JUDGMENT <NAME>, J.

(1) This is an application filed by the plaintiffs under Order 39 Rule 1 & 2 Civil Procedure Code seeking grant of an ad-interim injunction preventing the defendants from passing off their goods as the plaintiffs', in breach of the plaintiff's trade mark "WHIRLPOOL".

(2) The suit was filed on 4.8.94. The plaintiffs' application came up for consideration on 5.8.94. The counsel for the plaintiffs had pressed for the grant of an ad-interim injunction ex-parte. However, the defendants had entered in appearance and were willing to accept notice. Copies of the pleadings with documents were delivered to the defendants. The defendants filed their counter-affidavit and have joined in hearing which commenced on 8.8.94. The documents filed on behalf of the plaintiffs are voluminous preserved into several boxes. The defendants have filed a brief affidavit which only was possible in view of the short time available at their disposal. They have joined in hearing reserving their right to file detailed affidavits and documents contesting the plaintiffs prayer.

(3) <ORG>, the plaintiff No.1 is a multinational, incorporated in USA. <ORG>, the plaintiff No.2 is a limited company incorporated in India wherein the plaintiff NO. 1 has a majority shareholding. The plaintiff No.2 has been licensed by the plaintiff No.1 to use the trade mark and trade name <ORG>.

(4) The defendants No.1 & 2 are the trustees of a trust by the name of <ORG>. The defendants No.3 and 4 are the trustees of a Trust by the name of <ORG> also trading as <ORG>India). <ORG>, the defendant No,5 is a company incorporated under the Indians Companies Act. The defendants have registrations in respect of trade marks such as <ORG>, <ORG> and <ORG> LEXUS.

(5) According to the plaintiffs, they have established business in the manufacture, sale, distribution and servicing of washing machines of all kinds. The first plaintiff is the successor of a trade mark <ORG> since 1937. Automatic washer was introduced in 1947. Thereafter the plaintiff No.1 has carried out vigorous advertising and sale campaign publicizing its products. By 1957 <ORG> was a leading trademark and name in the United States and Canada in relation to washing machines. In the plaint narration has been made in details as to how the plaintiffs' trade has expanded holding firm and firmer grounds day by day and year after year, making its headway to going global. The plaintiffs predecessor had obtained registration for the <ORG> mark in the United States in the year 1937. By 1986 the <ORG> was registered in relation to washing machines and dryers in class 7 as well as for appliances in classes 9 and 11 in more than 65 jurisdictions around the world including most commonwealth countries.

5.1In 1956-57, the first plaintiff obtained registration for the trade mark <ORG> in India as under :-

Registration Class Goods Date of No. Registration _____________________________________________________________________ 173,296 7 Clothes dryers. Washers, Feb. 22,1956 dishwashers 173,297 9 Vacuum cleaners Feb-22,1956 173,298 11 Ac dehudifiries, freezers, garbage Feb.22,1956 disposer, etc. 5.2The registrations were renewed at the due time. In 1977, the plaintiff did not have any distributor in India owing largely due to import restrictions and <ORG> of India limitations regarding setting up a joint venture. The first plaintiff had given instructions for the renewal of registrations in Classes 7 and 11. However, the registrations were not renewed and rather lapsed. The reason assigned by the plaintiff is miscommunication involving outside trade mark counsel. In 1980, the first plaintiff decided not to reapply under a mistaken impression, (as alleged), that the first plaintiff was not entitled to trade mark registration as it was not having any use in India which was necessary to apply for trade mark registration.

5.3In 1987, the first plaintiff formed a joint venture with the plaintiff No.2. On 15th July, 1988, the plaintiffs moved several applications for registration with <NAME> details whereof are given in plaint para 24. The applications other than the following relate to appliances and articles. The following applications are relevant to quote :-

Number Trade Mark Date Goods ___________________________________________________________________________ 494406 <ORG> 15.7.88 Clothes laundering and washing machines, clothes drying machines, dishwashers, food waste disposers, household trash compactators, food mixing and blending machines and electrically operated refrigeration and air conditioning compressors. ____________________________________________________________________________ 494409 <ORG> 15.7.88 Clothes laundering and with swirl washing machines, clothes and Ring drying machines, dishwashers, food waste disposers, household trash compactators, food mixing and blending machines and electrically operated refrigeration and air conditioning compressors. 494410 <ORG> 15.7.88 Clothes laundering and with Swirl washing machines, clothes drying machines, dishwashers, food waste disposers, household trash compactators, food mixing and blending machines and electrically operated refrigeration and air conditioning compressors. ____________________________________________________________________________ The applications are pending with the Registrar of Trade Marks.

5.4The plaint also makes a detailed narration of the figures of sales, advertisements and of magazines 5.5However, since 1990, the second plaintiff has been giving considerable publicity to the <ORG> mark and trading name. The washing machines are bei marketed by the second plaintiff in India under the <ORG> Brand Along with using the phrase "in collaboration with <ORG> Corporation". This is consequent to a collaboration entered into between the two plaintiffs in 1987.

(6) As already stated the defendants have filed a short counter in view of the paucity of time available at their disposal. . Instead of noticing their pleas in details, it would suffice to sum up the contentions on which they oppose the plaintiff's prayer and propose to defend themselves. They are (I)that admittedly the plaintiffs have not secured renewal of the registration of their trade mark in India since 1977, the reasons being inconsequential; Admittedly, plaintiff No. 1 did not have full scale commercial use of the trademark in India; this would amount to abandonment of the trademark by plaintiff No.1;

(II)that the plaintiffs cannot claim the said trademark <ORG> having become associated with the plaintiffs in the mind of the customers in India; any right by user of any trademark in regard to trade and exclusive right to use the same by any person can only be territorial in nature; nobody can claim exclusive right to use a trademark in a territory or locality where it has not sold the goods with the said trademark or acquired any reputation therein of any exclusive appropriation or use of the trademark;

(III)that the defendants have secured the registration of the trademark <ORG> in India. Sections 27,28 and 31 of the Trademarks Act make the registration conclusive and enable the defendants not only to use the trademark, it also entitles them to restrain the plaintiffs from using the trade mark. It would also be a complete defense in a passing off action.

6.1In addition, the defendants have set up the pleas of delay, acquiescence and laches on the part of the plaintiffs in initiating the present action as a bar to the relief of injunction. It will be useful to notice the chronology of events in this behalf inasmuch as it would be necessary not only to test the plea of delay but also in another context. The same are set out in the succeeding paragraph.

6.2On 6th Aug, 1986, <ORG> filed an application in form TM-I for registration of the trademark <ORG>. On 16.10.1988, it was advertised in <ORG>. On 6.1.1989, plaintiff No.1 filed a notice of opposition in form TM-5. On 21.9.1989, counter statement was filed by <ORG>. The enquiry then proceeded. On 12.8.1992, the <ORG> Registrar of Trademarks passed an order dismissing the opposition and allowing the application to proceed for registration. On 30.11.1992, the registration certificate has been granted to defendants under Section 23 of the Trade & Merchandise Marks Act , 1958. The defendants have thus become the registered proprietor of the trademark <ORG> with effect from 6.8.1986, the registration being effective from the back date.

6.3Against the order dated 12th August, 1992, the plaintiff No.1 has preferred an appeal to <ORG>. The appeal is still pending. No interim order has been passed by <ORG>. On 4.8.1993, plaintiff No.1 has filed a petition in <ORG> of Delhi under Sections 46 and 56 of the Act for expunging the registration of trademark No. 458134 in favor of <ORG>. This matter is also pending.

6.4According to the defendants there is a delay of five years and eight months in bringing the present suit by the plaintiffs calculated from the initiation by <ORG> of the proceedings for registration of the trademark <ORG> putting the plaintiffs on notice of the defendants adoption and use of the trademark.

(7) Here itself it would be useful to notice a few findings recorded by the Assistant Registrar of Trademarks. However, what is the weight to be assigned to these things will be a different matter to be considered at an appropriate place. The findings to be noticed are those which both the parties have extensively read from the order holding them out to their respective advantage and to the extent to which they support the case of either party. The learned Assistant Registrar has held that the use and reputation of the mark must be in India and that the opponents ( plaintiff No.1 herein) "have not given any evidence of use and reputation of the trademark Whirlpool in India". The <ORG> Registrar has further held :-

"since the opponents ( plaintiff No.1 herein) have not discharged their onus of establishing the use and reputation of their trademark Whirlpool in India, it cannot be concluded that the use of the same mark by the applicants ( defendants) in respect of washing machines during the course of their trade in fair and normal manner shall be likely to deceive or cause confusion in the minds of the purchasing people.

at one place the Asstt Registrar has held : "there can not be any assertion of proprietorship of trademark <ORG> in respect of the washing machines by the opponents ( plaintiff No.1 herein ) in view of the fact that they are neither using the mark in India, nor are the registered proprietor of that mark in India. They had the registration of their mark in India somewhere in 1956-57 which they abandoned deliberately as per their statement at para 4 of their affidavit dated 5.12.1990, where they have stated that : there were severe import restrictions preventing the free import of my company's goods into India and my company did not see any probability of import restrictions being eased in the foreseeable future. For this reason the registration No. 173297 was also allowed to lapse."

7.1Before the <ORG> Registrar the opponent i.e. ( plaintiff No.1 herein) had opposed the grant of application for registration by submitting that the applicant had failed to establish conclusively its proprietorship of the trademark before applying for its registration. The <ORG> Registrar has said: "SECTION 18(1) does not require that the applicants must be using the mark in the present. An applicant can claim the proposed user of the mark in future. Thus, if an applicant is not using a mark in the present or has not established such use it cannot be said that he has no claim to the proprietorship of the mark even for proposed use in future"

7.2From the above noted passage the plaintiff's counsel have developed an argument that the defendants had failed to establish use of the trademark <ORG> by them by then. They were merely 'claiming' its registration. In other words, the defendants were not marketing washing machines with <ORG> trademark in the market till 1992. This circumstance is relied on by the plaintiffs as a counter-blast to the defendants' attack on the plaintiffs on the ground of delay, acquiescence and laches.

(8) I have heard Mr <NAME>, Queens Counsel for the plaintiff, Mr. <NAME>,, and Mr. <NAME> Advocates for the defendants. Mr <NAME> Sr Advocate Bombay has also been heard at the stage of rejoinder submissions on behalf of the plaintiff.

(9) The principles as to the grant of interim injunction in cases relating to infringement of trade mark and passing off actions are too well settled to be restated. <ORG> vs. <NAME> 1975 (1) <ORG> is an oft-quoted decision. Law has been stated by <ORG> in <NAME> v. <NAME>, 1990 Scc (Supp) 726. Both these decisions and other cases have been referred to in a recent decision of <ORG> in <ORG> <ORG> Vs. <ORG> . The questions of prima facie case, balance of convenience and irreparable injury would be examined and the case decided thereon, just like any other case. The injury to the plaintiff must be actual and substantial. The application for interlocutory injunction should have been made with promptness. Improper and unexplained delay may be fatal. The court would if convinced, maintain the status quo prevailing on the date of the suit or on the date of the accrual of the cause of action. It will be of much relevance to see if the defendant is yet to commence his enterprise or whether he has already been doing, what the plaintiff seeks to be restrained.

(10) In the opinion of this court the issues arising for decision between the parties at this stage may be crystallised into the following four, specially keeping in view the emphasis in submissions made by the learned counsel for both the sides :-

(1)If plaintiff No.1 was not having any sales in India but was having sales in the trademark <ORG> in other countries/ geographical regions of the world, can the plaintiffs have the benefit of 'trans-border reputation' so as to maintain passing off action in India or should their goodwill/ reputation be treated confined to territories in which they have proved actual user of the trade mark in market ?

(2)Whether the plaintiff No. 1 can be deemed to have abandoned the trademark Whirlpool in India since 1977 ?

(3A)What is the effect of registration of the trade mark in India obtained by a defendant on a passing off action filed by one who does not have such registration ?

(3B)What is the effect of the pendency of appeal against the order of registration of trademark ?

(4)Whether the plaintiffs can be justifiably accused of culpable delay, acquiescence and Laches so as to disentitle them from the relief of injunction "

(11) Question No.1It cannot be denied that .in so far a? "<ORG>" is concerned, plaintiff No.1 has been the first in point of time to be in the market,the question of exact geographical reasons apart. The defendants' earliest claim to user commences in July/August, 1986, the date of their application for registration, though this claim is seriously disputed by the plaintiffs.

(12) A perusal of the affidavits and the documents filed on behalf of the plaintiffs leads to the following factual inferences :- A. "Documented sales to India of <ORG> branded products:

____________________________________________________________________________ Date Particulars Documents ____________________________________________________________________________ Us Govt stand arise Ex.V to Retha 1978 <ORG> clothes <ORG>'s affidavit washers & dryers for (page 643) purchaser by Embassies in India and <ORG>. ____________________________________________________________________________ B. Sales to the Us Embassy and Us Aid in India.

____________________________________________________________________________ Date Sales To Units Documents ____________________________________________________________________________ 1982 <NAME>, 64 Ex.P to <NAME> affidavit (Pg-179) 1982 <NAME>, 8 Ex.P to <NAME> affidavit (Pgl79) 1983 <NAME>, 31 Ex.P to <NAME> affidavit (pgl79) 1984 <NAME>, 4 Ex.P to <NAME> affidavit (Pg 179) 1985 <NAME>, 65 Ex.P to <NAME> affidavit (Pg 179) 1986 <NAME>, 80 Ex.P to <NAME> affidavit (Pg 179) ____________________________________________________________________________ <ORG> to Retha Marines affidavit contains Shipping Documents obtained from <ORG> in New Delhi in respect of purchases made by them of <ORG> branded washing machines and dryers. Some of these purchase order pre July, 1986 are dated August, 1985, December, 1985, January, 1986, June 1986 and July, 1986.

D.Ex. X of <NAME> affidavit contains copies of property cards of washing machines purchased by <ORG> during the year 1980 to 1982. These cards reveal that these machines purchased by <ORG> after about 3 or 4 years are sold through auction to the general public. The earliest documented sales through auction is in the year 1986.

<ORG> has been frequently advertised and has featured in international magazines having circulation in India. Given hereunder is a list of pre July 1986 magazines filed in these proceedings :

_______________________________________________________________________ Magazine Issue Document <ORG> Aug. 1980 does filed in box 14 Feb. 1983 " May. 1985 " April 1986 " July, 1986 " Life June,28,1968" " July 18,1969" " August 1983" " Sept 1983" " May 1985" " Fortune June, 1957" " Redbook July 1986" Ladies Home January 1985" " Journal March,1986" " April 1986" " July, 1986' " WOMAN'S Day July 7,1987" " House Beautiful August, 1985" " Better Home & July, 1984" " Garden April, 1986" " June 1986" " July,1986" " Good Oct.,1983" " Housekeeping April,1985" " Family Circle 0ct21,1986" " Bonapetite November 1983" " July 1984" ____________________________________________________________________________ all these magazines have been purchased in India and in fact some of them have the date stamp of <ORG> ( <ORG>) on the back page. Circulation Figures of some of these magazines in India were also obtained from <ORG> and appear in the affidavit of <NAME>."

(13) Though the pleadings, documents and affidavits filed by the plaintiffs positively make out a case of actual sales by the plaintiffs of <ORG> products including washing machines in a number of geographical regions around the world, in so far as India is concerned, the plaintiffs No.1 does not make.out a case of actual sales in the markets in India. The plaintiff No.1 has made limited sales to <ORG> and <ORG> in India. However, the products have been advertised in magazines having international circulation including in India.

(14) On behalf of the defendants reliance is placed on the law stated in the American jurisprudence ( 74 American Jurisprudence 2d, para 17 at pp 714-715) which reads as under :- "17.Territorial extent of rights;

altough there is some authority to the effect that the right of property in a trademark is not limited in its enjoyment by territorial bounds, the general rule, in the absence of any statutory provision to the contrary, is that the right to the exclusive use of a trademark or trade name is limited to the territory of markets wherein it has become established as such by actual use. It follows, under the general rule stated, that where the same mark or name has been lawfully adopted and used by different persons in different localities, neither may use the mark or name in competition with the other in territory which is already' occupied by such other.

A foreign trademark depends for its protection in a particular country, upon the law prevailing there, and will confer no rights except by consent of that law. While an- alien owner of a trademark will ordinarily be protected against infringement or unfair competition, the prior use of a trademark in a foreign country does not entitle the owner thereof to claim exclusive trademark rights in the United States as against one who, in good faith, had adopted a like trademark for the same character of goods prior to the entry of the foreigner into the domestic market.

(15) It will be useful also to notice the law summed up and stated in Halsbury's laws of England (Vol 48 Para 156 and 180) :- "156.Whether actual trade need have commenced. - A passing-off action can be sustained prior to the actual commencement of trading by the plaintiff. A plaintiff may acquire a substantial reputation prior to making sales of a product or service because of advance advertising and press publicity and, in such a case, may sue others who seek to trade on the reputation which he has acquired. A company may in some circumstances acquire a reputation and goodwill that is able to be protected even before its formal incorporation and within hours of the announcement of its intended formation. Where a plaintiff has incurred considerable expense making preparations for the launch of a product which will rapidly acquire a reputation once launched, a defendant who commences advertising before the plaintiff with the intention of defeating the plaintiff's acquisition of an exclusive right' to the mark concerned may be restrained by a quia timet injunction.".

"180.Actions by foreign traders. - A number of considerations arise when a plaintiff seeks to restrain the use in the United Kingdom of a name, mark or other indicia under which he has carried on business abroad. First, a plaintiff in any case of passing off must prove a reputation extending to the geographical , area in which the defendant's use of the name, mark or other indicia complained of is taking place, whether this is another part of the country in which the plaintiff trades or in a different country, for if he has no reputation in the United Kingdom then the defendant's use of a similar name or mark cannot involve any misrepresentation. If the plaintiff can establish that a substantial number of persons with whom the defendant intends to trade in the United Kingdom know of the plaintiff and will believe that the defendant's business is a branch of or connected with the plaintiff's business, so that the element of misrepresentation is established, the plaintiff must further show, as in any passing-off action, that the misrepresentation poses a real and tangible risk of injury to his business or goodwill.

However, is unclear whether there is an additional requirement that the plaintiff must carry on business in, or at least have a trade extending to, the country in which he seeks to restrain the defendant from using the mark or name, or whether the geographical separation of the plaintiff's business from the defendant's is factual element which merely makes it difficult, but not impossible in all circumstances, for a plaintiff to show that the defendant's activities are likely to cause him substantial damage. What is clear is that a plaintiff who has no place of business in the United Kingdom and does not directly trade there but whose goods are imported by others can acquire a reputation and goodwill that is able to be protected. A business carried on abroad but which corresponds with customers in the United Kingdom can likewise acquire a reputation and goodwill able to be protected.

it is more doubtful whether passing off can be established where the plaintiff's goods or services are not marketed in the United ' Kingdom but his customers who have come across his goods or services abroad reside in or come to the United Kingdom, although in one such case an interlocutory injunction was granted. However, it has been held that a plaintiff whose establishment in Paris had been adverted in England through travel agents and who had some customers in England who had visited Paris, could not maintain a passing off action in England against a defendant who had adopted the name of the plaintiff's establishment and used similar advertising with the intent of exploiting the plaintiff's reputation, because goodwill could not be acquired without actual user in England. This decision has been criticised as wrongly decided and tenuous user in the United Kingdom h as been treated as justification for protection of a reputation primarily acquired by trade abroad but the case has been cited with approval by the court of Appeal.

the extent to which a reputation acquired by trading abroad may be protected in the United Kingdom may depend to some extent upon whether a trade is to be treated as a matter of law as having a separate goodwill in each country in which he trades or whether the confining of goodwill to a particular country or area is a question of fact pending on the trading patterns and circumstances involved. If goodwill is to be treated as a matter of law as stopping at frontiers there may still be cases where the defendant's activities are likely to cause damage to the plaintiff's business in the country or countries where he trades."

(16) It is clear that in Usa and Uk, passing off action can be maintained based on trans-border reputation in defined category of cases.

(17) In so far the law in India is concerned, it would suffice to notice a recent decision of this Court in <ORG> Vs <ORG> (Suit No. 2532/93 decided on 27.5.94), <NAME> ; has noticed the law laid down by foreign courts. He has also approved the view taken by a Division Bench of <ORG> in <ORG> vs. <ORG> (1988) 1 Patent Law Reports 135. Reiterating his own view taken earlier in <ORG> Vs. <ORG>, reported as 1992 (i) Arb.L.R. 93, he has held:-

"I had occasion to deal with trans-border reputation and observations of lord diplock in a case reported as <CITATION> reported as 1992 (1) Arb. L. R.93. After referring to the cases of Irish courts in C&A Modes 1978 Fsr 126 and other cases reported as <ORG>_ case (1901) 18 Rpc 405, <ORG> (1920) 37 Rpc 177; <ORG> 1964 rpc 202 and <ORG> 1974 Rpc 603. I said that the Indian courts have recognized the existence of trans- border reputation. The trans-border reputation had, particularly, been recognised in the case reported <ORG> vs <ORG> (1988) 1 Patent Law Reports 135.

THESE cases recognised that the reputation of a trader, trading or carrying on the business in another country, can travel to a country where he had carried no business.. The trader's trans border reputation can be on the basis of the extensive advertisements and publicity. Such a trader could obtain injunction a court where he was not trading, to protect his reputation. The Indian courts also recognise the existence of trans-border reputation, particularly, <ORG> in Kamal. <ORG> v. <ORG> In the last mentioned case <ORG> expressed the view that goodwill or reputation of good or mark, does not depend upon its availability in the particular country. <ORG> recognised trans border reputation in an unreported judgment in <ORG> v. <ORG> and others, suit No. 2458 of 1988, dated 5.9.89. In the case <ORG> v. <ORG>, Appeal No.368 of 1986, <ORG> of <ORG> had noted that publicity does not take place merely by advertisement in India. Advertisement in foreign newspapers and magazines, circulated in India and freely imported in India, are read. Besides this, large number of Indians go abroad temporarily to other countries and can have the opportunity to use the goods ( goods in question in the case is 7 o'clock safety razor blade), and in my view, on return of those persons to India, the reputation of the goods used by those who go abroad, will stay in their minds, and the memories of those goods would be revised by advertisements seen in foreign magazines, and newspapers which are available in India.

I expressed the view that the goodwill as postulated by the tax laws, is not applicable to the passing off actions."

"when a manufacturer or a seller of goods advertises his product and holds out by advertisements either specifically or by necessary intendment, that the goods would perform a specified task, and they actually do so, good reputation is established, and the reputation is spread more and more by continued advertisements, and continued maintenance good and adequate standards by the manufacturer who by his own inspection procedures ensures that the goods perform as the sy are intended to perform.

THESEreputations, as stated by <ORG> are not confined to borders. They are trans-borders reputation, and agreeing with what was said by <ORG>, I agreed in <ORG> case, 1992 (1) Arb Law Report 93, at page 137 with what was stated by <ORG>, by observing as under:

I stated in the <ORG> case at page 137 as under : "....It is not necessary in the context of the present day circumstances the free exchange of information and advertising through newspapers, magazines, video television, movies, freedom of travel between various parts of the world, to insist that a particular plaintiff must carry on business in a jurisdiction before improper use of its name or mark can be restrained by the court. Similarly I am also in agreement with the view.pl 12" expressed regarding the meaning of goodwill in passing of cases. In passing off cases, the main consideration is the likelihood of confusion and consequential injury to the plaintiff and the need to protect the public from deception, deliberate or otherwise, where such confusion or deception is prima facie shown to exist, protection should be given by courts to the name or mark or goodwill of the plaintiff. The reason why all traders and manufacturers of goods and providers of service wish to protect their name and build up their name is that they want their name or market to have an impact upon anyone who has need their goods or services. That impact may take diverse forms, but one of them would certainly be that a name or mark would recall to the mind of a potential consumer or user of such services the source from where the goods originate or the person who provides the services. This is the impact of advertising and publicity by whatever means, including word of mouth and the guild-up of reputation. It would not be right for courts to permit the reasons who have spent considerable time, effort, money and energy in building up a name, sufficient to have an impact to lose control over such an impact by improper use of the very same or colourably similar name by another unauthorisedly boar even dishonestly."

the <ORG> case was subject matter of appeal before <ORG> of this Court, but the said observations were not modified, varied or set aside. A Special Leave petition, being Slp No. 3148 of 1992 was also filed in the <ORG> case. In <ORG>, where the matter was settled by an application filed under Order 23 Rule 3 of the Code of Civil Procedure , the observations made by me were not modified, varied or set aside under Order 23 Rule3 Civil Procedure Code as they were apparently found to be "lawful"."

17.1What may be adequate evidence to establish trans-border live reputation ? To quote <NAME>, J :- 'TRANS-BORDERreputation of the plaintiff, has been, in my view, established sufficiently in this country by means of the fact that the sales of Glenfiddich takes place on duty free shops in India, by the fact that advertisement of Glenfiddich whisky are to be found in various magazines, like the In house magazine of <ORG>, and other foreign publications which are freely available in India, ( some of which have been placed on record of this case), as a result of which, in my view, Glenfiddich whisky has a live reputation in India.".

(18) There is yet another very recent decision of this Court in <CITATION> . 822/94 decided on 7.10.94 by P.K. Bahri, J ; 1995 (31) Drj 412 referring to the law laid down in <CITATION> .1992 Ptc 59.

18.1Therein the plaintiff running retail stores chain in America under the trade mark <ORG> had no physical presence in India nor had registration of trade mark <ORG> in India had brought an action restraining the defendant from using the trade mark <ORG> for marketing TVs. It was held that unless evidence is brought before the <ORG> showing reputation and good will of the plaintiff in India as a manufacturer of television and substantial evidence of the reputation and goodwill of the plaintiff as a retail store India, the injunction cannot be granted. <NAME> observed that that judgment dealt with totally different facts. <NAME> has further held : - "mere fact that the plaintiff has never manufactured any products in this country does not prevent it from acquiring the goodwill here in its trade mark.. It is no doubt true that an action for passing off relates to the business and it must be established that the plaintiff has a reputation or goodwill of his business in this country. The foundation for the action for passing off is the protection of goodwill and so, one must prove the existence of goodwill in this country before obtaining a relief of passing off. The principle of law of passing off has been also made applicable to non trading business or non-profit mating bodies as well".

18.2Bahri, J. has further approved the view that trade mark law is not intended to protect a person who deliberately sets out to take benefit of somebody else's reputation with reference to goods especially so when the reputation extends worldwide.

(19) I am bound by the view taken by the two learned single Judges of this Court in the cases decided earlier and referred to hereinabove. As already noticed plaintiff No.1 was a registered proprietor of the trade mark <ORG> in India until 1977. Without expressing any opinion on the validity or otherwise of the reasons assigned by the plaintiffs for non renewal of the registration thereafter suffice it to say that inspite of non registration of the trade mark in India, the plaintiff was trading in <ORG> products in several parts of the world and also sending the same to India though in a limited circle. <ORG> associated with the plaintiff No.1 was gaining reputation throughout the world. The reputation was traveling trans- border to India as well through commercial publicity made in magazines which are available in or brought in India. These magazines do have a circulation in the higher and upper middle income strata of Indian society. Washing machine is a household appliance used by the middle and upper clefs of the society. The plaintiff No.1 can bank upon trans-border reputation of its product washing machine for the purpose of maintaining passing off action in India.

(20) Questions No.2 and 4 Abandonment is a finding which depends on determining the intention to be inferred from the facts of each case. A mere non user for a few . years may not amount to abandonment of a trademark if referable to accountable facts. At the same time a long unexplained non user may suggest an intention to abandon the mark. In the present case the question of abandonment has to be judged in the peculiar set of facts. The plaintiff No.1 is not one whose trading activities are confined to India alone. It claims to have a worldwide trade. It did have registration of the trade mark in India. Non-renewal of the trade mark is assigned by the plaintiff to causes like import restrictions and foreign trade policy of <ORG>. One of the causes assigned is a communication gap between the plaintiff No.1 and its trade mark attorney. The production of the goods was not stopped. May be in a limited section of the society but the goods were being marketed and they were being sent to India, inspite of non registration of trade mark here in India. They Were being exhibited and continuously advertised in such circumstances that an inference as to abandonment of the trade mark by the plaintiff No.1 cannot be drawn.

(21) In 1986, the defendant initiated proceedings for registration of <ORG> trademark so as to own the same. Opposition was offered by the plaintiff <ORG>. The matter has been contested throughout till the date of decision by the Assistant Registrar of Trade <NAME>. Having lost there at the plaintiffs have preferred an appeal which is pending. There is no question of acquiescence by the plaintiffs. As held by their Lordships of <ORG> in the case of <ORG> Vs. <ORG>_ (supra) : "acquiescence is sitting by, when another is invading the rights and spending money on it. It is a course of conduct inconsistent with the claim for exclusive rights in a trade mark, trade name, etc. It implies positive acts not merely silence or inaction such as is involved in laches"

(22) For the present the defendants have not adduced any documentary evidence of their having marketed their washing machines enabling a finding on the length of time and the extent to which they have marketed if at all their such products. The <ORG> Registrar of the trade mark has also not recorded any finding in favor of the defendants as to the actual user by them of the trade mark <ORG>. The findings of the Assistant Registrar quoted hereinabove show his having formed an opinion that the proposed use in future could entitle the defendants for registration. Having lost before the Assistant Registrar the plaintiffs have preferred an appeal and also filed this suit. The plaintiffs cannot justifiably be accused of culpable delay, acquiescence and laches or abandonment so as to disentitle them from the relief of injunction.

(23) Question No.3 Sections 27 and 28 of the Trade and Merchandise Marks Act , 1958 read as follows "

"27.No action for infringement of unregistered trade mark (1)No person shall be entitled to institute any proceeding to prevent, or to recover damages for, the infringement of an unregistered trade mark.

(2)Nothing in this Act shall be deemed to affect rights of action against any person for passing off goods as the goods of another person or the remedies in respect thereof."

"28.Rights conferred by registration.-

(1)Subject to the other provisions of this Act, the registration of a trade mark in Part A or Part B of the register shall, if valid, give to the registered proprietor of the trade mark the exclusive right to the use of the trade mark in relation to the goods in respect of which the trade mark is registered and to obtain relief in respect of infringement of the trade mark in the manner provided by this Act.

(2)The exclusive right to the use of a trade mark given under sub-section (1) shall be subject to any conditions and limitations in which the registration is subject.

(3)Where two or more persons are registered proprietors of trade marks, which are identical with or nearly resemble each other, the exclusive right to the use of any of those trade marks shall not ( except so far as their respective rights are subject to any conditions or limitations entered on the register) be deemed to have been acquired by any one of those persons as against any other of those persons merely by registration of the trade marks by each of those persons has otherwise the same rights as against other persons ( not being registered users using by way of permitted use) as he would have if he were the sole registered proprietor."

(24) Sub Section (2) of Section 27 though forming part of Section 27 its overriding effect is not confined to merely on the provision of sub section (1). It has an overriding effect on all the other provisions of the Act. It clearly provides that in so far as the common law action for passing off is concerned, the provisions of this Act do not have any effect on the right or the remedy. <NAME> in his Law of Trade marks and Passing-Off ( Fourth Edition) sums up the law vide para 22.03 (at pp 410-411 in the following words :- "Registration does not confer immunity against passing off The provisions of the Act including those or registration do not affect rights of action against any person for passing off goods as the goods of another or the remedies in respect thereof. Thus in an action for passing off the defendant cannot plead that the mark he is using, which has resulted in passing off, is registered. This would appear to follow from the use of the words "subject to the other provisions of this Act" in the opening part of Section 28(1) defining the rights conferred by registration. The "other provisions of the Act" would obviously include S. 27(2) dealing with the rights of action for passing off. S. 27(2) overrides the provisions of S. 28 /".

(25) So is the view taken in <CITATION> , , Dr. Ganga Prashad Gupta & Sons vs S.C. Gudimani. <ORG> 1986 Delhi 329, <ORG> vs. Right ways Foot Wear -, <ORG> vs Capital Pharmaceuticals, <ORG> 1976 Calcutta 76 (all Single Bench Decisions) And A Division Bench Decision In <ORG> V. General Motor Corporation, 1974 (1) 2nd P&H 502 ( paras 7 and 31).

(26) A <ORG> decision of Delhi High Court which has often been lost sight of as will be shortly noticed, needs to be stated in a little details. It is <CITATION> , . It was a case of passing off action. The following principles are deducible from the <ORG> decision :-

(1)The registration of trade mark in <ORG> would be irrelevant in an action for passing off.

(para 10) (2)In deciding whether a particular mark is common to the trade, use of that mark would be extremely relevant. Merely registration would not be enough.

(3)Registration under the statute does not confer any new right to the mark claimed or any greater rights then what already exist at common law and at equity without registration.

(4)That registration itself does not create a trade mark. The trade mark exists independently of the registration.

(5)Common law rights are left wholly unaffected ( by registration). Priority in adoption and use of trade mark is superior to priority in registration ........A single actual use with intent to continue such use eo instanti confers a right jto such mark as a trade mark.

(para 12) (6)It is not permissible to draw an inference as to their user from the presence of marks in the register.

[para 13] (7)A passing off action is an action in deceit. The plaintiff has to prove that either there has been actual passing off or the use of the mark by the defendant ha? actually caused confusion or damage to the plaintiff, is a proposition which cannot be accepted. Proof of actual damage or fraud is unnecessary in a passing off action, whether the relief' asked for is injunction alone or injunction account's and damages If there is likelihood of the offending trade mark invading 'he proprietary right, a case for injunction is made out.

(para 18,19) the division Bench has drawn ample support from the view taken earlier by Delhi High'Court in <CITATION> industries, 2nd 1976 (1) Delhi 278 and <ORG> vs. <NAME> 2nd 1974 (1) Delhi 545.

(27) Strong reliance has been placed by the learned counsel for the defendant on a few decisions of this Court which have all been distinguished or commented upon on by Mr <NAME> Advocate for the plaintifs. The decisions are noticed hereinafter.

27.1In <CITATION> ;, it is held that combined effect of Sections 28 and 31(1) is that so long as the trade mark stands in the name of proprietor, the said registration shall be deemed to be valid and registered proprietor would have an exclusive right to use the said trade mark and the only remedy available to the person aggrieved was to move for cancellation of registration under Section 56 of the Act. A perusal of the judgment shows that the plaintiff was registered proprietor of the trade mark Field Marshal in respect of diesel engines and parts thereof. The defendant was also registered proprietor of trade mark Field Marshal but in respect of centrifugal pumps etc. Both of them were registered proprietors of identical trade marks though in respect of different types of goods. It was in this context that the court held that out of the parties none acquired an exclusive right against the other but both had acquired right against all other persons restraining the use of the trade mark.

<ORG> vs. <ORG> (Suit No. 530/78 decided on 13.4.83) takes the view that the defendants who are registered proprietor of the trade mark are entitled to use that trade mark till the registration stands.

<ORG> vs. <ORG>, 1989 Ptc 129 is a case in which the trade mark "ANIL" was registered as the trade mark by both the parties but for different territories. The court refused to grant injunction to one against the other from use of the trade mark in the territory of such other's registration.

<ORG> vs <ORG> 1991 Ptc 233 is a case where vide para 12, the learned Judge observed that in the facts of the case it was not necessary to decide as to whether in a suit for passing off an order of injunction could be passed against the owner of the registered trade mark restraining him from using the said mark. Needless to say in view of that observation any other finding on that issue would be mere obiter.

27.5All the above noted decisions are single bench decisions of <ORG>. The Division Bench decision of <ORG> in <ORG> case ( supra) was not brought to the notice of the learned Judges deciding the Field Marshal case ( supra), <ORG> case ( supra) and <ORG> case ( supra).

27.6In <ORG> case ( supra) the learned single Judge has referred to <ORG> case ( supra) but vide para 8 the learned judge has disposed off the law laid down by <ORG> in para 9,11,12 and 14 of its judgment as mere "observations". I do not agree. Effect of registration of trade mark on passing off action did arise for decision before the <ORG>, it was agreed; and it was consciously decided by the <ORG>.

(28) A review of. the case law indicates that the view taken by <ORG> in has been followed by the single Judge of <ORG> in <CITATION> 1976 Delhi 278 and then <ORG> in Century Traders 's case ( supra). The view to the contrary taken by the learned single Judge in Field <NAME>'S case ( supra) and other case does not either take note of or follow <ORG> nor take note of Section 27(2) of the Act. Hence it does not bind me.

(29) Let a curtain on the controversy be dropped by quoting the following law laid down by <ORG> in <CITATION> .l990 (2) Arb. L.R. 399 (Para 10) :- "an infringement action is available when there is violation of specific property right acquired under and recognised by the statute. In a passing offaction, however, the plaintiff's right is independent of such a statutory right to a trade mark and is against the conduct of the defendant which leads to or is intended or calculated to lead to deception."

(30) Mr <NAME>, Sr Advocate, contended for the defendants, that the plaintiffs have not proved any instance wherein the defendants might have attempted at passing off the defendants' goods as the plaintiffs. It is submitted by reference to the documents brought on record by the defendants that they are advertising and offering their goods for sale by the words Usha Shriram Or Lexus being prefixed or shown along with the word WHIRLPOOL; they have never at any time attempted at passing off their washing machines as the washing machines of the plaintiffs. It is further submitted that the washing machines being used in the class of the society which is educated, the very use of <NAME> along with Whirlpool should make the plaintiffs happy and guarantees no possibility of the defendants' washing machines being passed off as that of the plaintiffs. In addition it has to be kept in view that there is vast difference in the prices of the machines of the plaintiffs and defendants which would unable the defendants' washing machines being passed off as plaintiffs'.

(31) For two reasons, the contention is to be rejected. Principle No.7 deducible from the <ORG> decision in <ORG> case (supra) clearly holds that proof of actual damage is unnecessary in a passing off action. It is the likelihood of deceit and an unwary customer being misled which is enough. In <ORG> case ( supra) their Lordships of <ORG> have defined passing off action as a species of unfair trade competition or of actionable unfair trading by which one person through deception, attempts to obtain an economic benefit of the reputation which another has established for himself in a particular trade or business. In , the plaintiffs trade mark was RUSTON. Their Lordships of <ORG> have held that the defendants user of <ORG> amounted to passing off. Their Lordships refused to agree with the contention that suffix India after Rustam was a sufficient warning to purchaser and that the defendant could be allowed to use the combination.

(32) The learned counsel for the plaintiffs have rightly contended that in the absence of grant of injunction they are likely to suffer irreparable injury. It is submitted that the washing machines which are being manufactured by the defendants are not of the same engineering standards and do not give the same quality of performance as the plaintiffs' machines do and so the marketing of the washing machines with <ORG> trade mark is sure to damage irreparably the reputation and goodwill of the plaintiffs. It has rightly been pointed out that the defendants are not going to suffer any injury inasmuch as even if they have manufactured any washing machines, they have only to remove and replace the small metallic strip bearing the offensive trade mark/name - which includes <ORG>. The plaintiffs do not have any objection to the defendants manufacturing and offering for sale washing machines in the trade mark/name of <NAME> or <ORG> or any other name at the choice of the defendants so long as the trade mark/name adopted by the defendants is not the same or similar or deceptively similar to that of the plaintiffs.' (33) <NAME>. for the defendants addressed the court at length on the doctrine of issue estoppel submitting that the order of the additional Registrar Trade Marks and the findings recorded therein were binding on this <ORG> and merely because an appeal was filed, finality thereof was not destroyed. It is not necessary to deal with at length on this submission for the simple reason that as already noticed, this <ORG> has formed an opinion that the registration of the <ORG> as trade mark of the defendants was of no consequence in passing off action. This order too would not have any effect on the registration proceedings, sub judice in appeal which shall be decided on its own merits.

(34) Though in view of the several findings arrived at hereinabove, the plaintiffs are being held entitled to the grant of ad interim injunction yet this Court would like to leave on record a parting note. On the concept of trans-border reputation I have followed, the single bench decisions of this Court bound as I am by the rules of discipline and doctrine of precedents. The concept of passing off is based on good business etiquette and commercial necessity. Unfair competition has to be avoided. Nobody shall be permitted to acquire for the benefit of oneself by using false means or misleading devices the benefit of reputation and goodwill earned by someone else. This is too good as a principle and also as law applicable to any country but what about its extension trans-border ? India is moving towards free economy. The drastic changes in the economic policy of the country which are in offing is sure to entail entry-fresh and afresh-of multi-nationals in the Indian market. The common law of passing off is sure to undergo a change. With the synchronisation of the world, law cannot afford to remain conservative. Still the need of examining the concept of "trans-border reputation" by reference to its impact on the Indian economy and Indian industries cannot be ruled out. The concept needs a thorough and in-depth examination. Better if it is done by a larger bench. I have avoided the need of doing so in this case at this stage inasmuch as what is being disposed of is an interlocutory matter after all and inviting decision by <ORG> or a larger bench would have merely delayed the matter further.

(35) During the course of hearing, Mr <NAME>, learned counsel appearing for the plaintiffs had expressed willingness of the plaintiffs to file undertaking for compensating the defendant for the loss and damages incurred by them in the event of the plaintiffs' suit failing.

(36) - For all the foregoing reasons Ia 7657/94 is allowed. The defendants, their partners, trustees, agents, representatives and assignees are hereby restrained from manufacturing, selling, advertising or in any way using the trade mark <ORG> or any other trade mark deceptively or confusingly similar to the trade mark <ORG> in respect of their goods. The plaintiffs shall within 4 weeks from today place on record an undertaking in the shape of affidavits sworn in by their duly constituted attorney/s or representative/s undertaking to indemnify the defendants from any loss or damage which the defendants may incur on account of these proceedings and determined in this suit or any other duly constituted legal proceedings in the event of the plaintiffs being held not entitled to the relief sought for in the suit.

(37) By way of abundant caution I would like to clarify :

(I)As stated in the earlier part of this order the defendants have filed only a short counter for paucity of time. Legal contentions have all been raised by either party and dealt with by this order. If the defendants bring forth any new material consisting of facts documents and evidence which they could not do earlier they shall have the liberty of moving an application under Order 39 Rule 4 CPC.

(II)that nothing said hereinabove, shall prejudice in any manner the rights of either party to have their pleas determined on merits after a full-fledged trial.


PETITIONER: <NAME> Vs. RESPONDENT: COMMISSIONER OF INCOME-TAX, M.P., BHOPAL DATE OF JUDGMENT08/05/1981 BENCH: SEN, A.P. (J) BENCH: SEN, A.P. (J) PATHAK, R.S. VENKATARAMIAH, E.S. (J) CITATION: 1981 AIR 1759 1981 SCR (3) 849 1981 SCC (3) 441 CITATOR INFO : R 1984 SC 989 (1,2) F 1984 SC1990 (2) ACT: Voluntary Disclosure Scheme under section 24 of the Finance (No. 2) Act, 1965, Scope and effect of-Whether the acceptance of a disclosure statement made by a declarant under section 24 of the Finance Act, 1965 confers immunity on another person from tax liability in respect of the same sum of money-Whether section 24 has an overriding effect over section 68 of the Income Tax Act, 1961-Bar of double taxation-Section 18 of the Voluntary Disclosures of Income and Wealth Act , 1976 (Act 8 of 1976). HEADNOTE: During the course of the assessment proceedings of the assessee-firm for the assessment year 1967-68, the Income Tax officer noticed cash credits of Rs. 9,250 each in the names of five sons of the Managing Partner, in the books of the assessee. The Income Tax officer found that these creditors, who were minors, had no independent source of income. The assessee contended before the <ORG> that the five creditors had voluntarily disclosed the credits under section 24 of the Finance (No. 2) Act, 1965 and that the disclosures were accepted by the Commissioner. The <ORG> rejected the contention of the assessee and held that the cash credits in question were unexplained cash credits, that they represented the income of the assessee from undisclosed source, and accordingly made an addition of Rs. 46,250. The appellate Assistant Commissioner held that the acceptance of the voluntary disclosures under section 24(3) of the Act and the payment of tax thereon precluded the <ORG> from disputing the fact that the income belonged to the creditors, and, as the same income could not be taxed twice once in the hands of the creditors and again in the hands of the assessee, set aside the order of the <ORG>. The <ORG> disagreed with the Appellate Assistant Commissioner and upheld the order of the <ORG>. Hence the reference at the instance of the assessee under section 257 of the Income Tax Act, 1961 . Answering the reference against the assessee, the Court ^ HELD: Per Sen, J. 1. Section 24 of the Finance (No. 2) Act, 1965 cannot be construed as conferring any benefit, concession or immunity on any person other than the person making the declaration under the provisions of the Act. The scheme of the Act makes it abundantly clear that it was to protect only those who preferred to disclose the income they themselves had earned in The past and which they had failed to disclose at the proper time. The scheme only permitted the bringing 850 forward of income to tax; it did not require investigation of the claim of the declarant. The Act granted immunity only to the declarant and not to other persons to whom the income really belonged. [859 G-H, 860 A] 2. The legal fiction created by sub-s. (3) of s. 24 of the Finance (No. 2) Act, 1965 by virtue of which the amount declared by the declarant had to be charged to income-tax "as if such amount were the total income of the declarant", was limited in scope and it cannot be invoked in assessment proceedings relating to any person other than the person making the declaration, and did not take away the power vested in the <ORG> under section 68 of the Income Tax Act, 1961 to reject the' explanation of an assessee for a cash credit on the ground that the explanation was not satisfactory in the case of such other person. [861 F-G] 3. The finality under sub-s. (8) of section 24 of the Act was to the order of <ORG> under sub-s. (6) thereof and not to the assessment of tax made on the basis of a declaration made by the creditors under the scheme. There was, therefore, nothing to prevent an investigation into the true nature and source of the cash credits. [861 B, D] 4. The acceptance of voluntary disclosures under s 24 of the Act and the payment of tax thereon by the creditors could not, in law, justify the deletion of the amount of Rs. 46,250 as it represented the assessee's income from undisclosed sources. In a case of this description, there was no question of double taxation which was a situation of assessee's own making in getting false declarations made in the names of the creditors with a view to avoid higher slab of taxation. once it was found that the income declared by the creditors did not belong to them, there was nothing to prevent the same being taxed in the hands of the assessee to which it actually belonged. [861 H, 862 A-B, 863 <CITATION> , (1974) 95 I.T.R. 624 Gujarat; <CITATION> , (1975) 98 I.T.R. 657 Allahabad; <CITATION> , (1979) 120 I.T.R. 5 (Full Bench Allahabad) and Additional Commissioner of Income Tax v. <NAME>, (1980) 124 I.T.R. 297 Madhya Pradesh, approved. <CITATION> officer, 98 I.T.R. 681 Delhi; <CITATION> , (1980) 125 I.T.R. 18 <CITATION> ., (1977) 106 I.T.R. 84 Jammu & Kashmir, overruled. 5. The declaration made under sub-s. (2) of s.24 of the Income Tax Act , 1961 had to relate to income actually earned by the assessee. It did not require any investigation into the correctness of the declarations or any determination of the amounts belonging to the declarant. The mere charge to tax on the amounts under the Voluntary Disclosure Scheme could not have the effect of converting the money from the deductions from the books of the assessee into the income of The declarants if it did not belong to it. It was, therefore, open to the Income Tax officer to investigate into the source of the cash credit amounting to Rs. 46,250 standing in the books of the assessee in the names of the sons of the Managing Partner. [859 C-D, 860 F-G] 851 1. The making of an assessment against a declarant on his disclosure of statement under section 24 of the Finance (No. 2) Act, 1965 cannot deprive Income Tax officer of jurisdiction to assess the same receipt in the hands of another person if, in a properly constituted assessment proceeding under the Income Tax Act , the receipt can be regarded as the taxable income of such other person. [852 G- H, 853 A] 2. The liability imposed under section 24 of the Finance (No. 2) Act, 1965 is identifiable with the income tax liability under the Income Tax Act . The scheme for voluntary disclosure of income and its taxation is only another mode provided by law for imposing income tax and recovering it. Consequently the general principles which apply to assessments made under the Income Tax Act would, except for provision to the contrary, be applicable to assessments made under section 24 of the Finance (No. 2) Act, 1965. Accordingly when the assessment to income tax is made under the latter enactment, it will be governed by the general principle that a finding recorded therein governs only the particular person assessed. [852 B-D] 3. The finality enacted by sub.s. (8) of section 24 of the Finance (No. 2) Act, 1965 attaches to the assessment of the declarant only. It cannot in law operate in favour of or against any other person. [852 F] 3:1. The jurisdiction of an Income Tax officer when making an assessment is concerned primarily with the issue whether the receipt under consideration constitutes the income of the assessee before him. Any finding reached by the Income Tax officer touching a person not the assessee in the process of determining that issue cannot be regarded as an operative finding in favour of or against such person. The only exception of this rule centers on the limited class, and for the limited purpose, defined by <ORG> in Income Tax Officer, A-Ward, Sitapur v. <NAME>, 52 I.T.R. 335 at 346. [852 <CITATION> ,  3 SCR p. 402 and Income Tax Officer, A- Ward, Sitapur v. <NAME>, 52 ITR 335 at 346, applied. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Tax Reference Case No. 19 of 1975.

Tax Reference u/s. 256 of the Income Tax Act , 1961 made by <ORG>, <ORG>, Jabalpur in R.A. No. 221/Jab/73-74 arising out of I.T.A. No. 1560 (Jab)/1972-73 decided on 10-1-1974; Assessment Year 1967-68.

<NAME>, <NAME> and <NAME> for the Petitioner <NAME>, <NAME> and Miss <NAME> for the Respondent.

The Judgment of <NAME> and <NAME> JJ. was delivered by Sen, <NAME>, J. gave a separate opinion.

<NAME>, <NAME>: I agree. The acceptance of a disclosure statement made by a declarant under s.24 of the Finance (No.

2) Act, 1965 cannot confer immunity on another person from tax liability in respect of the same sum of money. As was held by this Court in <CITATION> the liability imposed under s.24 of the Finance (No. 2) Act, 1965 is identifiable with the income tax liability under the Income-tax Act . The scheme for voluntary disclosure of income and its taxation is only another mode provided by law for imposing income tax and recovering it. Consequently, the general principles which apply to assessments made under the Income-Tax Act would except for the provision to the contrary, be applicable to assessments made under s.24 of the Finance (No. 2) Act, 1965. Accordingly, when the assessment to income tax is made under the latter enactment, it will be governed by the general principle that a finding recorded therein governs only the particular person assessed. The jurisdiction of an Income Tax officer when making an assessment is concerned primarily with the issue whether the receipt under consideration constitutes the income of the assessee before him. Any finding reached by the Income Tax officer touching a person not the assessee in the process of determining that issue cannot be regarded as an operative finding in favour of or against such person. The only exception to this rule centres on the limited class, and for the limited purpose, defined by this Court in Income-Tax Officer, <NAME> v. <NAME>. Viewed in the light of that principle it is apparent that the finality enacted by sub-section (8) of section 24 of the Finance (No.

I am of opinion that the making of an assessment against a declarant on his disclosure statement under s.24 of the Finance (No. 2) Act, 1965 cannot deprive an Income Tax officer of jurisdiction to assess the same receipt in the hands of another person if, in a properly constituted assessment proceeding under the Income Tax A Act , the receipt can be regarded as the taxable income of such other person. I would answer the first question in the affirmative, in favour of the <ORG> and against the assessee. That being so, no answer is necessary to the second question. The Commissioner of Income-Tax is entitled to his costs of the reference.

<NAME>, J. This is a direct reference under s. 257 of the Income Tax Act, 1961 made by <ORG> (<ORG>, Jabalpur, for short, The Appellate <ORG>), at the instance of the assessee. The reference is necessitated due to divergence of opinion, as reflected in the various decisions of different <ORG>, with respect to the scope and effect of the Voluntary Disclosure Scheme under s. 24 of the Finance (No. 2) Act, 1965 (the 'Act', for short).

The assessee, Messrs. <NAME>, is a partnership firm. The firm consists of 4 partners, namely, <NAME> and his 3 major sons, <NAME>, <NAME> and <NAME> with his minor son <NAME> admitted to the benefits of the partnership. In the course of assessment proceedings for the assessment year 1967-68, the relevant accounting year of which was the year ending Diwali, 1966, the Income Tax officer (ITO, for short) noticed in the books of account of the asssesee five Cash credits of Rs. 9,250 each in the names of five sons of <NAME>, as detailed below:

Rs.

<NAME> 5 yrs. 9,250/- <NAME> 9 yrs. 9,250/- <NAME> 7 yrs. 9,250/- <NAME> 16 yrs. 9,250/- <NAME> 18 yrs. 9,250/- -------- 46,250/- ---------

The <ORG> accordingly called upon the assessee to explain the genuineness as well as the source of the cash credits. On being questioned, <NAME> the Managing Partner, disavowed ail knowledge as to the capacity of the creditors to advance the amounts in question.

On the contrary, he admitted that the creditors had no independent source of income of their own. In fact, he further stated that he could not explain the source of the cash credits.

It was contended before the <ORG> that the creditors having made voluntary disclosures under the Voluntary Disclosure Scheme and the disclosures made by them having been accepted by the Commissioner of Income Tax and tax paid thereon, the amount of Rs. 46,250 could not be treated as income of the assessee from undisclosed sources. The <ORG>, however, held that the disclosures made under the scheme granted immunity from further taxation only to the declarant, and not to person to whom the income actually belonged. He further held that the assessee having failed to prove the genuineness and source of the cash credits, the amount of Rs. 46,250 credited in the books of account of the assessee in the names of the creditors, who had no income of their own must be treated as the assessee's income from undisclosed sources. According to him, such cash credits were treated in their names after making false declarations under the Scheme, with a view to avoid a higher rate of taxation. He accordingly made an addition of Rs. 46,250 as assessee's income from undisclosed sources.

The Appellate Assistant Commissioner disagreed with the <ORG>, holding that when an amount was disclosed by a person under s. 24 of the Act, there was an immunity not only as regards the declarant, but there was also a finality as to the assessment. In his view, the entire statement of <NAME> had to be ignored, as it was not clear in what capacity the questions were put to him and the answers elicited because any investigation into the source of the deposits was prohibited and illegal under the Act. He accordingly held that the acceptance of the voluntary disclosures made by the creditors in question to the Commissioner and the payment of tax thereon precluded the <ORG> from disputing that the income belonged to the said creditors-and as the same income cannot be taxed twice, once in the hands of the creditors and again in the hands of the assessee, the order passed by the <ORG> in that behalf was unsustainable. The Appellate Assistant Commissioner, therefore, directed the deletion of Rs. 46,250. The <ORG> went up in appeal before <ORG>.

<ORG>, however, disagreed with the Appellate Assistant Commissioner and upheld the decision of the <ORG>. It was of the opinion that the <ORG> was justified in treating the cash credits appearing in the books of account of the assessee in the names of the creditors as unexplained cash credits, since it was found that the A income declared by the creditors did not belong to them, and there was nothing to prevent the same being taxed in the hands of the assessee to which it actually belonged. According to the <ORG> the immunity under s. 24 of the Act was conferred on the declarant only, and there was nothing to preclude an investigation into the true nature and source of the credits. <ORG>, after taking into consideration the statement of <NAME>, and having regard to the age of the creditors and the fact that none of them had any independent source of income at any time, held that the <ORG> was justified in holding that the asssessee failed to discharge the burden of proof under s. 68 of the Income Tax Act, 1961 in regard to the nature and source of the cash credits and, therefore, it had to be treated as the assessee's income from undisclosed sources. Thereupon, the assessee applied to the Appellate <ORG> under s. 256 of the Income Tax Act , 1961 to refer the question of law arising out of its order, to <ORG> for its opinion.

There being a conflict of opinion between the different <ORG> as to the true nature of the immunity granted under s. 24 of the Act, <ORG> has made a reference under s. 257 of the Income Tax Act, 1961 to this <ORG>, of the following questions of law, for its opinion, namely:

1. Whether on the facts and in the circumstances of the case, it was open to the <ORG> authorities to investigate into the genuineness of the five credits aggregating to Rs. 46,250 and records a finding in regard thereto, when the Disclosure petitions made by the five creditors under Section 24 of the Finance (No. 2) Act, 1965, had been acted upon by the <ORG> authorities ?

2. If the answer to the first question is in the negative and in favour of the assessee, whether the addition of Rs. 46,250 to the income of the assessee as representing its income from undisclosed sources, for the assessment years 1967-68, is valid and justified in law ?

The main question in controversy lies within a narrow compass. The question, in fact, is whether the provisions of s. 24 of the Act can be construed as conferring any benefit, concession or immunity on any person other than the person making the declaration under the provisions of the Act. It may be mentioned that to avoid any room for doubt, the legislature has introduced s. 18 in the Voluntary Disclosures of Income and Wealth Act , 1976 (Act No. 8 of 1976) which specifically provides that save as otherwise provided in the Act, nothing contained in the Act shall be construed as conferring any benefit, concession or immunity on any person other than the person making the declaration under the provisions of the Act. The question for consideration is whether the absence of such a provision as is found in Act No. 8 of 1976 leads to the consequence that acceptance of a declaration under s. 24 of the Act confers a benefit which is not provided by the Act on a person other than the declarants and takes away the power of the <ORG> under s. 68 of the Income Tax Act, 1961 to make an investigation as to the nature and source of a cash credit appearing in the books of the assesssee to reject the explanation offered by the assessee as unsatisfactory and to treat it as his income from undisclosed sources.

Section 24 of the Finance (No. 2) Act, 1965 provided for the making of voluntary disclosures in respect of amounts representing income chargeable to tax under the Income Tax Act 1922 or the Income tax Act, 1961, for any assessment year commencing on or before April 1, 1964. On such disclosure being made under sub-s. (I) thereof, in the manner provided by sub-s. (2) the amount was to be charged to Income tax in accordance with sub-s. (3) which provided by a legal fiction that income tax shall be charged on the amounts of voluntarily disclosed income at certain specified rates "as if such amount were the total income of the declarant". There was a safeguard provided in sub-s. (4) that the benefit under the scheme would be available only in respect of the voluntarily disclosed income and not in respect of the amount detected or deemed to have been detected by the <ORG> before the date of declaration. When the Commissioner of Income Tax passed an order under sub-s. (4) there was an appeal provided to <ORG> under sub-s. (S) and the <ORG> was empowered under sub-s. (6) to pass such orders thereon as it deemed fit. There was a finality attached to the order of the <ORG> under sub-s.

In support of the reference, learned counsel for the assessee has, in substance, put forth a three-fold contention. It is submitted, firstly, that the <ORG> could not have treated the cash credits standing in the names of the sons of <NAME>, the Managing Partner as . the assessee's income from undisclosed sources, having regard to the fact that each one of them had made a declaration under sub-s. (I) and paid tax thereon under sub- s. (3). The submission is that it is not permissible for the <ORG> to go into the question of the nature and source of the amount so declared in a voluntary disclosure under s.24 of the Act, and to say that it does not represent the income of the declarant. Secondly, it is urged that sub-s. (I) read with sub-s. (3) of s.24 of the Act has a overriding effect over s.68 of the Income Tax Act , 1961 and, therefore, the <ORG> could not make any investigation as to the nature and source of the cash credits, and thirdly, it is submitted that there cannot be double taxation of the same income, once in the hands of the creditors and again in the hands of the assessee. These submissions proceed on a wrongful assumption that there is a finality attached under sub-s. (8) to the legal fiction created by sub-s. (3) for which there is no basis whatever. The contentions cannot, in our opinion, prevail.

For an appreciations of the contentions raised, it is necessary to set out the relevant provisions of s.24 of the Act. Sub-s. (1), insofar as relevant reads .

(1) Subject to the provisions of this section, where any person makes, on or after the 19th day of August, 1965, and before the 1st day of April, 1966, a declaration in accordance with sub-section (2) in respect of the amount representing income chargeable to tax under the Indian Income-tax Act , 1922 , or the Income-tax Act , 1961 , for assessment year commencing on or before the 1st day of April, 1964-

(a) for which he has failed to furnish a return within the time allowed under section 22 of the Indian Income-tax Act, 1922 , or section 139 of the Income-tax Act, 1961 , or G

(b) which he has failed to disclose in a return of in come filed by him on or before the 19th day of August, 1965, under the Indian Income Tax Act , 1922  or the Income Tax Act , 1961 , or

(c) which has escaped assessment by reason of the omission or failure on the part of such person to make a return under either of the said Acts to the Income-tax officer or to disclose fully and truly 11 material facts necessary for his assessment. he shall, notwithstanding anything contained in the said Acts, be charged income-tax in accordance with sub-section (3) in respect of the amount so declared or it more than one declaration has been made by a person the aggregate of the amounts declared therein, as reduced by any amount specified in any order made under sub-section (4) or, if such amount is altered by an order of the <ORG> under sub-section (6), then such altered amount...............

Sub-s. (3) containing the legal fiction reads as follows:

(3) Income-tax shall be charged on the amount of the voluntarily disclosed income-

(a) where the declarant is a person other than a company, at the rates specified in paragraph A, and

(b) where the declarant is a company, at the rates specified in Paragraph F, of Part I of First Schedule to the Finance Act (X of 1965) as if such amount were the total income of the declarant Sub-s. (8) on which strong reliance is placed, runs thus:

(8) An order under sub-section (6) shall be final and shall not be called in question before any Court of law or any other authority.

The crux of the matter is whether the provisions of s.24 of the Act can be construed as conferring any benefit, concession or immunity on any person other than the person making the declaration under the provisions of the Act. The question is whether the non-obstente clause contained in sub-s. (I) of s. 24 of the Act precludes the <ORG> from proceeding against the person to whom the income actually belonged. The contention that there was an immunity not only as regards the declarant, but there was also a finality as to the assessment under s.24 of the Act stems from a misconception of the nature and scope of the Voluntary Disclosure Scheme.

Under sub-s. (I) of s.24, a person was required to make a voluntary disclosure in respect of the amount representing the income chargeable to tax under the Indian Income Tax Act , 1922 or the Income Tax Act , 1961 for any assessment year commencing on or before April 1, 1964. Sub s. (I) makes it clear that the declarations, which were expected to be made in the manner provided by sub-s. (2), were with regard to the income which was chargeable to tax under the Income Tax Act s of 1922 or 1961, but which was not disclosed at the proper time. Neither under the Act of 1922 nor under the Act of 1961, was a person required to submit a return with regard to the income which was either not earned or deemed to have been earned by him. It, therefore, follows that the declarations under sub-s. (2) of s.24 had to relate to income actually earned by him. The scheme only permitted the bringing forward of income to tax it did not require investigation of the claim of the declarant. If a person made a declaration, the Commissioner was under an obligation to assess him to tax.

In respect of the voluntary disclosures made, a declarant acquired an immunity from further investigation as to the nature and source of the income. He also acquired certain benefits. One of the distinctive features of the scheme was that tax was chargeable on the whole of the disclosed income taken as a single block at rates prescribed for personal income or for corporate income under the Act, and not at an ad hoc concessional rate. Further, facilities were allowed to payment of tax in appropriate instalments extending over a period not exceeding four years, subject to a down payment of not less than 10% of the tax due and furnishing a security in respect of the balance. Income which had already been detected on the material available prior to the date of disclosure, was, however, to be assessed under the regular provisions of the Income Tax Act and not under the scheme. Any admissions made by a person in the declarations filed by him under the scheme in respect of such income were not to be used in assessing that income under the Income Tax Act . Under the scheme, the disclosed income was not to be subject to any further proceedings of assessment. The identity of the declarant was not to be revealed and he was also immune from penalty and prosecution for the past concealment of the disclosed income. It is, therefore, obvious that the Act granted immunity only to the declarant alone and not to other persons to whom the income really belonged.

The scheme of the Act makes it abundantly clear that it was to protect only those who preferred to disclose the income they themselves had earned in the past and which they had failed to disclose at the appropriate time. It is undoubtedly true that the Act was brought on the statute book to unearth the unaccounted money. But there is no warrant for the proposition that by enacting the same, the legislature intended to permit, or connive at, any fraud sought to be committed by making benami declarations. If the contentions were to be accepted, it would follow that an assessee in the higher income group could, with immunity, find out a few near relatives who would oblige him by filing returns under s.24 of the Act disclosing unaccounted income of the assessee as their own and claiming that the said income was kept by them in deposit with the assessee.

That takes us to the contention based on the legal fiction contained in sub-s. (3) of s.24 of the Act and the finality of the assessment, by virtue of sub-s. (8) thereof. The legal fiction contained in sub-s. (3) of s.24 of the Act, construed in the light of the other provisions; must mean that the income voluntarily disclosed shall be deemed to be the income of the declarant. The words "as if such income were the total income of the declarant" can only mean that even though the income did not actually belong to the declarant lt would be treated to be his income for purposes of payment of income tax under the scheme. If, therefore, a person made a false declaration with regard to income not earned by him, it is difficult to comprehend how the <ORG> could be prevented from proceeding against the person to whom the income actually belonged and during the course of whose assessment the concealed income is detected. It, therefore, logically follows that on a disclosure being made, the amount was not to be charged to income tax in accordance with sub-s. (3) of s.24 of the Act, taking the disclosed income as the taxable income of the declarant.

The immunity under s. 24 of the Act was conferred on the declarant only and there was nothing to preclude an investigation into the true nature and source of the credits. The <ORG> was, therefore, justified in treating the cash credits in the books of account of the assessee in the names of the creditors as unexplained cash credits. The finality under sub-s. (8) is to the order of <ORG> under sub-s. (6). Under sub-s. (4) the Commissioner of Income Tax was required, within thirty days, if satisfied that the whole or any part of the income declared had been detected or deemed to have been detected by the <ORG> prior to the date of declaration, to make an order in writing to that effect and forward a copy thereof to the declarant. Any person who objected to such an order could appeal under sub- s. (5) to <ORG> stating the grounds for such an objection. The <ORG> was empowered to pass such orders as it thought fit under sub-s. (6). This order of the <ORG> under sub-s. (6) was final and conclusive by reason of sub-s. (8). Thus, the finality under sub-s. (8) was to the order of the <ORG> under sub-s. (6) of s. 24 and not to the assessment of tax made on the declarations furnished by the creditors under the scheme, by virtue of the legal fiction contained in sub-s. (3) of s. 24 of the Act.

The next question that calls for determination is whether the non-obstante clause contained in sub-s. (1) of s. 24 of the Act precludes the <ORG> from proceeding against the person to whom the income actually belonged. Under sub-s. (1) of s. 24 the declaration was required to be made in respect of the amount which represented the income of the declarant. The declaration could not be made in respect of an amount which was not the income of the declarant. If, therefore, a person made a false declaration with respect to an amount which was not his income, but was the income of somebody else, then there was nothing to prevent an investigation into the true nature and sources of the said amount. There was nothing in s. 24 of the Act which prevented the ITO, if he was not satisfied with the explanation of an assessee about the genuineness or source of an amount found credited in his books, in spite of its having already been made the subject of a declaration by the creditor and then taxed under the scheme. We find no warrant for the submission that s. 24 had an overriding effect over s. 68 of the Income Tax Act , 1961, insofar as the persons other than the declarants were concerned.

In our judgment, the legal fiction created by sub-s. (3) of s. 24 of the Act by virtue of which the amount declared by the declarant was to be charged to income tax "as if such amount were the total income of the declarant" was limited in its scope, and it cannot be invoked in assessment proceedings relating to any person other than the person making the declaration under the Act so as to rule out the applicability of s. 68 of the Income Tax Act, 1961.

The last question that remains is whether the same income cannot be taxed twice, once in the hands of the creditors and again in the hands of the assessee. In a case of this description, there is no question of double taxation. The situation is of the assessee's own making in getting false declarations filed in the names of the creditors with a view to avoid higher slab of taxation. Once it was found that the income declared by the creditors did not belong to them, there was nothing to prevent the same being taxed in the hands of the assessee to which it actually belonged.

It follows that the decisions of <ORG> in <CITATION> Court in <CITATION> , and <ORG> v. Commissioner of Income Tax, Lucknow and of <ORG> in Addl. <CITATION> which lay down the true scope of the Voluntary Disclosure Scheme under s. 24 of the Act must be upheld. The decisions of <ORG> in <CITATION> and <NAME> v. C.I.T. and of <ORG> in <CITATION> ., taking a view to the contrary, are overruled.

The <ORG> officer was entitled to determine whether the amount disclosed was or was not the income of the declarant, while dealing with the case of another assessee under s. 68 of the <ORG> Act , 1961. The legal fiction created by sub-s. (3) of s. 24 was restricted to the Voluntary Disclosure Scheme itself. The protection enjoyed by the declarant under that scheme extended only to the amounts so declared being not liable to be added, in any assessment, of the declarant. There was no absolute finality attached to the declaration especially when the nature and source of the sum declared was being determined for the purpose of its inclusion in the income of an assessee other than the declarant. There was, therefore, nothing which prevented the <ORG> officer from investigating into the nature and source of the sums credited in the books of account of an assessee and reject his explanation to the effect that the sums belonged to the persons who had made declarations about them under s. 24 of the Act.

Accordingly, the reference must be answered in favour of the <ORG> and against the assessee. Our answer to the first question is that the legal fiction created by sub-s. (3) of s. 24 of the Finance (No.2) Act , 1965 by virtue of which the amounts disclosed by the declarants had to be charged to income tax "as if such amount were the total income of the declarants" was limited in its scope and could not be invoked in the assessment proceedings relating to the assessee in whose books of account the cash credits appear. The answer to the first question is sufficient to dispose of the second. On the construction placed on sub-s. (3) of s. 24 of the Act, it must also be held that the ITO was justified in treating the cash credits appearing in the books of account of the assessee, amounting to Rs. 46,250 as the assessee's income from undisclosed sources, since the assessee failed to discharge the burden of proof placed upon him under s. 68 of the Income Tax Act, 1961. The Commissioner of Income Tax shall be entitled to his costs of the reference.

<NAME>


JUDGMENT Mrs. <NAME>, J.

1. This is a reference under section 256(1) of the Income-tax Act, 1961, at the instance of the assessee-company. The relevant assessment year is 1969-70, for which the previous year was from April 1, 1968, to March 31, 1969. During the relevant previous year, the assessee had valued its opening stock on the basis of costs plus overheads which was the method adopted by the assessee in the years prior thereto, so that the value of the closing stock for the year ending March 31, 1968, was carried forward as the value of the opening stock on April 1, 1968. The assessee, however, decided to change its method of valuation by valuing the stock at cost price only excluding the overheads. The assessee accordingly valued it closing stock for the assessment year in question, i.e., as on March 31, 1969, at cost price. The Income-tax Officer increased the gross profit rate in view of the difference in the method of valuation of opening stock and closing stock.

2. The assessee took the matter in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner recalculated the valuation of the closing stock by adding over heads to cost and determined the profit accordingly. In appeal before the <ORG>, the <ORG> held that the correct profit can only be arrived at by valuing the opening stock and closing stock at cost price excluding overhead expenses. It, however, directed the Income-tax Officer to redetermine the value of the opening stock at cost price after excluding all overheads.

3. From the decision of the <ORG>, the following question is referred to us :

"Whether the tribunal was right in directing <ORG> to revise and determine the value of the opening stock as on April 1, 1968, by excluding all overhead expenses ?"

4. It is not in dispute that under section 145 of the Income-tax Act, 1961, the assessee can adopt a method of valuation which has to be followed by it regularly. It is an accepted principle of accountancy that the value of the stock can be determined at cost price or market price, whichever is lower. In the present case, the assessee had adopted the cost price as a basis for valuing its stock. For the earlier previous years, however, the assessee determined the cost price by adding overheads to the cost of the stock, while in the relevant assessment year, it decided to change this methods by determining the cost price without taking into account overheads.

5. We are not here concerned with whether this is the correct method or an acceptable method for determining cost price. At no stage of the proceedings was the question ever raised as to whether it was permissible for the assessee to revalue its stock by not including in the cost price overhead expenses. The <ORG> has not dealt with this aspect, viz., the manner in which the closing stock has been valued in the present case. Therefore, the decision of <ORG> in the case <CITATION> . , is not attracted to the question before us for consideration. The decision of the <ORG> is on the footing that since the closing stick was valued by adopting a certain method, the same method should be adopted in valuing the opening stock. In other, words, the change in the method of valuation, according to the <ORG>, should commence with is to be adopted for valuing the opening stock of nay previous year by the new method which is to be adopted for valuing the closing stock as well. The assumption so made by the <ORG> appears to be contrary to the normally accepted accounting principles. Mr. <NAME> has drawn our attention to a booklet called "Valuation of stock and Work-in-Progress - Normally Accepted Accounting Principles" - brought out by <ORG> and written by <NAME>. At page 4 of this booklet there is a discussion about change from one valid basis to another valid basis. It states :

"2. Where a change from one valid basis to another valid basis as accepted certain consequences normally follow. The opening stock of the base year of valued on the same basis as the closing stock whether the change is to a higher level or to a lower level, the <ORG> normally does not seeks to revise to valuation of earlier years. It neither seek to raise additional assessment, nor does it admit relief under the error or mistake provisions.

3. It is not possible to define with precision what amounts to a change of basis. It is a convenience, both to the taxpayer and to the <ORG>, not to regard every change in the method of valuation as a change of basis. In particular, the <ORG> encourage the view that change which involves no more than a greater degree of accuracy, or a refinement, should not be treated as a change of basis, whether, the change results in a higher or a lower valuation. In such cases the new valuation is applied at the end of the year without amendment of the opening valuation."

6. The same principle has been adopted by <ORG> in <CITATION> . . It has said (headnote) :

"The two principles applicable with regard to the valuation of stock are that the assessee is entitled to value the closing stock either at cost price or market value, whichever is lower, and that the closing stock must be the value of the opening stock in the succeeding year. It is thus, clear, that irrespective of the basis adopted for valuation in the earlier years, the assessee has the option to change the method of valuation of the closing stock at cost or market price, whichever is lower, provided the change is bona fide and followed regularly thereafter."

7. Thus, the value of the closing stock of the preceding year must be the value of the opening stock of the next years. The change, therefore, has to be effected by adopting the new method for valuing the closing stock which will, in its turn, become the value of the opening stock of the next year. If, instead, a procedure is adopted for changing the value of the opening stock, it will lead to a chain reaction of changes in the sense that the closing value of the stock of the year preceding will also have to change and correspondingly the value of the opening stock of that year and so on. This was pointed out by <ORG> in the case of <CITATION> . . In the case before <ORG> also the valuation of opening stock had been done by the company on the basis of valuation for the closing stock to "direct cost", i.e., cost without overheads. This change in method was made bona fide and the assessee said that it would be adopting this method consistently in the future just as in the present case. The court in that case held :

"The change was a bona fide one and was a permanent arrangement which was to be followed year after year, the change would have to be accepted notwithstanding the fact that during the assessment year in question, which was the first year when the change of method was brought about, a prejudice or detriment might be caused to the revenue, because the opening stock was valued at total cost while stock was valued at direct cost."

8. It said (headnote) :

"If the assessee is called upon to apply the new method of valuation to the opening stock of the accounting year as well, the value of the closing stock of the year previous to the accounting year will also have to get altered which is result in a modification of the assessment of that previous year."

9. The same reasoning has been adopted by <ORG> in the case of <CITATION> . . Before <ORG> also, the assessee was valuing its closing stock, in the past years, by what is known as total cost method in which the proportionate over heads for administrative expenses, selling expenses and interest in stock valuation, were taken into account, for the assessment year in question, the assessee adopted the works cost system where the administrative overheads were not taken into account. The court held :

"Change in the method had to be effected with change in the at valuation of the closing stock of the first year and that the <ORG> was right in holing that opening stock should be revalued, was incorrect."

10. Similar question was dealt with by <ORG> in the case of <CITATION> , in a similar manner.

11. Reliance was placed by the <ORG> on a decision of <ORG> in the case of <CITATION> . . In the case before <ORG> both the opening and closing stock were undervalued. The Privy council observed in this connection :

"Mistake cannot be rectified by raising valuation of closing stock only, the valuation of both the opening and closing stock had to be raised."

12. This decision has no application to the question before us which deals with the change method of valuation and the manner in which such change has to be brought about. Whenever, there is a change in the method of valuation. There is bound to be some distortion in the calculation of profit in the year in which the change takes place. But if the change is brought about bona fide and is no reason why such a change should not be permitted. Undoubtedly, the proviso to section 145 of the Income-tax Act, 1961, lays down that :

"Provided that in any case where the accounts are correct and complete to the satisfaction of the assessing Officer but the method employed is such that, in the opinion of Assessing Officer, the income cannot properly be deduced therefrom, then the computation shall be made upon such basis and in such manner as the Assessing officer may determine."

13. This is not such a case. The only question is whether the opening stock is also required to be revalued by excluding all overhead expenses when the assessee has been permitted to revise the method of valuing the closing stock for that year, as the assessee has decided to adopt this new method of valuation henceforth.

14. For the reason set out above, the direction given by the <ORG> to revise and determine the value of opening stock also by excluding all overhead expenses, is not justified. We are not called upon to decide whether the method adopted for valuing the closing stock is in accordance with law and/or accounting practice. The question referred to us is, therefore, answered in the negative and in favour of the assessee. No order as to cost.

15. Certified copy be expedited.