PETITIONER: DR. Y. S. PARMAR Vs. RESPONDENT: <NAME> AND ANOTHER DATE OF JUDGMENT: 17/10/1958 BENCH: <NAME>, A.K. BENCH: <NAME>, A.K. AIYYAR, T.L. VENKATARAMA GAJENDRAGADKAR, P.B. CITATION: 1959 AIR 244 1959 SCR Supl. (1) 213 CITATOR INFO : D 1975 SC2299 (412) ACT: Election-Coyrupt Practice-Procuring assistance of <ORG> servant-Candidate appointing person as Polling agent, not knowing him to be <ORG> servant-Mens rea, if ncccssary ingredient- Representation of the People Act , ss. 46 and 123(7) . HEADNOTE: The appellant, who was a candidate for election to Parlia- ment, signed a very large number of blank forms for the appointment of polling agents and made them over to one <NAME>. <NAME> passed on three of the forms to <NAME> after inserting therein the name of a particular polling station. <NAME> filled in the name of <NAME> as the polling agent in one of these three forms and gave it to <NAME>, who, duly signed the form, filed it before the presiding officer of the polling station and acted as the appellant's polling agent. <NAME> was a member of the armed forces but this fact was not known to the appellant or to <NAME> or <NAME>. After the poll the appellant was declared elected but on an election petition being filed his election was set aside on the ground that he had committed the corrupt practice of procuring the assistance of a person in the service of the <ORG>. The appellant contended that <NAME> had not been duly appointed as the appellant's polling agent as neither the appellant nor his election agent had made the appointment, and that the appellant could not be held guilty of the corrupt practice for he did not know that <NAME> was in the service of the <ORG> and consequently did not have the necessary mens Yea. 214 Held, that the appellant did appoint <NAME> as his polling agent by personally signing the appointment form. The fact that the name of the polling agent was written in the form by another person after the appellant had signed it does not make it an appointment by the other person. Held, further, that the appellant was guilty of the corrupt practice inasmuch as he appointed <NAME> as his polling agent and <NAME> by acting as the polling agent assisted in the furtherance of the prospects of the appellant's election. A presumption arises under s. 123(7) Explanation (2) that the appellant by so doing procured <NAME>'s assistance in furtherance of the prospects of his election, irrespective of whether he intended to procure such assistance or not. The knowledge of the appellant whether the person whose assistance he procured was a person in the service of the <ORG> or not was irrelevant. Mens rea was not a necessary ingredient of the corrupt practice. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 410 of 1958. Appeal by special leave from the judgment and order dated July 31, 1958, of <ORG>, Himachal Pradesh at Simla in Civil Misc. First Appeal No. 2 of 1958.

<NAME>, Advocate-General for the State of U. P. and S. S. Shukla, for the appellant.

<NAME> and <NAME> for respodent No. 1. 1958. October 17. The Judgment of the Court was delivered by <NAME>, J.-This appeal arises out of an election petition filed by the respondent No. 1, <NAME>, whom we shall hereinafter refer to as the respondent. The other respondent to this appeal is <ORG>, but it has not appeared presumably because it is not interested in the result of the appeal which involves no claim against it. The only question that it involves is whether the appellant was guilty of a corrupt practice, the details of which will be set out later, within the meaning of S. 123(7) of the Representation of the People Act, 1951.

In the 1957 General Elections, ten candidates filed their nomination papers to contest the election from the Mahasu double member constituency in Himachal Pradesh. One of the two seats for this constituency was reserved for a scheduled caste candidate. Two of the candidates withdrew from the contest and the remaining eight went to the poll. These eight included the appellant, the respondent and one <NAME>. <NAME> was declared elected to the reserved seat and the appellant to the general seat. The respondent polled the next largest number of votes to the appellant.

After the results had been declared the respondent filed the election petition on August 3, 1957, challenging the validity of the election of the appellant on the ground that he had committed various corrupt practices. <ORG> framed 18 issues in respect of the various corrupt practices alleged in the petition but answered all the issues excepting issues Nos. 8(1), 8(ii) and 11 against the respondent. Issue No. 8(1) raised the question whether one <NAME>, said to be a member of the armed forces of <ORG>, worked and canvassed for the appellant. Issue No. 8(ii) was whether <NAME> was appointed his polling agent by the appellant. Issue No. 11 was in the following terms:

In case one or more of Issues Nos. (8) to 10 is or are decided in the affirmative, whether the respondent No. 1 obtained, procured or abetted or attempted to obtain, procure by himself, by his agents and by his supporters the assistance of the Government servants as specified under the said issues for the furtherance of the prospects of his election ?

The <ORG> found against the appellant on Issues Nos. 8(1), 8(ii) and 11 and thereupon declared his election void. The appellant then went up in appeal to the judicial Commissioner, Himachal Pradesh, who by his judgment dated July 31, 1958, set aside the finding of the <ORG> on Issue No. 8(1) but maintained its findings on the other two issues and confirmed the declaration that the appellant's election was void. The appellant has come up to this <ORG> by special leave in appeal against that judgment. As will have been seen from what has been earlier stated the only questions that survive are those raised by Issues Nos. 8(ii) and 1 1. The facts are not now in dispute and may be stated as follows: The constituency was divided into 606 polling stations and for each polling station three polling agents could be appointed. The appellant was thus entitled to appoint 1818 polling agents. On April 28, 1957, he signed a very large number of the forms prescribed by the rules framed under the Act for appointing polling agents, in blank and without 'setting out therein the name of any polling agent, as he had not then been able to make up his mind in view of the large number of polling stations as to who would be his polling agents at the various polling stations. He made over these forms to <NAME>, who passed on three of them to <NAME> having inserted therein the words " polling station No. 13, Sheopur ". <NAME> filled in the name of <NAME> as the polling agent in one of these forms on May 25, 1957, the day of polling, and made it over to the latter to enable him to act as the appellant's polling agent at polling station No. 13, Sheopur. <NAME> then duly signed the form as required by the rules and filed it with the presiding officer at polling station No. 13, Sheopur, and on the strength of it, acted as the polling agent of the appellant at that station for about two hours when objection having been taken to him on the ground that he was a member of the armed forces, he withdrew and left the polling station. <NAME> was on the polling day in fact a member of the armed forces, though this was not then known to the appellant. <NAME> and <NAME> acted in all that they did, under the authority of the appellant. These facts may be taken to have been established on the evidence adduced.

The learned Advocate-General of Uttar Pradesh who appeared for the appellant, first sought to contend that <NAME> had not really been appointed the appellant's polling agent. He said that under s. 46 of the Act a polling agent can be appointed only by the candidate himself or by his election agent and <NAME> could not on the facts found, for reasons to be stated presently, be said to -have been appointed a polling agent either by the appellant or his election agent. Therefore, according to him, <NAME> had not been appointed the appellant's polling agent at all and hence the charge of corrupt practice against him for having so appointed <NAME> must fail.

First, it seems to us that this argument is not open to the learned Advocate-General. He himself appeared for the appellant before the learned Judicial Commissioner and there conceded that the factum or the validity of the appointment of <NAME> as the appellant's polling agent could not be questioned by him. We do not think that we should permit the appellant to withdraw a concession expressly made by his counsel in the <ORG> below in a matter of this kind. This is all the more so as the present argument does not seem to have been raised when the matter was before the <ORG>, either. Secondly, it seems to us that the contention is without substance. We will assume that the learned Advocate-General is right in his contention that under the Act a polling agent can be appointed only by the candidate himself or by his election agent and not by the candidate acting through any other agent. The learned Advocate- General's contention is that on the facts found, the only possible conclusion is that <NAME> had not been appointed polling agent by the appellant himself but by one or other of his agents, namely, <NAME> or <NAME> and as none of them was his election agent, the appointment was invalid. It is not in dispute that neither <NAME> nor <NAME> was his election agent. In fact it appears that the appellant had no election agent at all. In our view, however, this does not matter as the present is not the case of an appointment by any agent but by the appellant himself. We have come to this view because here, the appointment was made by the document signed per- sonally by the appellant. The fact that the name of the polling agent was written in the document by another person after the appellant had signed it, does not make the appointment of the polling agent under  that document an appointment by some other person acting as the agent of the appellant. On the language of the document-and the appointment was not purported to have been made in any other. way than by the document-it was an appointment made by the appellant himself. The other person only wrote the name in the document which he had authority to do. He did not purport to make any appointment at all. It is impossible to read the document as the making of the appointment by an agent of the appellant acting for him. The true view of the matter plainly is that the appellant himself appointed by the document as his polling agent, a person whose name had been written therein by another with his authority. We, therefore, hold that <NAME> had been appointed his polling agent by the appellant himself. It was thus even on the learned Advocate-General's construction of s. 46 , a proper appointment.

We then come to this that the appellant appointed <NAME>, a member of the armed forces, his polling agent and the latter acted as such. The question is, Did this amount to a corrupt practice by the appellant ? The respondent's contention which has been accepted by the <ORG> below, is that it is a corrupt practice within s. 123(7) of the Act. That provision so far as is relevant and the explanation to it, are in these terms.

Section 123 . The following shall be deemed to be corrupt practices for the purposes of this Act :-

(7) The obtaining or procuring or abetting or attempting to obtain or procure by a candidate or his agent or, by any other person, any assistance (other than the giving of vote) for the furtherance of the prospects of that candidate's election, from any person in the service of the Government and belonging to any of the following classes, namely :-

(c) members of the armed forces of the Union; Explanation.-

(2) For the purposes of clause (7), a person shall be deemed to assist in the furtherance of the prospects of a candidate's election if he acts as an election agent, or a polling agent or a counting agent of that candidate." The learned Advocate-General contends that the procuring or obtaining by a candidate of any assistance for the furtherance of the prospects of his election from a person in the service of the <ORG> as a member of the armed forces, would not amount to a corrupt practice unless that candidate knew that the person was in such <ORG> service. He says that the words 'procuring orobtaining' import such knowledge and that this view of the matter receives great strength from the word I for' in the phrase " for the furtherance of the prospects of that candidate's election ". According to him, without such knowledge the candidate cannot be said to have procured or obtained any assistance, for no one can obtain or procure a thing unless he knows that he is doing so. He then points out that there is evidence that neither the appellant nor <NAME> nor even <NAME> knew that <NAME> was a member of the armed forces. He, therefore, says that the appellant cannot in the absence of such knowledge be said to have procured or obtained the assistance of a member of the armed forces for furthering the prospects of his election. ,It is true that neither the appellant nor <NAME>, nor even <NAME> knew at the date of the appointment of <NAME> that he was a member of the armed forces but the point now raised by the learned Advocate-General is, in our view, none the less unsustainable. It overlooks the provisions of the second explanation to the section which we have already set out. Under that explanation if a person acts as the polling agent of a candidate it must be held without more, that, he assisted in furtherance of the prospects of that candidate's election. In the present case therefore it has to be held that <NAME> who acted as the appellant's polling agent, thereby assisted in the furtherance of the prospect.-, of his election. Now under the provisions of the Act, no one can act as the polling agent of a candidate unless he has been appointed as such and we have already held that the appellant himself had appointed <NAME> as his polling agent. It follows in view of the explanation that the appellant procured and obtained the assistance of <NAME> for the furtherance of the prospects of his election. All the requirements of the section are thus satisfied and the appellant must therefore be held to have committed the corrupt practice thereby constituted. All that the section requires is that assistance shall be procured for furthering the election. Where the explanation applies as it does in the present case, if a candidate has appointed a person to act as his polling agent and he accordingly does so act, a statutory presumption arises that the candidate thereby procured that person's assistance in furtherance of the prospects of his election, and this irrespective of whether he intended to procure such assistance or not. Indeed, as Mr. <NAME> appearing for the respondent pointed out, the explanation clearly shows that the candidate's intention is irrelevant, for, such presumption arises even when a candidate has procured another person to act as his counting agent and it is very difficult to imagine that the appointment of a counting agent can further the prospects of any election, for the counting agent acts after the polling is over and only when the votes already polled, are counted. Therefore it seems to us that in the case of the appointment of a polling agent which comes within the explanation as the present case does, the intention of the candidate in procuring the assistance is irrelevant. If that is so, it is clear that the knowledge of the candidate whether the person, whose service as his polling agent he has procured, is a member of the armed forces or any of the other specified class of <ORG> servants or not, is equally irrelevant. We think therefore that the learned Advocate- General's contention must fail.

What we have said just now also disposes of the other argument of the learned Advocate-General, namely, that a corrupt practice is in the nature of a criminal act and cannot therefore be established unless mens rea, or criminal intention, is established, and that the appellant cannot be said to have committed a corrupt practice for he had no mens rea in appointing <NAME> his polling agent since he did not know that <NAME> was a member of the armed forces. On this point we were referred to certain passages from English text-books on election law of which it will be enough to refer to one, for all state the law in substantially the same terms. In <NAME>'s Parliamentary Elections, 2nd Edn. which is one of the text-books to which we were referred, it is stated at p. 402:

There is an elementary distinction between a corrupt and an illegal practice. To establish the former it is essential to show that a corrupt intention is present. A corrupt practice is a thing the mind goes along with, whereas an illegal practice is a thing the legislature is determined to prevent, whether it is done honestly or dishonestly. The view thus formulated is founded on the English law of election and is clearly of no assistance to us. It is based on particular English statutes and the language employed therein. We have already shown that our statute in the case at least of a corrupt practice of the kind in hand does not concern itself with any question of intention. Mr. <NAME> with his usual industry made available to us the English statutes on which the statement of law set out in the text- books referred to by counsel for the appellant had been based and pointed out that under these statutes the acts therein made corrupt practices had to be done corruptly and that corrupt practices were always made offences punishable as crimes. It may be of use here to point out that the relevant provisions in our statute were amended in 1956 and that has done away with the distinction between illegal and corrupt practices. In fact, we have now only corrupt practices and no illegal practices. The present case, it may be pointed out, is governed by the amended statute. No question of mens rea or intention or knowledge of the candidate arises in this case.

We, therefore, come to the conclusion that the appellant was guilty of a corrupt practice by appointing <NAME>, a member of the armed forces, his polling agent whereby the latter was enabled to and did act as such. The appellant's election was consequently in our opinion rightly declared void.

The appeal is therefore dismissed with costs. Appeal dismissed,.."


JUDGMENT <NAME>

1. These appeals are brought by special leave from the judgment of the a Allahabad <ORG> dated July 10, 1962, in Income tax Miscellaneous Cases Nos. 255 and 256 of 1955.

2. The appellant, M/s. <NAME>, hereinafter called the "assessee", was a registered partnership firm having the following constituents :

Names of the partners shares ---------------------------------------------------------------------- 1. <NAME> 49 per cent. 2. <NAME> 17 per cent. 3. <NAME> 17 per cent. 4. <NAME> 17 per cent. --------------- Total 100 per cent. --------------- ----------------------------------------------------------------------

3. The shareholding of the three <NAME> brothers was 51 per cent. constituting a majority of the shareholding in the partnership firm. The partners of the said firm floated a company, namely, <ORG>, the constitution of which was that the three <NAME> brothers and their wives had 166 shares while <NAME> and his wife had 42 shares. In consideration of the fact that the assessee firm promoted the company the assessee was appointed the managing agent of <ORG> for a period of 25 years under a managing agency agreement dated December 15, 1938. It was provided in this agreement that the assessee will continue to be the managing agent until it resigned or it was removed firm its officer of managing agency by a majority of 3/4th of the shareholders of the managed company. According to the terms of the agreement the managing agent's remuneration was Rs. 1,500 per month and a commission of 10 per cent on net profits of the company after deducting all expenses and after charging depreciation. There was no provision in the Articles of Association of the managed company for terminating the managing agency except in the case of the managed company being wound up in which case, the managing agents were to receive compensation for loss of appointment. There was also the exception provided under the general law in case of fraud or gross negligence on the part of the managing agents. The relevant terms of the managing agency agreement were as follows :

4. Para 2(m) : "It shall be lawful for the firm to assign their officer as agents and all the rights and obligation as such agents and in the event of assignment, the assignee or assignees shall be deemed to have been appointed agents of the company with like powers and authorities remuneration and emoluments and subject to like terms and conditions as are herein contained.........."

5. Para 2(c) : "The firm may at their option from time to time lend and advance to and for the use of the company, money on interest to any extent as they may like, the same to run at a minimum rate of five per cent. per annum provided that if the bank rate prevailing at the date of advance is higher than five per cent. The firm may charge interest at one per cent. above the bank rate."

6. On August 12, 1943, a meeting of the board of directors of the managed company was held. The directors present were : (1) Sri <NAME>, (2) Sri <NAME> and (3) <NAME> with Sri <NAME> in the chair. At this meeting a letter dated August 3, 1943, for M/s. <NAME>, Bankers, the fanciers of the managed company, asking for re-payment of advances made by the financier to the company exceeding Rs. 5 lakhs was discussed. Sri. <NAME> pointed out that the managing agents were under no obligation to provide finance for the company at the latter's direction. It was the option of the firm to provide or not to provide finance and also to determine the extent of the advance. Sri <NAME> thereupon pointed out that ever though the matter of providing finance might be at the discretion of the managing agents "it was the usual practice with companies under the management of the managing agents to obtain their finance from the managing agents". Accordingly the meeting decided to ask the assessee to arrange for advance of such sums of moneys as would be necessary to pay off the loan of the financiers M/s. <NAME> Banker and also to equip the company with working capital. A resolution was accordingly passed at the meeting to that effect. On August 19, 1943, the company addressed a letter to the assessee informing it of the resolution and asking it to make immediate arrangement for an amount which would not only reduce the account of M/s. <NAME> Bankers to a figure of Rs. 5 lacs but must also provide the company with working capital. The assessee replied to this communication by a letter dated August 31, 1943 in which the assessee pointed out that under the terms of the managing agency agreement it was not obligatory upon it to make advances to the managed company. The assessee stated that it had been specially constituted to act as the managing agent of the managed company and had no capital of its own. It had no assets also on the security of which it could raise a sum of Rs. 30 lacs which would be necessary to reduce the amount of M/s. <NAME> Bankers to the limit required by the managed company and to equip the company with working capital. The letter of the assessee was considered by the managed company at the meeting of its Board of Directors on September 2, 1943. Sri <NAME>, one of the Directors of the managed company reported in the meeting that a new floated company under the name and style of <ORG> was willing to make advance provided it was appointed the managing agent of the company. Sri <NAME> pointed out that the managed company had reached a stage when it would make substantial profits and enable the assessee to earn better remuneration and that it would be unjust to ask the assessee to relinquish office on a ground which did not constitute a term of the contract between the assessee and the managed company. Sri <NAME> who presided over the meeting recognised that the assessee would be adversely affected and he therefore suggested that the company should pay a fair compensation in consideration of the premature termination of the managing agency. A compensation of Rs. 2 lacs was worked out and Sri <NAME> agreed to accept the amount for the termination of the managing agency on behalf of the assessee. It was decided that the sum of Rs. 2 lacs should be paid as soon as an agreement was arrived at with the <ORG> for taking over the managing agency of the company. The managing agency of the assessee was thereafter terminated with effect from November 1, 1943 and M/s. <ORG> were appointed the managing agents with effect from that date.

7. The constitution of <ORG> was as follows :

'A' Class ordinary shares of Rs. 100 each R5.

'B' Class ordinary shares of Rs. 10 each Rs.

I.

(a) Sri Padampa .. .. .. .. ..

1,750 5,000

(b) lady <NAME> wife of <NAME> (natural guardian of her minor son <NAME>.) .. .. ..

(c) Lady <NAME> (Natural guardian of her minor son <NAME>.) .. .. ..

500 II.

(a) Lala Kailashpat Singhania. .. .. ..

1,750 5,000

(b) Lala Kailashpat, (Natural guardian of his miner son Vijaypat) .. .. .. .. ..

600 III.

(a) Lala Lakshmipat Singhania .. .. ..

500 1,000

(b) <NAME> wife of Lakshmipat her minor son (natural guardian of Harishankar).

750 IV.

(a) Lala Radhakishan Singhania uncle of Sri Padam-

pat. .. .. .. .. .. ..

(b) <NAME> cousin of Sri Padampat. .. .. .. .. .. ..

100 (c) <NAME> cousin of Sri. <NAME>. .. .. .. .. .. .. 1,000 2,000 V. (a) Shri P.D. Chandra Rana. P.A. to Sri <NAME>. 100 100 (b) Shri Gorikkishan Jaipuria Munim of J.K. Kanpur (Kothi) .. .. .. .. .. .. 10 (c) Shri S.M. Bashir, Director <ORG> .. .. .. .. .. .. .. 100 (d) <NAME> .. .. .. .. .. 100 (e) Lala Sital Prasad, Director of J.K. Woollen Mills. .. .. .. .. .. .. .. 500 1,900 TOTAL 8,530 15,000

8. It is apparent from this constitution that the shares of the three <NAME> brothers, their wives and children in <ORG> were 6,600 'A' class ordinary shares out of 8,580 and 11,000 out of 15,000 'B' class ordinary shares. The remaining shares were allotted to the personal assistant to Sri Padampat <NAME>, a munim of the firm of <NAME>, a director of the managed company, one <NAME> and to a director of an allied concern.

9. <ORG> were appointed managing agents for a period of 20 years, renewable thereafter for a term not exceeding 20 year at a time. The remuneration was to be an officer allowance of Rs. 1,000 per month, a commission of 10% on the net annual profits of the company and a commission of 2 1/2% on the gross sales of the products of the company. Paragraph 8 of the managing agency agreement states :

"The managing agents shall from time to time lend and advance to and for the use of the company such moneys as may form time to time be required by the company up to an amount not exceeding Rs. 20,00,000 at any one time, but they may, however at their option lend and advance even more money if so required by the company. The company shall pay to the managing agents, interest on moneys so lent and advanced at a rate to be mutually agreed upon from time to time."

10. The amount of Rs. 2 lakhs compensation paid to the assessee-firm was worked out on the basis of 5 preceding years' profits of the managing agency from November 1, 1938, to October 31, 1943. The sum of Rs. 2 lakhs was paid to the assessee on October 31, 1943. The amount was claimed by the assessee as compensation for loss of office not liable to tax under the Income-tax Act as a capital receipt. The receipt of this sum of Rs. 2 lakhs, though incorporated in its books by the assessee, was not disclosed at the time when the assessment was originally made against it on April 6, 1945. Late on who it was discovered that the assessee had received the sum from the managed company the assessment was reopened under section 34 of the Income-tax Act and proceedings were also taken under section 15 of the Excess Profits Tax Act for the corresponding chargeable accounting period and the amount was included in the total computation of the assessee's business income. The assessee challenged these assessments on the ground that the proceedings under s. 34 of the Income Tax Act and under s. 15 of the Excess Profits Tax Act were invalid and on merits therefore there was no justification for the inclusion of the sum of Rs. 2 lacs as its business income liable to tax. Both these contentions were rejected by the Income Tax Officer and by the Appellate Assistant Commissioner in appeal. The assessee thereafter preferred second appeals to <ORG>. In these appeals the assessee abandoned the contention regarding the legality of the proceedings under s. 34 of the Income Tax Act and s. 15 of the Excess Profits Tax Act and confined its argument merely to the point that the sum was not liable to be charged to tax. <ORG> came to the following findings of fact:The three <NAME> brothers, <NAME>, <NAME> and <NAME> held 51 per cent share in the assessee firm. They and the members of their family held a large majority of shares both in <ORG> and in the managed company. There was no contract by reason of which the assessee was under any obligation to finance the business of the company. It was a false allegation on the company's part that it would be derogatory to its reputation to mortgage the property of the company to raise finance and the only alternative was to seek a party who might be willing and able to finance the company even if such a course warranted a change of the managing agents. For the new managing agents advanced loan to the company only on the pledge of the goods of the company (vide balance sheets of the company annexures I. J. and K.). It will also appear from these balance sheets that <ORG> still continued to be the creditors of the company in the three years for which the balance sheets have been filed in the sums of Rs. 3,13,169-11-6, Rs. 8,89,323-13-6 and Rs. 6,06,691. On these findings <ORG> came to the conclusion that the reasons given by the assessee for terminating the managing agency were not true and the sum of Rs. 2 lacs was not compensation for loss of office but was payment referable to the business of the assessee as managing agents of the Company. <ORG> described the transaction of the termination of the managing agency as "collusive" and "not genuine" and that the "payment was not compensation for any loss" as in the view of <ORG> no loss was sustained by the assessee. At the instance of the assessee <ORG> stated a case to <ORG> under s. 66(1) of the Income Tax Act on the following question of law :

11. "Whether there was material on which the Tribunal could hold that the receipt of Rs. 2,00,000 by the assessee was revenue receipt liable to tax under the Income-tax Act and the Excess Profits Tax Act ?"

12. By its judgment dated July 10, 1962, <ORG> answered the question against the assessee and in favour of <NAME>, U. P. <ORG> took the view that the amount of Rs. 2 lakhs was received by the assessee "by virtue of its office" and "relate to the work of the managing agency" even though the payment was collusive and there was no real termination of the managing agency agreement. It was points doubt by <ORG> that the collusive payment could not have been made if the assessee had not been the managing agent of the managed company and the managing agency business of the assessee was exploited for getting the amount of Rs. 2 lakhs.

13. On behalf of the appellant Mr. <NAME> stressed the argument that <ORG> failed to appreciate that the assessee-firm was a distinct legal entity and was different from <ORG> which was a separate legal entity in the eye of law and the mere fact that the shareholdings of the partners of the assessee- firm in the <ORG> was of a considerable preparation should not have led <ORG> to the inference that the rights of the assessee-firm were not destroyed, sterilized or lost on account of the transaction. To put it differently, the contention of the appellant was that the High court was not entitled to go behind the legal from of the transaction and to find out what was the substance. We are unable to accept the argument of Mr. <NAME> as correct. In the present case <ORG> has found that the transaction of termination of the managing agency was a colourable transaction and the real purpose was to hand over a sum of Rs. 2 lacs to the assessee firm. It was also found that the payment was collusive and the partners of the firm continued to run and enjoy the benefit of managing agency as shareholders and Directors of the newly formed company by reason of their holding a majority of shares in that company. It was also held by <ORG> that the reason for terminating the managing agency was not a true reason but was merely a fake one and the whole transaction was a hoax for the purpose of evading income-tax. In other words, it was a collusive device practised by the managed company and the assessee firm for the purpose of evading income-tax both in the hands of the payer and of the payee. <ORG> also found that there was only a change of personnel in the managing agency and not a change in office and that the assessee had no right of compensation for any loss of office. In a matter of this description it is well-established that the Income-tax authorities are entitled to pierce the veil of corporate entity and look at the reality of the transaction. It is true that from juristic point of view the company is a legal personality entirely distinct from its members and the company is capable of enjoying rights and being subjected to duties which are not the same as those enjoyed or borne by its members. But in certain exceptional cases the <ORG> is entitled to lift the veil of corporate entity and to pay regard to the economic realities behind the legal facade. For example, the <ORG> has power to disregard the corporate entity if it is used for tax evasion or to circumvent tax obligation or to perpetrate fraud. For instance, in <NAME> v. <ORG> (4 T.C. 41) <ORG> had found as a fact that all the property of the New York company, except its land, had been transferred to an English company, and that the New York company had only been kept in being to hold the land, since aliens were not allowed to do so under New York law. All but three of the New York company's shares were held by the English company, and as the Commissioners also found, if the business was technically that of the New York company, the latter was merely the agent of the English company. In the light of these findings the <ORG> of Appeal, despite the argument based on <ORG>'s ([1897] A.C. 22) case held that the New York business was that of the English company which was liable for English income tax accordingly. In another case <ORG> v. <NAME> ([1957] 1 W.L.R. 464) an American company had an arrangement with its distributors on the Continent of Europe whereby they obtained supplies from the English manufacturers, its wholly owned subsidiary. The English company credited the American company with the price received after deducting the costs plus 5 per cent. It was conceded that the subsidiary was a separate legal entity and not a mere emanation of the American parent, and that it was selling its own goods as principal and not its parent's goods as agent. Nevertheless, these sales were a means whereby the American company carried on its European business, and it was held by <ORG> that the substance of the arrangement was that the American company traded in England through the agency of its subsidiary. It was accordingly held that the trade of selling tyres to persons outside the United Kingdom was carried on within the United Kingdom and was exercised by the American company through <ORG> as its agent. Therefore, the tax was chargeable in respect of that trade under Schedule D, para l(a)(iii), to the Income Tax Act , 1918, and <ORG> was the regular agent of <ORG> in whose name it was properly assessed to tax on profits of that trade under rules 5 and 10 of the All Schedules Rules. In our opinion the principle applies to the present case, and the <ORG> is entitled to lift the mask of corporate entity if the conception is used for tax evasion or to circumvent tax obligation, or to perpetrate fraud. We accordingly reject the argument of Mr. <NAME> on this aspect of the case.

14. We proceed to consider the next argument addressed on behalf of the assessee, viz., that the amount of Rs. 2 lakhs cannot be held to be a revenue receipt even though the transaction of termination of the managing agency was collusive and the intention of the parties was to evade income-tax. The argument put forward on behalf of the appellant was that, even if the transaction was collusive and not genuine, it was legally permissible for the assessee to arrange its affairs in such a way as to avoid the incidence of tax. It was argued that even upon the fats found by <ORG> the amount of Rs. 2 lakhs paid to the assessee-firm was not taxable as income in its hands because there was an actual termination of the first managing agency agreement and the amount of Rs. 2 lakhs was actually paid to the assessee-firm for the termination of the managing agency contract. The argument was stressed that the assessee firm had no other business activity except the managing agency in question and that the managing agency constituted the capital assets of the assessee firm and on the termination of the managing agency contract the capital assets were "destroyed or sterilized" and the compensation received was therefore of the nature of a capital receipt. In our opinion, there is no warrant for the argument addressed by Mr. <NAME>. On the facts found in this case, it is manifest that the managing agency business carried on by the assessee firm was not destroyed or lost to the four individual partners who constituted the assessee firm. What happened was that the individuals who constituted the assessee firm became the Directors of the newly formed company namely, <ORG> and in this new capacity they undertook the conduct of the managing agency business and as shareholders continued to benefit from the profits of that business flowing to them in the shape of dividend instead of as a share of profits from the assessee firm. In other words, the managing agency asset was enjoyed by the four individual partners in a different capacity with the same object of profit-making. There was, therefore, no destruction of the apparatus of the profit-making asset i.e., the managing agency contract. <ORG> has found that the amount of Rs. 2 lacs was received by the assessee firm "by virtue of its office" and "related to the work of the managing agency" even though the termination of the contract was not genuine and the payment was collusive and the managing agency business of the assessee firm was exploited for gaining Rs. 2 lacs. It is obvious that there is an intimate connection in this case between the managing agency business of the assessee firm and the payment of a sum of Rs. 2 lacs and there was therefore proper material before <ORG> in support of its finding that the receipt of Rs. 2 lacs by the assessee firm was a receipt in the course of its managing agency business and was hence a revenue receipt.

15. On behalf of the appellant it was said by Mr. <NAME> that a mere intention on the part of the assessee to evade income-tax will not nullify an otherwise lawful transaction. But we have already shown that <ORG> has found in the present case that the transaction of termination of the managing agency contract was sham transaction and was stage-managed merely with a view to evade income- tax and the real intention was that the three <NAME> brothers should continue to carry on the managing agency in a dominant capacity in the guise of a limited company and there was in fact no loss of office or destruction of profit yielding apparatus. Reference should be made in this connection to the following observations of Lord Greene M. R. in Lord <NAME> v. Commissioners of Inland Revenue (25 T.C. 121, 134) :

"But even if the only alternative to Mr. <NAME>'s construction is the second of the three constructions, we are not prepared to say that it is necessarily as unjust as he contends. The section is a penal one and its consequences whatever they may be, are intended to be an effective deterrent which will put a stop to practices which the <ORG> considers to be against the public interest. For years a battle of manoeuver has been waged between the <ORG> and those who are minded to throw the burden of taxation off their own shoulders on to those of their fellow subjects. In that battle the <ORG> has often been worsted by the skill, determination and resourcefulness of its opponents, of whom the present Appellant has not been the least successful. It would not shock us in the least to find that the <ORG> has determined to put an end to the struggle by imposing the severest of penalties. It scarcely lies in the mouth of the taxpayer who plays with fire to complain of burnt figures."

16. We therefore reject the argument of Mr. <NAME> on this point.

17. For the reasons expressed, we hold that the judgment of <ORG> dated July 10, 1962, is correct and these appeals must be dismissed with costs-one set of hearing fee.

18. Appeals dismissed.


JUDGMENT <NAME>, J.

(1) This second Appeal under Section 39 of the Delhi Rent Control Act, 1958 (hereinafter referred to as 'the Act') is directed against the judgment and order of <ORG> dated 4th March, 1981 passing an order of eviction against the appellant under Section 14(1)(c) of the Act and giving him benefit under Section 14(2) of the Act. Briefly the facts are that the appellant has been a tenant in one room, one tin-shed, one kitchen, terrace, water tap (common) one Kolki (common), latrine (joint) on the first floor of premises No. 4490 situated at Gali Bhagat Singh Shaid, Paharganj, New Delhi on a monthly rent of Rs. 8.00 under the respondent. The respondent in 1970 filed a petition for eviction of the appellant on the grounds mentioned in clauses (d) and (e) of the proviso to Section 14(1) of the Act. On 10th January, 1972 the Rent Controller passed an order of eviction under Section 14(1)(e) but rejected the ground of eviction mentioned in Section 14(1)(d) . The appellant-tenant filed an appeal before the <ORG> which was accepted and the eviction application was dismisled. The respondent-landlord filed second appeal in this court which was dismissed on 9th April, 1975 by <NAME> J. The respondent had served a notice of demand and eviction upon the appellant demanding arrears of rent since 1st February, 1972 at Rs. 8.00 per month. The eviction petition out of which this appeal has arisen was filed on 18th April, 1975 claiming eviction under clauses (a), (d), (c) & (h) of Section 14(1) of the Act alleging that the appellant had been in arrears of rent since 1st February, 1972 at Rs. 8.00 per month, that she neither paid nor tendered rent inspite of notice of demand dated 12th November, 1973, that neither she nor any member of her family had been residing therein for a period of six months prior to the institution of the eviction application, that she had shifted from Delhi and had been living at Ranchi with her son where she had acquired another residence. Lastly eviction was claimed on the ground that the premises were let for residence and were required by him and his family members as they had no other suitable residential accommodation, that the respondent's son was married and that there had been change of circumstances since the dismissal of the previous eviction application, that the landlord's son's wife was not on happy terms with the landlord's wife and that he wanted to settle them on the first floor and wanted to live himself on the ground floor having a separate mess. The appellant contested the eviction application pleading that the present eviction application was barred by principles of res judicata, that she had been tendering rents and on refusal by the landlord she had been depositing rent and had deposited rent up to 31st May, 1975 in the office of the Rent Controller, that she had not acquired any premises at Ranchi, that she had been residing in the suit premises, that the landlord did not require the premises bonafide for his residence, that previously the landlord got vacated a portion in the suit house which was on a monthly rent of Rs. 5.00 and was subsequently let out to one Mr. <NAME> at Rs. 50.00 per month, that the family of the respondent consisted of himself and his wife only but with a view to create alleged ground introduced an adopted son and that no valid notice of demand was served. On 27th April, 1976 the Controller passed an order under Section 15(1) of the Act requiring the appellant to deposit arrears of rent at the rate of Rs. 8.00 per month with effect from 1st April, 1972 allowing her to deduct the amount of rent already deposited by him for the said period. On 25th January, 1978 the Rent Controller passed an order of eviction under clauses (a), (d) & (e) of Section 14(1) of the Act but rejected the ground of eviction mentioned in clause (h) of Section 14(1) of the Act. The appellant filed an appeal before the <ORG> but it was dismissed on 13th February, 1980 on the ground that it was barred by time. The second appeal filed in this court was also dismissed on 10th July, 1980 but on further appeal to <ORG> the delay in filing the appeal before the <ORG> was condoned and the case was remanded to <ORG>. The Rent Control <ORG> by the impugned order dated 4th March, 1981 accepted the appeal of the tenant with regard to the ground of eviction under Section 14(1)(a) & (d) of the Act giving him the benefit of Section 14(2) of the Act but dismissed the appeal so far as the ground of eviction under Section 14(1)(e) was concerned. Hence this second appeal.

(2) Learned counsel for the appellant submits that the ingredients constituting the ground of eviction mentioned in Section 14(1)(e) ofthe Act were not pleaded by the respondent in his eviction petition and therefore the same was liable to be rejected. He submits that the landlord never pleaded that he was the owner of the suit premises and that he had no other reasonably suitable residential accommodation. Learned counsel for the respondent however submits that all the ingredients required under Section 14(1)(e) of the Act were properly pleaded. He submits that reading of clauses 14 and 18(a) of the eviction application would disclose that all ingredients were properly pleaded. Para 14 of the eviction application reads as under : "THErespondent was allottee from the Custodian. The date of letting is not known. The petitioner purchased the property on 20th January, 1968". Para 18(a) of the eviction application relating to bona fide need reads as under : "the premises is residential and was let out for residence and is now required by the petitioner for his residence and members of his family, who are dependent on him for their residence and for whose benefit this property was purchased and they have no other reasonably suitable accommodation with them. The petitioner earlier filed a petition for ejectment on bonafide need, which was disallowed by <ORG>, Delhi on 20-3-73 but after that order. Petitioner's son is married and circumstances have altogether changed. The petitioner's son's wife is not on happy terms with the petitioner and his family and he wants to settle them on the first floor and want to live himself on the ground floor and have a separate mess".

Reading these two paragraphs it is clear that the respondent pleaded that he purchased the property on 20th January, 1968. In other words he pleaded that he was the owner of the suit property. In para 18 (a) of the eviction application it was pleaded that he and his family members had no other reasonably suitable residential accommodation with them. There is thus no substance in this objection of the appellant-tenant. It is in evidence that the respondent is the owner of the suit property, that the premises were let for residential purposes. The eviction application however does not allege the particulars of the family members of the respondent and the accommodation available to him. However, in evidence it has been proved that the family of the respondent consists of himself, his wife, his son and his son's wife. It is also in evidence that one <NAME> was in occupation as a tenant in one room, one kitchen, one tin-shed besides two stores which she vacated and handed over possession to the respondent-landlord in July/ August, 1976 during the pendency of the eviction proceedings. The respondent-landlord had been in possession of the remaining ground floor consisting of a room measuring 15'-9"x7'-9" verandah, store, common bath and a kitchen. Learned counsel submits that the accommodation consisting of the entire ground floor now admittedly in possession of respondent is sufficient for his requirement. He further submits that in the previous eviction case which was dismissed on 9th April, 1975 it was held by this court that after getting possession of the premises in occupation of <NAME> bona fide requirement of the respondent-landlord would be deemed to be satisfied. I may mention that when the previous eviction application was filed in 1970 the family consisited of the respondent, his wife and an unmarried son. The appeal in the previous case was decided on 9th April, 1975 and it was observed that the premises in occupation of <NAME> were going to fall vacant in June, 1975 and the respondent would get vacant possession of the premises in her occupation on the ground floor. It was also observed that the entire ground floor would be available to the landlord and that accommodation would be sufficient for the needs of the respondent and his son and both could conveniently live on the ground floor of the house. Learned counsel for the appellant submits that there has been no change in the circumstances of the respondent since 9th April, 1975 when the previous appeal was decided. Learned counsel for the respondent submits that the respondent's son has been married and he has got his child. There is no evidence on record to show when the marriage of the respondent's soon took place but it is admitted that he was married in March, 1975 i.e. before the decision of the previous appeal by this court. . The respondent submits that as there has been marriage of the resondent's son and birth of a child, the circumstances have changed and the respondent is entitled to an order of eviction. I do not agree. The ground floor was held to be sufficient for the respondent and his son in the previous case. At that time the premises in occupation of <NAME> were expected to be vacated in June, 1975 but in fact the same were vacated in July or August, 1976 and since then have been in occuptation of the respondent. Prior to vacation of the premises by <NAME>, the respondent-landlord was having a complete residential unit for himself and when <NAME> vacated in August, 1976 the complete unit consisting of bed room, kitchen etc. further came in possession of the respondent for his son. The decision in the previous case on 9th April, 1975 and the subsequent acquisition of the remaining premises in occupation of <NAME> leads me to the conclusion that the present eviction under Section 14(1)(e) of the Act is barred by principles of resjudicata and in any case I am of the view that the requirement of the respondent was satisfied when he obtained possession of the remaining portion of the ground floor in July, 1976. There is no allegation in the eviction application that even after obtaining the possession of the premises on ground floor from <NAME> the respondent would be in need of suit premises on the first floor. The <ORG> has held that there was a change in the circumstances since the decision of the previous eviction case but there is no evidence in support of this finding. On contrary on 9th April, 1975 when the previous eviction application was dismissed by this Court, the family of the respondent consisted of himself, his wife, his son and son's wife. The only addition is of a child. This is not a sufficient change in the circumstances. The respondent is therefore not entitled to claim eviction of the appellant on the ground mentioned in Section 14(1)(e) of the Act.

(3) Learned counsel for the appellant next submits that eviction on ground of non-payment is not available to the respondent. He submits that the appellant had been tendering rent to the respondent-landlord from time to time but on his refusal the rent was used to be deposited under Section 27 of the Act. The appellant had deposited rent for the period ending March, 1973 at Rs. 8.00 per month under Section 27 of the Act. On 12th November, 1973 notice of demand was issued to the appellant requiring him to pay the arrears from 1st February, 1972 at Rs. 8.00 per month. There is no evidence on record that the appellant-tenant ever paid or tendered the admitted amount of arrears of rent for the period from 1st April, 1973 to the respondent landlord after the receipt of the notice of demand. Thus the respondent had a cause of action for eviction of the appellant under Section 14(1)(a) of the Act. An order under Section 15(1) was passed on 27th April, 1976 and it is not disputed that the appellant had complied with the same. As the appellant has deposited all rents in pursuance of the order dated 27th April, 1976 under Section 15(1) of the Act, no order for eviction on the ground specified in Section 14(1)(a) of the Act can be passed. He is entitled to the benefit under Section 14(2) of the Act.

(4) Learned counsel for the respondent submits that he is entited to orderof eviction under Section 14(1)(d) of the Act on the ground that neither the appellant nor any member of his family has been residing therein for a period of more than six months prior to the institution of the eviction application. <ORG> has considered the evidence on record and concluded that the respondent had failed to prove the said ground. The oral evidence led by the respondent has not been believed by the <ORG>. In this second appeal evidence in support of questions of fact cannot be re-appreciated. I, therefore hold that there is no infirmity in the finding of the <ORG> holding that the appellant was not liable to be evicted under Section 14(1)(d) of the Act.

(5) Lastly it is submitted by the learned counsel for the respondent that the appellant had shifted from Delhi and has been living with her son at Ranchi where she is supposed to have acquired residence. Both the Controller and the <ORG> have held that this ground was not available to the respondent. There is no ground to differ with the conclusions of the Controller and the <ORG> on this part of the case. The alleged acquisition of the premises is not within the Union Territory of Delhi but is alleged to be at Ranchi. Moreover there is no evidence that the appellant has acquired any premises anywhere. This ground of eviction is therefore not available to the respondent.

(6) The result is that the appeal succeeds so far as the ground of eviction under Section 14(1)(e) of the Act is concerned. As regards eviction on ground of non-payment of rent, the appellant is given benefit under Section 14(2) of the Act. The eviction application on grounds mentioned in clauses (d), (e) and (h) of the proviso to Section 14(1) of the Act is dismissed leaving the partics to bear their own costs.