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Appeal No. 445 of 1966.
Appeal by special leave from the judgment and order dated March 9, 1964 of the Andhra Pradesh High Court in Letters Patent Appeal No. 2 of 1963.
M. C. Chagla and T. Satyanarayana, for the appellants.
P. Ram Reddy and K. Jayaram, for the respondents.
The Judgment of the Court was delivered by Shah, J.
One Appanna died on March 12, 1953, leaving him surviving no wife or lineal descendant.
Subba Rao claiming to be the father 's sister 's son of Appanna instituted suit No. 64 of 1953 in the Court of the Subordinate Judge, Eluru.
for partition and separate possession of his half share in the properties described in Schs.
A, B, C, D & E. The plaintiff claimed that Appanna died intestate, and that he and his brother Venugopala Rao were the nearest heirs entitled to the entire estate of Appanna.
To this suit were impleaded Pothana Apparao (husband of the sister of Mangamma wife of Appanna), his children, certain relations of Mangamma and the tenants on the lands in suit.
Venugopala Rao was impleaded as the 24th defendant.
The suit was defended by Pothana Apparao and others contending, inter alia, that Appanna had made and executed a will on July 14, 1948, devising his property in favour of various legatees and the plaintiff 's suit for a share in the property was on that account not maintainable.
The, Trial Court held that Appanna of his free will and while in a sound state of mind had executed the will on July 14, 1948, whereby he disposed of his properties described in Schs.
A, B, C, D & E, but the Court held that the disposition of the property in Schs.
C & E lapsed because Mangamma who was a legatee of the properties died before the testator, and that the direction in the will that whatever remained out of the Sch.
E property after the life time of Mangamma shall pass to Venkataswamy and Seshagirirao defendants Nos. 3 & 2 respectively or their descendants was void and incapable of taking effect.
The learned Judge accordingly passed a decree in favour of the plaintiff and the 24th defendant for possession of properties described in Schs.
C & E. 30 In appeal to the High Court of Andhra Pradesh, Chandrasekhar Sastry, J., allowed the appeal filed by Pothana Apparao and his two sons Venkataswamy and Seshagirirao, and dismissed the claim of the plaintiff in respect of Schs.
C & E properties.
An appeal under the Letters Patent filed by the plaintiffs against the judgment of Chandrasekhar, J. was dismissed.
It has been concurrently found by all the Courts that when he was in a sound and disposing state of mind Appanna executed on July 14, 1948, the will set up by the defendants.
In an appeal with special leave this Court will not ordinarily allow a question about due execution to be canvassed, and our attention is not invited to any exceptional circumstances which may justify a departure from the rule.
The only question which survives for consideration relates to the true effect of the dispositions made by the will in respect of Sch.
C and Sch.
E properties.
The relevant provisions of the will may first be set out: "I am now about forty years of age.
I do not have male or female issue.
My wife is alive.
and with the fear that I may not survive I have made the following Provisions in respect of my immovable and movable properties to be given effect to.
I have given power to my wife Mangamma to sell the immovable property mentioned in the C Schedule hereunder and utilise the amount for celebrating the marriage and other auspicious functions of Tholeti Narsimha Rao 's daughter Seetharatnam mentioned in the B Schedule and for constructing a Ramamandiram in Rajavaram village in my name.
"The immovable property mentioned in the E Schedule hereunder shall be enjoyed by my wife Mangamma with all powers of disposition by way of gift, sale, etc.
, Whatever remains out of the said E Schedule mentioned immovable property after her life time, (the said property) shall pass either to the said Ven kataswamy and Seshagiri or their descendants. .
In the event of my wife taking a boy in adoption the property mentioned in the E schedule hereunder shall pass to the said adoptee with all powers of disposition by way of gift, sale etc.
after her life time. . .
If, for any reason, the properties and rights do not pass to the individuals mentioned in the aforesaid 31 paras, such properties and rights shall be enjoyed by my wife Mangamma with absolute rights.
" Appanna had directed his wife Mangamma to sell the pro perties described in Sch.
C and to utilise the proceeds for two purposes, "celebrating the marriage and other auspicious functions" of Seetharatnam, and "for constructing a Ramamandiram in Rajavaram village" in his name.
But the marriage of Seetharatnam was celebrated during the lifetime of Appanna, and expenses in that behalf were defrayed by Appanna, and no expenses remained to be incurred after the death of Appanna.
Mangamma had no beneficial interest in Sch.
C property.
She was merely appointed to sell the property and to utilise the proceeds for the purposes specified in the will.
The Trial Judge clearly erred in holding that the estate lapsed because Mangamma died during the lifetime of Appanna.
In the view of Chandrasekhar Sastry, J., since there was a joint bequest for two purposes, and one of the purposes for which the Sch.
C properties were devised was accomplished by Appanna the bequest in its entirety must enure for the remaining purpose i.e. constructing a Ramamandiram, and the plaintiffs ' claim for possession of the C Schedule properties must fail.
The learned Judges of the High Court agreed with that view.
But there was no "joint bequest" of the properties.
In the absence of allocation of the amounts to be utilised for "celebrating the marriage and other auspicious functions" of Seetharatnam and for constructing a Ramamandiram, it must be presumed that the fund was to be utilised in equal moieties for the two purposes.
Failure of one of the purposes will result in a moiety of the amount devised falling into the residue.
In Jogeswar Narain Dea vs Ram Chund Dutt and Others(1) a devise under the will of a Hindu testator who had given a fouranna share of his estate to his daughter and her son for their maintenance with power of making alienation thereof by sale or gift fell to be construed.
The Judicial Committee held that on a true construction of the will each took an absolute interest in a two anna share in the estate.
In dealing with the contention that there was a joint estate granted to the daughter and her son the Judicial Committee observed : ". .
Mr. Branson. maintained upon the authority of Vydinada vs Nagammal (ILR that,.
by the terms of the will the Rani and the appellant became, in the sense of English law, joint tenants of the 4 annas share of Silda, and not tenants in common; and that her alienation of her share before it was severed, and without the consent of the other (1) L. R. 23 1.
A. 37,43.
32 joint tenant,, was ineffectual.
The circumstances of that case appear to be on all fours with the circumstances which occur here, and, if well decided, it would be a precedent exactly in point.
There are two substantial reasons why it ought not to be followed as an authority.
In the first place, it appears to their Lordships that the, learned Judges of the High Court of Madras were not justified in importing into the construction of a Hindu will an extremely technical rule of English conveyancing.
The principle of joint tenancy appears to be unknown to Hindu law, except in the case of coparcenary between the members of an undivided family." That principle applies here.
The fund was devised for the construction of a Ramamandiram at Rajavaram village and for "celebrating the marriage and other auspicious functions"of Seetharatnam.
Since no part of the fund was needed forthe benefit of Seetharatnam, the legacy failed pro tanto and fell into the residue.
Under the will Mangamma was made the owner of the residue, but by her death during the lifetime of Appanna the residuary bequest lapsed and vested as on intestacy in the plaintiff and the 24th defendant.
The devise of a moiety of the fund to be applied for the construction of a Ramamandiram however stands good and the trust must be carried out.
Mangamma is dead, but on that account the charitable trust is not extinguished The Trial Court must give appropriate directions for utilisation of that moiety for constructing a temple according to the direction of Appanna in the will.
The testator gave to his wife Mangamma an absolute interest in the E Schedule properties, for she was invested with all powers of disposition "by way of gift, sale etc.
" The will then proceeded to direct that whatever remained out of the E Schedule properties after her death shall pass to Venkataswamy and Seeshagirirao.
If Mangamma had survived Appanna, probably the devise in favour of Venkataswamy and Seshagirirao may have failed, but that question does not arise for consideration.
Section 105 of the , which applies to the wills of Hindus provides : "(1) If the legatee does not survive the testator, the legacy cannot take effect, but shall lapse and form part of the residue of the testator 's property, unless it appears by the will that the testator intended that it should go to some other person.
. " 33 Mr. Chagla for the plaintiffs contends that the estate in the E Schedule properties devised in favour of Mangamma lapsed, for, there was nothing in the will which expressly provided that in the event of Mangamma dying during the testator 's lifetime, the devise in favour of Venkataswamy and Seshagirirao shall be accelerated.
Counsel relies upon the judgment of Wickens, V. C., in Browne vs Hope(1) and contends that a legacy does not lapse, if the testator does two things he, in clear words, excludes lapse; and he clearly indicates the person who is to take the legacy in case the legatee should die in his lifetime.
In Browne 's case(1) the testator gave, by his will, the residue of his estate to trustees to pay and transfer the same to seven named legatees in equal shares as tenants in common, and their respective executors, administrators and assigns; and he declared that such shares shall be vested interests in each legatee immediately upon the execution thereof, and that the shares of the married women shall be for their separate use.
It was held that the share of one of the legatees a married woman who died after the date of the will but before the testator, did not belong to her husband, who was her legal personal representative, and it lapsed.
Counsel says that the rule of interpretation as enunciated by Vice Chancellor Wickens is incorporated in section 105 of the .
He submits that a legacy will not lapse only if the testator by express direction excludes lapse, and indicates clearly the person who shall take the legacy if the legatee dies during his lifetime.
We are concerned to construe the provisions of section 105 of the .
That section enacts that a legacy shall lapse and form part of the residue of the testator 's property if the legatee does not survive the testator except where it appears by the will that the testator intended that the legacy shall on the legatee not surviving him go to some other person.
We are unable to agree that the intention of the testator that a legacy shall not lapse may be given effect to only if the testator expressly directs that if the legatee dies during his lifetime the legacy shall go to some other person, and that intention to exclude lapse cannot be inferred.
Section 105(1) does not say, nor does it imply, that the testator must have expressly, envisaged the possibility of lapse in consequence of the legatee dying during his lifetime and must have made a provision for that contingency.
In In re.
Lowman Devenish vs Pester (2 ) a testator, who under a settlement was absolutely entitled to a moiety of the proceeds of a certain real estate under a trust for sale, by his will devised,, (1) L. R. 14 Equity Cases, 343.
(2) 34 that real estate by its proper description, together with certain real estate of his own, to trustees, to the use of H. for life, with remainder to trustees to preserve the contingent remainders, with remainder to the use of the first and other sons of H successively in tail male, with remainder to the use of the first and other sons of his niece E successively in tail male, with remainder to the use of the first and other sons of his niece M successively in tail male, with remainder to the use of the first and other sons of his niece F successively in tail male, with remainder over.
H survived the testator and died a bachelor.
M also survived the testator and died unmarried.
E was still alive but unmarried and seventy years of age.
F had two sons, the eldest of whom died before the testator.
It was held that when there are in a 'Will successive limitations of personal estate in favour of several persons absolutely, the first of those persons who survives the tes tator takes absolutely, although he would have taken nothing if any previous legatee had survived and had taken : the effect of the failure of an earlier gift is to accelerate, not to destroy, the later gift.
This rule was applied in In re.
Dunstan, Dunstan vs Dunstan(1).
A testatrix by her will gave freeholds absolutely to A, subject to the bequest that whatever out of the freeholds should remain after A 's death shall be given to a named charity.
It was held that if A had survived the testatrix the gift to the charity would have been repugnant and void, and A would have taken the freeholds absolutely.
But since A died in the lifetime of the testatrix, the doctrine of repugnancy did not apply, and the gift to charity was accelerated and took effect.
Mangamma died during the lifetime of the testator : thereby the estate in Sch.
E properties granted to Venkataswamy and his brother Seshagirirao was accelerated.
The plaintiffs are therefore not entitled to any share in Sch.
E properties.
The decree of the High Court is modified.
It is declared that there is intestacy in respect of a half share in the fund arising by sale of Sch.
C properties, and the plaintiff and the 24th defendant are entitled to take that half share in the fund.
It is directed that the Trial Court will issue appropriate directions for application of the other half of the fund arising by sale of Sch.
C properties for constructing Ramamandiram at Rajavaram village as directed by the testator in his will.
Subject to this modification the appeal will be dismissed.
The appellant will pay 3/4th of the costs of the contesting respondents in this Court.
Y.P. Appeal dismissed.

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A Hindu executed a will directing his wife to sell, Sch.
C property and utilise the amount for celebrating the marriage of one Sitharathnam and for constructing a Ramamandiram in his name, and further devised that his wife shall enjoy Sch.
E property absolutely and after her life time whatever remained out it, it will pass to two named persons.
The wife predeceased the testator, and the marriage of Sitharathnam was celebrated in the testator 's life time and expenses in that behalf were defrayed by the testator.
The appellants who were the testator 's nearest heirs, claimed the properties contending that the disposition of the Sch.
C & E properties lapsed, because the wife who was the legatee of the properties died before the testator and that there was nothing in the will providing for the acceleration of Sch.
E property in case of the legatee 's dying in the testator 's life time.
HELD : (i) The wife had no beneficial interest in Sch.
C property.
She was merely appointed to sell the property and to, utilise the proceeds for the purposes specified in the will.
There was no "joint bequest" of Sch.
C properties.
In the absence of allocation of the amounts to be utilised for celebrating the marriage of Sitharathnam and for constructing a Ramamandiram, it must be presumed that the fund was to be utilised in equal moieties for the two purposes.
Failure of one of the purposes will result in a moiety of the amount devised falling into the residue.
Since no part of the fund was needed for the marriage of Sitharathnam the legacy failed pro tanto and fell into the residue.
Under the will the wife was made the owner of the residue, but by her death during the life time of testator the residuary bequest lapsed and vested as on intestacy in the nearest heirs of the testator.
The devise of a moiety of the fund to be applied for the construction of a Ramomandiram however stood good and the trust had to be carried out.
The wife died during the life time of the testator but on that account the charitable trust was not extinguished.
[31 E; 32 D] Jogeshwar Narain Deo vs Ram Chund Dutt and Others, L.R. 23 I.A. 37, 43, referred to.
(ii) The wife died during the life time of the testator : thereby the estate in Sch.
E properties granted to the named persons was accelerated.
The nearest heirs of the testators were therefore not entitled to any share in Sch.
E properties.
Section 105 of the , enacts that a legacy shall lapse and form part of the residue of the testator 's property if the legatee does not survive the testator except where it appears by the will that the testator intended that the legacy shall, on the legatee not surviving him, go to some other person.
It could not be said that the intention 29 of the testator that a legacy shall not lapse may be given effect to only if the testator expressly directs that if the legatee dies during his life time the legacy shall go to some other person, and that intention to exclude lapse cannot be inferred.
Section 105(1) does not say, nor does it imply, that the testator must have expressly envisaged the possibility of lapse in consequence of the legatee dying during his life time and must have made a provision for that contingency.
[33 F] Browne vs Hope, L.R. 14 Equity Cases 343; Lowman Devenish vs Pester, ; Dunstan, Dunstan vs Dunstan, , referred to.


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tition Nos. 356 361 of 1977 Under Article 32 of the Constitution of India.
R.F. Nariman, J. Peres, Mrs. A.K. Verma and section I. Thakur for the Petitioners.
B. Datta, Additional Solicitor General, T.V.S.N. Chari, Ms. V. Grover, Ms. Sunita Mudigarda and W. Quadri for the Respondents.
The Judgment of the Court was delivered by DUTT, J.
In these Writ Petitions under Article 32 of the Constitution of India the petitioners, including the petitioner Minerva Mills Ltd. and some of its creditors, have challenged the legality of the order dated October 19, 1971 passed under section 18A of the Industries (Development and Regulation) Act, 1951 (for short 'IDR Act ') taking over the management of the textile undertaking of the petitioner, Minerva Mills Ltd., and the constitutional validity of the Sick Textile Undertakings (Nationalisation) Act, 1974 (for short 'Nationalisation Act ').
On August 20, 1970, the Central Government appointed a Committee section 15 of the IDR Act to make a full and complete investigation of the affairs of the Minerva Mills Ltd., hereinafter referred to as 'the Company '.
After the investigation was made the Central Government by an order dated October 19, 1971, authorised the National Textile Corporation to take over the management of the undertaking of the Company.
The petitioners did not challenge the order to take over the management before any court of law.
During the pendency of the management of the undertaking by the National Textile Coporation, the Sick Textile Undertakings ordinance of 1974 was promulgated and it was replaced by the Nationalisation Act.
Section 3(1) of the Nationalisation Act provides that on the appointed day, every sick textile undertak 722 ing and the right, title and interest of the owner in relation to every such sick textile undertaking shall stand transferred to, and shall vest absolutely in, the Central Government. 'Sick textile undertaking ' has been defined in section 2(j) of the Nationalisation Act as meaning, inter alia, a textile undertaking, specified in the First Schedule, the management of which has, before the appointed day, been taken over by the Central Government under the IDR Act.
The textile undertaking of the Company has been specified in the First Schedule of the Nationalisation Act.
So, in view of the said definition read with section 3(1) of the Act, the undertaking had vested in the Central Government.
It has been urged by Mr. R.F. Nariman, learned Counsel appearing on behalf of the petitioners, that there was no justification for taking over the management of the undertaking of the Company under section 18A of the IDR Act.
In support of the said contention, the learned Counsel has drawn our attention to certain facts which will be stated presently.
It appears that the Company had been running at a loss during the years from 1956 to 1965.
The condition of the mill further deteriorated on account of recession in 1965 coupled with labour problems, and that continued till 1970.
On January 2, 1970, the mill had to be closed.
It is the case of the petitioners that by dint of serious effort on the part of the management and labour, an amicable agreement was arrived at between them, and a phased programme for resumption of production in three stages was drawn up by the management.
The then State Government of Mysore was requested to sanction the guarantee of a loan for Rs.20 lacs.
By an order dated April 24, 1971 the Government sanctioned the guarantee to enable the Company to raise a loan of Rs.20 lacs from the State Bank of India.
In the said order it was inter alia stated follows: "The Government have carefully considered the various factors leading to the present state of affairs of the Mills and also the various recommendations made by the Investigation Committee constituted by the Government of India to go into the affairs of this Mills and have come to the conclusion that the Mills should be assisted to raise finances required for working the Mills.
" The said order was passed after the investigation under section 15 of the IDR Act.
A few months thereafter, on October 19, 1971, the order under section 18A of the IDR Act was passed taking over the management of the undertaking of the Company on the ground that the 723 Central Government was of opinion that the undertaking was being managed in a manner highly detrimental to public interest.
It is strenuously urged on behalf of the petitioners that the order under section 18A dated October 19, 1971 was passed without any application of mind, regard being had to the earlier order dated April 24, 1971 sanctioning the guarantee of a loan.
It is submitted that there was no foundation for the finding of the Central Government that the undertaking of the Company was being managed in a manner highly detrimental to public interest, for, if that was the condition of management, the Government could not sanction a guarantee for incurring a loan of Rs.20 lacs.
It is, accordingly, contended that the order under section 18A was illegal and invalid.
It is submitted that on this ground the nationalisation of the undertaking of the Company should be held to have no basis whatsoever, for, the Nationalisation Act has been made applicable to the undertaking of the Company in view of section 2(j) of the Nationalisation Act defining 'Sick textile undertaking '.
We are unable to accept the contention of the petitioners that the order under section 18A of the IDR Act was illegal.
It is true that the Government sanctioned the guarantee of a loan for Rs.20 lacs on the recommendation of the Director of Industries and Commerce of the Government of Mysore.
But, at the same time, we cannot ignore the investigation that was made under section 15 of the IDR Act and the consequent finding of the Government on the basis of which the management of the undertaking of the Company was taken over under section 18A of the IDR Act, namely, that the affairs of the undertaking of the Company were being managed in a manner highly detrimental to public interest.
It has been already found that the undertaking had been running at a loss and had to be dosed down January 2, 1970.
This miserable condition of the undertaking might be due to the mismanagement of its affiars.
The Government might have thought of assisting the Company to raise a loan of Rs.20 lacs, but that fact or the fact that such proposal for assistance was made for special reasons as provided in the second proviso to section 4 of the Mysore State Aid to Industries Act, 1959 is not, in our opinion, sufficient to uphold the contention of the petitioners that there was no basis or foundation for the order under section 18A.
Moreover, it does not appear that the petitioners were aggrieved by the order under section 18A inasmuch as the same was not challenged in any court of law.
There is some force in the contention made 724 by the learned Additional Soliciter General that after the lapse of several years from the date of the take over of the management of the undertaking, the petitioners should not be allowed to challenge the validity of the order under section 18A.
Apart from this technical objection, the Legislature had decided that the undertaking of the Company was a sick textile undertaking by including the same in the First Schedule to the Nationalisation Act.
There can be no doubt that the legislative judgment should be looked upon with respect and it requires very strong grounds to set it at naught.
In our opinion, there is no existence of any such ground.
The next ground of attack of the petitioners to the validity of the order under section 18A is that it was vitiated as there was no direction by the Central Government under section 16 of the IDR Act.
Section 16 authorises the Central Government to issue directions to the industrial undertaking concerned for certain purposes as are mentioned in clauses (a) to (d) of section 16 after an investigation under section 15 is made and the Central Government is satisfied that action under section 16 is desirable.
It is apparent from section 16 that it is not obligatory on the Central Government to issue directions for all or any of the purposes as mentioned in the said section.
One of the two grounds for taking over management of an industrial undertaking, as contained in clause (a) of section 18A, is that the industrial undertaking has failed to comply with the directions given under section 1.6.
The other ground is that, as contained in clause (b) of section 18A, an industrial undertaking in respect of which an investigation has been made under section 15 (whether or not any directions have been issued to the undertaking in pursuance of section 16) is being managed in a manner highly detrimental to the scheduled industry concerned or to public interest.
In the instant case, the undertaking of the Company had been taken over under clause (b) of section 18A on the ground that it was being managed in a manner highly detrimental to public interest.
There is, therefore, no substance in the contention made on behalf of the petitioners that the impugned order under section 18A was vitiated as no direction under section 16 was issued by the Central Government.
It is urged on behalf of the petitioners that as the Company was not supplied with a copy of the report of investigation before the impugned order under section 18A was passed, the respondents acted illegally in violation of the principles of natural justice, and the impugned order is liable to be struck down on that ground.
In our opinion, there is no substance in this contention.
The Company was 725 given a hearing by the Investigation Committee and, therefore, it got ample opportunities to make representations against the proposed take over.
It is difficult to lay down that non supply of a copy of the report of investigation under section 15 of the IDR Act will always occasion a failure of natural justice.
Whether in a particular case there has been failure of natural justice or not will depend on the facts and circumstances of that case.
As has been laid down by this Court in Keshav Mills Co. Ltd. vs Union of India, that in certain cases where, unless the report is given, the party concerned cannot make any effective representation about the action that Government takes or proposes to take on the basis of that report, the non supply of the report may invoke the application of the rules of natural justice.
In that case, it was contented by the appellants that they should have been given further hearing by the Government before they took the final decision to take over their undertaking under section 18A of the IDR Act and that, in any event, they should have been supplied with a copy of the report of the Investigation Committee.
One of the grounds that weighed with this Court for rejecting the contention was that since the appellants had received a fair treatment and also all reasonable opportunities to make out their own case before the Government they should not be allowed to make any grievance of the fact that they were not given a formal notice calling upon them to show cause why their undertaking should not be taken over or that they had not been furnished with a copy of the report.
In the instant case also, as has been already noticed, the Company was given a reasonable opportunity of being heard by the Investigation Committee during the investigation under section 15 of the IDR Act.
In our opinion, the petitioners were not in the least prejudiced for the non supply to them of a copy of the report.
The view we take, finds support from some other facts stated hereafter.
It does not appear that the petitioners ever asked for a copy of the report.
They did not also move against the order under section 18A before the undertaking was nationalised under the Nationalisation Act.
It is the case of the petitioners that they did not challenge the impugned order under section 18A because the take over of the management of the undertaking was for a limited period of five years and the petitioners were hopeful that they would get back the undertaking after the expiry of the said period as provided in sub section (2) of section 18A of the IDR Act.
It shows that the petitioners were not aggrieved by the said order under section 18A, for they could not be as they had not the required minimum resources for running the mill.
It is 726 stated in the counter affidavit of the respondents that the financial position of the Company was adverse in all respects.
The accumulated losses as on 31.12.1969 was Rs.35.46 lakhs which did not include arrears of depreciation amounting to Rs.44.06 lakhs.
The working capital and net wealth assumed negative values.
The outstanding secured loans amounted to Rs.170.20 lakhs and unsecured loans to Rs.14.60 lakhs.
There were defaults in payment of instalments and interest.
It is further stated that according to the Investigation Committee, the reasons for this state of affairs was low capital base, heavy borrowings and consequent interest burden and paucity of working capital.
In this connection, it may be pointed out that sometime in June 1975, after the nationalisation of the undertakings, the petitioners including the Company filed separate writ petitions under Article 226 of the Constitution in the High Court of Karnataka challenging the order dated October 19, 1971 under section 18A of the IDR Act, and also the constitutional validity of the Nationalisaiion Act.
All these Writ Petitions were dismissed by a learned Single Judge of the Karnataka High Court on July 8, 1976.
The appeals preferred by some of the petitioners including the Company were also summarily dismissed by the Division Bench of the said High Court.
By an order dated March 25, 1977, the Division Bench also dismissed applications for leave to appeal to this Court under Article 133 of the Constitution of India.
We are afraid, in view of the aforesaid facts the petitioners are not entitled to challenge the impugned order under section 18A. We may now consider the challenge of the petitioners to the constitutional validity of the Nationalisation Act.
It is contended on behalf of the petitioners that the provisions of sections 5(1), 19(3), 2 1 read with the Second Schedule, 25 and 27 impose restrictions on the exercise by the petitioners of their fundamental right; such restrictions being arbitrary and excessive are not reasonable within the meaning of Article 19(6) and are violative of Articles 14 and 19(1)(g) of the Constitution.
It is submitted that the Nationalisation Act containing the said provisions alters or damages the basic structure of the Constitution as reflected in Articles 14 and 19 of the Constitution.
Further, it is submitted that though the Nationalisation Act has been included in the Ninth Schedule to the Constitution, yet, in view of the decision of this Court in Waman Rao vs Union of India, [1981] 2 SCR l, as the inclusion has been made after April 24, 1973, such challenge can be made.
We fail to understand how the provisions of the Nationalisation 727 Act can alter or damage the basic structure of the Constitution.
The basic structure of the Constitution can be altered or damaged by an amendment of the provisions of the Constitution.
The decision in Waman Rao 's case (supra) does not at all support the contention of the petitioners.
In that case.
it has been observed as follows: "In Keshvananda Bharati ([1973] Suppl.
SCR 1) decided on April 24, 1973 it was held by the majority that Parliament has no power to amend the Constitution so as to damage or destroy its basic or essential features or its basic structure.
We hold that all amendments to the Constitution which were made before April 24, 1973 and by which the 9th Schedule to the Constitution was amended from time to time by the inclusion of various Acts and Regulations therein, are valid and constitutional.
Amendment to the Constitution made on or after April 24, 1973 by which the 9th Schedule to the Constitution was amended from time to time by the inclusion of various Acts and Regulations therein, are open to challenge on the ground that they, or any one or more of them are beyond the constituent power of the Parliament since they damage the basic or essential features of the Constitution or its basic structure.
We do not pronounce upon the validity of such subsequent constitutional amendments except to say that if any Act Regulation included in the 9th Schedule by a Constitutional amendment made on or after April 24, 1973 is saved by Article 31A, or by Article 31C as it stood prior to its amendment by the 42nd Amendment, the challenge to the validity of the relevant Constitutional Amendment by which that Act or Regulation is put in the 9th Schedule, on the ground that the Amendment damages or destroys a basic or essential feature of the Constitution or its basic structure as reflected in Articles 14, 19 or 31, will become otiose.
(3) Article 31C of the Constitution, as it stood prior to its amendment by section 4 of the Constitution (42nd Amendment), Act, 1976, is valid to the extent to which its constitutionality was upheld in Keshvananda Bharati.
Article 31C, as it stood prior to the Constitution (42nd Amendment) Act does not damage any of the basic or essential features of the Constitution or its basic structure.
" 728 It is apparent from the above observation that only constitutional amendments made on or after April 24, 1973 by which Acts or Regulations were included in the Ninth Schedule can be challenged on the ground that they damage the basic or essential features of the Constitution or its basic structure.
But if any of such Acts and Regulations is saved by Article 31A or by Article 31C as it stood prior to the amendment of the Constitution by the Forty Second Amendment.
such challenge on the ground that the constitutional amendment damages or destroys a basic or essential feature of the Constitution or its basic structure as reflected in Article 14 or Article 19, will become otiose.
The Nationalisation Act has been enacted to give effect to the policy of the State towards securing the principles specified in clause (b) of Article 39 of the Constitution.
Indeed, a declaration in that regard has been made in section 39 of the Nationalisation Act.
It was, however, open to the petitioners to challenge this declaration, for, in Keshvananda Bhartiv.
State of Kerala, , this Court by a majority struck down the second part of Article 31C of the Constitution, namely, "and no law containing a declaration that it is for giving effect to such policy, shall be called in question in any court on the ground that it does not give effect to such policy.
" No contention has, however, been advanced before us on behalf of the petitioners that the Nationalisation Act does not give effect to the policy of the State towards securing the principles specified in clause (b) of Article 39 of Constitution.
The reason why no such contention has been made is obvious in view of the objectives the Nationalisation Act seeks to achieve.
It cannot be gainsaid that textile industries constitute material resources of the community and any setback or fall in the production of textile goods will have adverse effect on the national economy and also cause hardship to the people.
It is with a view to re organising and rehabilitating the sick textile undertakings so as to subserve the in terests of the general public by the augmentation of the production and distribution, at fair prices, of different varieties of cloth and yarn, and for matters connected therewith or incidental thereto, as stated in the preamble, that the Nationalisation Act has been enacted.
We have considered the different provisions of the Nationalisation Act and are satisfied that it gives effect to the policy of the State towards securing the ownership and control of the material resources of the community, which are so distributed as best to subserve the common good.
In the circumstances, as the Nationalisation Act comes under the protective umbrella of Article 31C, the petitioners are not entitled to challenge the constitutional validity thereof on the ground of violation of the provisions of Articles 14 and 19 of the Constitution.
729 The learned counsel for the petitioners, however, submits that in spite of the fact that the Nationalisation Act has been included in the Ninth Schedule, the petitioners are entitled to challenge the constitutional validity of the provisions of the Nationalisation Act as violative of Articles 14 and 19 of the Constitution.
It has been already noticed that the Nationalisation Act fall squarely within the ambit of Article 31C and, consequently, none of its provisions can be challenged on the ground of violation of Article 14 or Article 19 of the Constitution.
Much reliance has, however, been placed by the petitioners on a majority decision of this Court in Bhim Singhji vs Union of India.
In that case, the question that has been considered relates to whether the Urban Land (Ceiling and Regulation) Act, 1976 furthers the Directive Principles of State Policy in clauses (b) and (c) of Article 39 of the Constitution.
It has been held by the majority consisting of Chandrachud C.J., P.N. Bhagwati J. (as he then was) and Krishan Iyer J. that the said Act implements or achieves the purposes of clauses (b) and (c) of Article 39 and is valid except that section 27(1) of the said Act in so far as it imposes a restriction on transfer of any urban or urbanisable land with a building or a portion only of such building which is within the ceiling area, is invalid.
It has been observed by Chandrachud C.J., with whom Bhagwati, J. concurs, that fuller reasons will follow later.
Subsequently, a judgment has been delivered by Chandrachud C.J., for himself and Bhagwati J. ; wherein it has been inter alia observed as follows: "We have gone through Krishna Iyer J 's judgment closely and find that there is nothing that we can usefully add to it.
" In other words the learned Chief Justice and Bhagwati J. have adopted the reasons given by Krishna Iyer J.
The learned Counsel for the petitioners has drawn our attention to the fact that none of the Judges constituting the majority, including Krishna Iyer J. has given any reason for striking down the provision of section 27(1) of the said Act.
It is submitted that the majority judgment is a precedent for the proposition that even though a statute comes within the purview of Article 31C of the Constitution, yet its validity can be challenged on the ground of its violation of Article 14 or Article 19 of the Constitution.
It is contended that in view of Bhim Singhji 's case, we cannot take any view other than the view that such a challenge can be made 730 In support of the above contention, the learned Counsel for the petitioners has placed reliance upon the decision of the Court of Ap peal in Harper and others vs National Coal Board, In that case, the Court of Appeal had to consider the propriety of the judgment of the learned Trial Judge, who based his decision on the speeches in the House of Lords in Central Asbestos Co. Ltd vs Dodd.
In Dodd 's case the House of Lords by a majority of 3 to 2 affirmed the majority decision of the Court of Appeal that time did not begin to run against the plaintiff under section 1(3) of the until he discovered that he had a worthwhile cause of action.
Of the three Judges, who constituted the majority of the House of Lords, two took the same view of the law as that taken by the majority of the Court of Appeal, while the third took another view of the law which.
in substance accorded with that of minority of the House, that is, that time began to run under section 1(3) as soon as the plaintiff knew of the facts on which his action was based.
The question that had to be considered by the Court of Appeal was whether it was bound by the reasoning in the speeches of the House of Lords in Dodd 's case.
In that contention, Lord Denning MR observed as follows: "How then do we stand on the law? We have listened to a most helpful discussion by counsel for the proposed plaintiffs on the doctrine of precedent.
One thing is clear.
We can only accept a line of reasoning which supports the actual decision of the House of Lords.
By no possibility can we accept any reasoning which would show the decision itself to be wrong.
The second proposition is that, if we can discover the reasoning on which the majority based their decision, then we should accept that as binding on us.
The third proposition is that, if we can discover the reasoning on which the minority base their decision, we should reject it.
It must be wrong be cause it led them to the wrong result.
The fourth proposition is that if we cannot discover the reasoning on which the majority based their decision we are not bound by it.
We are free to adopt any reasoning which appears to us to be correct, so long as it supports the actual decision of the House.
" We fail to understand how the above observation lend any sup port to the contention of the petitioners.
The Court of Appeal was considering the same point as was before the House of Lords in Dodd 's 731 case.
The question was whether the Court of Appeal was bound to adopt the same reasoning as in Dodd 's case and it was held that since there was no discernible ratio decidendi common to the speeches in the House of Lords in Dodd 's case, the Court of Appeal was not bound by the reasoning in those speeches and was free to adopt any reasoning which appeared to the Court to be correct provided that it supported the actual decision of the House.
In the instant case, we are not considering the question of the constitutional validity of section 27(1) of Urban Land (Ceiling and Regulation) Act and, therefore, it is quite irrelevant for our purpose whether any reason was given by the majority in Bhim Singhji 's case (supra) or not.
In view of our decision that the Nationalisation Act comes within the purview of Article 31C of the Constitution, we do not think we are called upon to adjudicate upon the contention of the petitioners that some of the provisions of the Nationalisation Act are violative of Articles 14 and 19 of the Constitution.
The only contention of the petitioners that remains to be considered is that the respondents have illegally taken over possession of the vacant land belonging to the Company.
It is the case of the petitioners that out of the land, the mill premises comprises 34.78 acres and the rest of the land measuring 17.52 acres was and is vacant land.
It is not in dispute that the said 17.52 acres of land is situate within the mill compound and except 4.37 acres thereof, the remaining 13.57 acres of land including the said 4.37 acres, is unrelated to and unconnected with the undertaking of the Company and, accordingly, it did not vest in the Central Government under the Nationalisation Act.
It is also pointed out on behalf of the petitioners that the vacant land has not been utilised by the National Textile Corporation for any purpose of the undertaking.
It is urged that as the vacant land was illegally and wrongfully taken possession of by the National Textile Corporation, although the same had not vested in the Central Government, the same should be released and given back to the Company.
In any event, it is submitted on behalf of the petitioners that possession of the said 4.37 acres of land which does not form part of the compact block of the vacant land measuring 13.57 acres should be delivered back to the petitioners.
The respondents in their affidavit in opposition have denied and disputed the contention of the petitioners that the said 17.52 acres or the said 4.37 acres of land does not form part of the sick textile under 732 taking.
It is the case of the respondents that except the land measuring 4 acres 14 Gunthas (stated to be equivalent to 4.37 acres) the rest of the land forms one compact block in which the buildings, office and quarters of the undertaking are situate.
Further it is said that the National Textile Corporation has a programme for locating an institution to train the technical personnel and to build quarters as a welfare measure and, necessarily, such a complex must have vacant land to implement the expansion programme.
Accordingly, it is contended by the respondents that even the vacant land measuring 4 acres 14 Gunthas form an integral part of the textile undertaking.
It has already been noticed that the whole of the said 17.52 acres of land including 4.37 acres thereof, is situate within the mill compound.
We are unable to accept the contention of the petitioners that as the land is lying vacant since the take over, it does not form part of the undertaking.
Under section 4(1) of the Nationalisation Act, the sick textile undertaking shall be deemed to include all properties, movable and immovable, including lands, buildings, workshops, stores, etc.
in the ownership, possession, power or control of the owner of the sick textile undertaking.
In view of the said provision, it is difficult to accept the contention of the petitioners that the vacant land is not a part of the undertaking.
It may be that the said 17.52 acres of land or the said portion of it measuring 4.37 acres has not been put to any use, but that will not entitle the petitioners to claim that possession of the land should be delivered back to the Company.
The question whether the vacant land has been in use, is not, in our opinion, relevant for the purpose of section 4(1).
It is, therefore, difficult for us to accept the contention of the petitioners that the vacant land is unrelated to and unconnected with the textile undertaking.
The learned counsel for the petitioners has placed reliance upon an observation of this Court in National Textile Corporation Ltd. and others etc.
vs Sitaram Mills Ltd. and others; , The question that was involved in that case was whether surplus land in the precinct of the taken over undertaking was an asset in relation to the undertaking.
It was observed "The test is whether it was held for the benefit of, and utilised for, the textile mill".
Relying upon this observation, it is contended by the learned counsel for the petitioners that as the vacant land, in the instant case, has not been utilised for the undertaking, it is not an asset of the undertaking.
We do not think that in Sitaram Mills case this Court really meant to lay down a proposition that in order that a piece of land to be considered as the asset of the textile undertaking, it must be held for the benefit of and utilised for 733 the undertaking in question.
Can it be said that a piece of land which is held for the benefit of but not utilised for the textile undertaking, as in the instant case, is not an asset of the undertaking? The answer must be in the negative.
In Sitaram Mills case that observation was made in the context of facts of that case, namely, that the surplus land was held for the benefit of and also utilised for the textile undertaking.
We do not think that the said observation in the case of Sitaram Mills case is of any help to the petitioners.
We hold that the whole of the said 17.52 acres of land forms part of the textile undertaking of the Company.
No other point has been urged in these writ petitions.
For the reasons aforesaid, all these writ petitions are dismissed.
There will however.
be no order for costs.
M.L.A. Petitions dismissed.

Output:
The petitioner, Minerva Mills Ltd. a textile undertaking had been running at a loss and had to be closed down.
The Central Government ordered an investigation into the affairs of the petitioner company under section 15 of the Industries (Development & Regulation) Act 1931.
Thereafter, the State Government of Mysore sanctioned the guarantee to enable the petitioner company to raise a loan of Rs.20 lacs from the State Bank of India.
After the investigation was made, the Central Government passed an order under section 18A of the IDR Act taking over the management of the undertaking of the Company on the ground that the Central Government was of opinion that the undertaking was being managed in a manner highly detrimental to public interest.
During the pendency of the management of the undertaking by the National Textile Corporation, the Sick Textile Undertakings ordinance of 1974 was promulgated, and it was replaced later on by the Sick Textile Undertakings (Nationalisation) Act 1974.
719 The petitioners including the company unsuccessfully challenged before the High Court under article 227, the order dated October 18, 1371, passed by the Central Government under section 18A of the Industrial (Development and Regulation) Act as also the Nationalisation Act.
Their appeals were also summarily dismissed by the Division Bench of the High Court.
R The petitioner.
Minerva Mills Ltd. and some of its creditors challenged before the Supreme Court under article 32 of the Constitution, the legality of the aforesaid order as also the constitutional validity of Sick Textile Undertakings (Nationalisation) Act 1974.
Dismissing the writ petitions, ^ HELD: 1.1 The investigation that was made under section 15 of the Industrial (Development and Regulation) Act and the consequent findings of the Government on the basis of which the management of the undertaking of the Company was taken over under section 18A of the Industrial (Development and Regulation) Act, was that the affairs of the under taking of the Company were being managed in a manner highly detrimental to public interest.
The undertaking had been running at a loss and had to be closed down on January 2, 1970.
This miserable condition of the undertaking might be due to the mismanagement of its affairs.
[723E F] 1.2 The Government might have thought of assisting the Company to raise a loan of Rs.20 lacs, but that fact or the fact that such proposal for assistance was made for special reasons as provided in the second proviso to section 4 of the Mysore State Aid to Industries Act, 1953 is not, sufficient to uphold the contention of the petitioners that there was no basis or foundation for the order under section 18A. [723F G] 1.3 The legislature had decided that the undertaking of the Company was a sick textile undertaking by including the same in the First Schedule to the Nationalisation Act.
There can be no doubt that the legislative judgment should be looked upon with respect and it requires very strong grounds to set it at naught.
In the instant case, there is no existence of any such ground.
[724B C] 2.
The petitioner company was given a hearing by the Investigation Committee and, therefore, it got ample opportunities to make representations against the proposed take over.
It is difficult to lay down that non supply of a copy of the report of investigation under section 15 of the 720 Industrial (Development and Regulation) Act will always occasion a failure of natural justice.
Whether in a particular case there has been failure of natural justice or not will depend on the facts and circumstances of that case.
[725A B] In the instant case also, the petitioners were not in the least prejudiced for the non supply to them of a copy of the report.
Moreover, they never asked for a copy of the report.
They did not also move against the order under section 18A before the undertaking was nationalised under the Nationalisation Act.
It shows that the petitioners were not aggrieved by the said order under section 18A for they could not be as they had not the required minimum resources for running the mill.
[725F H] 3.1 The Nationalisation Act has been enacted to give effect to the policy of the State towards securing the principles specified in clause (b) of article 39 of the Constitution.
Indeed a declaration in that regard has been made in section 39 of the Nationalisation Act.
[728C D] 3.2 The Nationalisation Act gives effect to the policy of the State towards securing the ownership and control of the material resources of the community, which are so distributed as best to subserve the common good.
In the circumstances, as the Nationalisation Act comes under the protective umbrella of Article 31C, the petitioners are not entitled to challenge the constitutional validity thereof on the ground of violation of the provisions of articles 14 and 19 of the Constitution.
[728G H] 4.
Only constitutional amendments made on or after April 24, 1973 by which Acts or Regulations were included in the Ninth Schedule can be challenged on the ground that they damage the basic or essential features of the Constitution or its basic structure.
But if any of such Acts and Regulations is saved by article 31A or by article 31C as it stood prior to the amendment of the Constitution by the Forty second Amendment, such challenge on the ground that the constitutional amendment damages or destroy a basic or essential feature of the Constitution or its basic structure as reflected in article 14 or article 19, will become otiose.
[728A C] 5.
Under section 4(1) of the Nationalisation Act, the sick textile under taking shall be deemed to include all properties, movable and immovable, including lands, buildings, workshops, stores, etc., in the owner ship, possession, power or control of the owner of the sick textile under taking.
The question whether the vacant land has been in use, is not, relevant for the purpose of section 4(1).
In view of the said provision, it is 721 difficult to accept the contention of the petitioners that the vacant land is not a part of the undertaking.
[732 D E] In the instant case, the whole of the said 17.52 acres of land including 4.37 acres thereof.
is situate within the mill compound.
The Court cannot accept the contention of the petitioners that as the land is Lying vacant since the take over it does not form part of the undertaking.
[732 C D]


Input:
Criminal Appeal No. 129 of 1966.
Appeal by special leave from the judgment and order dated March 21, 1966 of the Calcutta High Court in Criminal Revision No. 309 of 1966.
521 A. K. Sen, P.K. Chatterjee, M.M. Kshatriya and G.S. Chatterjee, for the appellants.
B. Sen and P.K. Chakravarti, for the respondent.
The Judgment of the Court was delivered by Shah, J.
Mahendra Lal and Probhat Kumar Sarkar were the promoters, and Almohan Das was the first Chairman of the Board of Directors of the Great Indian Steam Navigation Company Ltd. Messrs. Das Brothers of which Almohan Das was the sole proprietor became the managing agents ' of the Company in 1945.
On July 2, 1951, Das Group Ltd. of which also Almohan Das was the principal Director took over the managing agency.
The Registrar of Companies, West Bengal filed a complaint in the Court of the Chief Presidency Magistrate alleging that sometime between March 1, 1945 and December 31, 1947 a sum of .Rs.
7,23,031 9 6 was advanced by the.
Company to the managing agents Messrs Das Brothers; that on July 2, 1951 Messrs Das Brothers resigned from the managing agency and Messrs Das Group Ltd. took over the managing agency; that Almohan Das was at all material times a director of the company and also a director of Messrs Das Group Ltd. and the sole proprietor of Messrs Das Brothers; and that the complainant had reason to believe that Almohan Das with other directors of the company had committed offences under sections 86 D and 87 D of the Indian Companies Act, 1913.
The complainant requested that a through investigation .be made in the matter.
The Chief Presidency Magistrate, Calcutta, referred the case to the police for investigation.
In the course of investigation of the complaint referred to him, Sub Inspector J.N. Mukherjee filed a First Information against eight persons (including the five appellants in this appeal) charging them with having, conspired to commit criminal breach of trust in respect of the company 's funds, falsification of accounts and making false returns, balance sheets and accounts, and in furtherance of the object of the conspiracy with committing offences punishable under sections 409 and 477A I.P. Code and under section 282 of the Indian Companies Act, 1913.
After investigation, Sub Inspector Mukherjee submitted on February 29, 1958, a report under section 173 of the Code of Criminal Procedure in the Court of the Chief Presidency Magistrate for those offences against seven persons including the five appellants.
The Presidency Magistrate, 9th Court, to whom the case was transferred for trial, rejected the contention raised by counsel for the defence that to a charge made against a director in relation to 522 the affairs of the company, the Indian Penal Code can have no application, and the prosecution, if any, may be instituted under the provisions of the Indian Companies Act alone.
The Magistrate also held that it was open to the police officer to whom the case was referred for investigation to submit a charge sheet of his own initiative and that the Court had jurisdiction to enquire into the charge so made without the sanction of the High Court.
A revision application was filed in the High Court of Calcutta against that order, but the application was rejected.
Proceedings were then resumed by the Magistrate on December 5, 1961, and a large number of witnesses were examined before him and several documents were tendered in evidence.
On December 3, 1965, the Presidency Magistrate committed the accused to stand trial for offences under sections 120B read with 409 & 477A I.P. Code before the Court of Session.
He observed: ". having regard to the entire evidence on record and facts and circumstances of the case, I am convinced prima facie that good grounds exist for framing charge under section 409 I.P.C. against accused Almohan Das with charge under section 120B read with section 409 I.P. Code aaginst (1) Almohan Das, (2) Sisir K. Das, (3) Nara Singha Pal, (4) Mohendra Lal Kundu and (5) Provat Kumar Sarkar, another charge under section 467 read with section 34 I.P. Code against (1) Almohan Das, (2) Nara Singha Pal, and (3) Mohendra L. Kundu for forging Ext.
5, and last under section 477A against (1) Aimoban Das, (2) Nara Singha Pal, (3) Mohendra Lal Kundu,(4) Provat Kumar Sarkar and (5) Sisir Kumar Das in respect of falsification of shareholders minute book (Ext. 18) purporting to ratify the action of Almohan Das regarding the funds of the G.I.S.N. & Co. Ltd." Against this order, a revision application was filed in the High Court of Calcutta which was 'rejected in limine.
Against the order passed by the High Court, this appeal has been filed with special leave.
In the present case the order of commitment was made under section 207A of the Code of Criminal Procedure.
Normally the High Court in a revision application filed against the order of commitment under section 207A will not enter upon a reappraisal of the evidence on which the order of commitment is made.
The High Court would be justified in exercising its revisional jurisdiction where a substantial question of law arises on which the correctness of the order of commitment may be effectively challenged, where there is no evidence on which the order of commitment could be made, where there has been denial of a right to fair 523 trial, where there is reason to think because of failure to comply with the rules of procedure or conditions precedent to initiation of criminal proceedings, where by ignoring the substantive law which constitutes the offence, or misconception of evidence on matters of importance grave injustice has resulted, and on similar other grounds.
But in other cases, interference with the order of the Magistrate committing the accused for trial may not be justified and the trial before the Court of Session should be allowed to run its course.
Counsel for the appellants submitted that there was no evi dence on which the order of commitment could be made.
We do not think that there is any ground for so holding.
It was the prosecution case that in order to commit criminal breach of trust in respect of an amount exceeding Rs. 5 lakhs by allowing it to remain with Messrs Das Brothers the previous managing agents of the company of which Almohan Das was the sole proprietor and from whom Messrs Das Group Ltd. took over the managing agency a conspiracy was entered into between the seven named persons, and the minutes book of the meetings of the Board of Directors and the shareholders ' minutes book were fabricated and criminal breach of trust was committed in respect of the funds belonging to the Company.
It is true that in the balance sheet Ext.
137 for the year ending December 31, 1952, on the assets side is an item 'Sundry Advances (Unsecured) ' inclusive of Rs. 5,78,941 7 0 due by a firm in which a director of the Company was a partner.
But this, it is the case of the prosecution, was not supported by any resolution passed by the Board of Directors.
By letter dated June 21, 1956, the Additional Registrar of Companies asked the Company to furnish a certified copy of the minutes of the Board of Directors .in which the loan had been made to the managing agents of the Company.
In reply thereto by letter dated July 12, 1956, the Managing Agents wrote that as the money was held by the managing agents and was not given or treated as a loan, there was no resolution of the Board of Directors in that connection.
On September 29, 1956, the Additional Registrar of Companies again wrote a letter .to the Company enquiring whether the amount of Rs. 5,78,941 7 0 which was lying with the previous managing agents of the Company Messrs Das Brothers had since been realised, and if so, the evidence adjusting the liability,.
and if not, to intimate with material evidence whether any steps had since been taken by the Company for the realization of the dues and how the matter stood.
in the course of the investigation the officer in charge attached a directors ' minutes book Ext.
5 which contains the minutes of a resolution authorising Almohan Das to retain the funds of the Company.
Therefore, there was some evidence on which the 524 charge for fabrication of the Director 's Minutes Book may be sustained.
In dealing with the charge for fabricating the Shareholders ' Minutes Book the learned Magistrate has observed that the materials on the record made out a strong prima facie case that the Shareholders ' Minutes Book Ext.
18 is also a forged document.
The circumstances which lent colour to the prosecution, in the view of the learned Magistrate were (1) that Ext.
18 starts from February 28, 1945, although the Company was incorporated in 1942, (2) in many meetings the signatures of the shareholders were not taken although in some meetings the shareholders signed the minutes book, (3) resolutions of Amaresh Pramanick and Sudhir Kanti Sarkar are not incorporated in the minutes book, (4) some portions in the last page in the agreement (Ext. 20) with the managing agency firm Das Group appear to have been erased out and the agreement was thus tampered with, (5) the minute book Ext.
18 does not incorporate 'the relevant questions, and there appeared tampering with pagination, (6) the evidence of P.Ws. 6 & 16 regarding their presence or absence, and (7) the testimony of P.Ws. 15 & 24 suggested that most of the persons shown to have attended meetings were at the "back and call of the accused Almohan Das".
Whether this evidence may justify a conviction cannot be enquired into at this stage.
The evidence was prima facie sufficient to frame a charge.
The Presidency Magistrate was of the view that a case for framing a charge for committing the case to the Court of Session was made out and the High Court has summarily dismissed the revision application in exercise of its jurisdiction.
It was contended before us that under section 209(1) of the Code of Criminal Procedure, a charge may be framed only if in the view of the committing Magistrate the evidence on record is sufficient to justify conviction of the accused.
Section 209 of the Code provides: "When the evidence referred to in section 208, subsections (1) and (3), has been taken, and he has (if necessary) examined the accused for the purpose of enabling him to explain any circumstances appearing in the evidence against him, such Magistrate shall, if he finds that there are not sufficient grounds for committing the accused person for trial, record his reasons and discharge him, unless it appears to the Magistrate that such person should be tried before himself or some other Magistrate, in which case he shall proceed accordingly." 525 In terms section 209 applies to cases which are instituted otherwise than on a police report.
But the principle underlying that section applies to cases which are instituted on a police report.
A Magistrate holding an enquiry is not intended to act.
merely as a recording machine.
He is entitled to sift and weigh the materials on record, but only for seeing whether there is sufficient evidence for commitment, and not whether there is sufficient evidence for conviction.
If there is no prima facie evidence or the evidence is totally unworthy of credit, it is his duty to discharge the accused: if there is some evidence on which a conviction may reasonably be based, he must commit the case.
The Magistrate at that stage has no power to evaluate the evidence for satisfying himself of the guilt of the accused.
The question before the Magistrate at that stage is whether there is some credible evidence which would sustain a conviction.
We do not agree with counsel for the appellants that there was no evidence on which a charge could be framed against the appellants or that the evidence was so totally unworthy of credit ' that an order recording the conviction against the accused could not be made thereon.
The appeal fails and is dismissed.
We trust that the case which has been held up for a very long time will be taken up by the Court of Session for trial with the least practicable delay.
R.K.P.S. Appeal dismissed.

Output:
On a complaint filed by 'the Registrar of Companies, and after an investigation by the Police ordered by the Chief Presidency Magistrate, Calcutta, proceedings were instituted against the appellants for conspiring to commit criminal breach of trust in respect of a company 's funds.
After a large number of witnesses were examined and several documents were tendered in evidence, the Magistrate committed the accused to stand trial for offences under section 120B read with Sections 409, 477A I.P.C. before the Court of Sessions.
A revision application against the order of committal was rejected in limine by the High Court.
In appeal to this Court it was contended on behalf of the appellants that there was no evidence on which the order of commitment could be made and that under section 209 (1) Cr.
P.C., the charge may be framed only if in the view of the committing Magistrate the evidence on record is sufficient to justify conviction of the accused.
HELD: Dismissing the appeal: On the facts, it could not by said that there was no evidence on which a charge could be framed against the appellants or that the evidence was so totally unworthy of credit that are order recording the conviction against the accused could not be made.
Although in terms section 209 'applies to cases which are instituted otherwise than on a .police report, the principle underlying that section also applies to cases which are instituted on a police report.
A Magistrate holding an inquiry has to see whether there is sufficient evidence for commitment, and not whether there is sufficient evidence for conviction.
If there is no prima facie evidence or the evidence is totally unworthy of credit, it is his duty to discharge the accused: if there is some evidence on which a conviction may reasonably be based, he must commit the ' case.
[525 A C] Normally the High Court in a revision application flied against the order of commitment under section 207A will not enter upon a reappraisal of the evidence on which the order of commitment is made.
The High Court would be justified in exercising its revisional jurisdiction where a substantial question of law arises on which the correctness of the order of commitment may be effectively challenged.
But in other cases the trial before the Court of Session should be allowed to run its course.
[522 G 523 B]


Input:
Appeal No. 1308 of 1970.
Appeal by special leave from the order dated September 8.
1970 of the Calcutta High Court in Income Tax Reference No. 50 of 1971.
N. A. Palkhivala, Veda Vyasa, T. A. Ramachandran and D. N. Gupta, for the appellant.
Y. section Desai, section K. A iyar and H. D. Sharma, for the respondent.
The Judgment of the Court was delivered by Grover, J.
This is an appeal by special leave from an order of the Calcutta High Court directing the Income tax Appellate Tribunal, 'B ' Branch, Calcutta, to draw a statement of case relating to four questions of law which, it was stated, arose out of the order of the Tribunal in the matter of assessment of the appellant which was the assessee in respect of the assessment year 1962 63.
The Appellate Tribunal had rejected the application of the Commissioner of Income tax requiring it to refer those questions to the High Court.
The High Court, on being moved, issued a rule nisi and then made it absolute after full arguments without giving any reasons, whatsoever.
140 The assessee is a 100% subsidiary of Imperial Chemical In dustries Ltd., incorporated in the United Kingdom (hereinafter referred to as I.C.I. for convenience).
I.C.I. advanced large amounts by way of loans to the assessee from time to time.
This, it was claimed, was done for subscribing to shares in three Indian Companies called Indian Explosives Ltd., Alkalai & Chemical Corporation of India and Atic Industries Private Ltd., (hereinafter called as I.E.L., A.C.C.I and ATIC respectively).
Subsequently the assessee transferred the shares in the aforesaid companies at par to I.C.I. in satisfaction of the loans advanced by that company.
The Income tax Officer applied section 52 of the Income tax Act, 1961 (hereinafter called the 'Act ') and assessed the assessee to capital gains.
The Appellate Assistant Commissioner took the contrary view and held that on the facts which had been established, the assessee was not liable to capital gains under the aforesaid section.
The Tribunal upheld the decision of the Appellate Assistant Commissioner by a detailed and well reasoned order.
Broadly, the case of the assessee was that I.C.I. wanted to make investments in India in sterling currency.
The assessee was already in existence but the other three companies which have been mentioned, were incorporated later.
I.C.I. devised a scheme by which it could make the investment as desired by it and by which it could also take advantage of the tax relief which could be availed of by the new enterprises under section 15(C) and 56.(A) of the Income tax Act, 1922.
The scheme in short was that I.C.I. would arrange to let the assessee hold shares in the three com panies by investing the money which was to be given by I.C.I. to the assessee.
The modus operandi was that I.C.T. would give that money by way of loans to the assessee who agreed that the shares in the three companies would be transferred to I.C.I. in satisfaction of the loans at par or issue price as and when desired by I.C.I. All this was done after negotiations with the concerned Department of the Government of India at the highest level and with the approval of the Reserve Bank of India.
The entire scheme was conceived and was put into operation prior to 30th November 1956 when the Finance Bill was introduced reimposing capital gains tax which had remained abolished for certain years.
There was a provision for charging interest by the I.C.I. from the assessee at a rate not exceeding 1/2% above the Indian Bank rate which came to 51% per annum but the interest was not to exceed in any case the dividends received by the assessee from those shares.
It was claimed on behalf of the assessee that this arrangement was advantageous both to I.C.I. and the assessee, I.C.I. having taken the risk (of depreciation in shares or otherwise) attached to the new business pioneering adventures, ensured that capital appreciation of the shares, if 'any, also went 141 to itself.
The assessee did not suffer any disadvantage because it had to pay no interest if no dividend was received and it could keep and get the benefit of any dividend in excess of 5 1/2%.
As a result of I.C.I. investments being held through the assessee instead of directly, I.C.I. achieved an advantage of saving tax in U.K. amounting to pound 68,000 in the relevant years.
In 1959 the structure of Indian taxation regarding the grossing up of dividends was radically changed and by the Finance Act 1959, the system of grossing up of dividends (under section 16(2) and 18(5) of 1922 Act) was abolished and intercorporate dividends became liable to income tax at each stage.
Thus, the dividends passing from the three companies through the assessee to I.C.I. became liable to tax stages.
This affected the net return of I.C.I. on its investments in the three companies substantially.
In these circumstances, it was decided by I.C.I. that the investments in the three companies should 'he held by it directly.
For that reason it called upon the assessee in February 1961 to transfer to it the aforesaid shares in the three companies at the issue price in satisfaction of the sterling loans in accordance with the previous agreements.
The approval of the Reserve Bank to these transfers was received in February 1961 and the transfers were made in March/April 1961.
According to the assessee there was no question of the transfer of shares having been affected with the object of avoidance or reduction of the liability of the assessee to capital gains which alone could attract the applicability of section 52 of the Act.
Section 52 is in the following terms "Consideration for transfer in cases of under statement: Where the person who acquires a capital asset from an assessee is directly or indirectly connected with the assessee and the Income tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 45, the full value of the consideration for the transfer shall, with the previous approval of the Inspecting Asstt.
Commissioner, be taken to be the fair market value of the capital asset on the date of the transfer".
The necessary ingredients of the section are (i)there should be a direct or indirect connection between the person who acquires a capital asset and the assessee; (ii) the Income tax Officer should have reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee to capital gains; (iii) if the first two conditions are satisfied then the full value of consideration for the 142 transfer can be taken to be the fair market value of the capital asset on the date of the transfer.
As regards the first requirement, that was admittedly satis fied in the present case.
The second requirement could be satisfied only if there was any cogent material on which the Income tax Officer could have reason to believe that the transfers were effected with the object of avoidance and reduction of liability to capital gains.
It is abundantly clear that the intention with which a particular transfer is made and the object which is to be achieved by such transfer is essentially a question of fact the conclusion relating to which is to be arrived at on a consideration of the relevant material.
In other words, before the Income tax Officer can have any reason to believe that a transfer was effected with the object mentioned in the section facts must exist showing that the object was to avoid or reduce the liability to capital gains.
The Tribunal examined fully the correspondence and the other material with regard to each of the three Indian companies in which the investment had been made of the money advanced by I.C.I. to the assessee.
We may briefly notice the discussion relating to each company.
It was in or about 1949 that I.C.I. was asked by the Government of India to consider the manufacture of commercial Lasting High Explosives in India.
Negotiations advanced more towards October 1953 when the representatives of I.C.I. met the officials of the Government of India.
The Tribunal referred to the minutes of the meeting held on October 1, 1953 as also on the 6th October 1953.
In the final draft of the Declaration of Intention dated November 5.
1953, it was mentioned that the Government had agreed that if T.C.I. made a loan to the assessee the latter would hold the shares in I.E.L. and that the loan "may be repaid by a transfer of the shares to I.C.I. at any time".
On 21st December 1954, the assessee applied to the Reserve Bank of India for formal sanction for borrowing Rs. 160 lakhs from I.C.I. for the purchase of shares in I.E.L. in terms of the agreement dated November 5, 1953.
It was stated in the letter that I.C.I. would charge no interest until such time as the shares began to yield dividends.
The loans were advanced from 30th September 1954 to 30th June 1957 by the I.C.I. to the assessee of the equivalent of Rs. 160 lakhs in Sterling.
The other correspondence relating to the aforesaid amount was also noticed by the Tribunal.
In 1958 there was a Rights Issue by I.E.L. I.C.I. agreed to give a loan of Rs. 80 lakhs to the assessee to cover the Sterling requirement of I.E.L. The assessee was to take up shares of that amount.
The terms of the loan were that I.C.I. had the right to acquire at any time the shares held by the assessee in I.E.L. 143 at par in satisfaction of the loan and the rate of interest payable on the loan was to be I% above the Indian Bank rate.
This was followed by other correspondence and a resolution which was recorded on 30 9 1958 containing terms of the second loan of Rs. 80,00,000/ .
It is not necessary to refer to the other correspondence looked into by the Tribunal with regard to that loan.
On 15 2 1961 the assessee was called upon by I.C.I. to transfer the investments in satisfaction of the loans.
After the sanction was obtained from the Reserve Bank of India, the shares were transferred at par.
The Tribunal referred to the undisputed facts relating to the circumstances in which the scheme for advancing the loan to the assessee for investment in I.E.L. came to be mooted and was ultimately approved by the Government.
This is what the Tribunal said : "The above background would show that the idea was not to make the assessee the real beneficial owner of the shares.
The fact that the shares should be held only for a time beneficially by the assessee is clear from the "Declaration of Intention" dated 5 11 1953".
Before the Tribunal the counsel for the Department had accepted the position that if there was an arrangement or agreement before the reintroduction of capital gains tax he would have no case.
According to him, until the transfers were actually made of the shares, there was no agreement on which the parties could have gone to court in order to obtain the share transfers at par in favour of I.C.I.
The Tribunal proceeded first to examine whether there was any kind of understanding between the assessee and I.C.I. regarding the transfer of shares at par.
After recapitulating the correspondence and the relevant facts, the Tribunal came to the following conclusion: "Taking this along with the minutes of the meeting with the officials of the Government of India, in October 1953, it is clear that the whole idea of I.C.I. throughout was to make some funds available to the assessee so that the shares could be acquired in its name and that the shares could be transferred to I.C.I. as and when it demanded".
It was, however, stated by the Tribunal that taking into account the correspondence and the documents referred to earlier it was satisfied with the assessee 's case that the transfer of shares to London at issue price or at par was throughout the basis of the advances of loans to the assessee.
It is necessary to reproduce paragraph 31 of the order of the Tribunal : "In October 1953, there was no mention of any capital gains tax being revived.
At that time the asses 144 see could not have had any idea of avoiding or reducing any liability to capital gains tax.
The learned counsel for the department laid some emphasis on the fact that there was no enforceable arrangement.
The question as to whether there was an enforceable arrangement or not is not really material.
What we have to find out is whether the object in putting through these transactions of taking over the shares at par or at issue price was one of avoidance or reduction of liability to capital gains tax.
That object does not get established by the mere absence of an enforceable arrangement.
Having regard to the assessee being the subsidiary of I.C.I., there is nothing surprising about the arrangement not being so formal or not being put through after complying with all the necessary legal formalities.
The absence of formal agreement is thus understandable in this context and cannot by itself suggest anything in favour of the department.
Businessmen are not always motivated by legalistic considerations.
Even taking that the arrangement was only binding morally and not legally, still so long as the assessee wanted to fulfil a moral obligation and had not the capital gains tax in mind, it cannot be said that the transaction was entered into with the object of avoidance or reduction of liability to capital gains tax".
The Tribunal proceeded to say "We have to find out the object of the, transaction.
It is removed in point of time from the result.
In such a case one cannot try to infer the object from the results.
We really have to put ourselves at a point of time when the transaction was conceived.
Taking the materials before us, we consider that there is nothing to suggest that the parties had the capital gains tax in their mind in 1953 and later when they put through the aforesaid transactions.
We have, therefore, to hold that the factual requisites of section 52 have not been established here".
In dealing with the second Company, namely, A.C.C.I it was pointed out by the Tribunal that the scheme for manufactur ing Polythene was placed before the Government of India by a letter of the assessee dated 13 12 1955 addressed to Mr. H. V. R. lengar, Secretary, Minister of Commerce & Industry, in which it was specifically stated that to enable the assessee to subscribe for the new shares I.C.I. would lend the subscription monies to the assessee on the understanding that at a later date I.C.I. could acquire at the issue price these new shares in satisfaction of its 145 loan.
The Tribunal dealt with all the relevant facts relating to the loan advanced to A.C.C.I. including those stated in the affidavits of P. T. Manzies dated 17 8 1966 and U. R. Newbery dated 10 1 1967 and considered that the transaction relating to this Company was not in any way different from those relating to the I.P. L. ATIC, the third Company was incorporated primarily for the manufacture of certain Dye stuffs.
On 29 12 1955 I.C.I. agreed to advance Rs. 25 lakhs as loan to the assessee.
The shares acquired under the loan could be transferred to I.C.I. on request by the latter at the issue price.
I.C.I. waived its right to interest on the loan until the commencement of the period in respect of which ATIC paid the dividend.
There was a further loan of Rs. 35,00,000 on the same terms.
These shares were age subsequently required to be transferred to I.C.I. in February 1961.
The Appellate Assistant Commissioner had referred to the affidavits which had been filed on behalf of the assessee and had mentioned that the Department had not cross examined the deponents.
Before the Tribunal the counsel for the Department stated that he accepted the affidavits as correct in so far as facts were concerned but he only disputed the inferences therefrom.
The Tribunal in this connection observed: "In our opinion, once the facts mentioned therein are taken as correct, the inference that the transaction was not for *he purpose of avoiding or reducing liability to capital gains tax has to follow".
Finally the Tribunal, as stated before, confirmed the decision of the Appellate Assistant Commissioner that the material on record did not justify the conclusion of the Income tax Officer that the object of the transfer of the shares of all the three Companies by the assessee to I.C.I. was the avoidance of liability to capital gains which would attract the applicability of section 52 of the Act.
The Commissioner of Income tax asked for a reference on six questions.
The Tribunal again examined the further contentions of the Department in its order dated 28 7 1969 by which it declined to make the reference on the ground that no question of law arose out of the order of the Appellate Tribunal, Only four questions appear to have been pressed for being referred.
As regards question No. 1 (which was No. 3 before the Tribunal) it was pointed out that it proceeded on the basis that there was some dispute about the construction of the correspondence or documents.
The Tribunal observed that there was no such dispute and it had not been suggested that a particular expression in any letter or document had been wrongly construed.
Regarding question No. 2 (which was No. 4 before the Tribunal), the Departmental representative was asked to particularise the docu 146 ments or evidence omitted from consideration.
He referred to certain documents and evidence which according to him had not been considered by the Tribunal.
The Tribunal made it cleat that all the relevant materials which had been referred to had been considered by it.
These materials were distributed over four bulky volumes of typed records and, therefore, each document could not have been mentioned in the order.
Nothing relevant was actually over looked.
At any rate the documents on which particular reliance was placed on behalf of the Department were considered and the Tribunal observed that the grievance of omission of materials from consideration related to irrelevant matters.
As regards (the other two questions, the Tribunal observed that the charge of perversity was only a disparate attempt at extracting a question of law where, none existed and that the object or intention of an assessee was always a question of fact.
It was a factual inference to be drawn from other facts.
It was pointed out that on the construction of section 52, the parties had not joined, any issue.
We may now mention the four questions which the High Court directed to be referred : 1. "whether on the facts and in +he circumstances of the case and on a proper construction of the documents referred to and/or considered by it the Tribunal was right in arriving at the finding that the transfer of the shares to Imperial Chemical Industries Ltd., London at the issue price or par was throughout the basis of the advance of loans to the assessee ? 2.
Whether, in arriving at the said finding the Tribunal misdirected itself in law in basing the said finding on evidence covering some matters only and ignoring, evidence on other essential matters ? 3.
Whether, on the facts and in +,he circumstances of the case and particularly in view of the finding that there was no enforceable agreement making it obligatory upon the assessee to transfer the shares to Imperial Chemical Industries Ltd., London, at par or issue price the conclusion of the Tribunal that the transfer of the shares by the assessee to the latter company at par was not effected with the object of avoidance or reduction of the liability of the assessee to capital gains tax was unreasonable or perverse ? 4.
Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding, that 147 section 52 of the Income tax Act, 1961, was not applicable to the facts of the case ? On the analysis of section 52 of the Act made by us at a previous stage and the clear, cogent and precise findings and conclusions of the Appellate Tribunal, we are wholly unable to comprehend, how any question of law of the nature sought to be referred arose; or arises from the order of the Appellate Tribunal.
It is unfortunate that in a case of this nature and magnitude, the High Court did not choose to record a speaking order to enable us to appreciate the reasons which prevailed with it for directing the four questions to be referred.
The jurisdiction in the matter of reference can be exercised (i) when the point for determina tion is a pure question of law such 'as construction of a statute or document of title; (ii) when the point for determination is a mixed question of law and fact.
While the finding of the Tribunal on the facts is final its decision as to the legal effect of those findings is a question of law, (iii) a finding on a question of fact is open to attack as erroneous in law when there is no evidence to support it or if it is perverse.
Where, however, the finding is one of fact, the fact that it is an inference from other basic facts will not alter its character as one of fact (See Sree Meenakashi Mills Ltd. vs, Commissioner of Income tax, Madras(1).
In that case it was held that there was no question of construction of any statutory provision or document of title.
The issues which arose for determination, whether the sales entered in books of the ap pellant in the names of the intermediaries were genuine, and if not, to whom the goods were sold 'and for what price, were all questions of fact.
Their determination did not involve the application of any legal principles to facts established by the evidence.
The findings of the Tribunal were amply supported by evidence and were eminently reasonable.
It, therefore, followed that there was no question which could be referred to the Court under section 66(1) of the Income tax Act 1922.
The same principles will apply when a reference is sought under section 256 of the Act.
We are altogether unable to see how findings of the Appellate Tribunal that the transfer of shares in the present case was not made with the intention or object of avoidance or reduction of liability to capital gains were not questions of fact and did not depend on inference of facts from the evidence or the material before the Tribunal.
It can well be said that the determination of the question whether the object of the assessee was to avoid or reduce its liability to capital gains by making the transfers in question did not involve the application of any legal principles to the facts established by the evidence.
The findings of the Tribunal were amply supported by evidence and were eminently reasonable.
It (1) 148 is true that the amount involved is very large but that cannot Justify a reference as under section 256 of the Act neither the Appellate Tribunal could make a reference nor could the High Court direct the reference to be made to it by the Tribunal on pure questions ,of fact.
The learned counsel for the Commissioner has sought to invite our attention to certain parts of the order of the Tribunal and, in particular, to the statement extracted by us at an earlier stage about the question whether the assessee had held the shares beneficially and the point which was debated before the Tribunal whether there was any binding legal agreement between the assessee and I.C.I. for transfer of the shares at par.
We are unable to see how these matters were relevant for the purpose of determining the intention or object under lying the transfer of the shares to I.C.I. by the assessee.
Once the Tribunal came to the conclusion which was purely one of fact that before there was any proposal to reimpose capital gains tax which came to be embodied in the Finance Bill towards the end of November 1956, the scheme had been fully evolved between the assessee and I.C.I. of making the loans by the latter to the former for being invested in the three companies and that the shares would be transferred at par by the assessee to I.C.I. whenever desired, the applicability of section 52 could not be attracted as the same depended on certain facts which must exist or must be found and which had not been so found by the Tribunal.
In the result the appeal is allowed and the order of the High ,Court is hereby set aside.
The assessee shall be entitled to its costs in this Court.
V.P.S. Appeal allowed.

Output:
After negotiations in 1953 with the concerned Department of the Government of India and the Reserve Bank, a Company, incorporated in U.K. advanced large sums by way of loans to its subsidiary in India, namely the assessee, for subscribing for shares in some Indian Companies.
The correspondence showed that the U.K. Company had the right to acquire at any time the shares at par, in satisfaction of the loans.
In 1961, the assessee transferred the shares when called upon by the U.K. Company to do so.
The Income tax Officer applied section 52 of the Income tax Act, 1961, and assessed the assessee to capital gains tax, which was not in existence in 1953 but was Reintroduced in the Finance Bill of 1959.
The Income tax Officer held that the object of the transfer was to avoid or reduce the assessee 's liability to capital gains tax.
The Appellate Assistant Commissioner however, held that the assessee was not liable to capital gains tax, and the Appellate Tribunal, after an elaborate discussion of the correspondence, confirmed the order, holding that the transfer was not effected with that object.
The Department applied to the Tribunal to refer the questions, (i) whether certain documents were not properly construed, (ii) whether the Tribunal ignored evidence on essential matters, (iii) whether the finding of the Tribunal was perverse, and (iv) whether section 52 was not applicable, as arising out the Tribunal 's order.
The Tribunal rejected the application.
The Department then moved the High Court and the High Court directed the Tribunal to state a case in relation to the four questions, but the High Court did not give any reasons for doing so.
Allowing the appeal to this Court, HELD : The High Court can exercise its jurisdiction in the matter of reference, (a) when the point for determination is a pure question of law, such as, the construction of a statute or a document of title; (b) when the point for determination is a mixed question of law and fact (While the findings of the Tribunal on the facts are final, its decision as to the legal effect of the findings is a question of law.
Where, however, the finding is one of fact, the fact that it is an inference from other basic facts will not alter its character as one of fact); and (c) when a finding on a question of fact is perverse.
[147C E] The necessary ingredients of section 52 are : (i) there should be a direct or indirect connection between the person who acquires a capital asset and the assesee; (ii) the income tax officer should have reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee to capital gains; and (iii) if the first two conditions 139 are satisfied then the full value of consideration for the transfer may be taken to be the fair market value of the capital asset on the date of the transfer.
The intention with which a particular transfer is made and the object which is to be achieved by such transfer are essentially questions of fact, the conclusion relating to which, are to be arrived at on a consideration of relevant material; that is, before the income tax officer can have any reason to believe that a transfer was effected with the object mentioned in the section facts, must exist showing that the object was to avoid or reduce the liability to capital gains.
[141 H; 142 A D] In the present ease, the orders of the Tribunal show that there was no dispute as to the construction of any expression in any letter or document, that no relevant evidence was overlooked, that the inference was drawn from other facts and, that no question was raised on the construction of section 52.
When the Tribunal found, as a fact, that before there was any proposal to reimpose the capital gains tax which had remained abolished for some time, the scheme between the assessee and the U.K. Company bad been fully evolved, the applicability of section 52 could not be attracted.
The findings of the Tribunal that the object mentioned in the section could not be held to be established from the mere absence of a formal agreement between the assessee and the U.K. Company, is not perverse, but is supported by evidence and is eminently reasonable.
in view of the clear, cogent and precise findings and conclusions of the Tribunal, the High Court, should at least have recorded a speaking order showing how the questions of law of the nature sought to be referred arose from the order of the Tribunal.
[146 B D; 141 A C, F; 148 C.D] Shree Meenakshi Mills Ltd. vs C.I.T., Madras, , followed.