PETITIONER: SIR SHADI LAL SUGAR AND GENERAL MILLSLTD. & <NAME>. Vs. RESPONDENT: COMMISSIONER OF INCOME TAX, DELHI. DATE OF JUDGMENT31/07/1987 BENCH: <NAME>, <NAME> (J) BENCH: <NAME>, <NAME> (J) OZA, G.L. (J) CITATION: 1987 AIR 2008 1987 SCR (3) 692 1987 SCC (4) 722 JT 1987 (3) 189 1987 SCALE (2)153 ACT: Income Tax Act , 1961: ss. 256 , 271 & 274 / Income Tax Act , 1922: s. 66- -Income-tax Reference--Finding of fact by Tribu- nal--When could be transformed into question of law and interfered with. HEADNOTE: The assessee company, which derived its income from the manufacture and sale of sugar and confectionery, was as- sessed for the years 1958-59 by the Income Tax Officer under the Income Tax Act , 1922 by making additions of Rs.48,500 for cane cost, Rs.67,500 for shortage in cane, and Rs.21,700 for salary of outstation staff. The assessee did not chal- lenge the said assessment order. Later in the year 1963 the Income Tax Officer issued notice under s. 274 read with s. 271 of the Income Tax Act, 1961 in respect of the assessment year 1958-59 for imposing penalty. Before the Inspecting Assistant Commissioner the assessee admitted that these amounts, which were not included in the return by the compa- ny, represented income. On finding that there was deliberate understatement of income he imposed a penalty of Rs.70,000. On appeal the <ORG> held that the mere fact that the amounts were agreed to be taken into account by the assessee did not ipsofacto indicate any criminality in its action to conceal any portion of the income, and that the assessee could very well have argued against the additions of the two sums, namely, Rs.67,500 and Rs.21,700. As regards the sum of Rs.48,500 it found that the assessee had agreed to similar addition in the earlier years and so the penalty was war- ranted in similar amount for this year and taking into consideration that the sum involved was Rs.48,500, it con- sidered that a smaller penalty of Rs.5,000 was imposable. <ORG> took the view that the onus of proving concealment was on the <ORG> because proceedings for penalty were penal in character, and held that so far as the sum of Rs.48,500 was concerned it was not proved that there was any deliberate concealment, that the <ORG> had not set aside the finding of the Assistant Inspecting Com- 693 missioner that the assessee surrendered the amount of Rs.67,500 when it was faced with facts which clearly estab- lished concealment, that the assessee in fact had surren- dered the amount only after the Income Tax Officer had conclusive evidence in his possession that the amount repre- sented its income, that acceptance by the assessee was material to give proper weight to judge the criminality of the action which in its opinion was not given, and that the <ORG> omitted to take into account the fact that the assessee had admitted that the amount of Rs.21,700 repre- sented its income. In the appeal by special leave on the question as to how far <ORG> in a reference could interfere with a finding of fact and transform the same into a question of law on the ground that there has been non-consideration of all relevant facts. Allowing the appeal, HELD: 1.1 In an income tax reference a finding on a question of pure fact could be reviewed by <ORG> only on the ground that there was no evidence to support it or that it was perverse. If <ORG> found that there was no such evidence, those circumstances would give rise to question of law and could be agitated in a reference. [700G-701A, 702H-703A] 1.2 When a conclusion has been reached on an apprecia- tion of a number of facts established by the evidence, whether that is sound or not must be determined not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole. Where an ultimate finding on an issue is an inference to be drawn from the facts found, on the application of any principles of law, there would be a mixed question of law and fact, and the inference from the facts found in such a case would be a question of law. But where the final determination of the issue equally with the finding or ascertainment of the basic facts did not involve the application of any principle of law, an infer- ence from the facts could not be regarded as one of law. The proposition that an inference from. facts is one of law is, therefore, correct in its application to mixed questions of law and fact, but not to pure questions of fact. In the case of pure questions of fact an inference from the facts is as much a question of fact as the evidence of the facts. [701A-D] In the instant case, it is not said that the <ORG> had acted on material which was irrelevant to the enquiry or considered material 694 which was partly relevant and partly irrelevant or based its decision partly on conjectures, surmises and suspicions. It took into account all the relevant facts in a proper light in rendering a finding of fact. Therefore, no question of law arises. [703BC, 701DE] <CITATION> - tax, Madras, 31 I.T.R. 28; <NAME> v. Com- missioner of Income-tax, Madras, 37 I.T.R. 151; <CITATION> 1, 66 I.T.R. 462 and <CITATION> ., 87 I.T.R. 421, referred to. 2.1 <ORG> was wrong in saying that proper weight had not been given to all the evidence and admissions made by the assessee. The <ORG> had taken into considera- tion the fact that the assessee had admitted the additions as its income when faced with non-disclosure in assessment proceedings. The time when the assessee admitted the addi- tions was also considered. But to admit that there has been excess claim or disallowance is not the same thing as delib- erate concealment or furnishing inaccurate particulars. There may he hundred and one reasons for such admissions, i.e., when the assessee realises the true position it does not dispute certain disallowances but that does not absolve the <ORG> to prove the mens rea of quasi criminal offence. [703BC, 702AB, 701A, 702BC] 2.2 It is for the Income-tax authority to prove that a particular receipt is taxable. If however, the receipt is accepted and certain amount is accepted as taxable, it could be added. But in the instant case, it was not accepted by the assessee that it had deliberately furnished inaccurate particulars or concealed any income. [702EF] 3. <ORG> observed that the time of admission was not noted by the <ORG> and this fact had not been properly appreciated by the <ORG>. That is not correct. The <ORG> had made additions during the assessment pro- ceedings. In any event that would be appreciation of evi- dence in a certain way, unless in such misappreciation which amounted to non-appreciation no question of law would arise. Nonappreciation may give rise to the question of law but not mere misappreciation even if there he any from certain angle. Change of perspective in viewing a thing does not transform a question of fact into a question of law. [703CD] <ORG> in preferring one view to another view of factual 695 appreciation in the instant case, has therefore, trans- gressed the limits of its. jurisdiction under the Income-Tax Reference in answering the question of law. [703F] JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1660 (NT) of 1974.

From the Judgment and Order dated 23.12.1971 of <ORG> in Income-tax Reference No. 53 of 1968. <NAME> for the Appellants.

Miss <NAME> and <NAME> for the Respondent. The Judgment of the Court was delivered by <NAME>, J. This appeal by special leave is from the judgment and order of <ORG> dated 23rd December, 1971 in the Income Tax Reference. The assessee is a limited company under the Indian Companies Act and derived its income from the manufacture and sale of sugar and confectionery. The assessment for the assessment year 1958-59 was completed under the Indian Income Tax Act , 1922. The Income Tax Officer in the said assessment, inter alia made the following additions besides others in respect of the following items:

(i) For cane cost Rs.48,500/- (ii) For shortage in cane Rs.67,500/- (iii) For salary of outstation staff Rs.21,700/-

The assessee did not challenge the said assessment order passed by the Income Tax Officer in so far as the additions of the above amounts in appeal or otherwise. It was the case of the assessee that it did not appeal because it wanted to keep good relations with the revenue although, according to the assessee, the above additions made by the Income Tax Officer were totally unjustified and illegal. On 14th March, 1963 the Income Tax Officer issued notice under section 274 read with section 271 of the Income Tax Act, 1961 (hereinafter called 'the Act') in respect of the assessment year 1958-59 for imposing penalty. The assessee company demurred. After considering the reply the Inspecting Assistant Commissioner on 1st October, 1964 imposed a penalty of Rs.70,000 under section 274 read with section 271 of the Act holding inter alia that there was concealment of income to the tune of Rs.1,37,700 and the maximum penalty of Rs.1,06,317 was imposable in law but a sum of Rs.70,000 was imposed as penalty considering the facts and circumstances of the case.

The assessee preferred an appeal against the said order. The <ORG> after considering the entire matter, reduced the penalty to Rs.5,000. The <ORG> referred the three following questions, two at the instance of the assessee and one at the instance of the revenue, to <ORG> for determination:

"1. Whether, on the-facts and in the circum- stances of the case, the <ORG> was correct in holding that the provisions of section 271 of the Income Tax.Act, 1961 are applicable to the present case;

2.'Whether, there is any material to warrant the finding that the assessee company had concealed the particulars of its income or deliberately furnished inaccurate particulars thereof within the meaning of section 271(2) of the Income Tax Act, 1961; and

3. Whether, on the facts and in the circum- stances of the case, the <ORG> is correct in reducing the penalty under section 271(1)(c) from Rs.70,000 to Rs.5,000?" <ORG> was of the opinion that the third question did not clearly bring out the matter in dispute between the parties and as such it was reframed as follows:

"Whether, on the facts and in the circum- stances, the finding of the <ORG> that the assessee had not concealed income to the extent of Rs.67,500 and Rs.21,700 within the meaning of section 271(1)(c) of the Indian Income Tax Act, 1961, is correct in law?"

<ORG> noted that the Income Tax Officer had made certain additions and disallowed certain expenses and of the various amounts disallowed only three amounts were required to be considered by <ORG> namely; (i) inflation in price of sugar-cane of an amount of Rs.48,500,

(ii) excess shortage claimed for cane Rs.67,500 and (iii) salary of out-station staff of loading contractors of Rs.21,700. So far as the first question is concerned <ORG> held in favour of revenue and answered the question in the negative. The answer to this question is no longer in dispute here. So far as the second question is concerned <ORG> answered the question in the nagative and in favour of the assessee. There is no dispute about that question too, in so far as there is no appeal by the revenue. As regards the third question re- framed as mentioned hereinbefore, it was answered by <ORG> in the affirmative and in favour of the revenue. The assessee has come up in appeal to this Court challenging the correctness of that answer. In this appeal we are con- cerned with the correctness or otherwise of the answer given to this question and the appeal must be confined to the correctness of the answer given to the third question as reframed.

The Income Tax Officer in his assessment order out of which this penalty proceedings arose noted that there were several disallowances in various accounts and he mentioned altogether 19 items totalling Rs.3,01,787. All these were on account of disallowances. Main item was shortage in cane and the amount was Rs.67,500. Another items was salary of out- station staff and the amount was Rs.21,700. There was also addition of Rs.48,500 on account of inflation in the price of sugar cane. The Inspecting Assistant Commissioner in his order noted, inter alia three items, namely, (i) inflation in price of sugar cane Rs.48.500 (ii) excess shortage claimed for cane Rs.67,500 and (iii) salary of outstation staff of loading contractors Rs.21,700. It was found so far as the last item was concerned that the amount was disal- lowed being a false debit. It was found that the assessee attempted to understate the income by debiting a false expenditure of Rs.48,500. The Inspecting Assistant Commis- sioner noted that actual shortage was 21,143 Mds. valuing Rs.26,429 while the assessee had claimed Rs.1,34,661 for shortage at 2%. The excess claim was also indicative of the real position that the shortage was fictitiously claimed at a high figure. Faced with these facts the assessee eventual- ly surrendered Rs.67,500. Therefore, the Inspecting Assist- ant Commisioner held that the assessee was certainly reduc- ing the income by debiting false claims for excess shortage and the action amounted to intentional concealment. Salary amounting to Rs.21,700 paid by the contractors to their staff working at out-centres was debited in the books and while it was claimed that the staff working at these centres were actually employed by the company, on investigation the claim was found to be false. In this connec-

tion a reference was made to the statement of one <NAME>. He had stated that he had employed five per- sons at the out-centres and there was no employee of the mill working at the centres. The mill had kept there neither any clerk not any chowkidar. He confirmed that he had paid the employees out of his own funds and had categorically denied that they were the employees of the mill or that they were paid by it. In his statement he further stated that although the staff was actually paid by him yet the compa- ny's accountant had obtained their signatures on salary sheets and thus inflated the expenses by raising false debit in the salary account. This procedure was followed in re- spect of other contractors also. The salary bill was thereby inflated by Rs.21,700. The Inspecting Assistant Commissioner therefore, held that the assessee had concealed income to the extent of Rs.21,700. He had also come to the conclusion that the cane purchases noted against these last entries were false and fictitious and the quantity covered by these entries was 31, 561 Mds. valuing at Rs.48,500. This was a false debit. The assessee debited the three items of Rs.48,500, Rs.67,500 and Rs.21.700. The assessee admitted that these items represented income. It was also borne out by records that the amounts were not included in the return by the company. The offence of deliberate under-statement of income was, thus clearly established according to the In- specting Assistant Commissioner. He, therefore, found that the tax sought to be evaded came to Rs.70,914 and the maxi- mum penalty worked out to Rs. 1,06,37 1. Having regard to the facts and circumstances of the case, he imposed a penal- ty of Rs.70,000.

In appeal <ORG> was of the view that not much turned upon the fact that the assessee agreed to the additions of the amounts in the assessment. So far as the reliance placed upon <NAME>'s statement by the Inspect- ing Assistant Commissioner was concerned, it had no rele- vance or bearing to the facts of the assessment year in question. He was not the contractor employed by the assessee in the year of account. He came in only for a later year. One <NAME> was the contractor in the year in ques- tion. He had specifically stated that he was responsible for shortages. He had also admitted that there was staff main- tained by the mill at the centre at which he was the loading contractor. In fact he had gone to the extent of and stated as to what staff was maintained in that centre; there was a man in charge of the centre, a weighment clerk, a cane clerk and three to four chowkidars. He had also stated that they were not his employees. According to the <ORG> in these circumstances the assessee could very well have argued against the addition of the two sums, namely, Rs.67,500 and Rs.21,700. But the assessee as we have noted had agreed to the amounts being included. The <ORG> was of the view that the mere fact that the amounts were agreed to be taken into account by the assessee did not ipso facto indicate any criminality in its action to conceal any portion of the income. The <ORG> found that so far as Rs.48,500 was concerned in the inflation in the price of sugar-cane, the previous history was against the assessee. It had agreed to the similar additions in the earlier years 1955-56 and 1956-57 the <ORG> noted. From the above facts, it was seen that the penalty was warranted in similar amount for this year also, the <ORG> noted. Taking into consideration that the sum involved against this year was Rs.48,500 the tribunal considered that a smaller penalty was imposable. The <ORG> accordingly imposed a total penalty of Rs. 5,000.

<ORG> reiterated that the onus of proving concealment was on the revenue because the proceedings for penalty were penal in character. In that view of the matter <ORG> was of the opinion that so far as Rs.48,500 was concerned it was not proved that there was any deliber- ate concealment. So far as the other two amounts of Rs.67,500 and Rs.21,700 were concerned, it was contended that <ORG> noted the history of the order of the Inspecting Assistant Commissioner and the circumstances of the case and <ORG> was of the view that <ORG> had not at all considered the fact that the value of the shortage was only Rs.26,429. According to <ORG>, the <ORG> had brushed aside the fact that the assessee had agreed to the addition of this amount. According to <ORG>, the <ORG> had not set aside the finding of the Inspecting Assistant Commissioner that the assessee surrendered the amount of Rs.67,500 when it was faced with facts which clearly established concealment. The assessee according to the Inspecting Assistant Commissioner had surrendered the amount only after the Income Tax Officer had conclusive evidence in his possession that the amount repre- sented its income. In other words, what <ORG> sought to state was that acceptance by the assessee was material to give proper weight to judge the criminality of the action which according to <ORG> was not given. <ORG> highlighted that so far as Rs.67,500 was concerned only on being faced with facts from which there could possibly be no escape from the inference that the amount represented his income, that the assessee agreed to its inclusion. <ORG> was of the view that the <ORG> was in error in brushing aside consideration of these aspects while considering the question of concealment. In respect of the addition of Rs.21,700 the Inspecting Assistant Commissioner had relied upon the statement of <NAME> as also the fact that the assessee admitted that this item represented its income. The <ORG> did not place reliance upon the statement of <NAME>. It, however, omitted to take into account the fact that the assessee had admitted that these items represented its income. <ORG> was of the view that such admissions were made by the assessee but the <ORG> had not properly appreciated that aspect. Therefore in respect of these two items <ORG> was of the view that the <ORG> was not right in holding that the assessee was not guilty of any concealment. So far as question No. 2 was concerned which dealt with Rs.48,500 <ORG> confined itself to the disallowance in respect of purchase of cane. So far as this question was answered in favour of the assessee and there is no challenge by the revenue, it is not material any more. <ORG> came to the conclusion that the finding of the <ORG> in respect of the concealment of Rs.48,500 was not justified in law. It was urged before us that as the second question which was in general form has been answered in favour of the assessee, the third question as reframed could not have been answered otherwise. We are unable to accept this contention. As evident from the discussion by <ORG>, <ORG> confined to second question with regard to disallowance in respect of purchase of cane that amounted to Rs.48,500. So, therefore it cannot be said that in view of the answer given to the second question, the third question was no longer open. The second question was confined to only Rs.48,500.

So far as whether there was justification for the answer given to the reframed third question or was proper or not has to be judged on the basis as to how far <ORG> in a reference could interfere with a finding of fact and transform the same into a question of law on the ground that there has been non-consideration of all relevant facts. The law on this point is quite settled.

The question was considered by this Court exhaustively in <CITATION> - tax, Madras, 31 I.T.R. 28 where this Court reiterated that findings on questions of pure fact arrived at by <ORG> were not to be disturbed by <ORG> on a refer- ence unless it appeared that there was no evidence before the Tribunal upon which they, as reasonable men, could come to the conclusion to which they have come; and this was so, even though <ORG> would on the evidence have come to a conclusion entirely different from that of <ORG>. In other words, such a finding could be reviewed only on the ground that there was no evi-

When a conclusion had been reached on an appreciation of a number of facts established by the evidence, whether that was sound or not must be determined, not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole. Where an ultimate finding on an issue was an inference to be drawn from the facts found, on the application of any principles of law, there would be a mixed question of law and fact, and the inference from the facts found was in such a case, a question of law. But where the final determination of the issue equally with the finding or ascertainment of the basic facts did not involve the appli- cation of any principle of law, an inference from the facts could not be regarded as one of law. The proposition that an inference from facts was one of law was, therefore, correct in its application to mixed questions of law and fact, but not to pure questions of fact. In the case of pure questions of fact an inference from the facts was as much a question of fact as the evidence of the facts. In the instant case there is a finding of fact and unless it could be said that all the relevant facts had not been considered in a proper light, no question of law arises. In our opinion, <ORG> took into account all the relevant facts. The <ORG> had been accused by <ORG> of not taking into con- sideration the fact that the assessee had admitted these amounts in the assessment. To admit that there has been excess claim or disallowance is not the same thing as delib- erate concealment or furnishing inaccurate particulars. At least in the background of the law as it stood at the rele- vant time that was the position. There have been some changes subsequentiy which we have not noticed for the present purpose.

<CITATION> - tax, Madras, 37 I.T.R. 15 1, this Court held that <ORG>tax Appellate <ORG> was a fact finding tribunal and if it arrived at its own conclusions of fact after due consideration of the evidence before it the court could not interfere. It was necessary, however, that every fact for and against the assessee must have been considered with due care and the <ORG> must have given its finding in a manner which would clearly indicate what were the questions which arose for determination, what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it. The conclusions reached by the <ORG> should not be coloured by any irrelevant considerations or matters of prejudice and if there were any circumstances which required to be ex- plained by the assessee, the assessee should be given an opportunity of doing so. In this case, the <ORG> had taken into consideration the fact that the assessee had admitted the additions as its income when faced with non-disclosure in assessment proceedings. <ORG> accused the <ORG> of not considering the time when the assessee admitted the additions. We find that it was duly considered by the <ORG>. We find that the assessee admitted that these were the income of the assessee but that was not an admission that there was deliberate concealment. From agreeing to additions it does not follow that the amount agreed to be added was concealed. There may be hundred and one reasons for such admissions, i.e., when the assessee realises the true position it does not dispute certain disallowances but that does not absolve the revenue to prove the mens rea of quasi criminal offence. <CITATION> 1, 66 I.T.R. 462, the Court held that the Income-tax Appellate <ORG> performed a judicial function under the Income-tax Act and it was invested with authority to determine finally all questions of fact. The <ORG> must, in deciding an appeal, consider with due care all the material facts and record its findings on all contentions raised by the asses- see and the Commissioner in the light of the evidence and the relevant law. The <ORG> was undoubtedly competent to disagree with the view of the Appellate Assistant Commis- sioner, but in proceeding to do so, it had to act judicially i.e. to consider all the evidence in favour of and against the assessee. An order recorded on a review of only a part of the evidence and ignoring the remaining evidence could not be regarded as conclusively determinative of the ques- tion of fact raised before the <ORG>. It is for the Income-tax authority to prove that a particular receipt is taxable. If, however, the receipt is accepted and certain amount is accepted as taxable, it could be added but it was not accepted by the assessee, however, that it hard deliber- ately furnished inaccurate particulars or concealed any income. In our opinion, the <ORG> has properly considered all the evidence in the instant case. <CITATION> ., 87I I.T.R. 421, this Court again reiterated that it was for the <ORG> to decide questions of fact, and <ORG> in a reference under section 66 of the Act as at that time could not go behind the <ORG>'s findings of fact. <ORG> could only lay down the law applicable to the facts found by the <ORG>. <ORG> in a reference under section 66 of the Act, as at that time could, however, go into the ques- tion as to whether the conclusion of the <ORG> on a question of fact was based upon relevant evidence. If <ORG> found that there was no such evidence to support the finding of fact of the <ORG>, those circumstances would give rise to a question of law and could be agitated in a reference. Here in the instant case that is not the position. This Court again reiterated that it was also well-established that when a <ORG> acted on material which was irrelevant to the enquiry or considered material which was partly relevant and partly irrelevant or based on conjectures, surmises and suspicions and partly on evidence, then in such a situation an issue of law arose and the finding of the <ORG> could be interfered with. That is not the position here. In the instant case, it is not said that the <ORG> had acted on material which was irrelevant to the enquiry or considered material which was partly relevant and partly irrelevant or based its decision partly on conjectures, surmises and suspicions. <ORG> was wrong in saying that proper weight had not been given to all the evidence and admissions made by the asses- see. <ORG> further observed that the time of admis- sion was not noted by the <ORG> and this fact had not been properly appreciated by the <ORG>. That is also not correct. The <ORG> had made additions during the assess- ment proceedings. In any event that would be appreciation of evidence in a certain way, unless in such misappreciation which amounted to non-appreciation no question of law would arise. Non-appreciation may give rise to the question of law but not mere misappreciation even if there be any from certain angle. Change of perspective in viewing a thing does not transform a question of fact into a question of law. In the instant case we are of the opinion that in pre- ferring one view to another view of factual appreciation, <ORG> transgressed the limits of its jurisdiction under the Income-tax reference in answering the question of law.

In the premises, we are of the opinion that <ORG> was in error in so far as it held that the <ORG> had acted incorrectly. We are further of the opinion that the reframed question must be answered in the affirmative and in favour of the assessee.

The appeal is allowed and the judgment and order of <ORG> in so far as answer to the question No. 3 is concerned is set aside. The assessee is entitled to the costs of this appeal.

<ORG> al- lowed.


JUDGMENT <NAME>, J.

There are certain common questions of law which have been referred to us by the <ORG>, at the instance of the revenue, arising out of the assessment of the assessee for the two assessment years 1975-76 and 1976-77, and the questions of law referred read as under:

"1. Whether, on the facts and in the circumstances of the case, <ORG> is correct in law in holding that the Commissioner had not validly assumed jurisdiction under section 263 of the Income Tax Act and, accordingly, in cancelling the order made for the assessment years 1975-76 and 1976-77 ?

2. Whether, on the facts and in the circumstances of the case, <ORG> is justified in law in holding that inasmuch as tile assessment was made under section 143(3) , read with section 144B on the basis of the directions given by the Inspecting Assistant Commissioner, the order. made cannot be subject-matter of revision by the Commissioner under section 263 ?

3. Whether, <ORG> view that there was no clear finding in the order passed by the Commissioner of Income-tax under section 263 regarding the items allowed by the Income Tax Officer which could be termed as prejudicial to the interest of the revenue is sustainable in law and is reasonable on the facts obtaining in this case ?"

2. The questions relate to the jurisdiction of the Commissioner under section 263 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). The assessee is a public limited company. The assessments for the assessments years 1975-76 and 1976-77 were completed by the Income Tax Officer under section 143(3) , read with section 144B , of the Act. The Commissioner on perusal of the records of the assessee for the two assessment years noticed that the orders were erroneous and prejudicial to the interest of the revenue and, accordingly, show-cause notices were issued to the assessee requiring to show cause as to why the orders of assessment made by the assessing officer should not be set aside with a direction to the assessing officer to consider that points contained in the show-cause notices. In the show-cause notices as many as 15 items have been considered to be erroneous and prejudicial to the interest of the revenue insofar as the assessment year 1975-76 is concerned and 24 items were considered to be erroneous and prejudicial to the interest of the revenue as far as the assessment year 1976-77 is concerned. The assessee sent a detailed reply and stated that the proposal to revise the orders of assessment is based on assumptions and not any material. The assessee has also dealt with each individual item and submitted that all the points have been considered by the Inspecting Assistant Commissioner (<NAME>) at the time of finalisation of draft assessment and, therefore, the revision proceedings initiated by the Commissioner should be dropped. The Commissioner found that the Income Tax Officer had not considered the points while completing the assessment and, therefore, overruled the objections raised by the assessee. He found certain instances wherein the assessment orders showed that they were erroneous and prejudicial to the interest of the revenue. After noticing some of those items, he came to the conclusion that those items represent various issues covered in the show-cause notices and many of them could be considered after the examination of the books of the assessee. He, therefore, held that the orders of assessment were erroneous and prejudicial to the interest of the revenue and in that view of the matter, set aside the orders of assessment for the two assessment years 1975-76 and 1976-77 and remitted the matter to the assessing officer to examine other issues also contained in the showcase notices and take appropriate action.

3. The assessee challenged the order of the Commissioner before <ORG>. <ORG> held that the Commissioner had no jurisdiction to revise the orders of assessment made in pursuance of the directions of the Inspecting Assistant Commissioner on the ground that, there was a statutory merger of the order of the Income Tax Officer with that of the Inspecting Assistant Commissioner. The <ORG> recorded a finding that the order of the Commissioner was not a speaking order and the Commissioner has not given any clear finding that any of the items listed in the order was erroneous and prejudicial to the interest of the revenue. According to the <ORG>, the Commissioner has not considered the objections of the assessee. The <ORG> also held that there is no material to show the assessments were made in a hurry, especially when the procedure prescribed under section 144B had been followed, and the higher authority had been associated in making the orders of assessment. The <ORG> also held that the Commissioner had surrendered his judgment to the audit party and delegated his discretion to the assessing officer. The <ORG>, therefore, held that the procedure adopted by the Commissioner would vitiate the order of the Commissioner and cancelled the order passed by the Commissioner and allowed the appeal preferred by the assessee. The <ORG>, on the basis of the directions of this <ORG>, has stated a case and referred the questions of law set out earlier for the two assessment years in question.

4. The learned counsel for the revenue submitted that the order of the <ORG> is erroneous in law as the <ORG> proceeded on the assumption that the order of the Commissioner was not a speaking order. He submitted that under the provisions of section 263 of the Act, the Commissioner has wide powers to remit the matter to the assessing officer and it is for the Commissioner to pass such orders thereon as the circumstances of the case would justify. He also submitted that the <ORG> was not correct in holding that the Commissioner had surrendered his jurisdiction in favour of the audit party and the report of the audit party would constitute a material for the Commissioner to exercise his revisional jurisdiction under section 263 . The submission of the learned counsel for the revenue was that the circumstances relied on by the Commissioner would clearly show that the orders of the assessment were erroneous and they were not in accordance with law and tile Commissioner has jurisdiction to exercise the powers conferred under section 263 . The learned counsel for the assessee, on the other hand submitted that it is the duty of the Commissioner to record his final conclusion on the matters raised in the show-cause notices, especially when the assessee in his reply has pointed out that there were no mistakes or errors in the orders of assessment passed by the assessing officer. The learned counsel for the assessee further submitted that the Commissioner had not exercised the jurisdiction conferred upon him properly, as the Commissioner after setting out the objections raised by the audit party and the reply submitted by the assessee set aside the orders of assessment with a direction to the assessing officer to complete the assessment. According to the learned counsel, the Commissioner should have determined the question whether the orders of assessment were erroneous and prejudicial to the interest of the revenue and it is not open to the Commissioner to remit the matter for the purpose of further investigation. The learned counsel for the assessee relied upon the decision of <ORG> in the case of <ORG> v. CWT (1970) 77 ITR 6 and the decision of <ORG> in the case of Jeewanlal (1929) <CITATION> . CIT (1977) 108 ITR 407, in support of his submission that the Commissioner cannot exercise the power on the basis of the report of the audit party. The learned counsel for the assessee also placed reliance on the decision of this Court in the case of <CITATION> ( 1987) 163 ITR 129/30 Taxman 528 and submitted that the procedure contemplated in section 263 is prejudicial to the income-tax administration as a whole. Reliance was placed by the learned counsel for the assessee on the decision of <ORG> in the case of <CITATION> . (1993) 203 ITR 108, wherein <ORG> held that the Commissioner could not direct the Income Tax Officer to re-examine the question, where the Commissioner after initiating the revision proceedings did not decide that the claim of the assessee was erroneous and the expenditure claimed was not revenue in nature, but capital in nature. He, therefore, submitted that on the same analogy the Commissioner had not exercised powers of revision conferred upon him. The learned counsel foil lie assessee also submitted that the orders of the Income Tax Officer should not only be erroneous but the order should have resulted in prejudice to the interests of the revenue and unless the two conditions prescribed in section 263 are satisfied, the Commissioner has no power to revise the orders of the Income Tax Officer. The learned counsel placed reliance on the decision of <ORG> in the case of a <CITATION> (1975) 98 ITR 422 in support of his above submission.

5. Insofar as the second question of law that has been referred to us I or our consideration is concerned, there is no dispute that the issue raised in the second question is covered against the assessee in view of the decision of this Court in <CITATION> . 1090 of 1980, dated 7-1-1997), wherein this Court held that the Commissioner has the jurisdiction under section 263 to interfere with the order passed by the Income Tax Officer as per 1 he directions given by the Inspecting Assistant Commissioner under section 144B of the Act. We are in respectful agreement with the reasoning and the view expressed by the Bench of this Court and, accordingly, the second question referred to us is answered in the negative and in favour of the revenue. The remaining questions, viz., question Nos. 1 and 3 are considered together.

6. Section 263 empowers the Commissioner to call for and examine the record of any proceeding under the Act and if he considers that any order passed by the Income Tax Officer is erroneous and prejudicial to the interests of the revenue he may, after complying with the principles of natural justice pass such orders thereon as the circumstances of the case require including an order enhancing or modifying the assessment or cancelling the assessment and directing the fresh assessment. <ORG> in the case of <CITATION> (1997) 143 CTR 406 held that the revisional powers conferred on the Commissioner under section 263 is of wide amplitude and it enables the Commissioner to call for and examine the record of any proceeding under the Act. <ORG> held that section 263 empowers tile Commissioner to make or cause to be made such enquiry as the deems necessary in order to find out if the order passed by the Income Tax Officer was erroneous in so far as it is prejudicial to the interest of the revenue. The decision of <ORG> makes it clear that the powers of the Commissioner are very wide in exercising the powers of revision under section 263 . The only limitation on his power is that he must have some materials which would enable him to form a prima facie opinion that the order passed by the Income Tax Officer was erroneous insofar as it is prejudicial to the interests of the revenue. Once he comes to the conclusion on the basis of the material that the order of the Income Tax Officer was erroneous and prejudicial to the interests of the the Commissioner is empowered to pass an order as the circumstances of the case may warrant. He may pass an order enhancing the assessment or he may modify the assessment. He is also empowered to the assessment and direct a fresh assessment. The Commissioner is fully empowered to adopt any one of the three courses indicated the provisions of section 263 and the Commissioner's power cannot be faulted because he cancelled the assessment and directed a fresh assessment. In the instant case, the order of the Commissioner shows that he has gone through the records of the Income Tax Officer and he considered the order to he erroneous and prejudicial to the interests of the revenue on several matters for both the assessment orders. The Commissioner also found that the records do not show that the Income Tax Officer has considered the points on which the revision was made while completing the assessment. He also gave detailed reasons with reference to some of the items for both the assessment years and he held that they were representatives of the various issues covered in the show-cause notices. On the above basis, the Commissioner came to the conclusion that the order of the Income Tax Officer wits erroneous and prejudicial to the interests of the revenue and set aside the orders of the Income Tax Officer with the direction to the Income Tax Officer to consider the points in detail. It is not a case where he simply sets aside the assessment order to verify the correctness of the accounts seeking clarification the assessee as was done in the case of <CITATION> (1998) 230 ITR 695 (Mad.), wherein it was held that the Commissioner cannot simply set aside the order unless he finds the order was erroneous. On the other hand, in the instant case, the Commissioner has found that the records do not show that the Income Tax Officer had considered the points on which revision proceedings were initiated, which indicate that there was a lack of proper enquiry. Not content with the above conclusion, the Commissioner examined the matter and found that some of the items claimed and allowed were erroneous which shows that the order was erroneous. The <ORG>, in our opinion, was not correct in holding that the order passed by the Commissioner was not a speaking order.

7. The contention of the learned counsel for the assessee that the Commissioner should have examined the issue and recorded a clear finding that the findings of the Income Tax Officer on all the points were erroneous and, therefore, the Commissioner had lacked jurisdiction is bereft of any force. It is no doubt true that for making a valid order under section 263 , it is essential for the Commissioner to record an express finding that the order sought to be revised was erroneous as well as prejudicial to the interests of the revenue. In the instant case, the Commissioner had recorded such a finding and with reference to some of the items he positively found that the orders were erroneous and prejudicial to the interests of the revenue. But in our opinion, there is nothing in section 263 to show that the Commissioner should in all cases record his final conclusion on the points in controversy before him. The above position of law is well-settled by the decision of <ORG> in the case of Addl. <CITATION> . (1978) 111 ITR 312, wherein <ORG> held as under:

"... Now, even on this question, we find that there is nothing in section 263(1) to show that before passing the final order under that section, the Commissioner must necessarily and in all cases record final conclusions about the points in controversy before him. As already noted by us above, we would have expected him to record final conclusions which he thought proper if he was to settle the assessment finally but since he has not settled the assessment finally, and has preferred to direct the Income Tax Officer to make an order for fresh assessment, it was proper that he did not express any final conclusions and recorded only prima facie conclusions at which he had arrived with reference to the facts of the case. Here it should be noted that, as the assessment was to be freshly made by the Income Tax Officer, the only proper course for the Commissioner was not to express any final opinion as regards the controversial points." (p. 325)

8. The further question that arises is whether in the absence of the final conclusion of the Commissioner on all the points raised in the show-cause notices, can it be said that the Commissioner has not exercised the jurisdiction properly? We are of the opinion that it would all depend upon the facts of each case to decide whether the Commissioner had exercised the powers properly or not. In the instant case, the Commissioner found that the Income Tax Officer was not correct in granting relief to some of the items considered in the original assessment proceedings and from the instances or specimen of some of the cases examined by him, he came to the conclusion that the Income Tax Officer had not completed the assessment by following the procedure expected of him. In our opinion, it is not necessary for the Commissioner to examine each item in detail and record a clear finding that. the order passed by the Income Tax Officer was erroneous and not in accordance with law. Some of the typical illustrations were noticed by the Commissioner to find out how the assessment proceedings were proceeded with by the officer and how the orders were erroneous and prejudicial to the interests of the revenue. Therefore, it is not a case of the Commissioner directing fresh assessment without any material. The order of the Commissioner clearly shows that he had enough materials and on that basis, he exercised the powers of, revision under section 263 , set aside the order and ordered to make fresh assessment. The decision of this Court in the case of <CITATION> (1996) 220 ITR 657/88 Taxman 526, makes it clear that the Income Tax Officer is expected to make an enquiry before taking the particular item of income or before granting deduction of particular item of expenditure and if he does not make such an enquiry as expected, that would be a ground for the Commissioner to interfere under section 263 . In our opinion, the decision of this Court in the above case is applicable to the facts of the present case, as the order of the Commissioner indicates that the Income Tax Officer had not called for the details atleast with reference to some of the items, and granted deduction without verification of the claim. The Commissioner has pointed out in the orders of revision that there were certain glaring mistakes in the orders of assessment made by the assessing officer and the Commissioner after examining the records held that the Income Tax Officer had not considered the points raised in the show-cause notice and we are of the opinion that the Commissioner had properly exercised the jurisdiction under section 263 .

9. In the case of <CITATION> (1986) 157 ITR 112, this Court held that the Commissioner had jurisdiction under section 263 where the Income Tax Officer had granted certain relief without verifying the facts and the order passed by the officer was held to be prejudicial to the interests of the revenue. This Court also held that the Commissioner has the power to set aside a portion of the order of the assessing authority which is against the revenue or he may remit the matter to the Income Tax Officer for further enquiry after setting aside the relief given by the assessing officer. Therefore, the Commissioner, in our opinion, had set aside the orders of the Income Tax Officer insofar as they relate to the matters which were the subject-matters of revision. The learned counsel for the assessee strongly placed reliance on the decision of this Court in the case of <ORG> (supra), wherein this Court held that the prejudice contemplated under section 263 must be prejudicial to the income-tax administration as a whole and section 263 cannot be invoked as a jurisdictional corrective or as a review of a subordinate's order in exercise of the supervisory power. We are of the opinion that the above decision has no application as the words 'prejudicial to the interests of the revenue' as held by <ORG> in <ORG> case (supra) have wide impact and where it was found that the assessing officer failed to apply his mind in proper perspective and where the officer had completed the assessment without conducting or making the enquiry that is necessary for the purpose of deciding the issue before him, the order passed in such circumstances can be said to be erroneous and prejudicial to the interests of the revenue in the sense that the order is not in accordance with law, and once such a conclusion is reached by the Commissioner, the Commissioner would have necessary power to invoke his jurisdiction under section 263 . We have already held that the mere fact that a higher authority like Inspecting Assistant Commissioner was associated in the draft assessment proceedings would not render the orders of the assessment immune from the revisional proceedings. The Commissioner is expected to examine the orders of assessment to find out whether there is any error resulting in prejudice to the interest of the revenue and in that process the question as to who participated, in the assessment proceedings or made the order of assessment is an immaterial consideration.

10. The learned counsel also placed reliance on the decision of <ORG> in the case of <ORG> (supra). The decision of <ORG> has no application to the facts of the case. In the decision before <ORG>, it was found that the Commissioner noticed that the order of the Income Tax Officer did not contain discussion with regard to the allowability of the claim for deduction. The Commissioner, therefore, came to the conclusion that the claim of the assessee required examination as to whether the expenditure in question was allowable as a revenue expenditure or not allowable as a capital expenditure. In the factual situation, the Court held it is not open to the Commissioner to re-examine the matter and he has no power to set aside the orders of assessment and direct the Income Tax Officer to re-examine the issue. On the other hand, on the facts of the case, it was found by the Commissioner that the Income Tax Officer had not conducted the enquiry which was expected of him and also found that some of the items allowed by the Income Tax Officer were not allowable and warranted by the provisions of the Act. The Commissioner here has recorded a finding that the orders of the Income Tax Officer were erroneous and prejudicial to the interests of the revenue. Therefore, the decision of <ORG> cited supra has no application to the facts of the case.

11. There is no quarrel over the proposition of law laid down by <ORG> in the case of <NAME> (supra), wherein <ORG> held that the twin conditions prescribed in section 263 , viz., the order must be erroneous and prejudicial to the interests of the revenue should be satisfied.

12. The learned counsel also relied upon the decision of <ORG> in the case of <ORG>'s (supra) and the decision of <ORG> in <ORG>' case (supra) and submitted that the Commissioner, in the instant case, had exercised the powers of revision on the basis of report of audit party and, therefore, the Commissioner had no jurisdiction to invoke his jurisdiction under section 263 . The decision of <ORG> in <ORG>'s case (supra) has no application as the Commissioner there had surrendered his jurisdiction and authority to <ORG> in deciding the questions which were sought to be raised by the company in the revision application. On the other hand, the Commissioner occupies a unique position in the administrative set-up of the department. He is the head of the department in the administrative side and he is also given the power of quasi-judicial nature under section 263 to exercise the powers of revision. There is no dispute that there is no right of appeal to the department against the orders of the assessing authority, to the first appellate authority, and jurisdiction to reopen or to rectify the mistake is subject to the fulfilment of statutory conditions to reopen the assessment or to rectify the mistake in the order. The internal audit party on going through the records of the assessment of the assessee had pointed out certain mistakes in the orders passed by the Income Tax Officer. The report of the audit does not in any way bind the Commissioner but nonetheless, the Commissioner is empowered under section 263 to make such enquiry and to find out that the order of the Income Tax Officer is erroneous and prejudicial to the interests of the revenue. If after such investigation, the Commissioner comes to the conclusion that the order is erroneous and prejudicial to the interests of the revenue, he can pass any orders as he thinks fit, but where the materials are already available on record, there is nothing which precludes the Commissioner from taking into consideration already available materials, on record. <ORG> in the case of <ORG> (supra) has laid down the above proposition that it is open to the Commissioner to take into account the materials which come into existence subsequent to the completion of the orders of the assessment made by the Income Tax Officer. The report of the internal audit party does not have any binding effect on the Commissioner and the order passed by the Commissioner shows that he has applied his mind independently to the errors pointed out by the internal audit party and then came to the conclusion that the orders passed by the Income Tax Officer were erroneous and prejudicial to the interests of the revenue. Therefore, it is not a case of the action initiated by the Commissioner on the binding circular issued by the higher authorities, nor it is a case of surrender of jurisdiction in favour of any other authority, but it is a case where the ' Commissioner had exercised the powers of revision after applying his mind in considering the question whether the orders were erroneous and prejudicial to the interest of the revenue, in the revisional proceedings. Consequently, we hold that the Commissioner had exercised the powers and assumed the jurisdiction properly and the <ORG> was not correct in holding that the Commissioner lacked the jurisdiction under section 263 .

13. In the result, we answer the questions 1 and 3 also in the negative, and in favour of the revenue. The revenue will be entitled to costs of Rs. 1,000 one set.


PETITIONER: <NAME> DUTTA Vs. RESPONDENT: <NAME> AND OTHERS DATE OF JUDGMENT: 18/09/1958 BENCH: <NAME>, T.L. VENKATARAMA BENCH: <NAME>, T.L. VENKATARAMA GAJENDRAGADKAR, P.B. SARKAR, A.K. CITATION: 1959 AIR 24 1959 SCR 1309 CITATOR INFO : R 1973 SC2609 (21) ACT: Grant-Construction- Patni settlement-Chaukidari Chakaran lands-Resumption and transfer to Zamindar-Grant of the lands by the Zamindar on Patni to Person who held the village in Patni settlement-Distinct Patni-Sale of lands for arrears of revenue-Validity-Bengal Patni Taluks Regulation, 1819 (Ben. Regulation VIII of 1819), ss. 8, 14-Village Chaukidari Act, 1870 (Ben. VI of 1870), ss. 48, 50, 51. HEADNOTE: The lands in question are situate in lot Ahiyapur which is one of the villages forming part of the permanently settled estate of Burdwan and had been set apart as Chaukidari Chakaran lands to be held by the Chaukidars for rendering service in the village as watchmen. At the time of the permanent settlement the income from these lands was not taken into account in fixing the jama payable on the estate. Some time before the enactment of the Bengal Patni Taluks Regulation, 1819, the entire village of Ahiyapur was granted by the then 1310 Zamindar of Burdwan, to the predecessors-in-title of the defendants on Patni settlement. In 1870 the Village Chaukidari Act came into force and acting under the provisions of that Act the Government put an end to the services of the Chaukidars resumed the lands and imposed an assessment thereon, and, subject to it, transferred the lands to the Zamindar. On June 3, 899, the Zamindar granted the suit lands on Patni to the predecessors-in-title of the defendants who were the then holders of the village in Patni. In proceedings taken by the Zamindar under the provisions of the Bengal Patni Taluks Regulation, 1819, the suit lands were brought to sale for arrears of rent and purchased by him. On February I3, 1941, the Zamindar sold the lands to the appellant who sued to recover possession thereof from the defendants. The defendants resisted the suit on the ground, inter alia, that the effect of the grant of the Chaukidari Chakaran lands on June 3, 1899, was to make them part and parcel of the Patni settlement of the village of Ahiyapur and that, in consequence, the sale of those lands, apart from the village of Ahiyapur, was bad as being a sale of a portion of the Patni. Held, that when the Zamindar made a grant of the Chaukidari Chakaran lands which formed part of a village which had previously been settled in Patni, it was open to the parties to agree that those lands should form a new and distinct Patni and the result of such an agreement would be that while the grantee would hold those lands in Patni right, that is to say, that the tenure would be permanent, heritable and alienable, so far as his liability to pay jama and the corresponding right of the Zamindar to sell it under the Regulation if there was a default in the payment thereof were concerned, the new grant would be a distinct Patni, independent of the original Patni. Held, further, that construing the grant dated June 3, 899, as a whole, the intention of the parties as expressed therein was that the Chaukidari Chakaran lands were to be treated as a distinct Patni and that, therefore, the sale of the lands for arrears of rent was valid. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 108 of 1954. Appeal from the judgment and decree dated March 21, 1952, of <ORG> in Appeal from Appellate Decree No. 971 of 1950, arising out of the judgment and decree dated August 29, 1950, of <ORG> in Title Appeal No. 247/16 of 1948 against judgment and decree dated September 25, 1948, of <ORG>, in Title Suit No. 7 of 1946/27 of 1947.

<NAME>

<NAME> and <NAME>, for the appellant. <NAME> and <NAME>, for the respondents. 1958. September 18. The Judgment of the Court was delivered by <NAME> is an appeal by the plaintiff against the judgment of <ORG> in a second appeal which, in reversal of the judgments of the Courts below dismissed his suit, which was one in ejectment. The suit property is a Mahal of the extent of 84 Bighas 18 Cottas situated within lot <NAME> village, which is one of the villages forming part of the permanently settled estate of <NAME>. This village was granted by the Maharaja of <NAME> in Patni settlement to the predecessors- in-title of defendants I to 7. The exact date of this grant does not appear, but it is stated that it was sometime prior to the enactment of the Bengal Patni Taluks Regulation, 1819 (Bengal Regulation VIII of 1819), hereinafter referred to as the Regulation, and nothing turns on it. The Mahal with which this litigation is concerned, had been at or prior to the permanent settlement set apart as Chaukidari Chakaran lands; that is to say, they were to be held by the Chaukidars for rendering service in the village as watchmen. In 1870, the Village Chaukidari Act, 1870 (Ben. VI of 1870), hereinafter referred to as the Act, was passed, and s. 48 of that Act provides that all Chaukidari Chakaran lands assigned for the benefit of any village shall be transferred to the zamindar of the estate in the manner and subject to the provisions contained in the Act. Under s. 50, the Collector is authorized to make an order transferring those lands to the Zamindar after determining the assessment payable thereon, and s. 51 enacts that: " Such order shall operate to transfer to such zamindar the land therein mentioned subject to the amount of assessment therein mentioned, and subject to all contracts theretofore made, in respect of, under, or by virtue of, which any person other than the zamindar may have any right to any land, portion of his estate, or tenure, in the place in which such land may be situate. " In accordance with the provisions aforesaid, the suit properties were transferred to the Maharaja of <NAME>, and on June 3,1899, he granted the same to the predecessors-in- title of defendants I to 7, who at that time held the Patni interest in respect of lot <NAME>. Under the grant which has been marked as exhibit B, the yearly rental for the area was fixed at Rs. 126-8 as., out of which Rs. 84-4 as., had to be paid to the Panchayat within the 7th of Baisakh for being credited to <ORG> and the balance of Rs. 42-4 as., was to be paid to the Zamindar within the month of Chaitra. Exhibit B also provides that in default of payment of kist the lands are liable to be sold in proceedings taken under the Bengal Regulation VIII of 1819. Acting under this clause, the Maharaja applied under s. 8 of the Regulation to bring the suit lands to sale for realisation of arrears, and at the auction held on May 15, 1937, himself became the purchaser. On February 13, 1941, he granted the lands again on Patni to the appellant, who filed the suit, out of which the present appeal arises, in <ORG>, <NAME>, to recover possession thereof from the defendants alleging that they had trespassed thereon. The respondents contested the suit on the ground that, in fact, there were no arrears of rent due under Exhibit B, and that the sale was therefore void.

The Subordinate Judge held that there were arrears of rent due from the respondents, and that further as they had not sued to set aside the sale under s. 14 of the Regulation within the time limited by law, they could not set up its invalidity as a defence to the action in ejectment. The defendants preferred an appeal against this judgment to <ORG>, and there raised a new contention that under the grant, Exhibit B, the suit lands became part of lot <NAME>, and that a sale of those lands was illegal as being a sale of a portion of the <ORG>. The District Judge after observing that the point was taken for the first time, held on a construction of Exhibit B that it created a new <ORG>, and that it could therefore be brought to sale, and he also held that s. 14 of the Regulation operated as a bar to the validity of the sale being questioned on the ground that the rent claimed was not, in fact, due. He accordingly dismissed the appeal. The respondents took the matter in second appeal to <ORG>, and that was heard by a Bench consisting of <NAME> and <NAME> who differed from the District Judge both on the construction of Exhibit B and on the bar of limitation based on s. 14 of the Regulation. They held that the effect of Exhibit B was merely to make the suit lands part and parcel of the <ORG> lot <NAME>, and that, therefore, the sale of those lands only was bad, as being a sale of a part of the <ORG>. They further held that as such a sale was void, s. 14 of the Regulation had no application. They accordingly allowed the appeal, and dismissed the suit. It is against this judgment that the present appeal has been brought on a certificate granted by <ORG> under Art. 133(1)(a).

Mr. <NAME> for the appellant urged the following contentions in support of the appeal: (1) The defendants did not raise either in the written statement or during the trial, the plea that under the sanad, Exhibit B, the Chaukidari Chakaran lands comprised therein became part of the Patni settlement of lot Ahiyapur, and, in consequence, their sale was bad as being of a part of the Patni, and the learned Judges should not have allowed that point to be raised in appeal. (2) Exhibit B properly construed must be held to create a new Patni distinct from lot Ahiyapur, and its sale is therefore valid. (3) Assuming that the sale is invalid as being of a part of a tenure, the only right of the defendants was to sue to have it set aside, as provided in s. 14 of the Regulation, and that not having been done, it is not open to them to attack it collaterally in these proceedings.

We see no substance in the first contention. It is true that the defendants did not put forward in <ORG> the plea that the effect of Exhibit B was to incorporate the suit lands in lot Ahiyapur <NAME>, and that, in consequence, the sale was illegal as being of a part of the <NAME>. On the other hand, the written statement proceeds on the view that Exhibit B created a new <NAME> unconnected with lot Ahiyapur, and the only defence raised on that basis was that no arrears of rent were due under Exhibit B, and that the sale was therefore invalid. But the true nature of the grant under Exhibit B is a matter to be decided on a construction of the terms of the document, and that is a question of law. It is argued for the appellant that it would be proper in determining the true character of the grant under Exhibit B to take into account surrounding circumstances, that to ascertain what those circumstances are, it will be necessary to take evidence, and that, in consequence, a question of that kind could not be permitted to be agitated for the first time in appeal. But it is well-settled that no evidence is admissible on a question of construction of a contract or grant, which must be based solely on the terms of the document, there being no suggestion before us that there is any dispute as to how the contents of the document are related to existing facts. Vide Balkishen Das v. <NAME> (1) and <CITATION> (2). It should, moreover, be mentioned that when the defendants sought to raise this contention in their appeal in <ORG>, no objection was taken by the plaintiff thereto. Under the circumstances, the learned Judges were right in allowing this point to be taken. This contention must therefore be rejected.

The next point for determination is as to the true character of the grant under Exhibit B, whether it amounts to a new Patni with reference to the Chaukidari Chakaran lands as contended for by the appellant, or whether it incorporates those lands in the Patni of lot <NAME>, so as to make them part and parcel of the lands comprised therein, as is maintained by the respondents. To appreciate the (1) (1899) L.R. 27 I.A. 58, 65.

(2) (1917) L.R- 44 I.A. 236, 243.

true position, it is necessary to examine what the rights of the Zamindar and of the Patnidar were with respect to Chaukidari Chakardan lands at the time of the grant, Exhibit B. These lands had been originally set apart as remuneration for the performance of services by the village chaukidars as watchmen, and for that reason when the village was granted to the Zamindar in permanent settlement, the income therefrom was not taken into account in fixing the jama payable by him, though they passed to him under the permanent settlement. Then came the Village Chaukidari Act, and under that Act the <ORG> put an end to the services of the Chaukidars as village watchmen, resumed the lands and imposed assessment thereon, and, subject to it, transferred them to the Zamindar; and where the Zamindar had already parted with the village in which the lands were situate, by granting Patni, it became necessary to define the rights of the Zamindar and the Patnidar with reference to those lands. Dealing with this matter, s. 51 of the Act provides that the title of the Zamindar on resumption and transfer by the <ORG> shall be subject to " all contracts theretofore made ". Under this section, the Patnidar would be entitled to the Chaukidari Chakaran lands in the same right and on the same terms on which lie held the village in which they are situate. The nature of this right has been the subject of consideration in numerous authorities, and the law on the subject is well-settled. <CITATION> (1), it was held by <ORG> that though the reservation under s. 51 is of rights under contracts made by the Zamindar and the word " contract " primarily means a transaction which creates personal obligations, it might also refer to transactions which create real rights, and that it was in that sense the word was used in s. 51 , and that accordingly the Patnidar was entitled to institute a suit against the Zamindar for possession of those lands and was not obliged to suit for specific performance. But this does not mean that the Patnidar is (1) (1918) L.R. 45 I.A. 162.

<NAME>

entitled to hold the lands free of all obligations. He is under a liability to pay to the Zamindar the assessment due thereon, when it is fixed under s. 50 , and also a share of profits. <CITATION> (1), where it was held by <ORG> that when Chaukidari Chakaran lands included in a Patni settlement had been resumed and transferred to the Zamindar under s. 51 of the Act, he is entitled to the payment of a fair and equitable rent in respect thereof, and that the fixing of the rent is a condition to the <NAME> being put in possession. Vide also <NAME> v. <NAME> (2) and <CITATION> (3).

These being the rights and obligations of the Zamindar and the Patnidar under s. 51 of the Act, a grant of the Chaukidari Chakaran lands by the former to the latter serves, in fact, two purposes. It recognises that the grantee is entitled to hold those lands by virtue of his title as Patnidar of the village of which they form part, and it fixes the amount payable by him on account of assessment and share of profits. The question then arises as to what the exact relationship is in which the new grant stands to the original Patni grant. Now, when s. 51 of the Act recognises and saves rights which had been acquired under contract with the Zamindar, its reasonable implication is that the rights so recognised are the same as under the contract, and that, in consequence, the settlement of the Chaukidari Chakaran lands in Patni must be taken to be a continuance of the Patni of the village in which they are included. But it is open to the parties to agree that the Chaukidari Chakaran lands should form a new and distinct Patni, and the result of such an agreement will be that while the grantee will hold those lands in Patni right, that is to say, the tenure will be permanent, heritable and alienable so far as his liability to pay jama and the corresponding right of the Zamindar to sell it under the Regulation if there is any default in the (1) (1925) L.R. 52 I.A. 355. (2) (1906) 14 C.W.N. 995. (3) (1910) I.L.R. 37 Cal. 598.

payment thereof are concerned, the now grant will be an entity by itself independent of the original <ORG>. That that could be done by agreement of parties is well-settled, and is not disputed before us. If that is the true position, then the real question to be considered is, what is the agreement of parties with reference to the Chaukidari Chakaran lands, whether they are to be constituted as an independent <ORG> or whether they should be treated as a continuation of the original <ORG> or an accretion thereto, and the answer to it must depend on the interpretation to be put on the grant.

It is now necessary to refer to the material terms of Exhibit B under which the Chaukidari Chakaran lands were granted to the predecessors of respondents I to 7. It begins by stating that the Patnidars of lot Ahiyapur appeared before the Zamindar and ,prayed for taking Patni settlement of the said 84 Bighas 18 Cottas of land at a yearly rental of Rs. 126/8 as.", and then provides how the amount is to be paid. Then there is the following clause, which is important:

"You will pay the rent etc., <NAME> after <NAME> according to the <NAME>bandi in accordance with law, and if you do not pay the same, I will realise the arrears together with interest and costs by causing the aforesaid lands to be sold by auction by instituting proceedings under Regulation VIII of 1819 and other laws which are in force or will come into force......"

Then follow provisions relating to the transfer by the Patnidars of " the aforesaid lands ", succession by inheritance or by will to " the aforesaid lands " and the registration of the name of the transferee or successor in the Sherista, and it is expressly stated that "so long as the name of the new Patnidar is not recorded in the Sherista, the former Patnidar whose name is recorded in the Sherista will remain liable for the rent, and on a sale of the Mahal by auction on institution of proceedings against him under Regulation VIII of 1819 or any other law that will be in force for realisation of arrears of rent, no objection thereto on the Part of the new Patnidar can be entertained."

Then ,there are two clause on which on the respondents rely, and they are in these terms:

" If in future it transpires that any other persons besides yourselves have Patni rights in the Patni interest of the, said lot <NAME>, such persons shall have Patni rights in these Chakaran lands also to the same extent and in the same manner as they will be found to have interests in the Patni of the aforesaid lot, and if for the said reason any person puts forward any claim against the Raj Estate and the Raj Estate has to suffer any loss therefor, you will make good the said claim and the loss without any objection. If in future the Patni interest in the said lot <NAME> be transferred for liability for arrears of rent or if the same comes to an end for any reason, then your Patni interest in these Chakaran lands also will be transferred or will come to an end alongwith the original Patni ,simultaneously." It is on these two clauses that the learned Judges in the Court below have based their decision that the intention of the par-ties was to treat the suit lands as part of the Patni of lot <NAME>. Now, it cannot be disputed that the two clauses aforesaid afford considerable support to the conclusion to which the learned Judges have come. The first clause provides that if besides the grantee under Exhibit B there were other persons entitled to Patni rights in lot <NAME>, those persons also shall have Patni rights in Chaukidari Chakaran lands to the same extent as in Patni <NAME>. That clearly means that the rights conferred on the grantees under Exhibit B have their roots in the Patni lot of <NAME>. Likewise, the provision in the last clause that the grantees will lose their rights to the Chaukidari Chakaran lands if their interest in <NAME> Patni was sold clearly suggests that the grant under Exhibit B is to be an annexe to the grant of <NAME>.

As against this, the appellant argues that the other clauses in Exhibit B quoted above strongly support his contention, and that when the document is read as a whole, it unmistakably reveals an intention to treat the suit lands as a distinct Patni. We must now refer to these clauses. Exhibit B begins by reciting that the grantees desired to take a Patni settlement of 84 Bighas 18 Cottas, which is some indication, though not very strong, that it is to be held as a distinct entity. We have then the clause which provides that when there is default in the payment of kist, the lands are liable to be sold in proceedings instituted under the Regulation. Now, the law had long been settled that a sale of a portion of a Patni is bad, but that if by agreement of all the parties interested different portions thereof are held under different sadads, which provide for sale of those portions for default in pay- ment of kist payable respectively thereon, then each of those sanads might be held to have created a separate Patni in respect of the portion comprised therein. <NAME> v. Mr. <NAME>) and <NAME> and another v. Mr. <NAME> (2). When, therefore, the Zamindar and the Patnidar agreed under Exhibit B that the lands comprised therein could be sold under the Regulation when there was default in payment of kist fixed therefor, they must clearly have intended that those lands should be constituted into a distinct Patni. Otherwise, the clause will be inoperative and void, and indeed, the learned Judges in the Court below have, on that ground, declined to give any effect to it. Now, it is a settled rule of interpretation that if there be admissible two constructions of a document, one of which will give effect to all the clauses therein while the other will render one or more of them nugatory, it is the former that should be adopted on the principle expressed in the maxim " ut res magis valeat quam per-eat ". What has to be considered therefore is whether it is possible to give effect to the clause in question, which can only be by construing Exhibit B as creating a separate Patni, and at the same time reconcile the last two clauses with that construction. Taking first the provision that if there be other persons entitled to the Patni of lot Ahiyapur they are to have the same rights in the land comprised in Exhibit B, (2) (1873) 20 Weekly Reporter 275.

that no doubt posits the continuance in those persons of the title under the original <ORG>. But the true purpose of this clause is, in our opinion, not so much to declare the rights of those other persons which rest on statutory recognition, but to provide that the grantees tinder the document should take subject to those rights. That that is the purpose of the clause is clear from the provision for indemnity which is contained therein. Moreover, if on an interpretation of the other clauses in the grant, the correct conclusion to come to is that it creates a new <ORG> in favour of the grantees thereunder, it is difficult to see how the reservation of the rights of the other <ORG>dars of lot Ahiyapur, should such there be, affects that conclusion. We are unable to see anything in the clause under discussion, which militates against the conclusion that Exhibit B creates a new <ORG>.

Then there is the clause as to the cesser of interest of the grantees in the Chaukidari Chakaran lands when their title to lot <NAME> comes to an end, and according to the respondents, this shows that under Exhibit B the Chaukidari Chakaran lands are treated as part and parcel of the <NAME> Patni. If that were so, a sale of lot <NAME> must carry with it the Chaukidari Chakaran lands, they being ex hypothesi, part and parcel thereof, and there was no need for a provision such is is made in the last clause. But that clause would serve a real purpose if the Patni under Exhibit B is construed as separate from that of lot <NAME>. In that view, when the major Patni of lot <NAME> is sold, the intention obviously is that the minor Patni under Exhibit B, should not stand out but be extinguished,-a result which could be achieved only by a special provision. We should finally refer to the clauses in Exhibit B providing for transfer of or succession to the Chaukidari Chakaran lands and for the recognition of such transferee or successor as a Patnidar of those lands. It is clear from these provision,s that such a transferee or successor is to hold the lands as a Patnidar, different from the Patnidar of lot <NAME>. Reading these clauses along with the last clause, it seems clear that the intention of the parties was that while a transfer of the <NAME> Patni by sale should extinguish the title of the holders of the Chaukidari Chakaran lands a transfer of these lands would have no effect on the title to the lot <NAME> Patni. Construing Exhibit B, as a whole, we are of opinion that the intention of the parties as expressed therein was that the Chaukidari Chakaran lands should be held as a distinct Patni. We must now refer to the decision on which the learned Judges in the <ORG> below have relied in support of their conclusion. <CITATION> (1), the facts were that the Maharaja of Burdwan had created a Patni of lot <NAME> in 1820. The Chaukidari Chakaran lands situated within that village were resumed under the Act and transferred to the Zamindar who granted them in 1899 to one <NAME> in Patni on terms similar to those in Exhibit B. In 1914 the Patni lot <NAME> was sold under the Regulation, and purchased by Sint. <NAME>. She then sued as such purchaser to recover possession of the Chaukidari Chakaran lands. The defendants who represented the grantees under the Patni settlement of 1899 resisted the suit on the ground that the sale of Patni <NAME> did not operate to vest in the purchaser the title in the Chaukidari Chakaran lands, as they formed a distinct Patni. Dealing with this contention, <NAME> who delivered the judgment of the <ORG>, observed :

concerned to alter the terms of the original patni if they chose to do so; and what we have to see is whether that was done. In order to do that, we have to examine the terms of the pattah by which the Chaukidari Chakaran lands were granted to <NAME>."

The learned Judge then refers to the two clauses cor- responding to the last two clauses in Exhibit B, and comes to the conclusion that their effect was merely to, restore the position as it was when the original <ORG> was created, and that, in consequence, the purchaser was entitled to the <ORG> as it was created in 1820, (1) A.I.R. 1925 Cal. 807, and that the plaintiff was entitled to the possession of the Chaukidari Chakaran lands as being part of the <ORG>. Now, it is to be observed that in deciding that the Chaukidari Chakaran lands granted in 1899 became merged is lot <NAME>, as it was in 1820, the learned Judge did not consider the effect of the clause providing for sale of those lands as a distinct entity under the provisions of the Regulation when there was default in the payment of ret payable thereon under the deed, and that, in our opinion, deprives the deci- sion of much of its value. In the result, we are unable to hold that the two clauses on which the learned Judges base their conclusion are really inconsistent with the earlier clauses which support the view that the grant under Exhibit B is of a distinct <ORG>. Nor do we agree with them that the earlier clause providing for the sale of the Chaukidari Chakaran lands in default of the payment of jama, should be construed so as not to override the later clauses. If, in fact, there is a conflict between the earlier clause and the later clauses and it is not possible to give effect to all of them, then the rule of construction is well-established that it is the earlier clause that must override the later clauses and not vice versa. In <NAME> v. <NAME> (1), Lord <NAME> stated the rule in the following terms : " If in a deed an earlier clause is followed by a later clause which destroys altogether the obligation created by the earlier clause, the later clause is to be rejected as repugnant and the earlier clause prevails. In this case the two clauses cannot be reconciled and the earlier provision in the deed prevails over the later."

We accordingly hold that Exhibit B created a new Patni and that the sale of the lands comprised therein is not bad as of a portion of a, Patni.

We are conscious that we are differing from the learned Judges of the <ORG> below on a question relating to a local tenure on which their opinion is, by reason of the special knowledge and experience which they have of it, entitled to the greatest weight. It is also true that the decision in <NAME> v.

(1) [1922] 1 A.C. 256,259.

<NAME>

<NAME> (1) has stood now for over three decades, though it is pertinent to add that its correctness does not appear to have come up for consideration in any subsequent decision of <ORG>, prior to this litigation. But then, the question is one of construction of a deed, and our decision that the effect of an agreement of the kind in Exhibit B was to constitute the Chaukidari Chakaran lands into a distinct Patni will not result in any injustice to the parties. On the other hand, the rule that a portion of a Patni should not be sold being one intended for the benefit of the Patnidars, there is no reason why an agreement entered into by them with the Zamindars providing for the sale of a portion, thereof-which is really to their advantage, should not be given effect to. Having anxiously considered the matter, we have come to the conclusion that Exhibit B creates a distinct Patni, that the sale thereof on May 15, 1937, is valid, and that the plaintiff has therefore acquired a good title to the suit lands under the grant dated February 13, 1941. In this view, it is unnecessary to express any opinion on the point that was the subject of considerable argument before us as to whether it is open to the defendants to raise the invalidity of the sale held on May 15, 1937, in answer to this action, they not having taken steps to have set it aside, as provided in s. 14 of the Regulation.

In the result, the appeal is allowed, the judgment of the lower Court reversed and that of the District Judge restored, with costs throughout.

Appeal allowed.

(1) A.I.R. 1925 Cal. 807.

<NAME>


JUDGMENT

1. The petitioners who have obtained the present Rule are the editor, the printer and the publisher of the Bengali newspaper called <ORG>. On the 23rd April 1926 an item headed "Telegram to the Nakhoda Mosque" was published in a conspicuous position at the top of a column. The petitioners were thereupon charged before the Chief Presidency Magistrate with having committed an offence under Section 153A of the I.P.C. The defence taken was that they published the telegram to draw the attention of the authorities to a piece of information received from a reliable source so that they might trace the persons responsible for the disturbances and find some means of securing peace between the two communities.

2. The learned Chief Presidency Magistrates took the view that the publication of this telegram did not fall within the explanation of Section 153A . But having regard to the circumstances of the case he came to the conclusion that it would be sufficient to deal with the petitioners under Section 562 of the Criminal P.C., and dismissed them with a warning not to publish rumours of this nature in future particularly at a time of tension. The telegram in question is in these terms:

It is rumoured that a certain Moslem has sent a telegram to <ORG> from Port Louis Mauritius to the following effect : 'Let the quarrel between Hindus and Moslems be carried on; whatever money will be spent, I will pay up on going. I am soon going to Calcutta. Will <ORG> cf the mosque disclose whether or not this telegram has come?

3. Now the defence taken by the petitioners was that this item of news was base upon a telegram which had been actually received in Calcutta from Mauritius and the telegraph officer has produced the original in Court. It is addressed to <NAME>, Nakhoda Masjid, Jakaria Street, Calcutta in these terms:

Wait, starting Naringa, take money for food Mirzapuri.

and is signed by <NAME> Mr. <NAME> who has appeared for the petitioners construes this message as meaning that the writer was shortly starting for Calcutta by the steamer "Naringa" and was bringing money with him to feed Mirzapuris by which he means goondas if that is the correct interpretation of the message the question is whether the editor of a paper is justified in translating it into the words which find expression in the paper. Beading the wording in the newspaper as a whole we think that this is a possible interpretation of the telegram.

4. The next question is whether in publishing a message of this kind the petitioners brought themselves within the scope of Section 153A . The learned Magistrate has expressed his view in this way:

If the accused honestly thought there was anything in it requiring investigation he could have given particulars of his information to the police. I cannot sea any honesty in this pretence of informing the authorities by quoting rumours. It is the obvious duty of a paper not to give currency to rumours at such times.

5. The editor of a newspaper has certain public duties, one of which is to publish matters-which it is to the public interest should be known and if he does so honestly he is evidently not liable to be dealt with by a criminal Court. Section 153A says that a person is liable under this section if he promotes or attempts to promote feelings of enmity or hatred between different classes of His Majesty's subjects. The explanation says that it does not amount to an offence within the meaning of this section to point out without malicious intention and with an honest view to their removal matters which are producing or have a tendency to produce feelings of enmity or hatred between different classes of His Majesty's subjects. It is well settled as Mr. <NAME>, the learned Counsel, who has appeared for the <ORG> has stated that the essence of an offence under this section and also under Section 108 of the Criminal P.C. is malicious intention.

6. In the recent case of <CITATION> A.I.R. 1926 Cal. 1133, <NAME>, makes the following observations : "In substance my opinion of this case" (he is referring to the prosecution of the paper "Forward"):

is that the newspaper here has given its readers in the ordinary way a perfectly legitimate and sensible piece of news without any intention to utilize that piece of news for the purpose of promoting or furthering class hatred and that even if the news is of such a character that it is possible to suppose that some people reading it may momentarily or foolishly be induced to entertain unreasonable feeling towards a class of other people, this is not enough to bring it within the mischief either of Section 153A of the I.P.C. or Section 108 of the Criminal P.C.

7. Applying that test to the present case we are of opinion that there is no indication of any such intention as to bring the case within the purview of Section 153A . Learned Counsel for the Crown has contended that that is not enough but that the petitioners must also show that the publication was with an honest view to remove certain matters which have a tendency to produce feelings of enmity between the various classes. If there is no malicious intention in the publication we think honesty of purpose may safely be inferred. Upon the facts found in the present case we are not satisfied that the action taken by the Magistrate in dealing with the petitioners was necessary. The order made under Section 562 should be vacated.

8. The rule is accordingly made absolute.