Commissioner of Income-tax, Delhi (Now Jaipur) Vs. Mewar Textile Mills Ltd., Bhilwara - Court Judgment

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direct taxation - assessment - appeal filed against order that assessee not liable to tax in respect of goods sold by assessee on railway receipts in names of consignees to tune of rs. 273488 effected in assessment year 1943-44 - whether profits earned by sales were taxable in british india - sales were effected at bhilwara - purchasers became owners of cloth purchased at bhilwara - sales took place outside british india - railway receipts sent by assessee to its customers in british india by post - purchaser paid sale price to banker who was bankers of assessee - department failed to establish that banker was agent of assessee - held, assessee was not liable to tax. - [k. subba rao, c.j.,; j.m. shelat,; m. hidayatullah,; r.s. bachawat, jj.] between may 1961, and may 1962, consolidation proceedings were taken under the east punjab holdings (consolidation and prevention of fragmentation) act, 1948, in an estate in which the appellant was a small proprietor holding land within the ceiling limit. the scheme for consolidation provided for taking of a fraction of each proprietor's land and throwing into a common pool which was added to the land already in the possession of the gram panchayat. but no portion of the common pool apart from what was already owned by the panchayat, was reserved for providing income to the panchayat. the ownership of the common pool was to vest in the proprietary body consisting of the several proprietors, and the gram panchayat was to manage and use it for the common needs and benefits of the estate, under r. 16(ii) of the punjab holdings (consolidation and prevention of fragmentation) rules, 1949, so that, the proprietors and non-proprietors would share in the benefits. the appellant filed a writ petition in 1965, contending that : (1) the consolidation officer was not appointed till after the repartition was concluded, that he could not be appointed retrospectively, that he had no legal authority when he commenced the proceedings, and therefore, the scheme was invalid; and-(2) the scheme amounted to "acquisition by the state" within the meaning of the second proviso to art. 31a(1) of the constitution, with the result that compensation to the proprietor at the market rate was payable. the high court dismissed the petition. on appeal, held: (per subba rao, c. j., sikri and bachawat jj.) (1) the consolidation officer had no authority to act as such before he was appointed and what he did, purporting to act as such officer, had no binding effect on the owners. further, the state government could not appoint him and clothe him with authority retrospectively. but, as the appellant was guilty of laches and no manifest injustice was done to him, the high court was right in rejecting the contention. [147 b-d] (per hidayatullah and shelat, jj.) : as the petition was filed more than three years after the completion of the repartition of holdings. the contention should not be entertained in the face of the presumption under s. 114, indian evidence act, namely, that the officer must have been appointed to act is such, as without such appointment he would not have acted. [154 b] (2) (per subba rao, c. j. sikri and bachawat, jj.). the words acquisition by the state" in the second proviso to art. 31a(1) do not have any technical meaning. in the context of art. 31a the expression must have the same meaning as it has in art. 3 1a(1) (a). the essential difference between "acquisition by the state" on the one hand and "modification or extinguishment of rights" on the other, is that in the first case the beneficiary is the state while in the second the beneficiary is not the state. therefore, if the state has in substance acquired all the rights in the land for its own purposes, even if the title -remains with the owner, it cannot be said that it is not acquisition within the proviso. [149 b-d; 150 g] state of west bengal v. subodh gopal bose [1954] s.c.r. 587,dwarkadas shriniwas v. the sholapur spinning and weaving co. ltd., 11954] s.c.r. 674, saghir ahmad v. state of u.p. [1955] 1 s.c.r. 707 and bombay dyeing and mfg. co. ltd. v. state of bombay, [1958] s.c.r. 1122, followed. but on the facts of this case, the beneficiary of the modification of rights was neither the state nor the panchayat; and therefore, there was no acquisition by the state within the second proviso. as a result of the scheme the title to the small fraction of land which was taken away for forming the common pool remained in the proprietary body of the holders in the estate and in the revenue records, the land would be shown as belonging to all the owners in proportion to their areas. the gram panchayat would manage it on behalf of the proprietary body and use it for common purposes,and the proprietors would enjoy the benefits. even the satisfaction and advancement of the non-proprietors who derived benefits from the common pool would enure to the advantage of the proprieters who would from a more efficient agricultural community. [152 e-g] altar singh v. state of u.p. [1959] supp. 1 s.c.r. 928, followed. per hidayatullah and shelat, jj. (dissenting) : article 31a deals with the special subject of "estates" and its intention is to give protection to state action against arts. 14, 19 and 31 so long as the acquisition is by the state of any estate, or of any rights therein or the extinguishment or modification of any -such rights. to this protection there is an exception, namely, the second proviso, under which land under the personal cultivation of any estate-holder of any kind, which is within the ceiling limit applicable to him, shall not be acquired unless the market value of the land is given as compensation. the word "acquisition" used in the proviso must take its colour from the same word used earlier in the same article, and not from the word as used in an earlier article in juxtaposition with the word "requisition". it denotes not only the acquisition of ownership, that is, the entire bundle of rights, but also acquisition of some rights which leaves the owner, an owner in name only [162 e-163 a] in the present case the 'result of the scheme would be that (i) the proprietor was deprived of his property though only of a small portion; (ii) though the ownership was vested in the proprietary body ill rights with 'regard to the management and income therefrom were vested in the gram panchayat established under punjab gram panchayat act, 1953; (iii) the ownership was therefore transferred to another body, the gram panchayat, which is an entity different from the proprietor. it is a local authority included within the definition of "state" in art. 12, and (iv) the benefit of the income of such lands goes not to the proprietor only, but to all proprietors and non-proprietors in the panchayat area. therefore, although the property is not actually vested in the state government or the panchayat, the panchayat acquires almost the entire bundle of rights. hence, it is "acquisition" by the state within the meaning of the second proviso and compensation at market value must be given. [163 d-h; 164 a] moreover, the fact that what was acquired was a small bit has no significance. what is small is vague and uncertain, and the safer rule is, that, if the land of the tenant cultivating it is below the ceiling fixed by law, and if a portion of it is acquired, no matter for what purpose the acquisition takes place, compensation at -a 'rate not lower than the market value must be paid to him. when the constitution speaks of market value, it is not possible to find compensation in advantages which might accrue indirectly. [164 b-c] - after receiving the railway receipts, the purchasers appear to have paid the sale price to a banker who is the banker of the assessee as well. the department appears to have failed to establish the fact that the banker functioned as the agent of the assessee.k.s. hegde, j.1. this is an appeal by certificate. it has a long history. the assessment with which we are concerned relates to the assessment year 1943-44. this case along with other cases appears to have come in this court earlier and the matter was remanded to the high court for disposal in accordance with the directions given by this court. thereafter, the high court called for a supplementary statement from the tribunal. the tribunal, after setting out the material facts, has referred the following question to the high court:whether the tribunal was right in its finding that the assessee would not be liable to tax in respect of the goods sold by the assessee on railway receipts in the names of the consignees to the tune of rs 2,73,488/- effected in the assessment year 1943-44the high court has answered that question in the affirmative in favour of the assessee.2. the assessee is a dealer in cloth in the bhilwara town in one of the former indian states. he sold certain bales of cloth to dealers in the then british india. the total price realised in respect of those sales in the assessment year in question was rs. 2,73,488/-. the question for consideration is whether the profits earned by those sales are taxable in british india.3. the tribunal came to the conclusion that the sales were effected at bhilwara. the title to those properties sold passed to the purchasers at bhilwara itself. the goods were put on rail at bhilwara and the railway receipts were taken in the names of the consignees and sent to them by post. it cannot be disputed that the purchasers became the owners of the cloth purchased at bhilwara itself. this is also the finding of the tribunal. from this it follows that the sales in question took place outside british india. the only other question that remains to be considered is whether the income was realised in british india. as mentioned earlier, the railway receipts were sent by the assessee to his customers in british india by post. after receiving the railway receipts, the purchasers appear to have paid the sale price to a banker who is the banker of the assessee as well. the question for consideration is whether the banker received the money on behalf of the assessee or on behalf of the purchaser. the tribunal has come to the conclusion that the banker was the agent of the purchasers and not the agent of the assessee. this again is a finding of fact. the mere fact that the banker was also a banker of the assessee does not go to show that the banker realised amount as agent of the assessee. the department appears to have failed to establish the fact that the banker functioned as the agent of the assessee. if the banker had functioned as agent of the purchaser, then it cannot be said that any part of the income was realised in british india. mr. t.a. ramachandran, learned counsel for the revenue, sought to establish from the record that the finding of the tribunal is factually wrong. that is not a question that we can go into at this stage.4. in the result, this appeal fails and the same is dismissed with costs.