to their judgment, their Lordships have nothing to add ; but the appellants, further say that under Section 311 of the Code of Civil Procedure, the former sale could not be set aside unless the applicant could prove to the <ORG> that he had sustained substantial injury by reason of the irregularity by which the sale was impeached, and of this their was no evidence and nothing to show that the proper parties were before the <ORG>. But the order setting the sale aside was not appealed from, and the appellants, on whom the burden of challenging the order rests, have completely failed to satisfy their Lordships that it was not duly and properly made in the presence of all the interested parties.

15. Their Lordships, therefore, have no hesitation in holding that the second ground of this appeal fails equally with the first.

16. Finally, their Lordships regard it as their duty once more to direct attention to the unsatisfactory conditions which this case discloses relating to Indian litigation. The sale challenged was an ordinary execution sale that took place twenty-seven years ago. The proceedings culminating in the appeal began on April 4th, 1904, and it has taken over fourteen years before they have been finally concluded, and the purchaser confirmed in his holding. That the delay may in part have been occasioned by deaths is both true and obvious, for the allotted span of human life is not long enough to enable a group of adult people to contemplate with reasonable certainty a prolongation of life sufficient to see the end of such litigation. Security of title and reasonable swiftness of legal decisions are essential conditions of commercial development, and both are lacking in such a case as the present, a case which, in their Lordships' experience unfortunately does not stand alone.

17. They will humbly advise His Majesty that this appeal should be dismissed with costs.


PETITIONER: BANARASI DEVI Vs. RESPONDENT: INCOME-TAX OFFICER, CALCUTTA DATE OF JUDGMENT: 31/03/1964 BENCH: <NAME>, K. BENCH: <NAME>, K. SHAH, J.C. SIKRI, S.M. CITATION: 1964 AIR 1742 1964 SCR (7) 539 CITATOR INFO : R 1968 SC 623 (28) D 1987 SC1378 (2) ACT: Income-tax Act , , as amended by Income-tax (Amendment) Act  s. 4-Fiscal enactments--Inter- pretation of-"Issued" in s. 4 of the Amending Act-Meaning of. HEADNOTE: For the assessment year 1947-48 the appellant in the first case field a return of her income and the assessment was completed sometime in 1948 as a result whereof it was found that no tax was payable by her. On April 2,1956, the appellant was ,served with a notice dated March 19, 1956, under s. 34 (1) of the Income-tax Act , 1922, on the ground of escaped assessment. The date of the notice fell within 8 years from the end of the relevant assessment year i.e. March 31, 1948, but it was served beyond 8 years from the date and therefore was clearly out of time under the provisions of the said section. In the second case, the appellant was assessed for the assessment year 1947-48 and the tax thereon was deposited on his behalf. On April 2, 1956, the appellant was also served with a similar notice as aforesaid. The appellants filed two petitions under Art. 226 for quashing the said notices and the learned Judge of <ORG> issued rules nisi to the Income-tax Officer, the Commissioner of Income-tax and <ORG>. On September 11, 1958, the rules were made absolute. The respondents then preferred appeals to a Division Bench of that Court. Pending the appeals, on March 12, 1959, s. 34 of the Act was amended by s.2 of the Amending Act , 1959. After the said amendment the appeals were heard and relying upon the said amendment the learned judges held that the said notices, though served on the appellants after the prescribed time, were served under s. 4 of the Amending Act. On appeal by Special Leave it was urged on behalf of the appellants that s.4 of the Amending Act only saved a notice issued after the prescribed time, but did not apply to a situation where notice was issued within but served out of time. The respondents contended that the expression "issued" means "served" and that, in any view, it was comprehensive enough to take in the entire process of giving and serving of notice. Held: To the present case the general rule of construction of fiscal Acts would apply, and not the exception engrafted on the rules; for, s. 4 of the Amending Act, cannot be described as a provision laying down the machinery for the calculation of tax. In substance it enables the Income-tax Officer to reassess a person's income which has escaped assessment, though the time within which he could have so assessed had expired under the Act before the amendment of 1959. It resuscitates barred claims. Therefore, the same stringent rules of construction appropriate to a charging section shall also apply to -such a provision. Case law discussed. On a true construction of s. 4 of the Amending Act, it must be held that the clear intention of the legislature was to save the validity of the notice as well as the assessment from an 540 attack on the ground that the notice was given beyond the prescribed period. That intention would be effectuated if the wider meaning is given to the expression "issued". The dictionary meaning of the expression "issued" takes in the entire process of sending the notice as well as the service thereof. The said word used in s. 34(1) of the Act itself was interpreted by courts to mean 'served". The limited meaning, namely, "sent" will exclude from the operation of the provision a class of cases and introduce anomalies. In the circumstances, by interpretation, the wider meaning of the word "issued" must be accepted. In this view, though the notices were served beyond the prescribed time, they were saved under s.4 of the Amending Act . Case law referred to JUDGMENT:

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 142 and 143 of 1963. Appeals by special leave from the judgment and order dated July 13, 1961, of <ORG> in Appeals from Original Orders No. 41 and 69 of 1959. <NAME> and <NAME>, for the appellants (in C.A. No. 142/63).

<NAME>, <NAME> and <NAME>, for the appellants (in C. A. No. 143/1963). <NAME> and <NAME>, for the res- pondent (in both the appeals).

March 31, 1964. The Judgment of the Court was delivered by <NAME>, J.-These two appeals filed by special leave raise the question of the true construction of the provisions of s. 4 of the Indian Income-tax (Amendment) Act , 1959 (Act No. 1 of 1959), hereinafter called the Amending Act . The material facts lie in a small compass and they are as follows. For the assessment year 1947-48 the appellant in Civil Appeal No. 142 of 1963 filed a return of her income before the Income-tax Officer, District IV, Calcutta, and the assessment was completed sometime in 1948 as a result whereof it was found that no tax was payable by her. on April 2, 1956, the Income-tax Officer served on her a notice dated March 19, 1956, under s. 34(7) of the Indian Income tax Act, 1922, hereinafter called the Act, on the ground of escaped assessment. The date of the notice fell within 8 years from the end of the relevant assessment year i.e., March 31, 1948; but it was served beyond 8 years from that date and, therefore, was clearly out of time under the provisions of the said section.

In Civil Appeal No. 143 of 1963, for the assessment year 1947-48 the appellant was assessed on a total income of Rs. 28,993/- on December 30, 1948, by the Income-tax Officer and the tax thereon amounting to Rs. 4,747-13-0 was deposited on behalf of the appellant in <ORG>,, India. On April 2, 1956, the appellant was served with a notice dated March 19, 1956, by the Income-tax Officer purporting to be under s. 34 of the Act on the ground of escaped assessment. The date of the notice fell within 8 years from the end of the relevant assessment year, i.e., March 31, 1956; but it was served beyond 8 years from that date and was, therefore, clearly out of time under the provisions of the said section.

The appellants in the two appeals filed two petitions in <ORG> under Art. 226 of the Constitution for quashing the said notices and for other appropriate reliefs. On March 20, 1957, <NAME>, J., of that Court issued rules nisi on the said two applications to the Income-tax Officer, the Commissioner of Income-tax and the Union of India. On September 11, 1958, the said Judge made the rules absolute. The respondents to the applications preferred appeals from the judgment of <NAME>, J., to <ORG> of that Court. Pending the appeals, on March 12, 1959, s. 34 of the Act was amended by s. 2 of the AmendinAct. After the said amendment the appeals were heard by <ORG> of <ORG>, consisting of <NAME>, <NAME>, and <NAME>, J. Relying upon the said amendment the learned Judges held that the said notices, though served on the appellants after the prescribed time, were saved under s. 4 of the Amending Act. In that view they set aside the orders of <NAME>, J., and dismissed the writ petitions. Hence the appeals.

Learned counsel for the appellants contends that the notices under s. 34(1) of the Act were served on the appellants beyond 8 years from the end of the assessment year and. therefore, were barred and that on a true construction of the provisions of s. 4 of the Amending Act, the said notices were not saved thereunder. To appreciate the contention it is necessary to read the relevant provisions of the Act. before and after the amendment.

Section 34(1) of the Indian Income-tax Act, 1922. before it was amended by the Finance Act No. XVIII of 1956: If-

(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of hit-, income under Section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for the year, income, profit or gain chargeable to income-tax have escaped assess-

ment for that year, or have been under- assessed, or assessed at too low a rate or have been made the subject of excessive relief under the Act or excessive loss or depreciation allowance has been computed, or

(b) he may in cases falling under clause (a) at any time within eight years serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section 2 of Section 22 and may proceed to assess or reassess such income, profits or gains or re-compute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be applied accordingly as if the notice were a notice issued under that subSection. Provided that where a notice under sub- Section (1) has been issued within the time therein limited, the assessment or re- assessment to be made in pursuance of such notice may be made before the expiry of one year from the date of the service of the notice even if such period exceeds the period of eight years or four years, as the case may be.

Section 4 of the Amending Act, (Act 1 of 1959) No notice issued under clause (a) of sub- section (1) of section 34 of the principal Act at any time before the commencement of this Act and no assessment, re-assessment or settlement made or other proceeding-, taken in consequence of such notice shall be called in question in any <ORG>, tribunal or other authority merely on the ground that at the time the notice was issued or at the time the assessment or re- assessment was made, the time within which such notice should have been issued or the assessment or reassessment should have been made under that section as in force before its amendment by clause (a) of section 18 of the Finance Act, 1956, and expired.

Section 34(1) (a) of the Act empowered the Income-tax ,Officer to assess concealed income which escaped assessment by serving a notice on the assessee at any time within 8 years of the end of the assessment year in respect whereof the said income has escaped assessment. Section 4 of the Amending Act debars the court from questioning the validity of notice issued or the assessment or re-assessment made under sub-s. (1) (a) of s. 34 of the Act on the ground that the time for the issue of such notice or the making of such assessment or re-assessment had expired under the said sub- section before it was amended by s. 18 of the Finance Act of 1956.

Learned counsel for the appellants contends that s. 4 of the Amending Act only saver, a notice issued after the pres- cribed time. but does not apply to a situation where notice is issued within but served out of time. Learned counsel for the respondents argues that the expression "issued" means "served" and that, in any view, it is comprehensive enough to take in the entire process of giving and serving of notice.

Before construing the section it will be useful to notice the relevant rules of construction of a fiscal statute. In <ORG> v. Wright(1) <ORG> held that if a statute professed to impose a charge, the intention to impose a charge upon a subject must be shown by clear and unambiguous language. In <ORG> v. R.,(2) Viscount <NAME> observed:

"In the words of <NAME>................................. in a taxing Act one has to look at what is clearly said.

There is no room for any intendment. There is no equity about a tax. There is no presump-

tion as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."

In other words, a taxing statute must be couched in express and unambiguous language. The same rule of construction has been accepted by this Court in <NAME> v. Com- missioner of Income-tax, Punjab (3), wherein it was stated:

"It is well recognized that the rule of construction that if a case is not covered within the tour corners of the provisions of a taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substances of the matter applies only to a taxing provision has no application to all provisions in a taxing statute. It does not apply to a provision not creating a charge for the tax but laying down the machinery for its calculation or procedures (1)(1880) 5 A.C. 842, 856.

(2)[1946] A.C. 119, 140., (3) 1868 Punj. Rec. Crl. Case No. 6.

for its collection. The provisions in a taxing statute dealing with machinery for assessment have to be construed by the ordinary rules of construction, that is to say, in accordance with the clear intention of the legislature, which is to make a charge levied effective.

In that case, the court was called upon to construe the provisions of s. 18A of the Income-tax Act, 1922, which laid down the machinery for assessing the amount of interest and, therefore, this court did not apply the stringent rule of construction. Apart from the emphasis on the letter of the law, the fundamental rule of construction of a taxing statute is not different from that of any other statute and that rule is stated by Lord Russell of <ORG> in Attorney-General v. <NAME>), thus:

"The duty of the court is........................... to give effect to the intention of the legislature, as that intention is to be gathered from the language employed, having regard to the context in connection with which it is employed."

To the present case the general rule of construction of fiscal Acts would apply, and not the exception engrafted on that rule; for, s. 4 of the Amending Act cannot be described as a provision laying down the machinery for the calculation of tax. In substance it enables the Income-tax Officer to reassess a person's income which has escaped assessment, though the time within which he could have so assessed had expired under the Act before the amendment of 1959. It resuscitates barred claims. Therefore, the same stringent rules of construction appropriate to a charging section shall also apply to such a provision.

Before the Amending Act of 1959 was passed, Income tax Officers issued notices before April 1, 1956, and also after that date for reopening assessments made beyond 8 years from the issue of such notices. The validity of such notices was questioned. To save the validity of such notices the Amending Act was passed. This Court in <CITATION> (2) held, on a construction of s. 4 of the Amending Act, that it operated and validated the notices issued under s. 34(1) (a) of the Act. as amended in 1948, even earlier than April 1, 1956. In other words, notices issued under s. 34(1) (a) of the Act before or after April 1, 1956, ,could not be challenged on the ground that they were issued beyond the time limit of 8 years from the respective assessment years prescribed by the 1948 amendment Act. Section (1)  2. Q.B. 158, 164.

(2) [1964] 1 S.C.R. 29.

4 of the Amending Act of 1959, therefore, was enacted for the sole purpose of saving the validity of such notices in respect of all escaped incomes relating to any year commenc- ing from the year ending on March 31, 1941, though they In were issued beyond the prescribed time. If the construction sought to be placed by the learned counsel for the appellants be accepted, it would defeat the purpose of the amendment in some cases. If the words were clear and exclude the class of cases where the notices were sent before 8 years from the date of assessment, but served thereafter, this <ORG> has to give them the said meaning. This bring us to the question of construction of the pro- visions of s. 4 of the Amending Act. The crucial word in the said section is "issued". The section says that though a notice was issued beyond the time within which such notice should have been issued, its validity could not be questioned. If the word 'issued" means "sent", we find that there is no provision in the Act prescribing a time limit for sending a notice, for, under s. 34(1)(a) of the Act a notice could be served only within 8 years from the relevant assessment year. It does not provide any period for sending of the notice. Obviously, therefore, the expression "issued" is not used in the narrow sense of "sent". Further, the said expression has received, before the amendment, a clear judicial interpretation. Under s. 34(1)(a) of the Act the Income-tax Officer may in cases falling under cl. (a) at any time within 8 years serve on the assessee a notice. The proviso to that section says that where the notice under s. 34(1)(a) is within time therein limited, the assessment or re-assessment to be made in pursuance of such notice may be made before the expiry of one year from the date of the service of the notice even if such period exceeds the period of 8 years or 4 years, as the case may be. <CITATION> (1), it was argued that a notice sent before 8 years though served beyond 8 years was in compliance with the section; and in support of that argument the expression "issued" in the proviso was relied upon to limit the meaning of the word "served" in the substantive part of the section. Rejecting that argument, <NAME>, C. J., speaking for the <ORG>, observed:

"In other words, the attempt is to equate the expres-

sion "served" used in section 34 with the expres-

sion "issued" used in the proviso to sub- section (3). Now we must frankly confess that we find it difficult to understand why the <ORG> has used in the proviso the expression "where a notice under sub-section (1) has been issued within the (1)(1937) 31 I.T.R. 683, 686.

time therein limited". In sub-section (1) no time is limited for the issue of the notice: time is only limited for the service of the notice-, and therefore it is more appropriate that the expression "issued" used in the proviso to sub-section (3) should be equated with the expression "served" rather than that the expression "served" used in sub-section (1) should be equated with the expression "issued" used in the proviso to sub-section (3)."

This decision equated the expression "issued" with expres- sion "served". <ORG> in <CITATION> (1) has also interpreted the word "issued" to mean "served". The relevant rule of construction is clearly stated by Viscount <NAME> in <NAME> v. <ORG>) thus:

"It has long been a well established principle to be applied in the consideration of Act of Parliament that where a word of doubtful meaning has received a clear judicial interpretation the subsequent statute which incorporates the same word or the same phrase in a similar context, must be con,-,trued so that the word or phrase is interpreted according to the meaning that has previously assigned to it."

Section 4 of the Amending Act was enacted for saving the validity of notices issued under s. 34 (1) of the Act. When that section used a word interpreted by courts in the context of such notices, it would be reasonable to assume that the expression was designedly used in the same sense. That apart, the expressions "issued" and "served" are used as interchangeable terms both in dictionaries and in other statutes. The dictionary meaning of the word "issue" is "the act of sending out, put into circulation, delivery with authority or delivery". Section 27 of the General Clauses Act (Act X of 1897) reads thus:

"Where any Central Act or Regulation made after the commencement of this Act authorizes or requires any document to be served by post, whether the expression "serve" or either of the expression, "give" or "send" or any other expression is used, then, unless a different intention appears, the service shall be deemed to be effected by properly addressing, prepaying and posting (2)  A.C. 402, 411.

(1) (1956) 30 I.T.R. 381.

by, registered post, a letter containing the document, and unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post."

It would be seen from this provision that <ORG> used the words "serve", "give" and "send" as interchangeable words. So too, in ss. 553, 554 and 555 of the Calcutta Municipal Act, 1951, the two expressions "issued to" or "served upon" are used as equivalent expressions. In the legislative practice of our country the said two expressions are sometimes used to convey the same idea. In other words, the expression "issued" is used in a limited as well as in a wider sense. We must, therefore, give the expression "issued" in s. 4 of the Amending Act that meaning which carries out the intention of the <ORG> in preference to that which defeats it. By doing so we will not be departing from the accepted meaning of the expression, but only giving it one of its meanings accepted, which fits into the context or setting in which it appears. With this background let us give a closer look to the provisions of s. 4 of the Amending Act. The object of the section is to save the validity of a notice issued beyond the prescribed time. Though the time within which such notice should have been issued under s. 34(1) of the Act, as it stood before its amendment by s. 18 of the Finance Act of 1956, had expired, the said notice would be valid. Under s. 34(1) of the Act, as we have already pointed out, the time prescribed was only for service of the notice. As the notice mentioned in s. 4 of the Amending Act is linked with the time prescribed under the Act, the section becomes unworkable if the narrow meaning is given to the expression "issued". On the other hand, if we give wider meaning to the word, the section would be consistent with the provisions of s. 34(1) of the Act. Moreover, the narrow meaning would introduce anomalies in the section: while the notice, assessment or re-assessment were saved, the intermediate state of service would be avoided. To put it in other words, if the proceedings were only at the stage of issue of notice, the notice could not be questioned, but if it was served, it could be questioned; though it was served beyond time, if the assessment was completed, its validity could not be questioned. The result would be that the validity of an assessment proceeding would depend upon the stage at which the assessee seeks to question it. That could not have been the intention of the <ORG>. All these anomalies would disappear if the expression was given the wider meaning.

To 'summarize: the clear intention of the <ORG> is to save the validity of the notice as well as the assessment from an attack on the ground that the notice was given be yond the prescribed period. That intention would be effec- tuated if the wider meaning is given to the expression "issued" takes in the entire process of sending the notice as well as the service thereof. The said word used in s. 34(1) of the Act itself was interpreted by courts to mean "served". The limited meaning, namely, "sent" will exclude from the operation of the provision a class of cases and introduce anomalies. In the circumstances, by interpretation, we accept the wider meaning the word "issued" bears. In this view, though the notices were served beyond the prescribed time, they were served under s. 4 of the Amending Act. No other point was raised before us. In the result, the appeals fail and are di;-,missed with costs. There will be one hearing fee.

Appeals dismissed.

<NAME>


JUDGMENT <NAME>, C.J.

1. This article 226 petition challenges the statutory notice under section 17 of the Andhra Pradesh General Sales Tax Act, 1957 (hereinafter "the Act"). The main contention related not to the veracity of the demand but the purported present inability to pay the same.

2. The petitioner-company (hereafter "the company") is a dealer registered under the A.P. General Sales Tax Act. It has branches at Dachepalli, Vijayawada and Visakhapatnam. It is an assessee on the rolls of <ORG>, Company Circle, Vijayawada. Under rule 17 of the Andhra Pradesh General Sales Tax Rules, 1957 (for short "the Rules") every dealer whose annual total turnover exceeds rupees ten lakhs has to submit a return in form A2 showing the total and net turnover every month to the assessing authority by the 25th of the succeeding month. The return should reach the assessing authority by that date. Along with the return the dealer has to submit a receipt from a Government <ORG> or crossed demand draft, or banker's cheque covering the full tax or taxes and the surcharge payable for the month to which the return relates. In the event of default the assessee is liable to pay penalty under section 15 of the Act.

3. For the past few years the company has been a continuous defaulter in the payment of <ORG> as also Central sales taxes. And as the history of this litigation shows, the company has been invoking every possible means of avoiding and evading the payment thereof. This petition is but one more attempt in this behalf. Taken along with the previous similar attempts either by way of a suit or writ petition it reflects abuse of the legal processes. The company has built up a rather dubious image of being in the virtual habit of not paying taxes unless coerced or compelled to do so.

4. When the matter first came up, we were inclined to grant some indulgence to the company by permitting it, albeit on terms and conditions, to pay the tax amount by certain instalments with interest. After a couple of adjournments, even this indulgence was not accepted with grace which, in the process, causing further delay resulting in substantial loss of interest to the respondents. Undertakings by all concerned parties as required by this Court did not come forth. Only one party sought to give an undertaking, but the other failed to do so.

5. The demand for sales tax dues constituting the subject-matter of this petition is Rs. 5,75,00,750 for the period up to August 1991, excluding the subsequent dues for the months of September and October 1991. On the earlier occasion we directed the company to pay current dues for the month of September 1991 by 25th October, 1991. But even that direction was not complied with. Instead, suppressing the same, the company had no compunction in applying to <ORG> for instalments of September dues, vide copy of letter dated 22nd October, 1991, produced before us by the learned Government Pleader. This conduct, bordering on contempt, is in piece with the general conduct of the company. Though initially we were inclined to given benefit of doubt to the company on their bona fides, we are now convinced that the company has been taking undue advantage of the processes of the court and is out to avoid and evade payment of taxes as long as possible, in the meanwhile enjoying the benefit of recovered taxes to the detriment of public revenue.

6. The detail counter filed by the respondents also, inter alia, elaborates on the conduct of the company. On prior occasions even electricity dues worth crores of rupees were not paid by this company despite the fact that power was consumed, business prepared and profits made. Instead, injunctions were obtained not to disconnect electric power. That process ultimately filed. Even in the present case, a civil suit was earlier filed and injunction obtained restraining the defendants from recovering taxes. And when appeal was filed to to have the same vacated, the original suit was unconditionally withdrawn. Still further and at times cheques were given only to be dishonoured on presentation. When at certain stages instalments were granted at the level of the Commercial Tax Officer, payments were never made in accordance therewith. And all this while the company's business of manufacturing cement has thriving and prospering. The company's cement industry is one which is currently enjoying boom conditions. The company, however, appears to have developed the habit of evading, avoiding, delaying and litigating payment of taxes.

7. Apart from the amount and the period under the impugned notice, the company is in addition thereto in default of arrears of taxes of about thirteen crores for the period thereto. The same, however, is not the subject-matter of this petition which relates only to the current dues which taking into account September and October 1991, should by now be running into over rupees crores fifty lakhs. The company has been carrying on its business prosperously with over five thousand employees working therein and with total turnover into crores of rupees. Considering the boom conditions in the cement industry the company has even reopened its Vijayawada unit.

8. <ORG> was sought to be placed on section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985. We fail to see how it assists the company in this case for the period in question to which the impugned demand relates. The said Act does not permit the company to withhold payment of taxes on sales subsequent to the proceedings under the aforesaid Act. Besides, the company is not closed. Nor is it presently sick nor in the process of any revival as such. It is an fact actively carrying on its business of manufacturing cement and its said business is prospering. Its erstwhile purported sickness has not affected its present property. Instead, it belongs to that category which itself is currently a highly prosperous industry in the country.

9. Taking all factors and circumstances into consideration and predominantly the dismal conduct of the company, we are not inclined to grant any relief to it in exercise of our discretionary writ jurisdiction. Article 226 of the Constitution is not meant for putting premium on such conduct. <ORG> would not encourage invoking writ jurisdiction to evade and avoid payment of tax nor can it in such context be invoked for claiming instalments. The consistent conduct of the company disentitles it to any relief in this <ORG>'s writ jurisdiction. In sum, the just and proper order on this petition to curb evasion and restrain abuse of court's process would be to dismiss this petition in limine. It is hence, accordingly, dismissed. Interim order stand vacated.

10. As considerable judicial time of the court was taken by the company with the court and the Government Pleader taken for a ride and left and kept under an erroneous impression on the bona fides of the company, we direct the company to pay to the respondents costs quantified at Rs. 5,000 (rupees five thousand).

11. Learned counsel seeks leave to appeal to <ORG>. There is no substantial question of law as to the interpretation of the Constitution nor any substantial question of law of general importance which needs to be decided by <ORG>. Indeed major part of the arguments before us indicated that the writ jurisdiction of this <ORG> was invoked more by way of a mercy petition to grant indulgence by way of instalments but on terms which did not inspire court's confidence. Leave to appeal is rejected.

12. Writ petition dismissed.


JUDGMENT <NAME>, J.

1. These two appeals arise out of proceedings taken under section 34 of the Indian Income-tax Act, 1922, hereinafter referred to as the Act, to bring to tax a sum of Rs. 27,30,094 received by the appellant during the account year 1942-1943. The appellant is a public limited company incorporated in 1921 under the provisions of the <ORG> Companies Act in what was then the independent State of <ORG>, and carries on business in the manufacture and sale of textiles. Its registered office is at <ORG>, and it is a non-resident company for the purposes of the Act. Its managing agents are <ORG> which is a private limited company registered in British India. The point in dispute in these proceedings is whether sums of money received by the appellant during the account year 1942-1943 and aggregating to Rs. 27,30,094 are liable to be taxed under the Act. The appellant admits that it received those monies during that period, and further that they represent profits made by it on certain forward contracts in Jarilla cotton. But it contends that those contracts were entered into at <ORG> with three brokers, viz., <ORG>, <NAME> and <NAME>, that the agreements between the parties specifically provide that the goods are to be delivered and prices paid at <ORG>, that, in fact, the sum of Rs. 27,30,094 is made up of differences paid in settlement of the contracts at <ORG>, that thus the profits accrued and were received wholly at <ORG>, and that, in consequence, they were not liable to be charged under the Act.

2. The <ORG>, on the other hand, contends that the contracts which resulted in the profits of Rs. 27,30,094 were as a fact entered into by the managing agents of the appellant with firm of <ORG> at Bombay, that those profits accrued in Bombay, and that they were therefore taxable under the Act. It is common ground that the sum of Rs. 27,30,094 received by the appellant as profits is in the ultimate analysis traceable to the firm of <ORG>, and came from it. But it is contended for the appellant that this cannot settle the question whether the profits accrued to it in Bombay. According to it, the course of dealings relating to these transactions was as follows : The appellant placed its orders for the sale or purchase of cotton with the three brokers mentioned above in Gwalior. They in their turn placed orders for the sale or purchase of the same quantity of goods with the firm of <ORG>, Gwalior. This firm is a branch office of <ORG> of Bombay and communicated the orders received from the brokers to its head office in Bombay. When the contracts were finally settled on the clearing day and monies became payable, <ORG> of Bombay sent the same of <ORG>, Gwalior, which paid them over to the brokers, who in their turn paid the amounts due to the appellant under their contracts. Now, the contention of the appellant is that the contracts under which the profits sought to be taxed accrued were not entered into by it with <ORG>, Bombay, that the sum of Rs. 27,30,094 though traceable to that firm was due from that firm not to it but to the three brokers in Gwalior, and that, in consequence, it was not liable to be taxed under the Act. If the facts were as stated by the appellant, then there can be no doubt that the sum of Rs. 27,30,094 received by it as profits is not liable to be taxed under the Act, because no portion thereof would then have accrued or arisen in British India. The question, therefore, really is whether those facts have been established.

3. The Income-tax Officer who investigated the matter held by his order dated March 23, 1948, that the forward contracts in question had really been entered into by the managing agents of the appellant at <ORG>, that the profits thereon had accrued at <ORG>, and that the three brokers of <ORG> were mere dummies who had been put up to conceal the true character of the transactions. This order was confirmed by the Appellate Assistant Commissioner on appeal on November 14, 1949. The appellant took the matter in further appeal to <ORG> which by its order dated July 26, 1950, remanded the case for further investigation of the true part played by the several intermediaries, who formed the links in the chain of contracts beginning with those of the appellant with the three brokers of <ORG> and of the payments ending with those by the brokers to the appellant. Pursuant to this order, the Appellate Assistant Commissioner took fresh evidence, and examined as many as seven witnesses, and on a careful and detailed analysis of their evidence, he held in his report dated August 17, 1951, that the forward contracts in question had been entered into with <NAME> by <NAME> and <NAME> in person or by phone at <ORG>, and that the contract notes with the three brokers were bogus transactions. On this report, the appeal came up for further hearing before <ORG>, which by its order dated February 28, 1952, agreed with the conclusions of the Appellate Assistant Commissioner and affirmed its decision. The appellant then applied under section 66(1) of the Act for referring certain questions for the opinion of the court, but the said application was dismissed by the <ORG> on June 13, 1952, on the ground that the points raised were pure questions of fact. The appellant then applied to the High Court of <ORG> under section 66(2) of the Act to direct the <ORG> to refer certain questions to the court, and that application was dismissed by <NAME>, C.J., and <NAME>, J., on August 6, 1952, and against that order, Civil Appeal No. 204 of 1954 has been preferred on leave granted by this court. By way of abundant caution, the appellant also applied for and obtained special leave to appeal against the order of the <ORG> dated February 28, 1952, and that is Appeal No. 163 of 1958. Mr. <NAME>, the learned counsel for the appellant, stated that as the matter arising for decision in both the appeals is the same, he would address one argument with reference to both of them. Likewise, this judgment will govern both of them.

4. At the very outset, the question calls for an answer, does any question of law arise on the order of the <ORG> ? It is only if it does, that the decision of the <ORG> will be open to consideration by the court under section 66 of the Act. Stating the same proposition in a different form, if that decision is one of fact turning on the appreciation of evidence, this court would not interfere with it in appeal under article 136 of the Constitution. Now, the point in dispute in these proceedings is whether the sum of Rs. 27,30,094 received by the appellant as profits in 1942-1943 is taxable under the Act, and that, in turn, depends on whether the forward contracts which resulted in these profits were made at Gwalior as contended by the appellant or at Bombay as held by the <ORG>. That would clearly be a question of fact, and the decision of the <ORG> thereon would not be liable to be challenged in these proceedings. Counsel for the appellant does not dispute this position, but he contents that a finding of the <ORG> even on a question of fact would be erroneous in law, if there is no evidence whatsoever to support it or if it is perverse. This question was quite recently considered by this court in <CITATION> , and the law was thus stated :

"The position that emerges on the authorities may thus be summed up :

(1) When the point for determination is a pure question of law such as construction of a statute or document of title, the decision of the <ORG> is open to reference to the court under section 66(1) .

(2) When the point for determination is a mixed question of law and fact, while the finding of the <ORG> on the facts found is final in decision as to the legal effect of that finding is a question of law which can be reviewed by the court.

(3) A finding on a question of fact is open to attack under section 66(1) as erroneous in law when there is no evidence to support or if it is perverse.

(4) When the finding is one of fact, the fact that it is itself an inference from other basic facts will not alter its character as one of facts."

5. Mr. <NAME> contends that the finding of the <ORG> in the present case is erroneous in law in that there is no evidence to support it, and even if there is some, the finding based thereon is perverse, and that that is a contention which falls within proposition No. 3 stated above, and is open to him. That renders it necessary that we should examine the record, not indeed with a view to decide whether the <ORG> has properly appreciated the evidence, or whether its conclusion is a right one to come to on that evidence, but with a view to see whether there evidence to support its finding and whether that finding is one which could, no that evidence, be reasonably reached. Approaching the question from this standpoint, we pose the question, what is the evidence in support of the findings of the <ORG> that the forward contracts which resulted in the profits of Rs. 27,30,094 were made in Bombay and not in <ORG> ? The answer given is that there is the direct testimony of <NAME> and that is supported by circumstantial evidence. <NAME> is the proprietor of both the firms of <NAME> at Bombay and of <NAME> at <ORG>, and his evidence must obviously be important, because whether the contracts of the appellant were really entered into at <ORG> or at Bombay must to a consideration extent depend on whether the transactions of these two firms which are linked up with those contracts so as to from a chain, are genuine. <NAME> stated in his evidence that the forward contracts in question were made with the firm of <NAME> at Bombay by <NAME> and <NAME> sometimes in person and sometimes over the phone, that the profits earned thereon were at first paid to <ORG>, which is a concern of the <NAME> at Bombay but that later on it was considered advisable that no payment should be made at Bombay, and that accordingly these amounts were returned by <ORG>, to the Bombay firm and then sent at the direction of the <NAME>, to <NAME>, <ORG>. <NAME> also deposed that at the beginning of the transactions it had not been decided in whose name they should stand, and that, therefore, when the contracts were originally entered in the books of <NAME>, the names of the parties were left blank, and it was later on that the name of <NAME>, <ORG>, was written. If this evidence is accepted, as it has been by the Income-tax authorities, then the contracts in question must be held to have been made at Bombay, and the interposition of <NAME>, <ORG>, would be a mere device for concealing that fact.

6. Mr. <NAME> was highly critical of this evidence. He contended that it ran counter to all the other evidence in the case, and was thoroughly worthless and even demonstrably false in material particulars. He argued that there were serious infirmities in this evidence, and that there had been little or no consideration thereof by the <ORG>, and that its order was accordingly bad as based on misdirections and non- directions. We shall now consider these contentions. The most important of them relates to the statement of <ORG> that at the earlier stages of the dealings, profits were paid to the account of <ORG>, Bombay, and that it was only later on that they were credited to J. R. <ORG>, Gwalior. To follow the argument of Mr. <NAME> on this point, it is necessary to mention that J. R. <ORG> had two businesses in Bombay, one in cotton in the name of <NAME> and another in shares in the name of J. R. <ORG>, Bombay. Now, the position revealed in the accounts of <NAME> with reference to the present contracts will appear from the following abstract of transactions standing in the name of J. R. <ORG>, Gwalior.

Date. Dr. Cr. 29-1-1943 Rs. 2,52,576 4-2-1943 <ORG>, Bombay ... Rs. 2,00,000 5-2-1943 Rs. 2,28,250 Do. <ORG>, Bombay ... Rs. 2,50,000 1-3-1943 Cr. <NAME>, Bombay ... Rs. 5,65,500 Dr. <NAME>, Bombay ... Rs. 5,66,000 (Rs. 5,65,000 out of this is paid to <ORG>, by <NAME>, Bombay.) ... 3-3-1943 Cr. <NAME>, Gwalior (On Rs. 4,62,750 11-3-1943 <ORG> Bombay issued a cheque in favour of <NAME>, Bombay for Rs. 9,50,000 who credit it to <NAME>.) Dr. <NAME>, Gwalior ... Rs. 15,00,000

7. Now, what is important for the purpose of the present discussion in the above extract is the entry relating to Rs. 9,50,000. If this sum represents profits in cotton transactions, that would strongly corroborate the evidence of <NAME> that the profits of the present transactions were paid first to <ORG>, Bombay, and that it was only later on by way of afterthought that they were credited to J. R. <NAME>, Gwalior, after making the necessary adjustments. Therefore, cross-examination on behalf of the appellant was directed to showing that this amount had nothing to do with cotton contracts. <NAME> was asked whether J. R. <NAME>, Bombay, had current account with <ORG> He answered "No". Then, <NAME>, director of the <ORG>, was examined and he stated that Rs. 9,50,000 was paid to the credit of the current account which J. R. <NAME>, Bombay, had with <ORG>,. and that it did not represent profits in cotton contracts. Now, Mr. <NAME> vehemently argues that this evidence proves that the story of payment first to <ORG>, and then a transfer of the same to J. R. <NAME>, Gwalior, cannot be true, that the evidence of <NAME> on this point was clearly false, but that the <ORG> made no reference to it in its order. Now, it is true that J. R. <NAME> had current amount with <ORG>, and that the amount of Rs. 9,50,000 was paid to the credit of that account. When this was put to him, he stated by way of explanation :

"The account you referred looks like current account but it was in relation to dealing in shares with them and not exactly current account."

8. It may be that the previous statement of <NAME> that he had no current account was inaccurate, or it may be it was false. But is that very material ? What is relevant to the point under consideration is whether Rs. 9,50,000 which was credited to <ORG>, related to cotton transactions or share business. Now it was proved that the sum of Rs. 2,00,000 paid to <ORG>, on February 4, 1943, and Rs. 2,50,000 paid to it on February 5, 1943, were paid not by J. R. <NAME>, Bombay, but by <NAME>, and that clearly shows that they related to cotton contracts and not share transactions. It is to be noted in this connection that while the payments dated February 4, 1943, and February 5, 1943, were directly by <NAME> to <ORG>, the payments of Rs. 5,65,000 on March 1, 1943, and Rs. 4,62,750 on March 3, 1943, were by <NAME> in favour of J. R. <NAME>, Bombay, which in its turn passed them on to <ORG> The story which these entries tell is that the transactions were originally between <NAME> and <ORG>, then from March 1, 1943, they were between <NAME> and <ORG>, through J. R. <NAME>, Bombay, and on March 11, 1943, <ORG>, and J. R. <NAME>, Bombay, were eliminated and J. R. <NAME>, Gwalior, was brought on the scene. These are facts from which the <ORG> could reasonably find that the transactions took place as stated by <NAME>.

9. It was argued for the appellant that <NAME>, the accountant of <ORG>, did not support the version given by <NAME>. That is not quite correct. He stated at first that the dealings in question were entered in the accounts with the names left blank, but that later on the name of J. R. <NAME>, Gwalior, was entered. He also deposed that some payments were made to <ORG>, and they were received back through J. R. <NAME>, Bombay, and sent to J. R. <NAME>, Gwalior. When he was cross-examined on a later date, he said that what he had deposed to was not from his personal knowledge but from the information given by J. R. <NAME>. But he also repeated that he had seen blanks in the accounts, and they were subsequently filled up. To this extent, his evidence does support J. R. <NAME>.

10. It was next contended that if there had been transfer of profits by <NAME> from <ORG>, to <NAME>, <ORG>, that must appear in the accounts of the latter, that those accounts were with the Income-tax Commissioner and under the control of the <ORG> and had been withheld, and that the <ORG> did not advert to this circumstance. This argument lacks substance. Let us presume that the entries in those accounts would show that the dealings took place as contended for by the appellant. But if the arrangement of the appellant with <NAME> was as deposed to by <NAME>, the accounts of the <ORG> firm would have been maintained conformably to that arrangement. By itself, therefore, it would mean little. In this connection, it should be stated according to <NAME> the branch at <ORG> was really run by the employees of the <NAME>, a statement which was accepted by the Appellate Assistant Commissioner.

11. We have so far dealt with the criticisms leveled by the appellant against the evidence, direct and positive, in support of the finding of the <ORG> that the contracts were concluded at Bombay. But to view the matter in its proper perspective, we must look at the picture at the other end, and consider the evidence adduced to prove that the agreements were made in <ORG>. Now, the facts found by the Income- tax authorities are these : The three brokers in whose names the contracts stood were, having regard to their means, not likely to have been thought of for contracts of the magnitude which we have. They had not done business in cotton futures prior to the present contracts nor subsequent thereto. They had no bank accounts and large amounts to the tune of Rs. 30 lakhs are supposed to have been paid to them in cash by <NAME>, <ORG>, and turned over by them in cash to the appellant. They produced no accounts for their dealings and the ankdas produced by them at a late stage were found to have been freshly written up. When <NAME>, the manager of the appellant, was asked as to what securities he held as cover in respect of the huge transactions he entered into with men of such means, he answered that they were men of character. <NAME>, the manager of <NAME>, <ORG>, at the relevant period, was asked the same question, and he replied that "this business was of <ORG>" The appellant had, in fact, genuine transactions with <ORG>, <ORG>, on a large scale, and when <NAME> was asked why he did not put these transaction through them, he had to answer to give. And he was likewise unable to explain why he did not directly deal with <NAME>, <ORG>. It was suggested by the learned Solicitor-General that if the object of the appellant in setting up contracts in <ORG> was to throw a veil over its contracts with <ORG>, that could not effectively be achieved by putting them in the name of <NAME>, <ORG>, which was a branch of the firm, as the veil would have been too thin to concern the true face of the contracts, and that is why the brokers were though of. We think there is considerable force in this. Then again, <NAME> was asked why he did not place the orders directly with <ORG>, Bombay, or <NAME>, Bombay, and he said that the policy of the appellant was not to do any business in British India. Mr. <NAME> argues that there is nothing wrong in business being done in such a way as to escape taxation. No exception can be taken to that statement. Every person is entitled so to arrange his affairs as to avoid taxation but the arrangement must be real and genuine and not a sham or make-believe, and the question now under consideration is whether the contracts with the brokers were genuine.

12. Turning next to the accounts produced by the appellant, it is seen that the transactions of the three brokers were entered in Kherij Khata, which is said to have been maintained for parties for whom there are small dealings and whose accounts are cleared up in short time. But then, these transactions are not small transactions, nor were they close in a short time. Though the dealings went on for several months and there were several settlements, it was not until the 15th March, 1943, that payments are alleged to have been made to them. In the absence of regular ledgers in the names of these parties and having regards to the fact that the entries in the Kherij Khatas were journal entries, the Income-tax authorities were not prepared to attach any value to them.

13. Mr. <NAME> argued that the contracts between the appellant and the three brokers expressly recite that they are as between principals and principals, that there were clauses therein providing for delivery and payment at <ORG> and that there was no reason for not accepting them as correct. But it is pointed out by the Income-tax authorities that the contracts provide for the business being done in accordance with the rules and bye-laws of <ORG>, Bombay, that according to bye-law No. 44-A of that <ORG> "every contract made subject to these bye-laws shall take effect as contract wholly made in Bombay", and that further under the rules, the delivery of the goods must take place in Bombay. In view of this, the Income-tax Officer was of the opinion that the contracts in question had been got up for the purpose of supporting the present version of the appellant.

14. Mr. <NAME> also contended that the evidence of <ORG> would have been material in deciding whether they settled the contracts at Bombay as contended for by the <ORG> and that though the order of remand stated that their evidence should be taken, that had not been done and that was a serious irregularity. The portion of the order of remand relevant for the present purpose is as follows :

"The managing director of <ORG> or rather the person responsible for ordering these transactions on behalf of <ORG> should also be similarly examined."

15. Now, the obvious intention behind this order, read as a whole, was that persons connected with the several links in the chain of contracts and series of payments concerned in these transaction should be examined with a view to elucidate the true position, and the managing director was mentioned as the person who was likely to have entered into these transactions. <NAME> was the manager of the appellant company, and he gave evidence that he put the present transactions through the brokers, and that has been considered. If <NAME> wanted themselves to give evidence, there was nothing to prevent them from doing so, and indeed, no complaint was made in the court below that their evidence had not been taken. There is no substance in this contention.

16. We have considered all the contentions urged on behalf of the appellant at some length. We would like to make it clear that we are not sitting here as a court of appeal on facts. We have examined the record only with a view to see whether there is any misdirection or non-direction, such as is likely to have affected the result, and we have come to the conclusion that there is none, and that the finding of the <ORG> is not therefore open to attack.

17. It was finally urged that even assuming that the contracts with the brokers were sham, the result would only be to substitute <NAME>, <ORG>, in their place, and even then, the contracts would have been concluded at <ORG>. But that is not the case put forward by the appellant. Far from pleading that the brokers were nominal parties and that the contracts were with <NAME>, <ORG>, the appellant contended that it had no privity of contract with <NAME>, <ORG>, and the evidence adduced by it was to the effect that its contracts were only with the brokers. Another point which was sought to be raised was that the contracts must be taken to have been concluded at Bombay by <ORG> and not by the appellant. This again is a plea which was not taken by the appellant, and is directly opposed to its contention that it entered into these contracts with the brokers at <ORG>. In view of the fact that the profits were actually received by the appellant, this contention is, in our opinion, wholly preposterous.

18. In the result, the appeals fail, and are dismissed. The respondent will get its costs in Civil Appeal No. 204 of 1954. The parties will bear their own costs in Civil Appeal No. 163 of 1958.

19. Appeals dismissed.