N: Criminal Appeals Nos.

39 40 of 1976.

(From the Judgment and Order dated 1 12 1975 of the Punjab and Haryana High Court in Criminal Original Nos.

13 Crl. of 1975 and 14 Crl. of 1975).

D. Mookherjee and Harbans Singh and V.M. Jain, for the appellants.

Deven Chetan Das, Advocate General, Haryana and R.N. Sachthey, for the respondent.

The Judgment of the Court as delivered by RAY, C.J. These are appeals under section 19(1)(b) of the against the judgment and order dated 1 December, 1975 of the Full Bench of the High Court of Punjab and Haryana.

243 The appellants wrote a letter on 20 February 1975 to the President with copies to the Prime Minister, Chief Justice of India, the Chief Minister of Haryana and the Chief Jus tice of Punjab and Haryana High Court.

The letter was signed by 15 members of the Bar belonging to the District Bar Association, Bhiwani.

In that letter they brought to the notice of the President that Justice D.S. Tewatia of the Punjab and Haryana High Court visited the session division of Bhiwani and inspected the Courts from 14 February 1975 to 19 February 1975.

In that letter they further stated as follows: "The learned Judge met the members of the Bar on 15 February, 1975 in the Bar Room, Bhiwani.

During the course of the meeting, the learned Judge criticised the Government 's policy in regard to its attitude towards the judiciary.

Besides the learned Judge was openly attacking the Govern ment in its political as well as administrative decision.

On the ' whole, he gave an impression that he was not a Judge but a politician who had come to Bar Room.

When the members of the Bar who had gone to meet the learned Judge in the P.W.D. Rest House, Bhiwani he discussed politics with them and criticised the present executive in general and the Congress Party in particular.

He suggested the members of the Bar to revolt against the present Government as it has suppressed the civil liberation (sic) of the individuals and has also failed miserably in all fields.

The Judge further said that the prevailing system of Government is not good in this country and we must adopt the communist form of Govern ment which can save the nation.

Later on he had some pri vate political discussion with the local C.P.M. leaders.

He also accepted the hospitality of the Technological Institute of Textiles (Mills) people who also took him for a sight seeing from Dadri to Pilani.

The members of the District Bar Association highly regret the attitude of Justice D.S. Tewatia and urge the Government to take appropriate action in this regard".

Five members of the Bar Association at Charkhi Dadri sent a letter addressed to the President.

with copies to the Chief Justice of Punjab and Haryana High Court, the Chief Minister of Haryana, the Chief Justice of India and the Prime Minister.

In that letter they said that Justice D.S. Tewatia visited the Bar and inspected the court at Charkhi Dadri on 17 February, 1975.

Thereafter they stated as follows: "While talking with the members of the Bar, he pointed out that the library of this Bar seems to be very poor.

Then Shri Virender Kumar Single, a member of the Bar requested the honourable Judge to help the Bar either by supplying books or by allocating the grant by the High Court so that the needy Bar may be able to purchase necessary books for the library.

Then the Honourable Judge turned down the request and replied that it is never possible in the present system of Government of India.

If you want this kind of help then you should prepare yourself for the commu nist Government in India by creating such atmosphere in the country.

At another stage also during the course of his discussion with the members of the Bar over the matter of Rajasthan Law students demands in which they demanded a grant 244 of Rs. 5000/ from the Government for the library of each fresh law graduate and Rs. 200/ per month for a period of two years the initial stage of their legal practice he strongly emphasised the need for the communist system of Society and Government in India to fulfil these demands.

The learned Judge also met Smt.

Chandrawati separately and discussed with her the political affairs of the State.

He also expressed his desire to see Comrade Dharam Singh a member of the Marxist Communist Party at his residence before Smt.

Chandrawati.

During his stay in the rest house he also discussed the teachers agitation and individual position of various political leaders in the State.

He also enquired all about Shri Sohan Lal a leader of the teacher 's movement in the State".

The letter concluded by saying that the Hon 'ble Judge during his entire stay in his tour deliberately showed the bent of his mind towards commu nism while exchanging view on various matters.

The appellants took a copy of their letter to the Chief Justice of Punjab and Haryana.

The appellants could not see the Chief Justice and left the letter with the Registrar in a closed cover.

The Registrar told them that the closed cover could reach the Hon 'ble Chief Justice, A notice was issued by the High Court on 12 March 1975 as follows: "Letter dated 20th February, 1975 a copy of an application dated 20 February, 1975 signed by 15 members of the District Bar Association, Bhiwani, has been placed for the consideration of this Bench.

On a perusal of the con tents thereof, a prima facie case of criminal contempt is made out.

We therefore direct that the contempt of Court (Punjab 'and Haryana) Rules, 1974 be issued to each of the signatories of the above said application, returnable for the 1st of April, 1975".

The High Court did not take any action against two persons on the letter written by five members of the Bar Association of Charkhi Dadri.

Each of the appellants affirmed an affidavit in this pattern.

"It is an article of faith with the deponent that dignity and respect of all Courts and of all Judges and particularly of the High Court must be maintained for, amongst other reasons, on that depends the orderly function ing of the society as also prestige of the profession to which the deponent has the honour to belong.

The deponent has been taught to believe that a Judge ought always to steer clear of all avoidable controversial matters.

The deponent most respectfully submits that the contents of the letter which he and others addressed to the President of India cannot be construed as scandalising the Hon 'ble Judge or the Court in any manner to weaken people 's faith in the administration of justice.

The letter in question was addressed by the deponent to the President of India with copies to others with the sole object of conveying the opinion that the public expression by the Hon 'ble Judge of his personal views on controversial political matters con cerning the merits and demerits of the present system of the Government was not in keeping with the well accepted role of proverbial aloofness of a Judge.

The letter was addressed ,bona fide, in good faith and without 245 any ill will and no publicity was given to it.

It was intended to be a privileged communication made solely with a view to uphold the dignity of the Court.

In order to prevent unwanted disclosure of its contents, the communica tion in question was brought personally by two members of the Bar Association, Bhiwani to Chandigarh in a closed cover addressed to the Chief Justice for being handed over to him for his personal attention.

The deponent submits that the contents of the letter.

have no relevance or relation to the functioning of the learned Judge of the High Court.

The letter does not interfere much less substantial ly with due course of justice or proper administration of law by the courts.

The deponent submits that there was no intention whatsoever on his part to scandalise the Hon 'ble Judge or this Hon 'ble Court or to lower the authority or undermine the prestige of the learned Judge or of the Hon ' ble Court or to weaken in any way the confidence of the people in the administration of justice.

The deponent respectfully submits that the communication does not bear out any foundation for an action for criminal contempt.

In any case, if in view of this Hon 'ble Court, the action of the deponent in addressing the letter in question constitut ed for any reason contempt of court, one would be more sorry than the deponent himself.

Therefore, the deponent tenders his apology to this Hon 'ble Court, for the same, and prays for its acceptance.

" The Full Bench of the High Court consisting of Justice Surjit Singh Sandhawalia, Justice Prem Chand Jain and Jus tice Bhupinder Singh Dhillon extracted portions from the affidavit of the appellants to which references has been made.

The Full Bench thereafter referred to paragraph 9 of the affidavit where the deponents said that "if in view of this Hon 'ble Court the action of the deponent in addressing the letter in question constituted for any reason contempt of court, no one would be more sorry than the deponent himself.

Therefore, the deponent tender his apology to this Hon 'ble Court for the same and prays for its acceptance".

After the recital of paragraph 9 the judgment of the Full Bench said as follows: "In view of the averments made in the affidavit filed in rely and in particular in paragraph 9 thereof we accept the apology tendered on behalf of the respondents and discharge the rule issued against them".

In our view the judgment is utterly unsound and unsus tainable.

The elementary basis of acceptance of apology is that there is to be a finding of committal of contempt.

The deponents stated that if the Court is of the view that the letter of the deponents constitute for any reason contempt of court, the deponents tender apology.

It is a conditional apology.

The condition is that if there is contempt the deponents tender apology.

In the absence of any finding by the High Court that the appellants committed any contempt of court there was never any occasion for acceptance of apology.

It appears before us that the allegations in the letter were not disputed and challenged.

The High Court proceeded on the basis that the letters written by the appellants were correct.

It is indeed curious 246 that the High Court in the notice referred to the letter of the appellant and said "on a perusal of the contents thereof a prima facie case contempt is made out".

The High Court did not mention which particular portion of the letter constituted contempt of court.

It is necessary to state here that if any Judge address es on political problems or controversies the Judge exposes himself to discussion by public.

The reason is that the Judge travels from his judicial work and descends into the arena of politics and parties.

The Judge cannot in such a case take shelter behind his office if the public discusses and criticises the views expressed by him.

The reason is obvious.

It is no part of the duty of a Judge nor is it a duty in discharge of office of a Judge to go and address a meeting on political matters to redress grievances of the people.

However, if the speech of any Judge is criticised and if it becomes a disputed question of fact as to whether any Judge did speak or not as is alleged by the writer the matter would have to be ascertained by the court on facts whether the Judge concerned did speak on the matters ascribed to him before the court would take any action against the persons who would criticise the Judge 's speech.

We wish to make it clear that if on facts it appears that the Judge did say things or matters about politics such utterances or views or observations will be the personal opinions expressed by the Judge, and, therefore, the protec tive umbrella of the court cannot be used by way of bringing the critics on the charge of contempt of court.

It also appears in the letter that there is an allega tion that the Judge accepted hospitality of some organisa tion.

To say that will not by itself be a contempt.

All we need say is that it will not be correct and proper for any Judge to accept the invitation and hospitality of any busi ness or commercial organisation or of any political party or of any club or organisation run on sectarian, communal or parochial lines.

Invitations by the Bar Associ ation or social invitations naturally Stand on a different footing and no one will find an exception to any Judge attending a social function.

Judges are by reason of their office and nature of work expected not to get involved in controversial matters, or to concern themselves with political issues or policies under taken by political parties as a part of their political programme.

We are of opinion that the Full Bench fell into the error of accepting the apology without finding that the appellants committed any contempt.

In the absence of such a finding no question arises for acceptance of apology.

In view of the fact that the High Court proceeded on the basis that the allegations in the letter were unchallenged we are of opinion that the matters did not constitute any contempt.

The High.

Court should have dropped the proceed ings and not pursued the matter.

247 The judgment is set aside.

The contempt proceedings are dropped.

We should state here that the Advocate General of Haryana quite fairly stated that the letter did not consti tute any contempt.

M.R. Appeals allowed.

Summary: The appellants wrote a letter to the President of India, with copies to some others including the Chief Jus tice of Punjab and Haryana High Court, criticising, the behaviour of a High Court Judge, who, during his visit to the Sessions Division of Bhivani, spoke against the Govern ment 's policies and canvassed for a communist system.

Summary: The High Court issued a notice against the appellants; making out a case of criminal contempt of court.

Summary: The appellants tendered a conditional apology contingent on the courts finding their action to be contempt of court.

Summary: The apology was accepted.

Summary: Allowing the appeals and dropping the contempt proceedings, the Court.

Summary: HELD: (1) The elementary basis of acceptance of apology is that there is to be a finding of committal of contempt.

Summary: The Full Bench fell into the error of accepting the apology without finding that the appellants committed any contempt In the absence of such a finding, no question arises for acceptance of apology.

Summary: F G] (2) Judges are, by reason of their office and nature of work, expected not to get involved in controversial matters, or to concern themselves with political issues or policies undertaken by political parties.

Summary: If any Judge addresses on political problems or controversies, the Judge exposes himself to discussion by public.

Summary: He cannot in such a case take shelter behind his office if the public discusses and criticises the views expressed by him, and the protective umbrella of the court cannot be used by way of bringing the critics on the charge of contempt of Court.

Summary: [246 A D, F G]


o. 196 of 1954.

Under article 32 of the Constitution of India for the enforcement of fundamental rights.

P. R. Das and K. P. Khaitan, (B. Sen, A. K. Mukherjea and B. P. Maheswari, with them) for the petitioner.

C. K. Daphtary, Solicitor General for lndia, (Porus A. Mehta and P. G. Gokhale, with ', him) for the respondents.

May 28.

The Judgment of the Court was delivered by I MEHR CHAND MAHAJAN C.J.

The principal question canvassed in this case is whether certain sections of the Taxation on Income (Investigation Commission) Act, 1947, i.e., Act XXX of 1947, have become void from the date of the commencement of the Constitution of India by reason of article 14 of the ' Constitution.

The petitioner, Suraj Mall Mohta & Co. Ltd., is a company registered under the Indian Companies Act.

Suraj Mall Mohta is also the managing director of another company Messrs. Jute and Gunny Brokers Ltd. A reference had been made by the Central Government under the provisions of section 5(1) of the Act before 58 450 1st September, 1948, of the case of Messrs. Jute and Gunny Brokers Ltd. to the Investigation Commission appointed under Act XXX of 1947.

During the investigation of that case which was numbered 831/30 in the records of the Commission, and during the investigation of some other cases similarly referred to the Commission, it was said to have been discovered that the petitioner company had made secret profits which it had not disclosed and had thus evaded taxa tion.

On the 28th August, 1953, a report to this effect was made by the Commission to the Central Government under the provisions of section 5(4) of the Act requesting that the case of the petitioner along with the cases of Suraj Mall Mohta and other members of his family may be referred to the Commission for investigation.

On the 9th September, 1953, the Central Government referred these cases to the Investigation Commission under the provisions of section 5(4) of the Act and these were numbered 831/64 69 on the records of the Commission.

On the 15th of September, 1953, the Commission notified the petitioners that their cases had been referred for investigation and they were called upon to furnish certain material, as detailed in Annexure "B" of the petition, to the Commission.

On the 12th April, 1954, the present petition under article 32 of the Constitution was filed for the issue of appropriate writs restraining the Commission from taking any action against the petitioner under the provisions of Act XXX of 1947, on the ground that the provisions of sections 5(1), 5(4),6,7 and 8 of Act XXX of 1947, had become void, being discriminatory in character after the coming into force of the Constitution of India.

In order to appreciate the respective contentions raised and canvassed before us on behalf of the petitioner company and the State, it is necessary to set out some of the relevant provisions of the Act.

The object of the Act as stated in its Preamble was to ascertain whether the actual incidence of taxation on income in recent years had been in accordance with 451 provisions of law and whether the procedure for assessment and recovery of tax, was adequate to prevent evasion thereof.

Section 3 authorizes the Central Government to constitute a Commission, to be called the Income tax Investigation Commission, it,% duty, being (a) to investigate and report to the Central Government on all matters relating to taxation on income, with particular reference to the extent to which the existing law relating to, and procedure for, the assessment and collection of such taxation is adequate to prevent the evasion thereof; (b) to investigate in accordance with the provisions of this Act any case or points in a case referred to it under section 5.

The composition of the Commission is set out in section 4.

Section 5 of the Act reads as follows 5(1) The Central Government may at any time before the first day of September, 1948, refer to the Commission for investigation and report any case or points in a case in which the Central Government has prima facie reasons for believing that a person has to a substantial extent evaded payment of taxation on income, together with such material as may be available in support of such belief, and may at any time before the 1st day of September, 1948, apply to the Commission for the withdrawal of any case or points in a case thus referred. . (2). . . . . . . (3)No reference made by the Central Government under sub section, (1), at any time before the first day of September, 1948, shall be called in question, nor shall the sufficiency of the material on which such a reference has been made be investigated in any manner by any Court.

(4)If in the course of investigation into any case or points in a case referred to it under sub section (1), the Commission has reason to believe (a) that some person other than the person whose case is being investigated has evaded payment of taxation on income, or (b)that some points other than those referred ' to it by the Central Government in respect of any case 452 also require investigation, it may make a report to the Central Government stating its reasons for such belief and, on receipt of such report, the Central Government shall, notwithstanding anything contained in subsection (1), forthwith refer to the Commission for investigation the case of such other person or such additional points as may be indicated in that report.

" The powers possessed by the Commission while conducting an investigation are provided for in section 6 which is in these terms: "6(1) The Commission shall have power to require, any person or banking or other company to prepare and furnish on or before a specified date written statements of accounts and affairs verified in such manner as may be prescribed by the Commission and, if so required by the Commission, also duly verified by a qualified auditor, giving information on such points or matters as in the opinion of the Commission may, directly or indirectly, be useful for, or relevant to, any case referred to it, and any person or banking or other company so required shall be bound, notwithstanding any law to the contrary, to comply with such requirement.

(2)The Commission shall also have power to administer oaths, and shall have all the powers of a civil court under the Code of Civil Procedure, 1908, for the purposes of taking evidence on oath, enforcing the attendance of witnesses and of persons whose cases are being investigated, compelling the production of documents and issuing commissions for the examination of witnesses.

(3)If in the course of any investigation it 'appears to the Commission to be necessary to examine any accounts or documents or to interrogate any person or obtain any statements from any person, the Commission may authorize any income tax authority not below the rank of Income tax Officer in that behalf. (4)The authorized official shall subject to the direction of the Commission have the same powers as the Commission under sub sections (1) and (2), and 453 any person having charge or custody of accounts or documents required to be examined shall not withstanding anything in any law to the contrary be bound to produce them (5)If any person whose case or the points in whose case is or are being investigated by the Commission refuses or fails to attend in person in compliance with a notice in that behalf duly served upon him or to give any evidence or to answer questions or to produce documents or to prepare and furnish statements when called upon to do so, the Commission may, if satisfied that the refusal or failure was wailful, close the investigation of the case and proceed to draw up its report on the case or on the points to the best of its judgment and may in its discretion also direct that such sum as it may specify in the direction shall be recovered from the person by way of penalty for the refusal or failure, without prejudice to any penalty under the Indian Income tax Act, 1922 (6). . . . . . . . . (7)Where in the opinion of the Commission any person or banking or other company is likely to be in possession of any information or document which may, directly or indirectly be useful for, or relevant to, any case referred to it or any case likely to be reported by the Commission to the Central Government under the provisions of sub section (4) of section 5, the Commission and subject to the direction of the Commission any authorized official, may make enquiries in such manner as it or he may deem fit and obtain from such person or banking or other company statements on oath or ' otherwise on such points or matters as may be specified; and for the purpose of any such enquiry, the Commission and the authorized ' official shall have all the powers conferred on them by sub sections (1), (2), (2A), (3) and (4).

(8) All materials gathered by the Commission or the authorised official and materials accompanying the reference under sub section (1) of section 6 may be brought on record at such stage as.

the Commission may think fit.

" 454 The procedure to be followed by the Commission is contained in section 7 which provides that subject to the provisions of this Act the Commission shall have power to regulate its own procedure and that the powers of the Commission under sub sections (1), (2), (3), (7) and (8) of section 6 and sub sections (2), (4) and (6) of this section, i.e. section 7 may be exercised by any member thereof authorised by the Commission in this behalf.

Sub section (2) of section 7 provides as follows " 7(2) In making an investigation under clause (b) of section 3, the Commission shall act in accordance with the principles of natural justice, shall follow as far as practicable the principles of the , and shall give the person whose case is being investigated, a reasonable opportunity of rebutting any evidence adduced against him; and the power of the Commission to compel production of documents shall not be subject to the limitation imposed by section 130 of the , and the Commission shall be deemed to be a Court and its proceedings legal proceedings for the purposes of sections 5 and 6 of the .

" Sub section (3) of section 7 is in these terms: "7(3) Any person whose case is being investigated by the Commission may be represented by a pleader, a registered accountant or an employee duly authorised to act on his behalf, provided that no person shall be entitled to be present or to be represented in the course of an enquiry under subsections (3) and (7) of section 6." The result of these provisions is that when the Commission is collecting the materials from different sources against the assessee he is not entitled to be present at those stages and take part in the enquiry, but after the material is ready and is placed on the record then he can be present and has to be given a reasonable opportunity of rebutting any evidence that may have been collected against him.

Sub section (4) of section 7 which came in for considerable criticism provides as follows: 455 "7(4) No person shall be entitled to inspect, call for, or obtain copies of, any documents, statement or papers or materials furnished to, obtained by or produced before, the, Commission or any authorized official in any proceedings under this Act; but the, Commission and after the Commission has ceased to exist such authority as the Central Government may in this behalf appoint, may, in its discretion, allow such inspection and furnish such copies to any person .

Provided that, for the purpose of enabling the person whose case or points in whose case is or are being investigated to rebut any evidence brought on the record against him, he shall, on application made in this behalf and on payment of such fees as may be prescribed by rules made under this Act, be furnished with certified copies of documents, statements, papers and materials brought on the record by the Commission.

" Sub section (5) of section 7 is in these terms "7(5) Save in cases in which the Commission may exercise its powers under section 195 and Chapter XXXV of the Code of Criminal Procedure, 1898, (a)no suit, prosecution or other legal proceedings shall be instituted against any person in any civil or criminal Court for any evidence given or produced by him in any proceedings before the Commission, and , (b)no evidence so given or produced shall be admissible in evidence against such person in any suit, prosecution or other proceeding before such Court, except with the previous sanction of the Central Government.

" The last section that came in for objection is section 8 which is in these terms: "8(1) Save as otherwise provided in this Act, the materials brought on record shall be considered by all the three members of the Commission sitting together and the report of the Commission shall be in accordance With the opinion of the majority.

(2)After considering the report, the Central Government shall by order in writing direct that such 456 proceedings as it thinks fit under the Indian Income tax Act, 1922, the Excess Profits Tax Act, 1940, or any other law, shall be taken against the person to whose case the report relates in respect of the income of any period commencing after the 31st day of December , 1938; and upon such a direction being given, such proceedings may be taken and completed under the appropriate law notwithstanding the restrictions contained in section 34 of the Indian Income tax Act, 1922, or section 15 of the Excess Profits, Tax Act, 1940, or any other law and notwithstanding any lapse of time or any decision to a different effect given in the case by any Income tax authority or Income tax Appellate Tribunal.

(3) . (4) In all assessment or reassessment proceedings taken in pursuance of a direction under sub section (2), the findings recorded by the Commission on the case or on the points referred to it shall, subject to the provisions of sub sections (5) and (6), be final; but no proceedings taken in pursuance of such direction shall be a bar to the initiation of proceedings under section 34 of the Indian Income tax Act,, 1922.

(5) In respect of any order made in the course of proceedings taken in pursuance of a direction issued under sub section (2) the provisions of sections 30, 31, 33 and 33 A of the Indian Income tax Act, 1922, and the corresponding provisions of the Excess Profits Tax Act 1940, shall not apply so far as matters declared final, by sub section (4) are concerned; but the person concerned may, within 60 days of the date upon which he is served with a copy of such order, by application in the prescribed form accompanied by a fee of Rs. 100 require the appropriate Commissioner of Income tax to refer to the High Court any question of law arising out of such order, and thereupon the provisions of sections 66 and 66 A of the Indian Income tax Act, 1922, shall as far as may be apply, with the modifica tion that the reference shall be heard by a Bench of not less than three Judges of the High Court.

(6) 457 (7) Notwithstanding anything to the contrary contained in this Act or in any other law for the time being in force, any evidence in the case admitted before the Commission or an authorized official shall be admissible in evidence in any proceedings directed to be taken under sub section (2).

" It was not and could not be denied that the powers vested in the Commission and the procedure prescribed by the impugned Act is more comprehensive and drastic than those contained in the Indian Income tax Act.

At the time when the impugned statute was passed there could possibly be taken no exception to its contents on the ground of constitutionality of it 's provisions, and the powers conferred on the Commission and the procedure it was authorized to follow were well within the ambit of the Legislative power of the Central Legislature.

The impugned statute admittedly was good law till the coming into force of the Constitution.

When India became a sovereign democratic Republic on 26th January, 1950, the validity of all laws had to be tested on the touchstone of the new constitution and all laws made before the coming into force of the Constitution have to stand the test for their validity on the provisions of Part III of the Constitution.

The points that require consideration in the case are whether the provisions of section 5(1), sections 5(4), 6, 7 and 8 or any parts thereof contravene the guarantee of equal protection of the laws and of the equality before the law, or whether the impugned provisions of the Act are based on a valid classification which is rational in view of the objects of the Act.

A further point is whether section 6(5)of the Act offends against article 20 (3) of the Constitution.

Mr. P. R. Das for the petitioner attacked the provisions of section 5(1) of the Act on a two fold ground: (1) That the section was not based on any valid classification; the word "substantial" being vague and uncertain and having no fixed meaning, could furnish no basis for any classification at all; (2) That the Central Government was entitled by the, provisions of the section to discriminate between one person and another in the same class and it was authorized to pick and 59 458 choose the cases of persons who fell within the group of those who had substantially evaded taxation.

It could, if it chose, send the case of one person to the Commission and show favoritism to another person ,,by not sending his case to the Commission though both of these persons be within the group of those who have evaded the payment of tax to a substantial extent.

As regards sub section (4) of section 5, the learned counsel contended that this section had no independent existence and was bound to fall with subsection (1) Of section 5, if his contention regarding the invalidity of that section prevailed.

In the alternative, he I contended that assuming that sub section (1) was valid even then sub section (4) had to be declared void because it gave arbitrary power to the Commission to pick and choose and secondly because the clause was highly discriminatory in character inasmuch as an evasion, whether substantial or insubstantial, came within its ambit as well as within the ambit of section 34 of the Indian Income tax Act.

The learned Solicitor General combated all these arguments and contended that the Act was based on a broad and rational classification, that it only dealt with a group of persons who had evaded income tax from the, beginning of the war, 1st January, 1939, to the period ending with 1st September, 1948, as a consequence of war controls resulting in black marketing activities and huge profits.

In other words, it was said that the Act only dealt with that group of persons who came within the class of war profiteers.

This was a class by itself and needed special treatment and there fore the law did not offend against the equal protection of the laws clause of the Constitution.

It was suggest.

ed that persons coming under sub section (4) of section 5 also belonged to the same class and therefore on the same grounds that section also could not be declared void.

It was further.

said that there was no substantial difference in the procedure prescribed under section 34 of the Indian Income tax Act and the impugned Act and that in any case the procedure prescribed by the Act was a good substitute for that prescribed by the Indian Income tax Act.

459 In our judgment, it is not necessary in this case to deal with all the contentions raised by Mr. P. R. Das and combated by the learned Solicitor General.

It will be sufficient, for the decision of this case to examine the respective contentions raised about the validity of sub section (4) of section 5 of the Act because the case of the petitioner was referred to the Commission under the provisions of this section and was not referred to the Commission by the Central Government under the provisions of section 5(1) and that being so, an enquiry into the validity of that section is really outside the scope of the present case.

On the assumption therefore that sectio n 5(1) of the Act is based on a valid classification and deals with a group of persons who came within the class of war profiteers which required special treatment and that the classification is rational and that reasonable grounds existed for making distinction between those who fell within that class and others who did not come within it, but without in any way deciding or even expressing any opinion on that question, we proceed to examine the question whether sub section (4) of section 5 under which proceedings had been initiated against the petitioner offends against the guarantee of equal protection of the laws given in article 14 of the Constitution.

The first question that requires consideration is whether sub section (4) of section 5 deals with the same class of persons as are said to have been grouped together in subsection (1) of section 5 as persons who to a substantial extent evaded payment of taxation on income: in other words, does sub section (4) of section 5 confer an the Commission the power merely to add to the number of persons included in section 5(1) by, the Central Government or does it confer larger power on the Commission.

On the phraseology employed in the sub section it is difficult to read therein the limitations contained in sub section (1) of section 5 as contended for by the learned Solicitor General.

Sub section (4) which has been set out above in clear and unambiguous terms provided that where the Commission "has reason to believe that some person ther than the person whose case is being investigated has evaded payment of taxation on income. . it may 460 make a report to the Central Government.

" It does,not repeat the phraseology used in section 5(1) that some person other than the person whose case is being investigated "have to a substantial extent evaded payment of taxation on income.

" On no principle of construction of statutes can the words to a "substantial extent" be read in sub clause (a) of section 5(4).

On a plain reading of the section it is clear that the subsection is not limited only to persons who made extraordinary profits and to a substantial extent evaded payment of taxation on income, but applies to all persons who may have evaded payment of taxation on income, irrespective of whether the evaded profits are substantial or insubstantial.

In other respects also the phraseology of the section is different from that employed in sub section (1) of section 5.

Sub section (1) of section 5 provided that where the Central Government "has prima facie reasons for believing that a person has to a substantial extent evaded payment of taxation on income", while clause (a) of section 5(4).

says that if the Commission "has reason to believe that some person other that the preson whose case is being investigated has evaded payment of taxation on income".

The prima facie belief of the Central Government is substituted by the expression "The Commission has reason to believe".

The scope of the section is thus different from the scope of section 5(1) of the Act, both in its extent and range.

, It is not necessarily limited to profits made within any particular period and brings within its range all persons, whether traders, businessmen, professional people, whoever they may be, who may have at any time evaded payment of taxation on income for whatever cause.

That being the true scope or construction of subsection (4), it obviously deals with the same class of persons who fall within the ambit of section 34 of the Indian Income tax Act and are dealt with in subsection (1) of that section and whose income can be caught by proceeding under that section.

Assessees who have failed to disclose fully and truly all material facts necessary for the assessment under section 34 can be equated with persons who are discovered in the 461 course of the investigation conducted under section 5(1) to have evaded payment of income tax on their incomes.

The result is that some of these persons can, ' be dealt with under the provisions of Act XXX of 1947, at the choice of the Commission, though they could also be proceeded with under the provisions of section 34 of the Indian Income tax Act.

It is not possible to hold that all such persons who evade payment of income tax and do not truly disclose all particulars or material facts necessary for their assessment and against whom a report is made under sub section (4) of section 5 of the impugned Act by themselves form a class distinct from those who evade payment of income tax and come within the ambit of section 34 of the Indian Income tax Act.

It is well settled that in its application to legal.

proceedings article 14 assures to everyone the same rules of evidence and modes of procedure; in other words, the same rule must exist for all in similar circumstances.

It is also well settled that this principle does not mean that every law must have universal application for all persons who are not by nature, attainment or circumstance, in the same position.

The State can by classification determine who should be regarded as a class for purposes of legislation and in relation to a law enacted on a particular subject, but the classification permissible must be based on some real and substantial distinction bearing a just and reasonable relation ' to the objects sought to be attained and cannot be made arbitrarily and without any substantial basis.

Classification means segregation in classes which have a systematic relation, usually found in common proper ties and characteristics.

There is nothing uncommon either in properties or in characteristics between persons who are discovered as evaders of income tax during an investigation conducted under section 5(1) and those who are discovered by the Income tax Officer to have evaded payment of income tax.

Both these kinds of persons have common properties and have common characteristics and therefore require equal treatment.

We thus hold that both section 34 of the Indian Income tax Act and sub section (4) of 462 section 5 of the impugned Act deal with all persons who have similar characteristics and similar properties, the common characteristics being that they are persons who have not truly disclosed their income and have evaded payment of taxation on income.

The next question that requires determination is whether the procedure prescribed by Act XXX of 1947 for discovering the concealed profits of those who have evaded payment of taxation on their income is substantially different and prejudicial to the assessees than the procedure prescribed in the Indian Income tax Act by section 34.

The learned Solicitor General contended that the procedure prescribed by the impugned Act was a fair and good substitute for the procedure prescribed by the Indian Income tax Act and that there was really no substantial difference between the two procedures.

He urged that justice could be fully done to those persons by following the new procedure and as a matter of fact, it would be more truly done by following the procedure under the impugned Act than following the procedure under the Indian Income tax Act.

This argument, in our opinion, begs the question to be decided in all such cases.

It is clear that if persons dealt with by the impugned Act are deprived of the substantial and valuable privileges which they would otherwise have if they were dealt with under the Indian Income tax Act, in that situation it is no defence to say that the discriminatory procedure also advances the course of justice.

The matter has to be judged from the point of view of the ordinary reasonable man and not from the point of view of the Government.

The ordinary reasonable man would say, when the stakes are heavy and serious charge of evasion of income tax are made against, him, why one person similarly placed should have the advantage substantially of the procedure prescribed by the Indian Income tax Act, while another person similarly situated be deprived of it.

It is from this aspect that the application of article 14 to the facts of this case has to be considered.

The next question for consideration is whether the procedure prescribed by the impugned Act in regard to 463 persons similarly situate with those who are proceeded with under section 34, is substantially different than under the Act, and operates to the prejudice of those persons.

So far as we can see these assessees have been given discriminatory treatment even from those whose cases are referred to under section 5(1) of the Act to the Commission inasmuch as in the case of persons whose cases are referred to under section 5(1) of the Act it is the prima facie, belief of the Government that enables the reference to be made to the Commission and the Commission has after investigation to form an opinion; while in the case of persons coming within the ambit of sub section (4) of section 5 the Commission itself finds and gathers reason to believe that, these persons have evaded income tax and on its report the Government is bound to refer their cases to the same Commission who has.

already arrived at the prima facie conclusion that they have evaded payment of income tax.

The investigator and the judge in this situation are rolled into one.

That is not so in cases coming under section 5(1).

Apart from this circumstance, there are substantial differences between the two procedures, inter alia, in the following matters : 1.

Under the provisions of section 8 of the impugned Act, the findings of fact given by the Commission as to factum and extent of the evasion are final and conclusive and thus the persons against whom proceedings are taken under section 5(4) are deprived of the rights of appeal, second appeal and revision conferred by sections 31, 32 and 33 of the Indian Income tax Act on assessees whose cases are dealt with under the procedure of section 34 of the Indian.

Income tax Act.

A person who has evaded payment of income tax and is proceeded with under section 34 and is held to have escaped income tax has a right of appeal to the Appellate Assistant Commissioner of Income tax and can challenge all the findings of fact given by the Income tax Officer.

If he does not get relief from the Appellate Assistant Commissioner, he is entitled to go before the Appellate Tribunal under section 33 and can challenge all the findings of fact given by the Income tax Officer.

On the other hand, a person dealt with under section 5(4) of the impugned Act has no such right.

The learned Solicitor General contended that the constitution 464 of the Commission was such that it was a good substitute for the rights of appeal, second appeal and revision conferred by the Income tax Act inasmuch as the Commission is comprised of a High Court Judge and two other responsible persons and these sitting together were as good a tribunal as the totality of persons comprising the Income tax Officer, Appellate Assistant Commissioner and the Appellate Tribunal.

In our opinion, the constitution of the Commission by itself cannot be held to be a sufficient safeguard and a good substitute for the rights of appeal and second appeal and revision given by the Indian Income tax Act and there can thus be no doubt that the procedure prescribed by the impugned Act deprives a person who is dealt with under that Act of these valuable rights of appeal, second appeal and revision to challenge questions of fact decided by the Judge of first instance.

There is thus a material and substantial difference between the two procedures, one prescribed by the impugned Act and the other prescribed by the Indian Income tax Act.

2.When an assessment on escaped or evaded income is made under the provisions of section 34 of the Indian Income tax Act, all the provisions for arriving *at the assessment provided under section 23(3) come into operation and the assessment has to be made on all relevant materials and on evidence and the assessee ordinarily has the fullest right to inspect the record and all documents and materials that are to be used against him.

Under the provisions of section 37 of the Indian Income tax Act the proceedings before the Income tax Officer are judicial proceedings and all the incidents of such judicial proceedings have to be observed before the result is arrived at.

In other words, the assessee would have a right to inspect the record and all relevant documents before he is called upon to lead evidence in rebuttal.

This right has not been taken away by any express provisions of the Income tax Act but the impugned Act contains a mandate in sub section (4) of section 7 to the effect that "no person shall 'be entitled to inspect, call for, or obtain copies of, any documents, statement or papers or materials furnished to, obtained by or produced before the Commission or any authorized official in.

any proceedings under this 465 Act.

" There is a proviso to sub section (4) which says that for the purpose of enabling the person whose case or points in whose case is or are being investigated to rebut any evidence brought on the record against him, he shall, on application made in this behalf and on payment of such fees as may be prescribed by rules, be furnished with certified copies of documents, statements, papers and materials brought on the record by the Commission.

This little, mercy shown to the person whose case is being investigated by the Commission is no substitute for the fullestright of inspection which under ordinary law and the Code of Civil Procedure and in a judicial proceeding a person would have in order to meet the case made against him.

He is entitled only to get copies of that portion of the materials which is brought on the record and which is going to be used against him and it is clear that portions of the material which are in his favour and which have not been brought on the record may not be available to him at all.

He is not even entitled to see all the books of account which may have been impounded under the Act and taken possession of by the Commission.

It may well happen that there are entries in those books which contain the rebuttal evidence, but the assessee is not entitled to have their copies.

The assessee is not even entitled to see his own books which are in the possession of the Commission and take copies of those entries which are favourable to him and which would completely demolish the case made against the assessee by the Commission.

The procedure thus prescribed in this matter by the impugned Act is substantially prejudicial to the assessee than the procedure prescribed under the Indian Income tax Act.

It was not disputed by the learned Solicitor General that the procedure prescribed by the impugned Act in sections 6 and 7 was more drastic than the procedure prescribed in sections 37 and 38 of the Indian Income tax Act.

Again, so far as the procedure for reference under subsection (4) of section, 5 is concerned, it is also to a certain extent prejudicial to the assessee.

There is no doubt that there is in this matter in the first stages some similarity in the procedure to be followed for catching evaded income both under section 34 of the Indian Income tax Act and under the provisions of 69 466 subsection (4) of section 5 of the impugned Act; but the overall picture is that though under the Indian income tax Act the same officer who first arrives at a tentative conclusion hears and decides the case, his decision is not final but is subject to appeal, while under the provisions of sub section (4) of section 5 the decision of the Commission tentatively arrived at in the absence of the assessee becomes final when taken in his presence, and that makes all the difference between the two procedures.

If there was a provision for reviewing the conclusions of the Investigation Commission when acting both as investigators and judges, there might not have been such substantial discrimination in the two procedures as would bring the case within article 14; but as pointed out above, there is no provision of that kind in the impugned Act.

It may also be pointed out that under the provisions of section 34 investigation into escaped income or evaded income is limited to a maximum period of eight years, while under the provisions of sub section (4) of, section 5 it is not limited to any period and this certainly operates to the detriment of those dealt with under sub section (4) of section 5 of the impugned Act, and those dealt with under section 34 of the Indian Income tax Act.

For the reasons given above we are of the opinion that sub section (4) of section 5 and the procedure prescribed by the impugned Act in so far as affects the persons proceeded against under that sub section being a piece of discriminatory legislation offends against the provisions of article 14 of the Constitution and is thus void and unenforceable.

In reaching this decision we refrain from expressing any opinion, as above pointed out, on the validity of section 5(1) of the Act or on the question whether section 6(5) of the impugned Act offends against the provisions of article 20 sub clause (3) of the Constitution.

We accordingly direct that an appropriate writ be issued against the Investigation Commission prohibiting it from taking any proceedings under the provisions of the impugned Act against the petitioner.

The petitioner will have his costs of these proceedings.

Summary: Sub section (4) of section 5 of the Taxation on Income (Investigation Commission) Act, 1947, does not deal with the same class of persons as are said to have been grouped together in subsection (1) of section 5 of the Act as persons who to a substantial extent evaded payment of taxation on income.

Summary: On a plain reading of the section it is clear that sub section (4) of section 5 is not limited only to persons who made extraordinary profits and to all persons who may have evaded payment of taxation on income irrespective of whether the evaded profits are substantial or insubstantial and therefore the scope of sub section (4) of section 5 is different from the scope of sub section (1) of section 5 both in extent and range.

Summary: Sub section (4) of section 5 of the Act, obviously deals with the same class of persons who fall within the ambit of section 34 of the Indian Income tax Act and are dealt with in sub section (1) of that section and whose income can be caught by the proceeding under that section.

Summary: It is not possible to hold that all such persons who evaded payment of income tax and do not truly disclose all particulars or material facts necessary for their assessment and against whom a, report is made under sub section (4) of section 5 of the impugned 449 Act by themselves form a class distinct from those who evade payment of income tax and come within the ambit of section 34 of the Indian Income tax Act.

Summary: Both section 34 of the Indian Income tax Act, 1.922, and subsection (4) of section 5 of the Taxation on Income (Investigation Commission) Act, 1947, deal with all persons who have similar characteristics and similar properties, the common characteristics being that they are persons who have not truly disclosed their income and have evaded payment of taxation on income.

Summary: The procedure prescribed by the Taxation on Income (Investigation Commission) Act, 1947, is substantially more prejudicial and more drastic to the assessee than the procedure under the Indian Income tax Act (XI of 1922).

Summary: Held, therefore that sub section (4) of section 5 and the procedure prescribed by the impugned Act in so far as it affects the persons proceeded against under that sub section being a piece of discriminatory legislation offends against the provisions of article 14 of the Constitution and is thus void and unenforceable.


Appeal No. 1604 of 1967.

From the judgment and order dated the 8th February, 1967 of Le Delhi High Court in Civil Writ No. 531 D of 1964.

P.P. Rao and R. N. Sachthey, for the appellants.

G.P. Pai, P. C. Bhartari and O. C. Mathur, for respondents nos.

1 & 2.

The Judgment of the Court was delivered by SARKARIA J.

Whether the Federation of Indian Chambers of Commerce and Industry, New Delhi (Respondent 1) is a "commercial establishment" within the meaning of s.2(5) of the Delhi Shops ,and Establishments Act, 1954 (for short the Act) is the sale question that falls for determination in this appeal by certificate directed against the judgment dated February 8, 1967 of the High Court of Delhi.

The facts bearing on this question may now be stated: Respondent 1 (hereinafter referred to as the Federation) is a Company registered under section 26 of the Indian Companies Act, 1913.

The primary objects of the Federation as given in the Memorandum of Association are "(a) To promote Indian business in matters of inland and foreign trade, transport, industry and manufactures, finance and all other economic subjects and to encourage Indian banking, shipping and insurance.

(b) To encourage friendly feeling end unanimity among business community and association on all subjects connected with the common good of Indian business.

(c) To secure organised action on all subjects mentioned above.

(d) To collect and disseminate statistical and other information and to make effort for the spread of commercial and economic knowledge.

(e) To take all steps by lawful means which may be necessary for promoting supporting or opposing legislation or other action affecting the aforesaid economic interests and in general to take the initiative to assist and promote trade commerce and industry.

(f)To provide for arbitration in respect of disputes arising, in the course of trade, industry or transport or other business matters, and to secure the services 350 of expert technical and other men to that end if necessary or desirable.

(g) To conduct, undertake the conduct of and participate in national and international exhibitions.

(h) To set up museums or show rooms, to exhibit the products of India and other countries and to participate in such activities.

(1) To secure the interests and well being of the Indian business communities abroad.

(k) To attain those advantages by united action which each member may not be able to accomplish in its separate capacity.

(m) To help in the Organisation of Chambers of Commerce or Commercial Associations in different commercial centres of the country.

(n) (O) (p) (q) (r) (s) (t) (u) (v) (x) (y) To sell or dispose of the undertaking of the Federation or any part thereof for such consideration as the Federation may think fit and in particular for shares, debentures, or securities of any other association or company having objects altogether or in similar to those of the Federation.

(z) To take or otherwise acquire and hold shares in any other association or company having objects altogether or in part similar to those of the Federation.

(zl) To establish a Trust or Trusts and/or appoint Trustees thereof from time to time and vest the funds or the surplus income or any property of the Federation in the Trustees who shall hold and deal with the funds, surplus income or property in such manner as the Committee may decide.

(z2) 351 (z3)To draw, make, accept, discount, execute and issue bills of exchange, promissory notes, bills of lading, warrants, debentures and other negotible instruments or securities.

(z4) (4) The income and property of the Federation, whencesoever derived, shall be applied solely towards the promotion of the objects of the Federation as set forth in the Memorandum of Association; and no portion thereof shall be paid or transferred directly or indirectly, by way of dividend, bonus, or otherwise by way of profit to the members of the Federation.

The Articles of Association inter alia provide that a Chamber or an Association can become an ordinary member of the Federation on payment of annual subscription of Rs. 1,000,/ or such higher amount as may from time to time be fixed by the Federation in addition to the admission fee of Rs. 5001 .

The scales of subscription on the basis of turnover, deposits or premia for associate members have also been prescribed.

The Chief Inspector of Shops and Establishments, Delhi (Appellant 2 herein) called upon the Federation to register its establishment 'he under the Act The Federation failed to comply with the direction and contended that it was not an "establishment" as defined in section 2(9) of the Act.

This contention did not find favour with the Chief Inspector who, in consequence, made a complaint under the Act for prosecution of the Secretary of the Federation (Respondent 2 herein) under the appropriate penal provisions of the Act in the Court of the Magistrate.

1st Class, Parliament Street, New Delhi.

The Federation then moved the High Court under Article 226 of the Constitution for bringing up and quashing the order, dated February 4, 1964 passed by the Chief Inspector (Appellant 2).

They further prayed for a writ of Prohibition directing the Magistrate not to proceed with the complaint.

Before the High Court, the contention of the Federation was that the premises in which the registered office of the Federation is located is not a "commercial establishment" within the meaning of section 2(5) of the Act which, in consequence had no application.

From the side of the present appellant, at first a half hearted attempt was made to show that the Federation is carrying on a profession as it is "tendering advice to all businessmen and traders".

This contention was negatived in these terms : " . that contention overlooks the fact that the advice in question is not tendered for any consideration.

It is done in the interest of trade and business of the country.

The 1st petitioner is not tendering any advice or giving any assistance to any trader in particular.

It deals with the trade or busi ness in general to secure the interest of the country.

it is predominantly a charitable organization and not a professional one.

" 352 It was then contended that the activities of the Federation carried on in the premises in question amounted to "work in connection with, or incidental or ancillary" to trade or business in general within the latter part of the definition of "commercial establishment".

This contention was also rejected with the observation that since the earlier part of the definition refers to "some particular business or trade carried on in a premises" the words "any work in connection with or incidental or necessary thereto" obviously refer to such particular business or trade and not to trade or business in general '.

In the result, it was held that the premises of the Federation were not a commercial establish ment, and the writ petition was allowed.

A certificate, however, was granted under Article 133(1) (c) of the Constitution that the case was fit for appeal to this Court.

Hence this appeal.

Before dealing with the contentions canvassed before us, it will be useful to notice briefly, the scheme and the relevant provisions of the Act.

The title of the Act is Delhi Shops and Establishments Act, 1954.

The main object of the Act as stated in its preamble is "regulation of hours of work, payment of wages, leave, holiday, terms of service and other conditions of work of persons employed in shop, commercial establishment, establishments for, public entertainment or amusement and other establishments and to provide for certain matters connected therewith." Section 1(4) indicates its extent and application.

It shall apply in the first instance.

only to the municipal areas, notified areas of Delhi and New, Delhi etc., but Government may by notification extend or apply it to shops and establishments in the other local area or areas.

The definitions of "commercial establishment", "establishment" and "shop" given in sub sections (5), (9) and (27) of section 2 are material for our purpose.

They read "Commercial establishment" means any premises wherein any trade, business or profession or any work in connection with, or incidental or ancillary thereto is carried on and includes a society registered under the , and charitable or other trust, whether registered or not, which carries on any business, trade or profession or work in connection with or incidental or ancillary thereto, ' journalistic and printing establishments, quarries and mines not governed by the , educational or other Institutions run for private gain and premises in which business of banking, insurance, stocks and shares, brokerage or produce exchange is, carried on, but does not include a shop or a factory registered under the , or theaters, cinemas, restaurants, eating houses residential hotels, clubs or other places of public amusement or entertainment.

" "Establishment" means a shop, a commercial establishment, residential hotel, restaurant, eating house, theatre or other places of public amusement or entertainment to which this Act applies and includes such other establishment as Government may by notification in the Official Gazette, 35 3 declare to be an establishment for the purposes of the Act.

" " Shop" means any premises where goods are sold, either by retail or wholesale Or where services are rendered to customers, and includes an office, a stoic room, godown, warehouse or workhouse, or work place, whether in the same premises or otherwise, used in or in connection with such trade or business but does not include a factory or commercial establishment.

" It will be seen that while the definition of "establishment" includes, a 'shop ' and 'commercial establishment, the definitions of 'shop ' and commercial establishment ' are mutually exclusive.

Further, the definition of "commercial establishment" is wider than that of "shop".

A place in order to fall within the definition of "commercial Establishment" must in the first instance be "premises".

Secondly, it should be premises wherein (a) any trade, business or profession is carried on, or (b) any work in connection with or incidental or ancillary thereto is carried on.

Sub clause (b) is only ancillary to (a).

There is no, doubt that the registered office of the Federation is premises.

The controversy centres round the questions whether the activity of the Federation carried on in these premises is a "trade, business or profession" within the meaning of pari (a) of the definition.

This question is not res integra.

It came up for consideration before this Court in Management of the Federation of Indian Chambers of Commerce and Industry vs Their workman, Shri R. K. Mittal.(1) After considering its Memorandum of Association, Articles of Association and other material, which was more or less the same, as in the present case, it was held by this Court that the activity of this Federation is in the nature of a business or trade.

Mr. Rao, learned Counsel for the appellants strongly relies on the aforesaid decision.

Mr. Pai, learned Counsel for the Federation has firstly raised a preliminary objection that before the High Court, at no stage, it was urged on behalf of the Appellants that the activity of the Federation carried on in the premises was a business or trade.

It is added that a half hearted argument was adVanced that its activity was a 'profession ' and that, too, was soon given UP In these circumstances, it is submitted, the appellants should not be allowed to commit a volte face and take up in this Court a stand which was either not taken or was given no in the High Court.

In the alternative, learned Counsel contends that even if this plea is allowed to be raised, then also the primary activity of the Federation cannot, by any stretch of reasoning, be called a 'trade, business of profession within the definition of "commercial establishment" given in the Act.

According to Counsel, the activity of the Federation is one of general utility; the only source of its income is from subscriptions.

The occasional exhibitions or , museums organised by it are activities which are only incidental or ancillary to the primary charitable object of the Federation.

No divi (1) [1972] 2 S.C.R. 353.

354 dends are declared, no profits are shared or divided among the Individual members, and no goods are sold or exchanged.

in support of his contentions, learned Counsel has referred to Commissioner of Income tax vs Andhra Chamber of Commerce.

(,) Mr. Pai further maintains that the ratio in R. K. Mittal 's case (supra) is not applicable to the instant case because the definition of " 'industry" in section 2(j) of the is far wider than that of "commercial establishment" in section 2(5) of the Act.

Mr. Pai further doubts the correctness of the decision in R. K. Mittal 's case (supra) inasmuch as it holds that the activity of the Federation partakes the character of trade or business.

This finding, it is urged, is based on a misapprehension of facts and requires reconsideration.

It is pointed out that it was wrongly assumed in Mittal 's case (supra) that the Federation, was systematically assisting not only its members but also other business men and industrialists even if they were not its members.

The fact of the matter is that the Respondent is a Federation of Federations and not an association of any individual traders, industrialists or businessmen.

As regards the preliminary objection, it is true that before the High Court, it was not argued that the activity of the Federation amounts to the carrying on of any business or trade in the premises in question.

All that was attempted to argue there was, that its activity amounted to a 'profession '.

Alternatively, it was contended that the case fell within part (b) of the definition of "commercial establishment" inasmuch as its activities were connected with trade and business, generally.

We do not think it proper to shut out the contentions now raised before us about the activity of the Federation being a trade or business, merely on the ground, that the point was not properly put before the High Court.

This point will not require any additional material for its decision.

The question is only of drawing a correct inference 'about the point in issue from the material already on record.

We, therefore, overrule the preliminary objection.

This takes us to the merits of the case.

In R. K. Mittal 's case, this Court was considering the activity of this Federation in the context of 'industry ' as defined in s.2(j) of the .

That definition reads: " "Industry" means any business, trade, undertaking, manufacture or calling of employers and includes any calling, service, employment, handicraft or industrial occupa tion or evocation of workmen.

" It will be seen that "any business, trade" is an element common to the definitions of "commercial establishment" and "industry" given in the respective statutes.

That was why the question, whether the ,activity of the Federation is a business or trade activity, was directly (1) ; 355 and substantially in issue in R. K. Mittal 's case.

therein, the Memorandum of Association, Articles of Association and the other material placed before the court were closely examined.

The entire case law was surveyed.

The contentions now canvassed were also raised and considered in that case.

Jagnmohan Reddy J. speaking for the Court,.

posed the question for decision thus : "In our view the linch pin of the definition of 'industry ' is to ascertain the systematic activity which the organization is discharging namely, whether it partakes the nature of a business or trade; or is an undertaking or manufacture or calling of employers".

(emphasis added) The answer given to this question has been correctly summed up, in the head note of the Report, as under: "The above being the position in law the were fact that the appellant Federation had charitable aims and objects would not take it out of the definition of industry.

An examination of the activities of the Federation showed that the Federation carried on systematic activities to assist its members and other businessmen and industrialists and even to non members as for instance in giving them the right to subscribe to their bulletin; in taking up their cases and solving their difficulties and in obtaining concessions and facilities from them from the Government.

These activities were business activities and material services rendered to businessmen, traders and industrialists who are members of the constituents of the Federation.

There could be no doubt that the Federation was an industry within the meaning of s.2(j) of the Act." (The crucial words are those that have been underlined).

The case under the Income tax Act wherein the main object of the organization was charitable, were also considered and found of little assistance.

It was observed that: "the object of an Organisation may be charitable but nevertheless its activity may be commercial so as to satisfy the definition of an industry as explained and illustrated by this Court particularly in Safdarjang Hospital 's case.(1) We could therefore envisage an institution having its aims and objects charitable and yet its activities could bring it within the definition of industry".

The above observations were made in the context of the definition of industry ' but they are equally applicable in the present case.

The very definition of "commercial establishment" indicates that the activity of a registered society, charitable or other trust will not take it out of the definition if the activity carried on by it amounts to a busi (1)[1971] 1, S.C.R. 177.

356 ness, trade or profession or any work in connection therewith or incidental thereto.

No doubt, the effective membership as distinguished from Honorary membership of the Federation is open only to Chambers of Commerce or Commercial Associations of requisite strength and standing, but the fact remains that it carries on systematic activities not only to assist its members but also other traders or businessmen members of the constituents of the Federation.

It has set up Tribunals for arbitration in disputes arising between individual traders or business concerns in the course of trade, industry or other business matters.

It takes up with the concerned authorities the specific difficulties experienced by the trade in the day today business and endeavours to attain for the traders and industrialists those material advantages by unified action which they may not be able to achieve in their individual capacity.

It helps businessmen and industrialists by securing for them the services of expert technical men (vide clauses (f) and (k) of the Memorandum of Association).

It undertakes regular publication of periodicals, bulletins, Reviews etc.

for the benefit of businessmen, big or small and whether or not they are members of the Federation.

These publications are available on payment of subscription or price even to individual businessmen or traders who are not members of the Federation.

All these are business activities are carried on systematically.

We therefore do not think that R. K. Mittal 's case (supra) was incorrectly decided and needs reconsideration.

It is true that in R. K. Mittal 's case (supra) it was held that these activities of the Federation are also in the nature of material services within the wider definition of 'industry '.

Though the rendering or services is not specifically mentioned as an element of the definition of "commercial establishment", yet this very element appears in the definition of 'shop ' in section 2(27) of the Act.

Any premises where services are rendered to customers fall within the definition of a "shop".

These services are material services.

For the application of the Act to the Federation, it is immaterial whether its activities bring its premises within the ambit of a "shop" or a "commercial establishment '.

It is well settled that a systematic activity can be a business activity even if no dividends are declared or profits shared.

In the matter.

of Incorporated Council of Law Reporting for England and Wales, (1) the Queens Bench was considering the interpretation of the expression "trade or business" in section 11 of the English Customs and Inland Revenue Act 1885 with reference to the activity of the Incorporated Council of Law Reporting for England and Wales.

The association was established for the objects of preparing and publishing under gratuitous professional control, reports of judicial decisions; of issuing digests and other publications relating to legal subjects.

In carrying them out the association employed editors, reporters, printers, and publishers and supplied its publications to subscribers and others for payment.

It was condended that the activity of the Association was not "a business or trade" because by the Memorandum of Associ (1) 357 ation all the property and income of the association were applicable solely to the promotion of the above objects, and no part thereof could be paid as dividend or otherwise, to any member.

Holding that the association was established for a "trade or business", Lord Coleridge C. J. repelled the contention in these terms: "Though it may be true that in the great majority of cases the carrying on of a trade does, in fact, include the idea of profit, yet the definition of the mere word 'trade ' does not necessarily mean something by which a profit is made.

But putting aside the question whether they carry on a trade, how can it be denied that the Council carry on a business? They are incorporated; they have a secretary; they employ editors, reporters, and printers; they print books, they sell those books, they do all that is ordinarily done in carrying on the business of a bookseller.

" The above observations apply mutatis mutandis to the activity of the Federation.

It will bear repetition that the Federation also publishes periodicals, bulletins etc.

and issues the same to member free of this Court in R. K. Mittal 's case (supra) we would hold that the commercial or industrial exhibitions, runs museums and makes profits.

Of course, that profit is ploughed back for the purposes of the Federation as set out in its Memorandum of Association, and is not distributed among its members.

But that does not alter the 'fact that its activity is a trading or business activity.

For all the foregoing reasons, particularly in view of the decision of this Court in R. K. Mittals case, (supra) we would hold that the pre premises of the Federation are a "commercial establishment" within the meaning of section 2(5) of the Act.

In the result we allow this appeal, set aside the judgment of the High Court and dismiss the writ petition.

In the circumstances of the case we make no order as to costs.

V.P.S. Appeal allowed.

Summary: The respondent was required by the Chief Inspector of Shops and Establishments to register its establishment ' under the Delhi Shops and Establishments Act, 1954.

Summary: The respondent contended that it was not an 'establishment ' which is defined in section 2(9) as meaning 'a shop or a commercial estab lishment ' and did not comply with the direction.

Summary: Proceedings for prosecution of its Secretary were instituted, where upon the respondent filed a petition in the High Court for quashing the order of the appellant and for directing the Magistrate not to proceed with the complaint.

Summary: Before the High Court the appellant contended that the respondent was a 'commercial establishment ' because, the activity of the respondent amounted to a 'Profession ', and alternatively, that the case fell within the latter part of the definition of 'commercial establishment ' in section 2(5), inasmuch as its activities were connected with trade and business generally, but, it was not urged that the activity of the respondent amounted to carrying on any 'business or trade ' in its premises.

Summary: The writ petition was allowed by the High Court, holding that premises of the respondent were not a 'commercial establishment '.

Summary: In appeal to this Court it was contended that the activities of the respondent amounted to a 'trade or business ', that therefore it was a 'commercial establishment ' and that the matter was covered by Management of the Federation of Indian Chambers of Commerce and Industry vs Sri R. K. Mittal [1972] 2 S.C.R. 353.

Summary: Allowing the appeal.

Summary: HELD : (1) It is not proper to shut out the contentions of the appellant now raised about the activity of the respondent being a 'trade or business ' merely on the ground that the point was not properly put before the High Court.

Summary: The question is only one of drawing a correct inference about the point in issue from the material already on record and will not require any additional material for decision.

Summary: [354E F] (2)A place, in order to fall within the definition of 'commercial establishment ' must, in the first instance, be 'premises '.

Summary: and secondly, should be premises wherein, (a) any trade, business or profession is carried on, or (b) any work in connection with or incidental or ancillary thereto is carried on.

Summary: [353C D] (3) The registered office of the respondent is 'premises '.

Summary: [353D] (4) All the activities of the respondent are business activities and are carried on systematically.

Summary: Though the profit made by it is ploughed back for its purposes as set out in its Memorandum of Association and is not distributed among its members.

Summary: Therefore, the decision in Mittal 's case [1972] 2 S.C.R. 353 that the activity of the respondent is in the nature of 'business or trade ' is correct and that case does not require reconsideration.

Summary: [356A E. 357D E] (5)A systematic activity can be a business activity even if no dividends are declared or profits shared.

Summary: [356F G] In the matter of Incorporated Council of Law Reporting for England and Wales , applied.

Summary: (6)The premises of the respondent, therefore, are a 'commercial establishment.

Summary: [357E] 349 (7)For the application of the Act to the respondent it is immaterial whether its activities bring its premises within the ambit of a 'shop ' or 'commercial establishment, within the meaning of the Act.

Summary: In Mittal 's case it was held that the activities of the respondent are also in the nature of material services within the wider definition of 'industry ' and, any premises where services are rendered to customers fall within the definition of a 'shop.

Summary: [356E F]