Input:
Appeal No. 517 of 1958.
Appeal from the judgment and order dated October 31, 1957, of the Kerala High Court in O. P. No. 215 of 1957.
G. B. Pai and Sardar Bahadur, for the appellant.
Hardyal Hardy and D. Gupta, for the respondents.
November 29.
The Judgment of the Court was delivered by SHAH, J.
C. A. Abraham hereinafter referred to as the appellant and one M. P. Thomas carried on business in food grains in partnership in the name and style of M. P. Thomas & Company at Kottayam.
M. P. Thomas died on October 11, 1949.
For the account years 1123, 1124 and 1125 M.E. corresponding to August 1947 July 1948, August 1948 July 1949 and August 1949 July 1950, the appellant submitted as a partner returns of the income of the firm as an unregistered firm.
In the course of the assessment proceedings, it was discovered that the firm had carried on transactions in different commodities in fictitious names and had failed to disclose substantial income earned therein.
By order dated November 29, 1954, the Income Tax Officer assessed the suppressed income of the firm in respect of the assessment year 1124 M.E. under the Travancore Income Tax Act and in respect of assessment years 1949 50 and 1950 51 under the Indian Income Tax Act and on the same day issued notices under section 28 of the Indian Income Tax Act in respect of the years 1949 50 and 1950 51 and 767 under section 41 of the Travancore Income Tax Act for the year 1124 M.E., requiring the firm to show cause why penalty should not be imposed.
These notices were served upon the appellant.
The Income Tax Officer after considering the explanation of the appellant imposed penalty upon the firm, of Rs. 5,000 in respect of the year 1124 M. E., Rs. 2,O00 in respect of the year 1950 51 and Rs. 22,000 in respect of the year 1951 52.
Appeals against the orders passed by the Income Tax Officer were dismissed by the Appellate Assistant Commissioner.
The appellant then applied to the High Court of Judicature of Kerala praying for a writ of certiorari quashing the orders of assessment and imposition of penalty.
It was claimed by the appellant inter alia that after the dissolution of the firm by the death of M. P. Thomas in October, 1949, no order imposing a penalty could be passed against the firm.
The High Court rejected the application following the judgment of the Andhra Pradesh High Court in Mareddi Krishna Reddy vs Income Tax Officer, Tenali (1).
Against the order dismissing the petition, this appeal is preferred with certificate of the High Court.
In our view the petition filed by the appellant should not have been entertained.
The Income Tax Act provides a complete machinery for assessment of tax and imposition of penalty and for obtaining relief in respect of any improper orders passed 'by the Income Tax authorities, and the appellant could not be permitted to abandon resort to that machinery and to invoke the jurisdiction of the High Court under article 226 of the Constitution when he had adequate remedy open to him by an appeal to the Tribunal.
But the High Court did entertain the petition and has also granted leave to the appellant to appeal to this court.
The petition having been entertained and leave having been granted, we do not think that we will be justified at this stage in dismissing the appeal in limine.
On the merits, the appellant is not entitled to relief.
The Income Tax Officer found that the appellant had, with a view to evade payment of tax, (1) 768 deliberately concealed material particulars of his income.
Even though the firm was carrying on transactions in food grains in diverse names, no entries in respect of those transactions in the books of account were posted and false credit entries of loans alleged to have been borrowed from several persons were made.
The conditions prescribed by section 28(1)(c) for imposing penalty were therefore fulfilled.
But says the appellant, the assessee firm had ceased to exist on the death of M. P. Thomas, and in the absence of a provision in the Indian Income Tax Act whereby liability to pay penalty may be imposed after dissolution against the firm under section 28(1)(c) of the Act, the order was illegal.
Section 44 of the Act at the material time stood as follows: "Where any business,. carried on by a firm. has been discontinued . every person who was at the time of such discontinuance . a partner of such firm,. shall in respect of the income, profits and gain of the firm be jointly and severally liable to assessment under Chapter IV for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment.
" That the business of the firm was discontinued because of the dissolution of the partnership is not disputed.
It is urged however that a proceeding for imposition of penalty and a proceeding for assessment of income tax are matters distinct, and section 44 may be resorted to for assessing tax due and payable by a firm business whereof has been discontinued, but an order imposing penalty under section 28 of the Act cannot by virtue of section 44 be passed.
Section 44 sets up machinery for assessing the tax liability of firms which have discontinued their business and provides for three consequences, (1) that on the discontinuance of the business of a firm, every person who was at the time of its discontinuance a partner is liable in respect of income, profits and gains of the firm to be assessed jointly and severally, (2) each partner is liable to pay the amount of tax payable by the firm, and (3) that the provisions of Chapter, so far as may be, apply to such assessment.
The liability declared by section 44 is 769 undoubtedly to assessment under Chapter IV, but the expression "assessment" used therein does not merely mean computation of income.
The expression "assessment" as has often been said is used in the Income Tax Act with different connotations.
In Commissioner of Income Tax, Bombay Presidency & Aden vs Khemchand Ramdas (1), the Judicial Committee of the Privy Council observed: "One of the peculiarities of most Income tax Acts is that the word "assessment" is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the tax payer.
The Indian Income tax Act is no exception in this respect. . ".
A review of the provisions of Chapter IV of the Act sufficiently discloses that the word "assessment" has been used in its widest connotation in that chapter.
The title of the chapter is "Deductions and Assessment".
The section which deals with assessment merely as computation of income is section 23; but several sections deal not with computation of income, but determination of liability, machinery for imposing liability and the procedure in that behalf.
Section 18A deals with advance payment of tax and imposition of penalties for failure to carry out the provisions there in.
Section 23A deals with power to assess individual members of certain companies on the income deemed to have been distributed as dividend, section 23B deals with assessment in case of departure from taxable territories, section 24B deals with collection of tax out of the estate of deceased persons; section 25 deals with assessment in case of discontinued business, section 25A with assessment after partition of Hindu Undivided families and sections 29, 31, 33 and 35 deal with the issue of demand notices and the filing of appeals and for reviewing assessment and section 34 deals with assessment of incomes which have escaped assessment.
The expression "assessment" used in these sections is not used merely in the sense of computation of income and there is in our judgment no ground for holding (1) 770 that when by section 44, it is declared that the partners or members of the association shall be jointly and severally liable to assessment, it is only intended to declare the liability to computation of income under section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof.
Nor has the expression, "all the provisions of Chapter IV shall so far as may be apply to such assessment" a restricted content: in terms it says that all the provisions of Chapter IV shall apply so far as may be to assessment of firms which have discontinued their business.
By section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest contumacious conduct of the assessee.
It is true that this liability arises only if the Income tax Officer is satisfied about the existence of the conditions which give him jurisdiction and the quantum thereof depends upon the circumstances of the case.
The penalty is not uniform and its imposition depends upon the exercise of discretion by the Taxing authorities; but it is imposed as a part of the machinery for assessment of tax liability.
The use of the expression "so far as may be" in the last clause of section 44 also does not restrict the application of the provisions of Chapter IV only to those which provide for computation of income.
By the use of the expression "so far as may be" it is merely intended to enact that the provisions in Ch.
IV which from their nature have no application to firms will not apply thereto by virtue of section 44.
In effect, the Legislature has enacted by section 44 that the assessment proceedings may be commenced and continued against a firm of which business is discontinued as if discontinuance has not taken place.
It is enacted manifestly with a view to ensure continuity in the application of the machinery provided for assessment and imposition of tax liability notwithstanding discontinuance of the business of firms.
By a fiction, the firm is deemed to continue after discontinuance for the purpose of assesment under Chapter IV.
The Legislature has expressly enacted that the provisions of Chapter IV shall apply to the assessment of 771 a business carried on by a firm even after discontinuance of its business, and if the process of assessment includes taking steps for imposing penalties, the plea that the Legislature has inadvertently left a lacuna in the Act stands refuted.
It is implicit in the contention of the appellant that it is open to the partners of a firm guilty of conduct exposing them to penalty under section 28 to evade penalty by the simple expedient of discontinuing the firm.
This plea may be accepted only if the court is compelled, in view of unambiguous language, to hold that such was the intention of the Legislature.
Here the language used does not even tend to such an interpretation.
In interpreting a fiscal statute, the court cannot proceed to make good deficiencies if there be any: the court must interpret the statute as it stands and in case of doubt in a manner favourable to the tax payer.
But where as in the present case, by the use of words capable of comprehensive import, provision is made for imposing liability for penalty upon tax payers guilty of fraud, gross negligence or contumacious conduct, an assumption that the words were used in a restricted sense so as to defeat the avowed object of the Legislature qua a certain class will not be lightly made.
Counsel for the appellant relying upon Mahankali Subbarao vs Commissioner of Income Tax (1), in which it was held that an order imposing penalty under section 28(1)(c) of the Indian Income Tax Act upon a Hindu Joint Family after it had disrupted, and the disruption was accepted under section 25A(1) is invalid, because there is a lacuna in the Act, submitted that a similar lacuna exists in the Act in relation to dissolved firms.
But whether on the dissolution of a Hindu Joint Family the liability for penalty under section 28 which may be incurred during the subsistence of the family cannot be imposed does not fall for decision in this case: it may be sufficient to observe that the provisions of section 25A and section 44 are not in pari materia.
In the absence of any such phraseology in section 25A as is used in section 44, no real analogy between the content of that section and section 44 may be assumed.
Undoubtedly, (1) 772 by section 44, the joint and several liability which is declared is liability to assessment in respect of income, profits or gains of a firm which has discontinued its business, but if in the process of assessment of income, profits or gains, any other liability such as payment of penalty or liability to pay penal interest as is provided under section 25, sub section
(2) or under section 18A sub sections
(4), (6), (7), (8) and (9) is incurred, it may also be imposed, discontinuation of the business notwithstanding.
In our view, Chief Justice Subba Rao has correctly stated in Mareddi Krishna Reddy 's case (supra) that: "Section 28 is one of the sections in Chapter IV.
It imposes a penalty for the concealment of income or the improper distribution of profits.
The defaults made in furnishing a return of the total income, in complying with a notice under sub section
(4) of section 22 or sub section
(2) of section 23 and in concealing the particulars of income or deliberately furnishing inadequate particulars of such income are penalised under that section.
The defaults enumerated therein relate to the process of assessment.
Section 28, therefore, is a provision enacted for facilitating the proper assessment of taxable income and can properly be said to apply to an assessment made under Chapter IV.
We cannot say that there is a lacuna in section 44 such as that found in section 25A of the Act.
We are unable to agree with the view expressed by the Andhra Pradesh High Court in the later Full Bench decision in Commissioner of Income Tax vs Rayalaseema Oil Mills (1), which purported to overrule the judgment in Mareddi Krishna Reddy 's case (supra).
We are also unable to agree with the view expressed by the Madras High Court in section V. Veerappan Chettiar vs Commissioner of Income Tax, Madras (2).
In the view taken by us, the appeal fails and is dismissed with costs.
(1) Appeal dismissed.

Output:
The appellant who was carrying on business in food grains in partnership with another person submitted the returns of the income of the firm for the accounting years even after his partner 's death.
It was found that certain income of the firm was concealed and the Income tax Officer not only assessed the firm to tax for the suppressed income but also imposed penalties for concealing the said income.
Appeals to the higher income tax authorities failed and the appellant then applied to the High Court for a writ of certiorari quashing the orders of assessment and imposition of penalty on the ground inter alia that the firm was dissolved by his partner 's death and no penalty could be imposed after dissolution of the firm, The High Court rejected the petition.
On appeal with the certificate of the High Court, Held, that by virtue of section 44 and other provisions of the Income Tax Act a partner of a dissolved partnership firm may not only be made liable to assessment for income tax for the accounting years but despite dissolution of the firm he may be made liable to pay penalty for concealing the income of the firm under section 28(1)(c) of the Act.
The analogy of dissolution of a Hindu joint Family does not apply to dissolution of a partnership.
Mareddi Krishna Reddy vs Income tax Officer, Tenali, , approved.
Commissioner of Income tax vs Ravalaseema Oil Mills, and section V. Veerappan Chettiar vs Commissioner of Income tax, Madras, , disapproved.
Mahankali Subbarao vs Commissioner of Income tax, , distinguished.
The Legislature intended that the provisions of Ch.
IV of the Act shall apply to a firm even after discontinuance of its business.
In interpreting a fiscal statute the Court cannot proceed to make good deficiencies if there be any.
In case of doubt it should be interpreted in favour of the tax payer.
The expression "assessment" has different connotations an has been used in its widest connotation in Ch.
IV and section 44 97 766 he Act.
It is not restricted only to computation of tax but includes imposition of penalty on tax payers found in the process of assessment guilty of concealing income.
Commissioner of Income tax, Bombay Presidency and Aden vs Khemchand Ramdas, , referred to.
The Income tax Act provided a complete machinery for obtaining relief against improper orders passed by the Income tax Authorities and the appellant could not be permitted to abandon that machinery, and invoke the jurisdiction of the High Court under article 226 of the Constitution against the orders of the taxing authorities.


Input:
No. 84 of 1958.
Petition under article 32 of the Constitution of India for enforcement of Fundamental Rights, G. C. Mathur, for the petitioners.
C. K. Daphtary, Solicitor General of India, B. Sen, R. H. Dhebar and T. M. Sen, for the respondent.
April 20.
The Judgment of the Court was delivered by GAJENDRAGADKAR, J.
This is a petition filed under Ga. article 32 of the Constitution challenging the validity of the excise tariff imposed by el.
(6) in entry 4(1) in the First Schedule to the (1 of 1944).
Petitioners Nos.
1 to 17 are tobacco cultivators and they carry on the trade and business of growing tobacco and of selling it in Kaimganj Tahsil in the District of Farrukhabad in Uttar Pradesh.
Petitioners 18 to 30 are partners or proprietors or agents of firms which are private bonded warehouse licensees and they carry on trade and business of purchasing tobacco from the cultivators and of selling the same to dealers or to other private warehouse licensees.
By their petition the petitioners have asked for a writ, direction or order in the nature of mandamus to be issued to the respondent, the Union of India, restraining it from levying excise duty on hooka and chewing tobacco under the impugned item and any other writ, direction or order which may be found suitable to 120 protect the fundamental rights of the petitioners to carry on their trade and business of dealing in hooka and chewing tobacco.
The attack against the validity of the impugned tariff item is based substantially on two grounds.
It is urged that the rates imposed by the impugned item are excessive and they virtually destroy the petitioners ' trade and it is argued that the impugned item is based on unconstitutional discrimination.
Mr. Mathur, for the petitioners, fairly conceded that he would not be able to substantiate the first ground of challenge, and indeed it is obvious that a challenge to tax law on the mere ground that the tariff imposed by the tax law is heavy cannot be enter tained.
That leaves the question of discrimination alone to be considered in the present petition.
For the purpose of this petition we will assume that if discrimination in respect of commodities taxed is proved it ultimately amounts to a discrimination against the persons taxed and therefore article 14 can be invoked in such a case.
Mr. Mathur contends that is the effect of the decision of this Court in Kunmathat Thathunni Moopil Nair, etc., vs The State of Kerala (1) and as we have just observed we will assume that such a challenge can be made against the validity of a taxing statute with provisions such as we have before us and deal with the petition on that basis.
The tariff entry in dispute as it now obtains under the taxing statute is entry 4 in the First Schedule.
It deals with tobacco.
Under this entry "tobacco" means any form of tobacco, whether cured or uncured and whether manufactured or not, and includes the leaf, stalks and stems of the tobacco plant, but does not include any part of a tobacco plant while still attached to the earth.
Clause I in entry 4 deals with unmanufactured tobacco and prescribes tariff per kilogram in respect of the several items specified in it.
Item (1) under this clause deals with five categories of tobacco which are flue cured and are used in the manufacture of cigarettes as indicated in the said five sub clauses.
Item (2) deals with tobacco which is flue cured and used for the manufacture of smoking (1) ; 121 mixtures for pipes and cigarettes.
Item (3) provides, for flue cured tobacco which is not otherwise specified; and item (4) is concerned with tobacco other than flue cured and used for the manufacture of (a) cigarettes or (b) smoking mixtures for pipes and cigarettes.
The, tariff varies from Rs. 16.15 nP. per kilogram to ' Rs. 1.65 nP. per kilogram.
That takes us to item (5).
This item deals with tobacco other than flue cured and not actually used for the manufacture of (a) cigarettes or (b) smoking mixtures for pipes and cigarettes or (e) biris.
The fourth clause under this item is tobacco cured in whole leaf form and packed or tied in bundles, banks or bunches or in the form of twists or coils.
For tobacco falling under the four clauses under item (5) the tariff is Rs. 1.10nP. per kilogram.
Clause (6) in this item with which we are concerned in the present petition deals with tobacco other than flue cured and not otherwise specified.
For this residuary clause the tariff prescribed is Rs. 2.20 nP. per kilogram.
This tariff is double the tariff prescribed for the classes in the preceding item.
Mr. Mathur 's grievance is that the tobacco with which the petitioners deal cannot be distinguished on any rational basis from the tobacco covered by item (5), cl.
(4), and so the imposition of a double tariff on the tobacco in which the petitioners deal is invalid inasmuch as it is based on unconstitutional discrimination.
The argument proceeds on the assumption that the tariff is prescribe by reference to the use to which tobacco is put and it is urged that the tobacco with which the petitioners are concerned is not actually used either for cigarettes or smoking mixtures or biris and the fact that it is broken and not whole leaf does not afford any rational basis for classification.
In dealing with.
this argument it would be relevant very briefly to refer to the report of the Tobacco Expert Committee whose recommendations have furnished the main basis for the present revised tariff in respect of tobacco.
In substance this report shows that the present tariff cannot be said to have been prescribed either wholly or even primarily by reference actually to the use of tobacco.
Tobacco, as the 16 122 Committee 's report points out, is a rich man 's solace and a poor man 's comfort.
Since it is used by all classes of people in various forms it is necessary to frame the tariff in such a way that the incidence of tax shall fall equitably on all classes of people using it.
The report then points out that the Intention Tariff based on the principle of intention was found to be, ineffective because the assessee 's declaration of intended use left large room for evasion of tax.
That is why the Intention Tariff was substituted by a flat rate of duty.
By experience it was found that even this method was not very effective or equitable and then was adopted the capability tariff.
Under this test the criterion of assessment was to be whether or not a particular specimen of tobacco was capable of use in bird manufacturing.
If so capable it was assessable on a higher rate, if not so capable then at a lower rate.
The report has examined the advantages of the capability tariff and has quoted the opinion of the Taxation Enquiry Committee which made its report in 1953.
The report considered the volume of evidence adduced before it and took into account all the suggestions made.
"In view of the practical difficulties brought before us", says the report, "we consider that, within the present tariff, the only workable and satisfactory method of classifying tobacco will be to prescribe standards readily identifiable either visually or by other simple tests and manipulations with a view to determine empirically what is capable and what is incapable of use in biris.
The position is complicated because the same tobacco is used for different purposes in different parts of the country according to the prevalent consumption habits of different types of tobacco"; and the Committee realised that any system of classification on a uniform basis for the whole of the Indian Union is bound to involve greater imposts on consumers of those areas where the prevalent custom is to consume a variety for chewing, snuff, hooka, cigar purposes while the same varieties are used in other areas for biris.
The conclusion of the Committee, therefore, 'was that the only criterion which is safe to adopt is the one relating to the physical form 123 of tobacco as affecting its suitability for biri making.
The Committee realised that it was very difficult to classify specified varieties as solely chewing tobacco because many of these varieties are also used for making snuff and for hooka purposes.
Normally, however, most chewing varieties are in whole leaf form and are ' cured by addition of moisture.
Tobacco cured in whole leaf form cannot be converted into flakes as readily as tobacco cured by dry curing methods, and in the opinion of the Committee, although it is possible to prepare flakes out of tobacco cured in whole leaf form the process of conversion into flakes causes much higher proportions to crumble into dust, raw and other unsalable forms.
The Committee was conscious that the whole leaf varieties after suitable manipulation can be utilised for biri manufacturing purposes but it thought that this could be done only after converting them into graded flakes, and even thereafter only by admixture with other tobacco on a small localised scale.
In regard to the broken leaf grades which the Committee recommended should be liable to assessment at the higher rate relief was recommended by permitting any owner to convert his broken leaf tobacco into fine rawa or dust in which form it will become physically unusable for biris.
According to the Committee, after such manipulation of physical form, the resultant, if it fulfils the specifications for rawa and dust, may be allowed assessment at the lower rate.
We have referred to these observations made by the Committee in its report because they clearly and emphatically bring out the distinction between "tobacco other than flue cured and not otherwise specified" which is the subject matter of the, residuary clause and "tobacco other than flue cured and not actually.
used for the manufacture of cigarettes or smoking mixtures for pipes or cigarettes or biris" covered by el.
By the test of physical form the two articles are different.
By the test of capability of user they are different and in a sense according to the Committee 's recommendations they partake of the character of different commodities.
In this connection it may be 124 pointed out that though the tariff impost on the tobacco falling under the impugned cl.
(6) is much higher, biris in the manufacture of which no process has been conducted with the aid of machines operated with or without the aid of power are not subject to any tariff, whereas cigars, chewing, cigarettes and biris in the manufacture of which any process has been conducted with the aid of machines operated with or without the aid of power are subject to tariff.
The problem which the Committee had to face was to classify tobacco other than flue cured which would be used for the manufacture of biris, and with that object cl.
(5) and el.
(6) have been devised.
Therefore, in our opinion, the distinction between tobacco falling under cl.
(5) and cl.
(6), according to the report of the Committee, is so clear and unambiguous and its relation to the object intended by the imposition of tariff is so clearly reasonable that the attack against its validity on the ground of unconstitutional discrimination cannot be upheld.
There is one more point to which Mr. Mathur referred and which may be incidentally considered.
Mr. Mathur contended that Nicotiana Rustica with which the petitioners deal is used exclusively for hooka and chewing in Uttar Pradesh.
The petition avers that the variety of Nicotiana Rustica which is used in biris is not grown in Uttar Pradesh and that all the tobacco which is grown in Kaimganj is Nicotiana Rustica which is either pit cured or ground cured.
It is used exclusively for hooka and chewing and is unfit for use in biris and cigarettes and is never so used.
The argument, therefore, is that this tobacco cannot, be legitimately taxed under the impugned clause.
Apart from the fact that the question as to whether the particular tobacco in which the petitioners deal falls under the impugned clause or not cannot be legitimately raised in a, petition under article 32, the answer to the plea is furnished by the counter affidavit and the report of the Committee.
In the counter affidavit the allegations made in regard to the exalusive user of Nicotiana Rustica are generally denied, and what is more the report of the Committee specifically points 125 out that though Rustica varieties of tobacco are generally not known to be used for biris, when they are cured in broken leaf grades they can be used with admixture with biri tobacco like Pandharpuri tobacco for imparting strength to biri mixtures, and so according to the Committee no generalisation in this matter is possible and it cannot be asserted that, all forms of this variety are incapable of use in biris.
Besides, it would be quite possible for dealers in the said varieties of tobacco to send them to other parts of the country where they are used for the purpose of manufacturing biris.
Therefore, the grievance made by the petitioners that the tobacco in which they deal can never be used for biris is obviously not well founded.
In the result the petition fails and is dismissed with costs.
Petition dismissed.

Output:
Item 5 of entry 4(1) of the First Schedule to the Central Excise and Salt Act, 1944, imposes an excise duty of Rs. 1 10 nP. per kilogram on tobacco other than flue cured and not actually used for the manufacture of cigarettes, smoking mixtures for pipes and cigarettes or birds in the whole leaf form.
Item 6 imposes a duty of Rs. 2 20 nP. per kilogram on tobacco in the broken leaf form.
The petitioners who dealt in tobacco in the broken leaf form contended that their tobacco could not be distinguished on any rational basis from the whole leaf form in Item 5 and the imposition of a double tariff on their tobacco was invalid as it was based on unconstitutional discrimination, the tariff being on the basis of use to which the tobacco was put.
119 Held, that there was no unconstitutional discrimination in the imposition of the excise duty on tobacco in the broken leaf form.
Tobacco in the broken leaf form was capable of being used in the manufacture of biris while tobacco in the whole leaf form could not be so used economically.
The two forms of tobacco were different by the test of capability of user.
The tariff was not based either wholly or even primarily by reference to the use of tobacco.
There was a clear and unambiguous distinction between tobacco in the whole leaf form covered by item 5 and tobacco in the broken leaf form covered by item 6 which had a reasonable relation to the object intended by the imposition of the tariff.
Kunmathat Thathunni Moopil Nair vs The State of Kerala, ; , referred to.


Input:
Appeal No. 303 of 1958.
Appeal from the judgment and order dated August 3, 1956, of the Bombay High Court in Incometax Reference No. 10 of 1956.
K. N. Rajagopal Sastri and D. Gupta, for the appellant.
N. A. Palkhivala, section N. Andley, J. B. Dadachanji and Rameshwar Nath, for the respondents.
May 4.
The Judgment of the Court was delivered by HIDAYATULLAH, J.
This is an appeal against the judgment and order of the High Court of Bombay dated August 3, 1956, in a reference under section 66 (1) of the Indian Income tax Act by the Appellate Tribunal, Bombay.
The Tribunal referred four questions for the decision of the High Court.
The High Court did not answer the first question because it was not pressed, and answered the remaining in the negative, after modifying them.
It has certified this case as fit for appeal to this Court, and hence this appeal.
The Com missioner of Income tax, Bombay City, is the appellant, and the Khatau Makanji Spinning and Weaving Co. Ltd., Bombay, (the assessee Company), is the respondent.
The assessee Company has its year of account ending June 30 every year.
At the close of the account year 1951, it carried forward profits amounting to Rs. 30,680.
In that year, it appears it had earned a rebate by declaring dividends below the limit fixed by the Finance Act.
For the account year 1952 its book profits were Rs. 28,67,235 less allowances for depreciation and tax.
After these and other sundry adjustments, the balance available for distribution was Rs. 5,02,915.
It may be pointed out that the Incometax Officer on processing the income found the total income to be Rs. 5,26,681.
For the account year 1952, the assessee Company declared dividends amounting to Rs. 4,78,950 and carried forward the balance of Rs. 23,965.
We are concerned with the assessment year 1953 54, and the Finance Act, 1953, is applicable.
That Finance 875 Act applied the Finance Act, 1951, with some changes.
The Finance Act, 1953, with the modifications will be referred to briefly, hereinafter, as the Finance Act.
The Income tax Officer found that the assessee Company had declared excess dividends amounting to Rs. 1,87,691.
He calculated additional income tax on it at 5 annas in the rupee after deducting income tax borne by the profits of the previous year at 4 annas per rupee, a surcharge of 5 per cent.
less rebate of one anna in the rupee as allowed by the Finance Act.
This additional tax amounted to Rs. 21,115 4 0.
The appeals of the assessee Company under the Income tax Act failed.
The Tribunal held that the excess dividends were deemed to be paid out of undistributed profits of earlier year ending June 30, 1951, amounting to Rs. 6,60,720 on which a rebate of 1 anna in the rupee was given in the assessment year, 1952 53.
Tile Tribunal observed that additional incometax was also a tax on income, and that the Finance Act could say that the tax would be payable on the income of any year preceding the previous year.
The Tribunal, however, referred four questions to the High Court, of which the first need not be quoted because it was abandoned before the High Court.
The other questions were: " (ii) If the answer to question No. 1 is in the negative whether the said provisions go beyond the ambit and scope of the Indian Income tax Act ? (iii) Whether additional income tax can be levied, assessed and recovered under the provisions of the Indian Income tax Act ? (iv) Whether at any rate the additional incometax has been legally charged under the Indian Finance Act, 1953, read with the Indian Incometax Act?" The High Court compressed the three questions into one, and it reads: " Whether additional income tax has been legally charged under clause (ii) of the proviso to paragraph B of Part 1 of the.
First Schedule to the Indian Finance Act, 1951, as applied to the assessment year 1953 54 by the Indian Finance Act, 1953, read with Section 3 of the Indian Income tax Act?" 876 This question was answered by the High Court in the negative.
In the opinion of the High Court, section 3 of the Indian Income tax Act lays down the liability to tax, and it puts the tax on the total income of the previous year.
The method of computing this total income is also to be found in the Finance Act.
The Finance Act merely provides the rate applicable to the income so found.
According to the High Court, the Finance Act in providing that additional income tax should be paid upon the accumulated profits of the previous years goes beyond the purpose for which the Central Act is passed every year, and cannot stand by itself without the support of section 3 of the Indian Income tax Act.
The High Court held that the Finance Act had ' misfired ', because it did not resort to legislation which would have conformed to the object for which the Finance Act was passed every year.
The learned Chief Justice, who delivered the judgment of the High Court, stated that there were several methods open to the legislature to achieve that purpose but that it had not resorted to any of them.
This is what the learned Chief Justice observed: " The Legislature could have achieved this object by one of three methods.
It could have treated the excess dividend declared by the company as a notional income and made it apart of the total income of the previous year.
It could have provided for rectification of the assessment of the year in which these profits were charged at a lesser rate, and we now find that Parliament has actually provided for this in the Finance Act, 1956.
Or, finally, it could have provided for a penalty imposed upon a company which transgressed the direction of Parliament that it should not pay dividend beyond a particular ceiling .
The ambit of Section 3 is clear and the ambit is that the tax to be levied must be a tax on income and the power of Parliament is equally clear and that is to fix the rate at which income tax is to be charged upon the total income of the previous year of the assessee.
In our opinion, the provision of the Finance Act travels beyond the ambit of Section 3, and if Parliament 877 has done so then no effective charge can be made on the total income of the previous year of the assessee under the provisions of the Finance Act which deals with additional tax on excess dividend.
" It may be pointed out that before the High Court it was conceded that in order that the provisions of the Finance Act might be effective, the Finance Act had to come within the scope of section 3 of the Incometax Act.
The point that was argued here was that it was not necessary to look only to section 3 of the Indian Income tax Act but also to the provisions of the Finance Act, through which Parliament could impose a new tax, if it so pleased.
Other arguments involved modifications of language suitable to sustain the tax independently of section 3 of the Indian Income tax Act, a procedure which we do not think is open, for reasons which we have given in Civil Appeal No. 427 of 1957, decided today.
These modifications, which were suggested, involve a recasting of the entire relevant paragraph of the Finance Act to make it independent of section 3 of the Indian Income tax Act, a course which is only open to a legislature and not to a Court.
We need not give all the modifications suggested, because, in our opinion, the words of the Finance Act must be given their due meaning, and must be construed as they stand.
The learned Chief Justice, with respect, very rightly pointed out that the Income tax Act puts the tax on income or something which it deems to be income.
In other words, the tax deals with income and income only.
It further provides that this tax shall be collected at a particular rate on the total income for which provision shall be made in an yearly Central Act.
The Finance Act also follows the same scheme, and lays down the rate at which the tax is to be collected.
In the Finance Act, the tax is laid on the total income, but two provisos modify the rate under certain circumstances.
We may at this stage read the relevant provision (Part 1, First Schedule): 878 B.
In the case of every company Rate.
Surcharge.
On the whole of Four annas One twentieth of total income.
in the rupee.
the rate specified in the preceding column: Provided that in the case of a company which, in respect of its profits liable to tax under the Income tax Act for the year ending on the 31st day of March, 1953, has made the prescribed arrangements for the declaration and payment within the territory of India excluding the State of Jammu and Kashmir, of the dividends payable out of such profits, and has deducted super tax from the dividends in accordance with the provisions of subsection (3D) or (3E) of section 18 of the Act (i) Where the total income, as reduced by seven annas in the rupee and by the amount, if any, exempt from income tax, exceeds the amount of any dividends (including dividends payable at a fixed rate) declared in respect of the whole or part of the previous year for the assessment for the year ending on the 31st day of March, 1953, and no order has been made under sub section (1) of section 23A of the Income tax Act, a rebate shall be allowed at the rate of one anna per rupee on the amount of such excess; (ii) Where the amount of dividends referred to in clause (i) above exceeds the total income as reduced by seven annas in the rupee and by the amount, if any, exempt from income tax, there shall be chargeable on the total income an additional income tax equal to the sum, if any, by which the aggregate amount of income tax actually borne by such excess (hereinafter referred to as ' excess dividend ') falls short of the amount calculated at the rate of five annas per rupee on the excess dividend.
For the purpose of clause (ii) of the above proviso, the aggregate amount of income tax actually borne by the excess dividend shall be determined as follows : 879 (i) the excess dividend shall be deemed to be out, of the whole or such portion of the undistributed profits of one or more years immediately preceding; the previous year as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover an excess dividend of a preceding year; (ii) such portion of the excess dividend as is deemed to be out of the undistributed profits of each of the said years shall be deemed to have borne tax, (a) if an order has been made under sub section (1) of section 23A of the Income tax Act, in respect of the undistributed profits of that year, at the rate of five annas in the rupee, and (b) in respect of any other year, at the rate applicable to the total income of the company for that year reduced by the rate at which rebate, if any, was allowed on the undistributed profits.
" By the first Proviso, a rebate of one anna per rupee is given to a company which pays dividends less than 9 annas in the rupee out of its profits.
By the second Proviso, the rebate disappears, and an additional income tax has to be paid on dividends in excess of that limit, paid in the year.
The explanation says that " the excess dividend shall be deemed to be out of the whole or such portion of the undistributed profits of one or more years immediately preceding the previous year as would be just sufficient to cover the amount of the excess dividend and as have not likewise been taken into account to cover an excess dividend of a preceding year ".
This fiction, as we have already pointed out, provides only that the dividends shall be deemed to be out of the profits not of the previous year under assessment but of some other years.
What the Finance Act fails to do is to make them " total income ", so as to take in the rate which is prescribed for the total income in the Proviso.
Unless the Finance Act stated that after the working out of the fiction the profits of the back year or years shall be deemed to be a part of the total income of the previous year under assessment, the purpose of the Act clearly fails.
Income tax is a tax on income 880 of the previous year, and it would not cover something which is not the income of the previous year, or made fictionally so.
The Finance Act could have gone further, as pointed out by the learned Chief Justice in the extract quoted, and made the profits a part of the total income of the previous year under assessment, but it did not do so.
The Finance Act could have also resorted to some other fiction, which might conceivably have met the case; but it has failed to do so.
Even if one considers the dividends as having come out of the profits of preceding years, they do not become the income of the relevant previous year, and unless the Finance Act expressly laid down that it should be taxed as part of the total income, the purpose is not achieved.
Indeed, the Finance Act continues to say that the tax shall be on the total income, as defined in the Indian Income tax Act and as determined under that Act.
It is impossible to say that the additional income tax was properly laid upon the total income, because what was actually taxed was never a part of the total income of the previous year.
For these reasons, we are of opinion that the High Court was right in answering the question which it had framed, in the negative.
In the result, the appeal fails, and is dismissed with costs.
Appeal dismissed.

Output:
The Income tax Officer found that in the assessment year 1953 54 the respondent assessee company had declared excess dividends amounting to Rs. 1,87,691 and he levied additional income tax on it at 5 annas in the rupee after deducting incometax borne by the profits of the previous year at 4 annas per rupee, a surcharge of 5 per cent.
less rebate of one anna in the rupee as allowed by the Finance Act, 1953.
The Income tax Tribunal held that the excess dividends were deemed to be paid out of undistributed profits of the earlier year ending June 30, 1951 on which a rebate of one anna in the rupee was given in the assessment year 1952 53.
It further observed that additional income tax was also a tax on income, and that the Finance Act could say that the tax would be payable on the income of any year preceding the previous year.
The Tribunal, however, referred three questions to the High Court which the High Court compressed into one as below : " Whether additional income tax has been legally charged under Clause (ii) of the proviso to paragraph B of Part 1 of the First Schedule :to the Indian Finance Act, 1951, as applied to the assessment year 1953 54 by the Indian Finance Act, 1953, read with section 3 of the Indian Income tax Act? " The High Court held that section 3 of the Indian Income tax Act put the liability to tax on the total income of the previous year or what can be deemed to be income.
The Finance Act provided the rate applicable to the income so found and a method of computing the total income.
The Finance Act in providing that additional income tax should be paid upon the accumulated profits of the previous years went beyond the purpose for which the Finance Act was passed every year, and the Finance Act could not stand by itself without the support Of section 3 of the Indian Income tax Act.
On appeal by the Commissioner of Income tax on certificate of the High Court: Held, that the High Court was right in answering the ques tion framed by it, in the negative.
The Finance Act provided that the tax should be levied on the " total income " as defined in and determined under the Indian Income tax Act.
The Additional income tax was not properly laid upon the total income because what was actually taxed was never a part of the total income of the previous year, nor deemed to be so. 874


Input:
ivil Appeal No. 4552 of 1989.
From the Judgment and Order dated 23.12.
1988 of the Rajasthan High Court in C.W.P. No. 13 of 1987.
G.L. Sanghi and Y.P. Rao for the Appellant.
C.S. Vaidyanathan, S.R. Setia and K.V. Mohan for the Respondents.
The Judgment of the Court was delivered by K. JAGANNATHA SHETTY, J.
Special leave granted.
Having heard counsel on both sides and having perused the material on record, we are of opinion that the matter requires reconsideration by the Provident Fund Commissioner.
The Food Corporation of India has depots located at various places in Rajasthan for handling storing and trans porting food grains and other articles.
It has appointed contractors for execution of such works and the contractors in turn engaged some workers.
In respect of such workers, the Provident Fund Commissioner called upon the Corporation to deposit contribution payable under the Employees, Provi dent Fund Act and the scheme framed thereunder.
When there was non compliance, the Commissioner made an order under section 7A of the said Act determining amount payable by the Corporation.
Being aggrieved by that determination, the Corporation moved the 757 High Court for relief under article 226 of the Constitution.
The High Court has dismissed the petition.
Hence the Corpo ration has appealed to this Court.
The grievance complained of by the Corporation is that it was denied of reasonable opportunity to produce material in proof of identification of the workers in respect of whom the contribution was payable.
It is urged that the contrac tors are in possession of the relevant lists and the Commis sioner has not even given notice to contractors nor made them parties to the proceedings in spite of repeated re quests made by the Corporation.
Counsel for the Union of Workmen, however, contended that under the provisions of the the Corporation being the principal employer has to maintain list of workers; that it has failed to produce such list and, therefore, it cannot throw the burden on the contrac tors to prove the case.
We have carefully perused the Commissioner 's order and also the order of the High Court.
The total amount ordered to be payable comes to about Rs.22,48,000 in respect of the employees of depots namely: Udaipur, Jaipur, Ajmer, Badmer and Sawai Madhopur.
The Commissioner has also directed the Divisional Officer, Jaipur to deposit the Provident Fund Contribution i.e. Rs. 18,72,194 to the Fund being maintained by the trustees of the establishment.
It is indeed a large amount for the determination of which the Commissioner has only depended upon the lists furnished by the workers, Union.
It is no doubt true that the employer and contractors are both liable to maintain registers in respect of the workers employed.
But the Corporation seems to have some problems in collating the lists of all workers engaged in depots scattered at different places.
It has requested the Commissioner to summon the contractors to produce the re spective lists of workers engaged by them.
The Commissioner did not summon the Contractors nor the lists maintained by them.
He has stated that the Corporation has failed to produce the evidence.
The question, in our opinion, is not whether one has failed to produce evidence.
The question is whether the Commissioner who is the statutory authority has exercised powers vested in him to collect the relevant evidence before determining the amount payable under the said Act.
It is of importance to remember that the Commissioner while conducting an inquiry under section (7A) has the same powers as are 758 vested in a Court under the Code of Civil Procedure for trying a suit.
The section reads as follows: "section 7(A) Determination of Moneys due from Employer (1) The Central Provident Fund Commissioner, any Deputy Provident Commissioner or any Regional Provident Fund Commissioner may, by order determine the amount due from any em ployer under any provision of this Act (the scheme or the Family Pension Scheme or the Insurance Scheme as the case may be) and for this purpose may conduct such inquiry as he may deem necessary.
(2) The Officer conducting the inquiry under sub section (1) shall, for the purposes of such inquiry, have the same powers as are vested in a Court under the Code of Civil Procedure, 1908, for trying a suit in respect of the following matters, namely: (a) enforcing the attendance of any person or examining him on oath; (b) requiring the discovery and production of documents; (c) receiving evidence on affidavit; (d) issuing commissions for the examination of witnesses.
and any such inquiry shall be deemed to be a judicial pro ceeding within the meaning of Sections 193 and 228, and for the purpose of Section 196 of the Indian Penal Code.
" It will be seen from the above provisions that the Commissioner is authorised to 'enforce attendance in person and also to examine any person on oath.
He has the power requiring the discovery and production of documents.
This power was given to the Commissioner to decide not abstract questions of law, but only to determine actual concrete differences in payment of contribution and other dues by identifying the workmen.
The Commissioner should exercise all his powers to collect all evidence and collate all material before coming to proper conclusion.
That is the legal duty of the Commissioner.
It would be failure to exercise the jurisdiction particularly when a party to the proceedings requests for summoning evidence from a particu lar person.
759 We, therefore, allow the appeal and reverse the order of the Commissioner and that of the High Court.
The matter stands remitted to the Commissioner to dispose it of afresh and in accordance with law and in the light of the observa tion made.
The parties shall appear before the Commissioner to receive further orders on December 12, 1989.
The Commission er, shall dispose of the matter within three months thereaf ter.
N .P.V.
Appeal allowed.

Output:
Respondent No. 1 the Provident Fund Commissioner called upon the appellant Food Corporation of India to deposit contribution payable by it under the Employees ' Provident Fund and Miscellaneous Provisions Act, 1952 and the scheme thereunder, in respect of workers employed by the contrac tors appointed by the appellant for handling storing and transporting food grains and other articles in its depots in Rajasthan.
On appellant 's non compliance, Respondent No. 1 made an order under Section 7A of the Act determining the amount payable by the appellant.
Against the aforesaid order, the appellant filed writ petition before the High Court, which dismissed the same.
Hence the appeal, by spe cial leave, by the appellant Corporation.
It was contended that the appellant was denied a reason able opportunity to produce actual proof of identification of workers in respect of whom contribution was payable inasmuch as Respondent No. 1 neither gave notice to contrac tors, who were in possession of the relevant lists of work ers, nor made them parties to the proceedings, despite its repeated requests.
Allowing the appeal, HELD: The Commissioner, while conducting an inquiry under Section 7A of the Employees, Provident Fund and Mis cellaneous Provisions Act, 1952 has the same powers as are vested in a court under the Code of Civil Procedure for trying a suit.
Thus, the Commissioner is authorised to enforce attendance in person and also to examine any person on oath.
He has the power requiring the discovery and pro duction of documents.
This power was given to the Commis sioner to decide not abstract questions of law, but only to determine actual concrete differences in payment of contri bution and other dues by identifying the 756 workmen.
The Commissioner should exercise all his powers to collect all evidence and collate all material before coming to proper conclusion.
That is the legal duty of the Commis sioner.
It would be failure to exercise the jurisdiction particularly when a party to the proceedings requests for summoning evidence from a particular person.
[757H; 758A; F H] In the instant case, the appellant Corporation had some problems in collating the lists of all workers engaged in depots scattered at different places.
It requested the respondent Commissioner to summon the contractors to pro duce the respective lists of workers engaged by them.
Howev er, the appellant Commissioner did not summon the contrac tors, nor the lists maintained by them.
The matter is, therefore, remitted to the Commissioner for fresh disposal.
[757F; 759A]


Input:
Appeal No. 74 of 1975.
From the Judgment and Order dated 9.11.
1973 of the Allahabad High.
Court in L.T. Ref.
No. 722 of 1971.
S.C. Manchanda, Ms. A. Subhashini and M.N. Tandon for the Appellant.
J.P. Goyal, Rajesh, Malt Ram Bidwar.
and D.P. Mukherjee for the Respondent.
The Judgment of the Court was delivered by RANGANATH MISRA, J.
This appeal is by special leave and the judgment of the Allahabad High Court on a reference under Section 256(1) of the Income Tax Act.
1961 (hereinaf ter referred to as 'the Act ') is assailed by the Revenue.
The relevant assessment year is 1965 66 corresponding to the previous year ending on 31.12.
In its return the assessee, a pri 1161 vate limited company.
disclosed capital gains of Rs.3.10,200 but claimed set off of capital loss of Rs.3.17,500 sustained by it during the assessment year 1957 58 over sale of shares to three associate concerns.
It was maintained by the asses see that the loss was sustained in the previous year rele vant to the assessment year 1957 58 and the same should be set off against the capital gains in the assessment year in question.
The Income tax Officer disallowed the claim for set off on the footing that when in the assessment year 1957 58 the loss was claimed it was excluded in the computa tion of income as capital loss and the Appellate Assistant Commissioner while disposing of the assessee 's appeal had stated that it was a notional capital loss.
As no further appeal was carried by the assessee, with the first appellate order the matter had become final.
The assessee challenged the rejection of its claim of set off before the Appellate Assistant Commissioner and he dismissed the appeal by holding that there was no genuine loss; it was essentially notional in nature and that the claim for set off to be admissible had to be notified by the Income tax Officer under Section 24(3) of the 1922 Act to the assessee by an order in writing.
That having not been done, the claim was not admissible.
Thereupon the assessee went before the Appellate Tribunal and reiterated its claim.
The Tribunal came to the .conclusion that the assessee was entitled to the benefit of set off of loss provided it satisfied that its capital loss was computed under the old Act.
In its view as the assessee had filed its return show ing the loss and the Income tax Officer neither computed the loss nor passed an adverse order, the Income tax Officer was not entitled to take advantage of his own failure and reject the assessee 's claim of carry forward and set off of loss on the ground that loss had not been determined as required under section 24(3) of the Income tax Act, 1922.
The Tribu nal further found that the Income tax Officer had clearly disallowed the assessee 's claim of revenue loss by holding that it was a capital loss.
It found that the Appellate Assistant Commissioner had no justification to hold that the claim of loss was not genuine while disposing of the appeal for the assessment year 1957 58 and ultimately allowed the assessee 's claim.
At the instance of the Revenue four ques tions were referred for opinion of the High Court.
Whether on the facts and in the circum stances of the case, the Income tax Officer 's order for the assessment year 1957 58 had not merged in the Appellate Assistant Commission er 's order in which the Appellate Assistant Commissioner had given a clear finding that the loss was notional? 1162 2.
If the answer to the above question is in the negative, whether any loss could be said to have been determined for the assessment year 1957 58, which could be carried forward to subsequent years? 3.
Whether in view of the provisions of Sec tion 80 of the Income tax Act, 1961, the loss claimed for the assessment year 1957 58 could be set off against the income determined for the assessment year 1965 66? 4.
Whether the Tribunal was justified in law in holding that the provisions in Section 24(3) regarding intimation of losses deter mined by the Income tax Officer do not.
apply to the loss falling under the head 'capital '? The High Court found that the Income tax Officer in the assessment order for 1957 58 had mentioned: "Net loss as per profit and loss account adjust Rs.3, 17,205.
(i) Loss on sale of investment being capital : Rs.3, 17,500 00 (ii) Income tax :Rs. 204 00 Total : Rs.3, 17,704 00 Income :Rs. 499 00" It is true that in appeal the Appellate Assistant Com missioner had held: "A perusal of the assessment records show that the appellant held 2,500 ordinary shares in M/s. B.R. Ltd. These shares were held on investment account and were not stock in trade of the Company.
M/s. B.R. Ltd. is an associat ed concern and the shares were sold to allied concerns and a loss of Rs.3, 17,500 was worked out.
Firstly, the shares were investment shares.
Secondly, the price for which the shares were transferred to another associated concern was a notional price.
The management just transferred the shares held by one compa ny to another company 1163 under their control and management.
Of course, the transfer was not a trading activity.
In these circumstances, I hold that the Income tax Officer has rightly disallowed the loss claimed, the same being notional capital loss.
" The High Court found that both the Income tax Officer as also the Appellate Assistant Commissioner had found that the loss was a capital loss.
The High Court fur:her found: "In our opinion this Section (Section 80 of the 1961 Act) cannot apply to a case where in law a return could not have been filed under Section 139.
That is to say in relation to assessment years prior to the coming into force of the Income tax Act, 1961 a return could not possibly have been filed under Section 139 because in these years this Sec tion was not on the Statute Book.
But if Section 80 is construed to mean that a return filed under the Income tax Act 1922 is also within its purview then in our opinion the requirement of this Section was equally ful filled because the assessee has for the as sessment year 1957 58 filed a return of loss which loss had been determined by the Income tax Officer in the assessment order.
" The High Court took the view that in the order for assessment year 1957 58.
the Appellate Assistant Commission er has referred to the claims of loss as notional when he really meant that it was an estimate.
It agreed with the conclusion of the Tribunal and found against the Revenue.
Section 24 of the 1922 Act which applied to the assess ment year 1957 58 as far as relevant provided: "(1) Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in Section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year . . " (2A) Notwithstanding anything contained in sub section (1), where the loss sustained is a loss falling under the head 'capital gains '.
such loss shall not be set off except against any profits and gains falling under that head." 1164 (2B) Where an assessee sustains a loss such as is referred to in sub section (2A) and the loss cannot be wholly set off in accordance with the provisions of that sub section, the portion not so set off shall be carried for ward to the following year and set off against capital gains for that year, and if it cannot be so set off, the amount thereof not so set off shall be carried forward to the following year and so on.
however, that no loss shall be carried forward for more than eight years . . . . . . . (3) "When, in the course of the assessment of the total income of any assessee.
it is estab lished that a loss of profits or gains has taken place which he is entitled to have set off under the provisions of this section, the Income tax Officer shall notify to the asses see by order in writing the amount of the loss as computed by him for the purposes of this section.
" The High Court has found that the Income tax Officer did compute the amount by specifying it in his assessment order.
When the assessee had made the claim and he took note of it.
his failure to comply strictly with the requirement of sub section (3) of section 24 should not be permitted to be taken advantage of by the Revenue, nor should it be used to the prejudice of the assessee.
Since set off has been claimed in the assessment year 1965 66 to which the Act of 1961 applied, it is necessary to turn attention to the relevant provisions thereof and they are in sections 74 and 80.
For convenience they are extract ed: "Section 74: (1)(a) Where in respect of any assessment year.
the net result of the compu tation under the head "capital gains" is a loss such loss shall.
subject to the other provisions of this Chapter.
be dealt with as follows: "(i) such portion of the net loss (relating to short term capital/assets as cannot be or is not wholly set off against income under any head in accordance with the provisions of section 71 shall be carried forward to the following assessment year and set off against the capital gains, if any, relating to short term capital assets assessable for that as sessment year.
and, if it cannot be so set off, the amount thereof not so set off shall be carried forward to the following assessment year and so on.
" 1165 "(ii) such portion of the net loss as relates to capital assets other than short term capi tal assets shall be carried forward to the following assessment year and set off against the capital gains.
if any.
relating to capital assets other than short term capital assets assessable for that assessment year and.
if it cannot be so set off.
the amount thereof not so set off shall be carried forward to the following assessment year and so on: Provided that where.
in the case of any assessee not being a company.
the net loss computed in respect of such capital assets for any assessment year does not exceed five thousand rupees.
it shall not be carried forward under this section." "(b) Notwithstanding anything contained in the Indian Income tax Act. 1922 (11) of 1922), any loss computed under the head 'capital gains ' in respect of the assessment year.commencing on the 1st day of April. 1961.
or any earlier assessment year which is car ried forward in accordance with the provisions of sub section (2B) of section 24 of that Act.
shall be dealt with in the assessment year commencing on the 1st day of April.
or any subsequent assessment year as follows: (i) in so far as it relates to short term capital assets, it shall be carried forward and set off in accordance with the provisions of sub clause (i) of clause (a) and sub sec tion (2): and (ii) in so far as it relates to capital assets other than short term capital assets.
it shall be carried forward and set off in accordance with the provisions of sub clause (ii) of clause (a) and sub section (2)." "(2)(a) No loss referred to in sub section (i) of clause (a) of sub section (1) or sub clause (i) or sub clause (ii) of clause (b) of that sub section shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed under the Act or as the case may be.
the Indian Income tax Act.
1922 ( 11 of 1922).
1166 "(b) No loss referred to in sub clause (ii)of clause (a) of sub section (1) shall be carried forward under this section for more than four assessment years immediate ly succeeding the assessment year for which the loss was first computed under the Act," "Section 80: Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed under Section 139 shall be carried for ward and set off under sub section (1) of Section 72 or sub section (2) of Section 73 or sub section (1) of Section 74 or sub section (3) of Section 74A." Reading the provisions of Section 74(1)(b} and Section 80 together.
we agree with the submission advanced on Behalf of the assessee that the benefit conferred under Section 24 of 1922 Act continued to be given effect to under the 1961 Act and notwithstanding the wordings of section 80 of the latter Act, the High Court was Fight in holding that the claim of set off was admissible in our view '.
on a bare analysis of these provisions, and without reference to anything more, this appeal can be disposed of.
We find that the High Court reached the correct conclusion and there is no merit in the appeal.
Accordingly.
it is dismissed with costs.
P.S.S. Appeal dismissed.

Output:
Sub section (3) of section 24 of the Income tax Act, 1922, required that when it was established that a loss of profits or gains had taken place.
Which the assessee was entitled to have set off, the Income tax Officer should notify to the assessee by an order in writing the amount of loss as com puted by him.
This benefit was continued in section 74 of the Income tax Act, 1961 which provides for carrying forward to the following years the net loss computed under the head 'capital gains ' in respect of an assessment year.
Section 80, however, interdicts that no loss which has not been so determined shall be carried forward and set off.
The assessee, a private limited company disclosed in its return for the assessment year 1965 66 capital gains of Rs.3 lacs and odd but claimed set off of capital loss of a like amount sustained during the assessment year 1957 58 over sale of shares.
This claim was disallowed by the Income tax Officer on the footing that when in the assessment year 1957 58 the loss was claimed it was excluded in the computa tion of income as capital loss.
A challenge to that order by the assessee was rejected by the Appellate Assistant Commis sioner who took the view that the loss was essentially notional in nature, and that the claim for set off to be admissible, had to be notified by the income tax Officer under section 24(3) of the 1922 Act to the assessee by an order in writing.
That having not been done the claim was not admissible.
Allowing the assessee 's claim, the Tribunal however, came to the conclusion that the assessee was entitled to the benefit of set off of loss provided it satisfied that capi tal loss was computed under the old Act, and as in the instant case the Income tax Officer had neither computed the loss nor passed an adverse order.
the Income tax Officer was not entitled to take advantage of his own failure and reject the assessee 's 1160 claim on the ground that loss had not been determined as required under section 24(3) of the Income tax Act, 1922.
The High Court agreed with the conclusion of the Tribu nal and found against the Revenue.
Dismissing the Appeal, the Court, HELD: Reading the provisions of section 74(1)(b) and section 80 of the Income tax Act, 1961 together makes it evident that the benefit conferred under section 24 of the 1922 Act has been continued to be given effect to under the 1961 Act.
and notwithstanding the words of section 80 of the latter Act, the claim of set off was admissible.
The conclusion reached by the High Court was.
therefore.
correct.
[1166CD] The Income tax Officer in the instant case, did compute the amount by specifying it in his assessment order.
When the assessee had made the claim and the Income tax Officer took Rote of it, his failure to comply strictly With the requirement of sub section
(3) of section 24 of the 1922 Act could not be permitted to be taken advantage of by the Revenue.
nor could it be used to the prejudice of the assessee.
[1164D]


Input:
Appeal No. 558 of 1964.
176 Appeal by special leave from the judgment and order dated December 16, 1963 of the Rajasthan High Court in D. B. Election Appeal No. 74 of 1963.
R. K. Garg, section C. Agarwal, D. P. Singh and M. K. Ramamurthi,for the appellant.
G. section Pathak and Naunit Lal, for the respondent.
The Judgment of the Court was delivered by Subba Rao J.
The appellant, Sheopat Singh, and two others, namely Ramchander Chowdhary and Suria Ram, contested the election for a seat in the Rajasthan Legislative Assembly from Hanumangarh constituency.
The appellant polled, 1,285 votes Ramchander Chowdhary, 18,217 and Surja Ram, 1,285 votes.
The appellant was declared elected.
The respondent, One of the ' electors, filed an election petition under section 8 1 of the Representation of the People Act, 1951, hereinafter called the Act, for setting aside the election of the appellant on various grounds. 'Me Election Tribunal.
by its order dated June 18.
1963, held that the respondent had failed to substantiate the allegations made against the appellant and, on that finding, dismissed the petition.
Against the said order, the respondent preferred an appeal to the High Court of Judicature for Rajasthan at Jodhpur.
A Division Bench of that Court heard the appeal and came to the, conclusion that the appellant was guilty of a corrupt practice under sub section
(4) of section 123 of the Act in publishing a poster, exhibit 3, which contained a statement of fact about the personal character and conduct Of Ramchander Chowdhary, one of the candidates in the election.
On that finding, it set aside the order of the Election Tribunal and declared the election of the appellant void.
The appellant, by special leave, has preferred this appeal to this Court against the said order of the High Court.
In Learned counsel for the appellant raised before us two points, namely, (i) that exhibit 3, the poster, published and circulated by 'the appellant is not hit by the provisions of section 123 (4) of the Act and (ii) that the election petition should have been dismissed d under section 85 of the Act on the ground that it had not impeded Hariram, another duly nominated candidate who withdrew his candidature before the election and against whom allegations of corrupt practice were made.
The first argument of the learned counsel is elaborated thus.
Under section 123(4) of the Act the burden is upon the person who; is to impute corrupt practice described thereunder to establish the ingredients of corrupt Practice laid down therein.
He has 177 not only to prove that the elected candidate published a statement of fact, which is false, in relation to the personal character or conduct of another candidate, but also that he believed it to be false or he did not believe it to be true.
He has to prove further that the said statement was calculated to prejudice the prospects of the other candidate 's election, that is to say that the voters had the knowledge that the corrupt practice or practices were attri buted to him and because of that knowledge did not vote for him.
In the instant case, exhibit 3 contained only general allegations against the misrule of the Congress Party and even if the statements can be related to Ramchander Chowdhary, there is no evidence that the voters knew that it was he who was referred to in the poster.
The first question is whether exhibit 3 is hit by the provisions of section 123(4) of the Act.
Before we consider the terms of the document it will be convenient and useful to notice the ingredients of the section.
It reads Section 123 (4) : The publication by a candidate or his agent or by another person, with the consent of a candidate or his election agent, of any statement of fact which is false, and which he either believes to be false or does not believe to be true, in relation to the personal character or conduct of any candidate, or in relation to the candidature, or withdrawal, of any candidate, being a statement reasonably calculated to prejudice the prospects of that candidate 's election.
The sub section may be dissected into the following component parts relevant to the present enquiry: (1) the publication of any statement of fact by a candidate; (2) that fact is false; (3) the candidate believes it to be false or does not believe it to be true; (4) the statement is in relation to the personal character or conduct of the candidate; and (5) the said statement is one being reasonably calculated to prejudice the prospects of the other candidate 's election.
An election is the expression of a popular will.
It shall be so conducted that the popular will shall be reflected on the basis of the policy of the party which the candidate represents and on big merits.
That object cannot be achieved unless freedom of speech t assured at the election and the merits and demerits of a candidate, personal as well as political, are prominently brought to the notice of the voters in the constituency.
At the same time it shall not be allowed to degenerate into a vilification campaign aimed at bringing down the personal character or conduct etc.
of the 178 candidates without any basis whatsoever.
The subsection is designed to achieve this dual purpose, namely, freedom Of speech and prevention of malicious attack on personal character 'Dr conduct etc.
of rivals.
The purity of an election is sought to be maintained without affecting the freedom of expression.
The sub section prohibits any statement of fact in relation to Personal which is not only false but character or conduct of any candidate, which is not only false but also the candidate making it either believes it to be false or does not believe it to be true it implies that a statement of fact relating to the personal character or conduct etc.
of a candidate can be made, if it is true.
Even if it is false, the candidate making it is protected, unless he makes it believing it to be false or not believing it to be true, that is to say statements which are not true made bona fide are also outside the ambit of the provision.
To be ' within the mischief of sub section
(4) of section 123 of the Act such a statement shall satisfy another test, namely, it shall be a statement, reasonably calculated to prejudice the prospects of the election Of the candidate against whom it is made.
The word "calculated" r means designed: it denotes more than mere likelihood and imports a design to affect voters.
It connotes a subjective element, though the actual effect of the statement on the electoral mind reflected in the result may afford a basis to ascertain whether the said statement was reasonably calculated to achieve that effect.
The emphasis is on the calculated effect, not on the actual result, though the latter proves the former.
But what is important to notice is that it is not necessary to establish by positive evidence that.
the voters, with the knowledge of the contents of the statement, were deflected from voting for the candidate against Whom the statement was made.
As considerable stress is laid upon the burden of proof, reference may be made to the judgment of this Court in T. K. Gangi Reddy vs M. C. Anjaneya Reddy(").
In that case, dealing with the question of burden of proof, this Court observed: "Burden of proof has two distinct meanings, viz., (i) the burden of proof as a matter of law and pleading, and (ii) the burden of proof as a matter of adducing evidence. . .
The first remain , constant and the second shifts." The burden of proof as a matter of law and as a matter of adducing evidence is on the respondent, who seeks to get the election set aside, to establish corrupt practice; but, if he adduces sufficient evidence, as in this case we are satisfied he has, the burden of (1) , 268.
179 adducing evidence shifts on to the appellant.
That apart when the entire evidence has been adduced in the case the question of burden of proof becomes merely academical.
In this case the High Court considered the relevant evidence and came to the conclusion that the respondent has proved his case.
No error has been committed by the High Court in this regard.
One of the important ingredients of the sub section is that the statement shall be made in relation to the personal character or conduct etc.
of another candidate.
What is the meaning of the expression "personal character or conduct" ? This question has been considered by this Court in two decisions.
In Gangi Reddy 's case (1), dealing with the said expression, this Court observed at p. 266 thus: "The words 'personal character or conduct ' are so clear that they do not require further elucidation or definition.
The character of a person may ordinarily be equated with his mental or moral nature.
Conduct connotes a person 's actions or behaviour. .
What is more damaging to a person 's character and conduct than to state that he instigated a murder and that he was guilty of violent acts in his political ' career in Inder Lal vs Lal Singh(2), this Court again, adverting to this aspect, observed thus: "In discussing the distinction between the private character and the public character, sometimes reference is made to the "man beneath the politician" and it is said that if a statement of fact affects the man beneath the politician it touches private character and if it affects the politician, it does not touch his private character.
" After referring to obvious statements which affect the private character of a person, this Court proceeded to state "But there may be cases on the border line where the false statement may affect both the politician and the man beneath the politician and it is precisely in dealing with cases on the border line that difficulties are experienced in determining whether the impugned false statement constitutes a corrupt practice or not.
" It is not necessary to refer to other decisions cited at the Bar.
(1)[1960] (2) [1963] Supp.
3 S.C.R. 114,122.
180 The boundary between personal character and conduct and public character and conduct is well drawn, though, sometimes, it is thin.
Sometimes a statement may appear to touch both the candidate 's personal as well as Public character.
But a deeper scrutiny enables a court to ascertain whether there is a reflection on his personal character or on his public character.
To illustrate: suppose a statement is made to the effect that a minister has taken a bribe in making an appointment or in giving a contract.
He, has taken the bribe in the course of discharging his duties as a minister, but his act of taking bribe does not solely reflect on his public character.
By taking a bribe he does not discharge his Official duties; taking a bribe has nothing to do with his official or public duty it reflects on his moral and mental fire.
His position as a minister may have given him the opportunity to take a bribe but the taking of the bribe is mainly attributable to his deficiency in personal character.
We, therefore, hold that any statement made, which reflects on the mental or moral character of a person is a reflection on his personal character, whereas any criticism of a person 's political or public activities and policies is outside it.
The fact such a statement is made in the course of a political or public activity does not make it any the less a statement in relation to his personal character or conduct.
It is a question of fact in each case under what category a particular statement falls.
Now let us have a look at the terms of exhibit 3.
It is a big poster in which some portions have been printed in bold letters.
There is a large size photo of the appellant on the right top corner and the symbol of the communist party at the end.
The poster runs thus: "Bounties of the Cement of the Rajasthan Canal.
Cinema of seven lakhs in Ganganagar and magnificent kothis in the neighbourhood of Jaipur 's "Rajmahals".
Open loot in liquor contracts by Gandhi 's devotees and improper transfer of lands.
Hanumangarh 's gentlemanliness, honest and public welfare faced with the corrupt, permit loving and "police raj" of the Congress.
Give proof of bravery, modesty and selflessness by giving vote to Sheopatsingh Makkasar who would bravely sacrifice himself for the glory and prestige of Hanumangarh.
Election (Ears of com and sickle) Symbol 181 Vote for ears of corn and sickle, the symbol of prosperity,progress and popular rule.
" Learned counsel for the appellant contends that the poster does not overstep the limits of reasonable criticism of the opposite candidate and that it says only generally that under the Congress rule many corrupt practices are going unheeded and that if the appellant is elected he would rectify the defects and restore the glory and prestige of Hanumangarh.
It is not necessary in this case to ascertain whether all the misdeeds narrated in the poster refer to Ramchander Chowdhary, for we are satisfied that the first paragraph clearly and reasonably refers to his activities.
The vernacular word for "bounties ' is "barkatain".
The first paragraph of the poster means that the cinema theatre of Rs. 7 lakhs in Gangangar was the barkat of the cement of the Rajasthan canal.
That means by misappropriating the cement of the Rajasthan Canal the cinema theatre worth Rs. 7 lakhs was built.
Ex facie the poster does not say who misappropriated the cement and to whom the cinema belonged.
But the words in the context of the well known facts can reasonably lead only to one inference.
At the crucial time, Ramchander Chowdhary was the Minister in charge of the Rajasthan Canal Project.
During the election at Ganganagar a cinema theatre known as Adarsh Theatre was being put up.
It is admitted by the appellant and his agent that the theatre referred to in the poster is the Adarsh Theatre and it belongs to Ramchander Chowdhary and his sons.
In the context, therefore, it is manifest that the poster meant to convey the idea that Ramchander Chowdhary misappropriated the cement of the Rajasthan Canal, of which he was in charge, and built a big theatre in the name of his sons.
That is to say the act of misappropriation was in clear terms attributed to Ramchander Chowdhary.
To make a statement that a minister has misappropriated the cement in his charge and built a theatre from out of the proceeds is certainly a reflection on his personal character and conduct.
Learned counsel 's contention that it may mean that somebody other than the Minister might have misappropriated the cement and sold it in the black market and that the Ganganagar cinema theatre might have been built from and out of the cement purchased therefrom.
This is rather an unnatural rendering of the clear recitals in the first paragraph of the poster.
The word "barkatain" shows that Rs. 7 lakhs was derived from the cement for the canal.
If the minister or his sons purchased cement in the blackmarket, the building cannot be the bounty of the cement of the Rajasthan Canal.
In that event only the cement misappropriated by somebody would have been used for building the 182 cinema.
The cost of building the theatre would have been borne by the minister and his sons not out of the gift made from the cement of the Rajasthan Canal.
We are, therefore, clearly of the opinion that the first paragraph of the poster is a direct reflection on the personal character of Ramchander Chowdhary.
Even so, learned counsel for the appellant argues that it has not been established that the appellant made the statement believing it to be false or not believing it to be true.
P.W. 4, Dharam Pal, under whose supervision the cinema theatre was built, stated that 4,000 bags of cement were used in its construction and that 2,000 of these bags were obtained from the cement factory of Sawai Madhopur, 1,585 bags from the cement factory at Charkhidadri and the remaining 415 bags were purchased locally against permits issued by the department concerned.
This evidence has been accepted by the High Court.
On the other hand,not only the appellant did not adduce any evidence to rebut the evidence adduced by the respondent but the appellant as well as his witness, D.W. 7, admitted in the witness box that Ramchander Chowdhary was an honest man.
In this state of evidence, the respondent, on whom the burden of proof lay, discharged that burden and the High Court rightly found in his favour.
The next facet of the argument is that there is no evidence in the case that the said statement was one reasonably calculated to prejudice the prospects of the election of Ramchander Chowdhary.
It is asked, how could the statement deflect the voters from voting in favour of the said Ramchander Chowdhary, if they did not know that the cinema theatre that was being built in Ganganagar belonged to Ramchander Chowdhary or his sons It is further said that there is no evidence in this case that all or any of the voters knew the fact that the cinema theatre belonged to Ramchander Chowdhary or his sons.
Reliance is placed upon the decisions delivered in the context of libel actions.
In Nevill vs Fine Art and General Insurance Co. Ltd.(1) Lord Halsbury, L.C., accepted the principle that the questioned document should be taken in a defamatory sense by those to whom it was published according to the primary meaning of the language used in it.
In The Capital and Counties Bank Ltd. vs George Henty & Sons(2) for the purpose of ascertaining whether a statement was defamatory the test whether the circumstances in which the writing was published, reasonable men, to whom the publication was made, would be likely to understand (1) (2) 183 it in a libellous sense.
In that case the House of Lords came to the conclusion that it did not.
This test is relied upon in support of the argument that the voters should have known that the first paragraph of the poster referred to Ramchander Chowdhary, for without such knowledge, it could not have prejudiciously affected Ramchander Chowdhary 's chances in the election.
We are not dealing with a libel action.
We do not, therefore, propose to refer to similar cases on libel cited at the Bar.
We do not express any opinion thereon.
We are only concerned with the express terms of section 123(4) of the Act.
The only question, therefore, is whether the said statement was reasonably calculated to prejudice the prospects of Ramchander Chowdhary 's election.
On behalf of the appellant it was not contended either before the Election Tribunal or before the High Court that the voters had no knowledge, of the fact that the cinema theatre at Ganganagar belonged to Ramchander Chowdhary or his sons.
That apart, as we have pointed out earlier, the object with which the statement was made is the crucial test.
Here it is established that Ganganagar cinema theatre belonged to Ramchander Chowdhary 's sons.
It is proved that Ramchander Chowdhary was the minister in charge of the Rajasthan Canal.
He was the only effective candidate against the appellant.
The appellant 's intention in making that statement was therefore obvious and that was to attack the personal character of Ramchander Chowdhary in order to prejudice his prospects in the election.
He must have reasonably calculated that the voters, or at any rate the voters in and about the locality where the cinema theatre was being put up, had knowledge of the fact that it was being constructed by the minister or his sons.
It cannot also be said that when a big cinema theatre at a cost of Rs. 7 lakhs was being put up in Ganganagar, the voters in and about that place would not have known about the ownership of that building.
The fact that the building was brought in for attacking" the personal character of Ramchander Chowdhary, a rival candidate, clearly indicates that the appellant knew that the voters had knowledge of its ownership and expected that it would create the impression which it manifestly intended to convey.
On these facts, if the High Court held that the statement was reasonably calculated to prejudice the rival candidate 's prospects in election, we cannot say that the finding is not supported by evidence or admitted facts placed before the High Court.
It was a reasonable inference from the facts found by the High Court.
We, therefore hold that exhibit 3 is hit by section 123 (4) of the Act and, therefore, the High Court rightly held that the appellant was guilty of corrupt practice.
184 To appreciate the second contention some facts may be recapitulated.
Hariram, the father of the appellant, was one Of the candidates who stood for the election.
His nomination paper was held to be valid.
But, later on, he withdrew his candidature.
In the election petition it was stated that the appellant got printed from lqbal Printing Press, Sri Ganganagar, hundreds and thousands of posters and leaflets containing grossly libellous and highly defamatory imputations against Ramchander Chowdhary and that the appellant himself and through his workers and supporters got them published by affixing them at conspicuous places in every village of the constituency and freely distributed them among the electors.
In one of the annexures the names of the distributor of the posters and leaflets are given as Sheopat Singh, the appellant, and his father, Hariram, among others.
But there is no allegation that Hariram published the statement believing it to be false or not believing it to be true.
Under section 82 of the Act a petitioner shall join as respondent to his petition any other candidate against whom allegations of any corrupt practice are made in the petition.
Under section 85 of the Act, "if the provisions of. section 82 have not been complied with, the Election Commission shall dismiss the petition".
Assuming that Hariram was a candidate within the meaning of section 82 of the Act, the question is whether allegations of any corrupt practice were made against him in the petition.
The only allegation made was that the appellant got published through him and others the said statement; but there was no allegation that Hariram believed the statement to be false or did not believe it to be true.
In the absence of any such averment, it cannot be held that there was any allegation of any corrupt practice within the meaning of section 8 2 (b) of the Act against Hariram.
In that event, as there was no allegation of a corrupt practice against Hariram, the penal provisions of section 85 are not attracted.
In this context a novel argument has been advanced before us.
Publication with guilty knowledge under section 123 ( 4) of the Act, the argument proceeds, is a composite act and it involves two elements, namely, (i) the statement of fact, and (ii) its publication; and, therefore, all persons who take part in one or other of the said elements will be guilty of the corrupt practice, even though some of them have and others do not have the guilty knowledge.
If this argument be accepted, not only the person who makes a false statement of fact and gets it published through his servant, but his innocent servant who mechanically obeys the order of his master would be guilty of a corrupt practice.
This contention is obviously untenable.
185 Under section 123 (4) of the Act mens rea is a necessary ingredient of the corrupt practice and the person who publishes a statement, whether he is the author of it or not, does not commit a corrupt practice, unless he has the requisite knowledge.
The sub section does not accept the doctrine of constructive knowledge.
The High Court has correctly held that the petition was not liable to be dismissed on the ground that Hariram was not included as respondent.
In the result, the appeal fails and is dismissed with costs.
Appeal dismissed.

Output:
The election of the appellant to a seat in the Legislative Assembly of "the State was challenged by the respondent, an elector, on the ground inter alia, that by publishing a poster which contained a statement of fact about the personal character and conduct of one of the rival candidates, the, appellant was guilty of a corrupt practice under section 123 (4) of the Representation of the People Act (43 of 1951).
The Tribunal dismissed the petition, but the High Court reversed the decision of the Tribunal.
In the appeal to the Supreme Court., it was contended that : (i) the poster, published and circulated by the appellant was not hit by the provisions of section 123(4) the Act and (ii) the election petition should have been dismissed under 85 of the Act on the ground that another candidate against whom allegation of corrupt practices were made was not impleaded.
HELD : (i) Section 123(4) is designed to achieve the dual purpose of protecting freedom of speech and prevention of malicious attack on the personal character and conduct of rivals.
A statement which reflects on the mental or moral character of a person is a reflection on his personal character, whereas any criticism of a person 's political or public activities and policies is outside it.
The sub section also requires that the candidate making the statement believes it to be false or does 'not believe it to be true, and it shall be a statement reasonably calculated to prejudice the prospects of the election of the candidate against whom it is made.
The word "calculated" means designed it denotes more than mere likelihood and imports a design to affect voters.
Applying these tests and on a consideration Of the entire evidence, the appellant by publishing the poster was guilty of a corrupt practice within the meaning of the sub section.
[178A E; 18OC E; 183H].
T. K. Gangi Reddy V. M. C. Anjaneya Reddy, and Inder Lal vs Lal Singh, [1963] Supp. 3 S.C.R. 114, referred to.
(ii)As regards the candidate who was not impleaded the only allegation made in the election petition was that the appellant got the poster published through him and others, but there was no allegation that the candidate believed the statement to be, false or did not believe it to be &W. in the absence of any such averment it cannot be said that there wall anY allegation of any corrupt practice within the meaning of section 82(b) Of Act against such candidate.
Also, under section 123 (4) mens rea is a necessary ingredient of the corrupt practice and the person who publishes a statement, whether he is the author of it or not, does not commit a corrupt practice, unless he has the requisite knowledge.
As there was no allegation of corrupt practice against the candidate who was not impleaded, the penal provision of section 85 are not attracted and the petition was not liable to be dismissed.
[184E H; 185A].