COMMISSIONER OF INCOME-TAX, BOMBAY v. The Provident

interview our Solicitor Mr. Tanubhai had with your Mr. Wadia, we beg to record that it is now being agreed upon as follows in modification of arrangement previously made between yourselves and ourselves : (1) In our letters of offer which have been accepted by you, it was arranged the managing agency will he to our to us or transferred either nominees. Now, instead of doing so by you, you as the present managing agents will give their (sic) resig- -4 \ nation, so that at the time of delivery of the shares and payment of moneys, your managing agency will have come to an end. In view of the above, it is not neces sary to obtain any sanction of general meeting. • 1957 The Commissionn of Income-to:r, Bomb41 v. Thi Provid•nl Inv1Stment Co., Lid. S.K.DasJ. S.C.R. SUPREME COURT REPORTS 1145 (2) 1. Mr. Sriyans Prasad Jain 2. Mr. Jaidayal Dalmia 3. Mr. Shanti Prasad Jain and 4. Mr. Vishnu Hari Dalmia will be appointed Directors of both the Mills Compa nies and thereafter all the present directors will tender their resignation. that you have (3) Qualification shares in the names of the above proposed Directors will be transferred by you and the balance of the shares will be delivered to us along with the transfer deeds duly signed against payment. (4) You may communicate by a circular to the the managing shareholders agency. You may further mention in the circular that in accordance with the offer we are prepared to take up_ the deferred shares held by the shareholders which may be offered to us at the rate of Rs. 25 and Rs. 7-8-0 of Madhowji Dharamsi Manufacturing Co. Ltd. and Sir Shapurji Broacha Mills Ltd. Mills respectively within two months of the date of letter of offer which we would also send." resigned .I the office of the value of The assessee company accepted the modified arrange the Dalmia Company, and on ment suggested by to the October 19, 1946, the assessee company wrote the Shapurji Broacha Com Dharamsi Company and pany that it had decided to resign its resigna managing agency and accordingly tendered the consideration tion on that date. The balance of money was then paid to the assessee company, and the managing was not disputed agency was computed at Rs. 1 crore, nor was any dispute the managing agency was a capital asset. Out' of · the said sum of Rs. 1 crore, the Income tax Officer computed the capital gains at Rs. 81,81,900 thereon. and asked the assessee company to pay The- Appellate Assistant Commissioner held the managing agency and assessee company had sold that sale the profits or gains arising from therefore were capital gains within the meaning of s. 12B of the Act. The Income-tax Appellate Tribun~l, Bombay Bench 'A', held, however, that there was no sale of the the original contract of managing agency, because t'hat 7-8! S. C. India/59 1957 Thi Commissioner of lru:omt.frix, Bombay v. TM Pr(lvident I.vestment Co., Lid. S. K. Das]. 1146 SUPREME COURT REPORTS [1957] purchase was varied by the new contract embodied in the letter of October 7, 1946. The Tribunal, however, held as follows : the owner of "The assessee company was shares and the managing agencies. to the Dalmia Co. and handed back agencies back, managing agencies." It sold the shares the managing the managed companies. This handing in our opinion, constitutes a transfer of On that footing the Tribunal held that s. 12B of the Act applied. On an application by the assessee com pany, the Tribunal on being satisfied that a question of law did arise out of its order, referred the question which we have already set out in an earlier paragraph of this judgment, to the High Court of Bombay. The in the negative on High Court answered the question the ground that there was neither a sale nor a transfer the meaning of s. 12B of the Act. the managing agency within The point for our consideration is whether the High Court has correctly answered the question. We must first read sub-s. (I) of s. 12B of the Act as it stood at the material time. The sub-section, relevant for our purpose, was in these terms : far as "The tax shall be payable by an assessee under in respect of any profits or the head 'Capital gains' gains arising from the sale, exchange or transfer of a capital asset effected . after the 31st day of March 1946; and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange or transfer took place." It is worthy of note that 'capital gains' were charged for the first time by the Income-tax and Excess Profits Tax (Amendment) Act, 1947, which inserted s. 12B in It taxed 'capital gains' arising after March the Act. levy was virtually abolished by the 31. 1946, and Indian Finance Act, 1949, which confined the operation of the section to 'capital gains' arising before April I, 1948. The Finance (No. 3) Act, 1956 (Act 77 of 1956) re-introduced the section in wider terms so as to bring 'any profits or gains :irising from within 'capital gains' transfer of a relinquishment or the sale, exchange, · , 1957 The Commissioner of /ncom1-tax1 B~mbl!JI Y. Tht ProvidenJ Investment Co., Ltd. S. K. D<U]. S.C.R. SUPREME COURT REPORTS 1147 I before in 1946, resulted capital gains within is whether in capital gains within capital asset effected after March 31, 1956, etc. We are not, however, concerned with the question whether the transaction under our consideration, which meaning of s. 12B as it stands after the enactment of the Finance (No. 3) Act, 1956 (Act 77 of 1956). The transaction under question before us consideration resulted meaning of s. 12B as it originally stood. Two other points must be stated at us. is no question here of the outset in order to clear the ground for a consideration of The first relevant arguments advanced the assessee point is that there company trying to circumvent the provisions of s. 12B of the Act by deliberately modifying the original agree ment (by its letter dated October 7, 1946) so as to put the scope of that section. The the transaction outside agreement was modified in October, 1946, before even s. 12B in the Act. Therefore, no question of deliberate or · fraudulent evasion arises this case. The second point is that in construing fiscal statutes and in determining the liability of a subject to tax, one must have regard to the strict letter of the true legal position arising out of Jaw and in question. The Bombay High Court has transaction referred to a large number of English decisions on this point. We consider it unnecessary decisions in the present case. The point was considered very recently by this Court in A. V. Fernandez v. The State of Kerala ( 1 ), where the following observations made are very pertinent : insertion of to examine "If the Revenue satisfies the Court that the case the provisions of the law, the sub falls strictly within If, on the other hand, the case ject can , be taxed. not covered within the four corners of the provisions imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter. We must of necessity, therefore, have regard to the actual provisions of the Act and the rules made thereunder before we can come taxing statute, no tax can be (1) [1957] S.C.R. 837. ,. 1957 The Commiulonn of lncomt--taJt, Bomb41 Y. The Prouidttd lnwstment Co., Ltd. S. K. Das]. 1148 SUPREME COURT REPORTS [1957] to the conclusion that assessment as contended Those observations were sales tax but are equally our consideration. appellant was liable by the Sales Tax authorities." made in a case dealing with applicable the case under '( Two conditions must be fulfilled before the transac tion under our consideration can come within purview of s. 12B of the Act. The first condition that the profits or gains must arise the sale, exchange or transfer of a capital asset ; and the second condition is that the sale, exchange or transfer must be effected after March 31, 1946. There is no doubt that the transaction before us was effected after March that the managing 31, 1946. There is also no dispute agency of the two mills which the assessee company held · was a capital asset. Therefore, the question bails down to this-did the profits or gains, namely, sum of Rs. 1 crore which was computed as the value of the managing agency, arise from the sale or transfer of the managing agency? The Income-tax authorities held that there was a sale of the managing agency ; but the Appellate Tribunal held that there was no sale in the strict sense but only a transfer of the managing agency is, the the Shapurji Broacha Com Dharamsi Company and pany. The High Court held that there was neither a letter of October 7, sale nor a transfer, because 1946, substituted a different contract for the original into by the parties, and the true legal contract entered position with regard to the substituted contract was resigned the managing agency, or, in other words, the managing agency was relinquished by the assessee company. the managed companies, company assessee The learned Solicitor-General, who has appeared for the appellant, has contested the correctness of the view of the Bombay High Court and has submitted a two fold argument before us. His first argument there was a concluded contract of sale as a result of the letters, dated September .14, 1946, and September 30, 1946, exchanged between the parties, and the sale having taken place, the letter of October 7, 1946, which merely changed the mode of petformance of ' ... 1957 TM Commissionw of ln&0"'4-t0Jt, Bomb41 v. Thi Provident Investment Co., Ltd. S.K. Das]. - S.C.R. SUPREME COURT REPORTS 1149 In law, the assessee company accepted the managing agency, the property contract, did not affect the true legal character of the transaction which was a sale of the managing agency. We are unable to accept this argument. The true legal letters dated September 14, 1946, and effect of September 30, 1946, which contained an offer and an acceptance, was merely the Dalmia Company this : offered to purchase ( 1) certain shares in the two mills and (2) the managing agency, on payment of a certain consideration, and offer. this was merely an agreement to sell and purchase the shares together with the managing agency on payment of the consideration, etc. The two letters did not by themselves amount to a sale of the the sense of a shares or transfer of them. Before any such sale could take place, the agreement was modified by the letter of October 7, 1946, and instead of "selling" the managing agency the assessee company agreed resign or relinquish the managing agency. We unable to agree with learned Solicitor-General that the ·letter of October 7, 1946, merely changed the mode of performance, and did not constitute a new contract. the Bombay High Court correctly held that whereas under the original contract the Dalmia_ Company wanted the managing agency to be transferred, which meant that it wanted the benefit of that contract to be vested in it and was also prepared to accept the burden of the obligations that went with that contract, under Dalmia Company did not want the managing agency to be assigned to it; on assessee company relinquish managing agency of the two mills by resigning. On a letter of October 7, 1946, substituted a new contract, a contract of relinquish ment rather managing agency was concerned. the contrary, it wanted than a contract of sale, so far as In our opinion, interpretation, substituted contract, rights · The second argument of the learned Solicitor-General is that there was one indivisible consideration for the whole transaction, including the sale of the shares and of the managing agencv. So far as the shares were entire concerned, take place and the sale did 1957 The Commiuitmer of Income-tax, Bombay v. Tht Prouident lnV1stm~11t Co., Lt1. S. Ir. Das]. 1150 SUPREME COURT REPORTS [1957] indivisible, there was consideration was paid; therefore a sale within the meaning of s. 12B of the Act, and consideration being· one and transac tion did result in capital gains within the meaning of that section. At the first blush, the argument has an apparent merit of plausibility, though it was not urged before the Bombay High Court in the manner in which it has been urged before us. On a closer scrutiny, is not however, it appears learned Solicitor-General. The really available parties and Appellate Tribunal, proceeded on the footing that part of the consideration, namely, the sum of Rs. 1 crore, was the consideration for the sale or relinquishment of the managing agency, the Department contending that the transaction was a sale or transfer and the assessee sale nor a company contending that it was neither a transfer but a mere agreed statement of the case, it was stated : the Income-tax authorities, including that this argument relinquishment. to us In 1s no dispute on "The value of the managing agencies was puted ~y the assessee company at R;. 1 crore this point. The Income-tax Officer thereupon computed capital gain at Rs. 81,81,900 and again there is no dispute on this point. The ques tion which the Tribunal had to cletermine was whether the transactions between the Dalmia Company and the assessee gain of Rs. 81,81,900." resulted m company capital a between the dispute agencies, and It is obvious that the entire assessment proceedings proceeded on the basis that the sum of Rs. 1 crore was the consideration for the sale or relinquishment of the managing parties was whether the transaction with regard to the a managing agencies, in its true legal character, was sale or transfer or relinquishment. That being learned Solicitor position, it is not now open to the General appearing for the Revenue agreed statement of the case and to ask us to give an answer to the question of law raised in the case on in a different set of circum different assumptions or stances. The answer must be given on the basis of to go behind S.C.R. SUPREME COURT REPORTS 1151 the facts and circumstances as statement of the case. stated the agreed 1957 The Commissioner of Income-tax, Bombay v. The Provident Investment Co., Ltd. S. K,Das]. 1957 May 16. We are of opinion that the answer was correctly given by the High Court of Bombay. The transaction legal character was a relinquishment of the in its· true managing agency and was neither a sale nor a transfer thereof. Therefore, the High Court correctly answered the question in the negative. In .the result, the appeal fails and is dismissed with costs. Appeal dismissed. F. N. ROY 'V. COLLECTOR OF CUSTOMS, CALCUTT A. (S. R.- DAS c. J., JAFER IMAM, s. K. DAS, GovrNDA MENON and A. K. SARKAR JJ.) ·sea Customs-Import without licence-Confiscation of goods Validity of Order-Discretion of Customs-authorities-Validity of Enactment-Sea Customs Act, 1878 (Vlll of 1878), ss. 167(8), 183- Imports and Exports (Control) Act .. 1947 (XVIII of 1947), s. 3(1) (2)-Constitution of India, Art. 14. thousand "Whenever confiscation rupees. By s. 183 of imported into India contrary Section 167, item 8, of the Sea Customs Act, 1878, provides that if any goods the importation of which is for the time being prohibited or restricted by or under Ch. IV of the Act, which Chapter includes s. 19, be to such prohibition or restriction, such goods shall be liable to confiscation and any person concerned in such importation shall be liable to a· the value of the goods or not penalty not exceeding three times exceeding one this Act . it is provided: officer adjudging it shall give the owner of the goods an option to the officer thinks fit". The pay in lieu of confiscation such fines as Imports and Exports (Control) Act, 1947, by s. 3(1) empowers the Central Government by an order to make provision for prohibit ing, export, carriage coast-wise . or shipment as ships' stores of goods of any specified description. Sub-section (2) of that section provides to which any order under sub-s. ( 1) applies, shall be all . goods deemed to be goods of which import or export has been prohibited or restricted under s. 19 0£ the Sea Customs Act, 1878, and all the provisions of that Act shall have effect accordingly, is authorised by this Act, restricting, or . otherwise controlling, import, .-