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1959 (3) TMI 60
Issues Involved:
1. Validity of proceedings under section 33B of the Income Tax Act.
2. Legality of the order passed under section 33B canceling the orders under sections 25A, 26A, and 23(3).
3. Whether the Tribunal was right in holding that the order under section 33B is only prejudicial to the Hindu undivided family and no one else.
4. Whether T. G. Sulakhe had the right to file an appeal in his individual capacity or only as the Kartha of the Hindu undivided family.
5. Whether the finding that there was no intention to partition or actual partition of the assets of the Hindu undivided family is based on mere inferences and conjectures.
Detailed Analysis:
1. Validity of Proceedings under Section 33B:
The court examined whether the proceedings initiated by the Commissioner under section 33B were valid. The contention was that the Income Tax Officer must give notice to each member of the family before making an order under section 25A. The court held that the Commissioner must give notice to all members affected by the order. It was found that no notice was served on K. G. Sulakhe or B. G. Sulakhe, and thus, the Commissioner did not fulfill the requirements of section 33B, rendering the proceedings invalid.
2. Legality of the Order Canceling Orders under Sections 25A, 26A, and 23(3):
The court noted that if the proceedings under section 33B were invalid, the order canceling the orders under sections 25A, 26A, and 23(3) would also be invalid. The Commissioner's basis for canceling the registration and renewal of the firm was found to be without proper notice to all members. The court concluded that the cancellation of the registration and renewal of the firm and the assessment for 1951-52 were invalid.
3. Prejudice to the Hindu Undivided Family:
The court found the third question to be redundant as it was covered by the first question. The court concluded that the notice served on T. G. Sulakhe was not sufficient to validate the proceedings under section 33B, thus making the order prejudicial to the Hindu undivided family.
4. Right of T. G. Sulakhe to File an Appeal:
The court held that T. G. Sulakhe had the right to file an appeal in his individual capacity as a partner of the firm. The appeal was valid whether filed in his individual capacity or as the Kartha of the Hindu undivided family. The court emphasized that the notice served on T. G. Sulakhe as a partner was valid.
5. Finding of No Intention to Partition:
The court reviewed the finding that there was no intention to partition or actual partition of the assets. It was noted that the reasons given by the Commissioner and the Tribunal were based on irrelevant considerations. The court stated that the unequal nature of the partition or the motive behind it was irrelevant as long as the partition was intended and executed. The court found no material basis to invalidate the partnership formed by the members of the erstwhile Hindu undivided family.
Conclusion:
The court answered the first two questions in the affirmative, declaring the proceedings under section 33B invalid and the subsequent orders canceling the registrations and assessments as bad in law. The court also held that T. G. Sulakhe had the right to appeal in his individual capacity. The miscellaneous reference applications were dismissed, and the reference was answered with costs to the assessee.
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1959 (3) TMI 59
Issues Involved:
1. Validity of the Orissa Municipal Elections Validation Ordinance, 1959.
2. Constitutionality of Section 4 of the Ordinance under Article 14 of the Constitution.
3. Constitutionality of Sub-section (1) of Section 5 of the Ordinance.
4. Effect of the Ordinance on the judgment in O.J.C. No. 72 of 1958.
5. Legislative power vs. judicial power in enacting the Ordinance.
6. Impact of the Legislative Assembly's refusal to introduce the Bill on the validity of the Ordinance.
Issue-Wise Detailed Analysis:
1. Validity of the Orissa Municipal Elections Validation Ordinance, 1959:
The petition challenged the Ordinance as void and inoperative in its application to Cuttack Municipality. The Ordinance was promulgated by the Governor of Orissa to validate the elections to Cuttack Municipality despite the High Court's judgment in O.J.C. No. 72 of 1958 declaring the elections invalid. The Ordinance aimed to provide immediate steps to validate the electoral rolls and elections to avoid huge expenditure and administrative problems.
2. Constitutionality of Section 4 of the Ordinance under Article 14 of the Constitution:
Section 4 of the Ordinance was argued to offend the equality clause guaranteed in Article 14 of the Constitution. It was contended that the petitioner was singled out and deprived of the fruits of his success in O.J.C. No. 72 of 1958 without any reasonable basis for such classification. The court held that the reasons provided for the classification, such as financial expenditure and administrative problems, were unsubstantial and did not justify the discriminatory treatment against the petitioner. The court emphasized that Article 14 is a command to the State to ensure equality and cannot be weakened by arbitrary classification.
3. Constitutionality of Sub-section (1) of Section 5 of the Ordinance:
Sub-section (1) of Section 5 validated "all actions taken and powers exercised" by the Councillors, Chairman, and Vice-Chairman of Cuttack Municipality prior to 15-1-1959. The court found this provision to be overly broad and inconsistent with existing laws, such as the Indian Penal Code and the Contract Act, which deal with matters in the Concurrent List. The provision was also found to arbitrarily discriminate between the Chairman, Vice-Chairman, and Councillors on one hand, and the officers and servants of the Municipality on the other, in terms of liability for actions done under the Orissa Municipal Act. Consequently, Sub-section (1) of Section 5 was held to be void.
4. Effect of the Ordinance on the judgment in O.J.C. No. 72 of 1958:
The judgment in O.J.C. No. 72 of 1958 declared the elections to Cuttack Municipality invalid due to the belated notification of the qualifying date and the abridgement of the period for filing claims and objections, which materially affected the election results. The court held that Section 4 of the Ordinance, which aimed to annul the judgment, was insufficiently drafted to achieve this purpose. It did not address the material prejudice caused by the abridgement of the period for filing claims and objections and the period for canvassing. Therefore, the judgment in O.J.C. No. 72 of 1958 remained binding between the parties.
5. Legislative power vs. judicial power in enacting the Ordinance:
The court rejected the contention that the Ordinance was a mere colorable device to set aside the judgment of the High Court and an assumption of judicial power by the Governor. It held that the constitutionality of an Ordinance must be judged based on whether it contravenes the provisions of the Constitution, not on the ground of usurpation of judicial power by the Legislature or the Governor.
6. Impact of the Legislative Assembly's refusal to introduce the Bill on the validity of the Ordinance:
The court dismissed the argument that the Legislative Assembly's refusal to grant leave for the introduction of the Orissa Municipal Election Validating Bill, 1959, was tantamount to disapproval of the Ordinance. It held that the refusal of leave for the introduction of a Bill does not equate to passing a resolution disapproving the Ordinance. The procedure for introducing a Bill is distinct from that for moving a resolution, and the refusal to grant leave for the Bill's introduction only meant that the Bill would be removed from the list of Bills for one session of the Assembly.
Conclusion:
The court declared Section 4 and Sub-section (1) of Section 5 of the Ordinance invalid. It held that Section 4 was insufficient to annul the judgment in O.J.C. No. 72 of 1958, and Sub-section (1) of Section 5 was void due to its inconsistency with existing laws and arbitrary discrimination. The court granted a permanent injunction restraining the State of Orissa and the elected Councillors from enforcing the invalidated provisions of the Ordinance.
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1959 (3) TMI 58
Issues Involved:
1. Legality of a partnership to carry on business in wagering contracts.
2. Applicability of Section 69(1) of the Partnership Act.
3. Applicability of Section 2, Rule 2 of the Code of Civil Procedure.
4. Whether the partnership was between two joint families or two managers.
5. Whether the object of the partnership was unlawful under Section 23 of the Contract Act.
6. Whether the partnership was opposed to public policy.
7. Whether the partnership was immoral.
Issue-Wise Detailed Analysis:
1. Legality of a Partnership to Carry on Business in Wagering Contracts:
The High Court held that the partnership was valid as it was between the two managers of the joint families and not the families themselves. The object of the partnership was to deal in differences, which, although void under Section 30 of the Indian Contract Act as wagers, was not unlawful under Section 23 of the said Act. The Supreme Court confirmed that a wagering contract is void but not illegal, and thus a partnership to carry on such business is not unlawful.
2. Applicability of Section 69(1) of the Partnership Act:
The High Court found that the partnership was dissolved after the season was over, and therefore, the suit for accounts of the dissolved firm was not hit by the provisions of subsections (1) and (2) of Section 69 of the Partnership Act. The Supreme Court upheld this finding, stating that Section 42 of the Partnership Act applies, which states that a firm is dissolved by the completion of its undertaking.
3. Applicability of Section 2, Rule 2 of the Code of Civil Procedure:
The learned Subordinate Judge found that the claim in respect of the transactions with Mulchand was not barred under Section 2, Rule 2 of the Code of Civil Procedure, as the cause of action did not arise at the time the earlier suit was filed. The Supreme Court did not find any reason to overturn this finding.
4. Whether the Partnership was Between Two Joint Families or Two Managers:
The High Court held that the partnership was between the two managers of the joint families and not the families themselves. The Supreme Court upheld this finding, stating that the partnership was only in respect of forward contracts with two specified individuals and for a particular season.
5. Whether the Object of the Partnership was Unlawful Under Section 23 of the Contract Act:
The Supreme Court analyzed Section 23 of the Contract Act, which states that the object of an agreement is unlawful if it is forbidden by law, immoral, or opposed to public policy. The Court concluded that a wagering contract is void but not illegal and therefore does not fall under the ambit of Section 23. Consequently, the partnership was not unlawful.
6. Whether the Partnership was Opposed to Public Policy:
The Supreme Court held that the doctrine of public policy is an illusive concept and should only be invoked in clear and incontestable cases of harm to the public. The Court found that neither the common law of England nor the Indian law recognized any principle of public policy declaring wagering contracts illegal. Therefore, the partnership was not opposed to public policy.
7. Whether the Partnership was Immoral:
The Supreme Court confined the concept of immorality under Section 23 of the Contract Act to sexual immorality, as established by precedents. The Court found no basis to extend this concept to wagering contracts. Consequently, the partnership was not considered immoral.
Conclusion:
The Supreme Court concluded that the partnership to carry on business in wagering contracts was not unlawful, opposed to public policy, or immoral under the relevant provisions of the Indian Contract Act, the Partnership Act, and the Code of Civil Procedure. The appeal was dismissed with costs.
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1959 (3) TMI 57
Issues Involved:
1. Validity of the notice issued under Section 34 of the Income-tax Act.
2. Applicability of the second proviso to Section 34(3) of the Income-tax Act.
3. Interpretation of the term "finding" in the context of Section 34(3).
4. Jurisdiction of the Appellate Assistant Commissioner of Income-tax.
5. Whether the action taken by the Income-tax Officer was "in consequence of" the finding by the Appellate Assistant Commissioner.
6. Appropriateness of relief under Article 226 of the Constitution.
Issue-wise Detailed Analysis:
1. Validity of the notice issued under Section 34 of the Income-tax Act:
The petitioner contested the notice issued under Section 34 of the Income-tax Act on January 4, 1956, arguing it was barred by time. The ordinary period for serving a notice under Section 34(I)(a) was eight years from the last day of the assessment year, making the deadline March 31, 1955. The notice was issued after this period, rendering it time-barred unless the second proviso to Section 34(3) applied.
2. Applicability of the second proviso to Section 34(3) of the Income-tax Act:
The second proviso to Section 34(3) states that the limitation period does not apply to reassessments made to give effect to any finding or direction in orders under Sections 31, 33, 33A, 33B, 66, or 66A. The opposite party argued that this proviso allowed the notice issued on January 4, 1956, to bypass the limitation period. However, the court needed to determine if this proviso was applicable to the facts of the case.
3. Interpretation of the term "finding" in the context of Section 34(3):
The court interpreted "finding" as a decision on material questions in issue, which must arise in the case and be necessary for passing the final order. The Appellate Assistant Commissioner's finding that the sum of Rs. 12,800 was not income for the assessment year 1947-48 did not necessitate a finding that it was income for the assessment year 1946-47. Thus, the remark that the sum was income for 1946-47 was not a competent finding.
4. Jurisdiction of the Appellate Assistant Commissioner of Income-tax:
The Appellate Assistant Commissioner's jurisdiction is limited to matters necessary for deciding the appeal. Any findings beyond this scope are without jurisdiction. The court concluded that the Appellate Assistant Commissioner was not competent to record a finding that the sum of Rs. 12,800 was income for the assessment year 1946-47, as it was not essential for deciding the appeal for the assessment year 1947-48.
5. Whether the action taken by the Income-tax Officer was "in consequence of" the finding by the Appellate Assistant Commissioner:
The court examined whether the notice for the assessment year 1946-47 was a direct consequence of the Appellate Assistant Commissioner's finding. The term "in consequence of" implies a direct causal connection. The court found that the Income-tax Officer's action relied on independent facts and circumstances beyond the Appellate Assistant Commissioner's finding, thus breaking the causal chain. Therefore, the notice was not a consequence of the finding.
6. Appropriateness of relief under Article 226 of the Constitution:
The court considered whether to exercise its powers under Article 226 to grant relief. Given the petitioner would face unnecessary hardship and harassment by undergoing reassessment proceedings, the court decided to grant relief. The notice dated January 4, 1956, was quashed as time-barred, and the petitioner was awarded costs.
Conclusion:
The petition was allowed, and the notice dated January 4, 1956, was quashed. The court found the notice time-barred and not covered by the second proviso to Section 34(3). The petitioner was entitled to costs of Rs. 400.
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1959 (3) TMI 56
Issues:
- Whether a certificate under article 132(1) or article 133(1)(b) or (c) of the Constitution can be granted in respect of a judgment and order of the court dated August 26, 1958, in a writ petition under article 226 of the Constitution.
- Interpretation of the expression "civil proceeding" as used in article 133 of the Constitution.
- Whether a proceeding under article 226 of the Constitution is a civil proceeding if it relates to civil rights.
- Whether the order passed by the court related to any civil right.
- Whether the proceedings for assessment of income-tax are considered civil proceedings.
- Whether the order passed by the court was an order in a civil proceeding under article 133 of the Constitution.
Analysis:
The judgment delivered by the High Court of Allahabad dealt with the issue of whether a certificate under article 132(1) or article 133(1)(b) or (c) of the Constitution could be granted in relation to a judgment and order of the court dated August 26, 1958, in a writ petition under article 226 of the Constitution. The court examined the nature of the question of law involved in the case and concluded that no substantial question of law as to the interpretation of the Constitution arose. The court held that the question of law pertained to the interpretation of the provisions of the Income-tax Act, making article 132 inapplicable to the case.
Regarding the interpretation of the expression "civil proceeding" in article 133 of the Constitution, the court referred to previous decisions of various High Courts, including its own, to determine whether a proceeding under article 226 of the Constitution could be considered a civil proceeding if it related to civil rights. The court highlighted conflicting opinions within its own decisions and cited a Full Bench decision of the Patna High Court, which opined that a proceeding under article 226 could never be categorized as a civil proceeding.
The court further analyzed whether the order passed in the present case related to any civil right. It emphasized that the order pertained to the quashing of assessment orders in proceedings for the assessment of tax, which the court deemed as revenue proceedings rather than civil proceedings. The court reasoned that the liability to income tax is not a civil right enforceable in courts of law but is created by the Income-tax Act for revenue collection purposes.
In considering whether the proceedings for assessment of income tax could be classified as civil proceedings, the court emphasized that such proceedings do not relate to civil rights but are revenue proceedings aimed at gathering revenues for the government. The court highlighted the distinction between civil and revenue proceedings, emphasizing that the liability to income tax is statutory and not a civil right.
Ultimately, the court concluded that the application for a certificate under article 133 of the Constitution was not maintainable in the present case as the order passed did not relate to any civil right. The court dismissed the application with costs, emphasizing that the proceedings for assessment of income tax did not fall under the category of civil proceedings as contemplated under article 133 of the Constitution.
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1959 (3) TMI 55
Issues:
1. Addition of sum to profits and gains of business
2. Assessment of undisclosed profits and credits in books and deposits
Analysis:
Issue 1: Addition of sum to profits and gains of business
The case involved a reference under section 66(2) of the Indian Income-tax Act regarding the addition of sums to the profits and gains of a business carried out by the assessee. The Income-tax Officer had estimated the profits of the business due to unreliable accounts maintained by the assessee. The Appellate Assistant Commissioner upheld the estimated additions made by the Income-tax Officer. The petitioner further appealed to the Income-tax Appellate Tribunal, objecting to the estimated income and additions made. The Tribunal rejected the contention that the additional sum could not be sustained as profits of the business had already been estimated. The High Court considered previous cases where it was held that if the assessee fails to provide a satisfactory explanation for cash credits or bank deposits, it can be deemed as income from an undisclosed source. The Court upheld the Tribunal's decision, concluding that the assessee failed in the reference.
Issue 2: Assessment of undisclosed profits and credits in books and deposits
The Court analyzed previous judgments to determine the treatment of undisclosed profits and credits in books and deposits. It referred to cases where the Income-tax authorities were entitled to include undisclosed profits as part of the income, even if profits from the business had already been estimated. The Court highlighted that when the assessee fails to disclose the source of cash credits or bank deposits, the Income-tax Officer can treat them as income from undisclosed sources. The principle established was that if the assessee does not provide a satisfactory explanation for cash credits or bank deposits, it can be considered income from an undisclosed source. The Court emphasized that the Income-tax Officer can rely on evidence from the books of account to conclude that the amounts represent income from an undisclosed source. In this case, the Court affirmed the Tribunal's decision to treat certain credits and bank deposits as secret profits for income-tax purposes, dismissing the possibility of double taxation.
In conclusion, the High Court answered the question referred in the affirmative, holding that the assessee must pay the costs of the Department. The judgment reaffirmed the authority of the Income-tax Officer to treat undisclosed profits and credits as income from undisclosed sources when the assessee fails to provide a satisfactory explanation.
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1959 (3) TMI 54
Issues Involved:
1. Whether the penalty of Rs. 4,760 is leviable under Section 28(1)(c) of the Indian Income-tax Act.
2. Whether penalty proceedings can be initiated in reassessment proceedings under Section 34 for concealment of income in the original return.
3. Interpretation of the terms "has failed" and "has concealed" in Section 28(1) of the Indian Income-tax Act.
4. Applicability of penalty provisions when a revised return is filed in response to a notice under Section 34.
Issue-wise Detailed Analysis:
1. Levy of Penalty under Section 28(1)(c):
The primary issue is whether the penalty of Rs. 4,760 is leviable under Section 28(1)(c) of the Indian Income-tax Act. The assessee, being the managing director of a company, received dividends which were not disclosed in the original return for the assessment year 1947-48. The Income-tax Officer reassessed the income and included the undisclosed dividends. The Tribunal rejected the assessee's explanation for non-disclosure and held that the assessee deserved to be punished under Section 28(1)(c) for concealing income or deliberately furnishing inaccurate particulars of income. The Tribunal dismissed the Department's appeal, applying the principle in the case of Mayaram Durga Prasad v. Commissioner of Income-tax [1931] 5 I.T.C. 471, and held that no penalty is leviable because there was no difference between the income as returned under Section 34 and the income as accepted by the Income-tax Officer.
2. Penalty Proceedings in Reassessment under Section 34:
The contention was whether penal action can be taken in supplementary assessment proceedings under Section 34 when the assessee admits that the original return was incorrect and files a correct return which is accepted by the income-tax authorities. The court examined the language of Section 28 and concluded that the concealment or deliberate furnishing of inaccurate particulars can take place at the time of making the original return as well as at the time of the return in compliance with the notice under Section 34. The jurisdiction to initiate penalty proceedings arises with respect to the default or contumacious conduct in the initial proceedings or in the subsequent proceedings for escaped income. The court held that there is no warrant for the contention that if in Section 34 proceedings the assessee has returned the true income which has been accepted, the income-tax authorities have no jurisdiction to issue a notice for imposition of penalty with respect to the deliberate omission made at the time of the original assessment proceedings.
3. Interpretation of "has failed" and "has concealed" in Section 28(1):
The terms "has failed" occurring in clauses (a) and (b) of Section 28(1) and "has concealed" in clause (c) being in the present perfect tense, refer to both the original and subsequent proceedings. The court held that the use of the present perfect tense in Section 28 is not warranted to exclude the original proceedings which are reopened. The words "as returned" in reference to the quantum of penalty to be imposed for defaults mentioned in clauses (b) and (c) of Section 28(1) can only mean a "return" with respect to which the omission or default has been committed. Therefore, the penalty is leviable on the amount of the tax avoided by a reference to the income returned originally and which is being reassessed on the basis of the concealed income.
4. Applicability of Penalty Provisions with Revised Return under Section 34:
The court held that the return as originally filed cannot be said to have been accepted because if accepted, it would have avoided tax. The acceptance of the revised return does not absolve the assessee of the deliberate default committed at the time of filing the first return. The court cited Commissioner of Income-tax v. Badridas Ramrai Shop [1939] 7 I.T.R. 613, and Arunachalam Chettiar v. Commissioner of Income-tax [1931] 6 I.T.C. 58, to support the view that penalty may be imposed in respect of the previous false return notwithstanding the filing of a revised return. The court concluded that the penalty is attracted notwithstanding the fact that the return has been subsequently corrected. The court also referred to the provisions of sub-section (3) of Section 34, which prescribed a period of limitation for reopening assessments in cases to which the provisions of Section 28(1)(c) apply, indicating that the penalty provisions are applicable to the original proceedings as well.
Conclusion:
The court answered the reference in the affirmative, holding that the penalty of Rs. 4,760 is leviable under Section 28(1)(c) of the Indian Income-tax Act. The court emphasized that the concealment or deliberate furnishing of inaccurate particulars can take place at the time of making the original return as well as at the time of the return in compliance with the notice under Section 34. The court held that the penalty is attracted notwithstanding the fact that the return has been subsequently corrected. The reference was answered in the affirmative with costs to the Department.
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1959 (3) TMI 53
Issues Involved:
1. Hereditary Rights of Worship
2. Validity of Trustees' Actions
3. Res Judicata and Estoppel
4. Limitation Period
5. Application of Section 23 of the Limitation Act
Detailed Analysis:
1. Hereditary Rights of Worship:
The appellants, who are members of the Waghmare family, claimed hereditary rights as worshippers in the Shree Dnyaneshwar Maharaj Sansthan, Alandi. They argued that their ancestors held these rights and managed the temple affairs, including worship. This claim was contested by the trustees, who viewed the appellants as mere servants.
In the initial suit filed in 1911, the trial court dismissed the appellants' claim of ownership, a decision upheld by the High Court in 1921. However, the High Court acknowledged that the appellants had some hereditary rights as pujaris, which could be addressed in a suit under Section 92 of the Code of Civil Procedure.
2. Validity of Trustees' Actions:
The trustees dismissed eleven Guravs in 1911 for gross misconduct and appointed new servants to perform worship duties. The appellants challenged these actions, asserting their hereditary rights. The trial court and the High Court both found that the trustees had the authority to dismiss the Guravs and appoint new servants, thereby negating the appellants' claims of hereditary rights.
3. Res Judicata and Estoppel:
The trustees argued that the appellants' claims were barred by res judicata and estoppel, given the previous litigation outcomes. Both the trial court and the High Court rejected these defenses, affirming that the appellants' claims were not precluded by prior judgments.
4. Limitation Period:
The primary issue in the Supreme Court was whether the appellants' suits were barred by limitation. The trial court ruled that Article 124 of the Limitation Act, which prescribes a twelve-year period for suits concerning hereditary offices, did not apply. Instead, the suits were governed by Article 120, which prescribes a six-year period. The High Court agreed, concluding that the cause of action arose either in September 1922, when the trustees filed a suit under Section 9 of the Specific Relief Act, or in November 1922, when the appellants were dispossessed following a decree. Consequently, the suits filed beyond the six-year period were deemed time-barred.
5. Application of Section 23 of the Limitation Act:
The appellants contended that Section 23 of the Limitation Act, which addresses continuing wrongs, should apply. They argued that the trustees' actions constituted a continuing wrong, thereby extending the limitation period. The Supreme Court rejected this argument, clarifying that Section 23 pertains to continuing wrongs, not continuing rights. The Court held that the trustees' actions in 1922 constituted a complete injury, and the subsequent dispossession did not amount to a recurring tort. Therefore, Section 23 did not apply, and the suits were barred by limitation.
Conclusion:
The Supreme Court upheld the High Court's decision that the appellants' suits were barred by limitation under Article 120 of the Limitation Act. The Court dismissed the appeals, directing each party to bear its own costs. Despite recognizing the appellants' hereditary rights, the Court concluded that the claims were filed beyond the permissible period, thereby rendering them time-barred.
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1959 (3) TMI 52
The High Court of Bombay dismissed two appeals filed by the Assistant Commissioner of Sales Tax and the Sales Tax Officer, Nagpur, as the notice issued by the Commissioner of Sales Tax was not within the required three-year period under section 11 of the Sales Tax Act. The Full Bench decision in Bisear House v. State of Bombay clarified that assessment can be made after three years, but notice cannot be issued after that period. The appeals were dismissed in accordance with this decision.
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1959 (3) TMI 51
Issues:
Interpretation of section 3A of the U.P. Sales Tax Act regarding single point taxation.
Applicability of notifications regarding sales tax on cotton cloth and yarn.
Validity of selling goods to depots under different licenses.
Tax assessment on turnover of the mill versus turnover of the depots.
Detailed Analysis:
The case involved a reference under section 11(3) of the U.P. Sales Tax Act, where the applicant, a joint stock company engaged in the business of cotton cloth and yarn, contested the tax assessment by the Sales Tax Officer. The dispute arose from the sale of goods by the mill to its retail depots, with the applicant arguing that tax should be levied based on the ex-mill price plus excise duty and sales tax. The Sales Tax Officer assessed the applicant based on the sales effected by the depots, leading to the revision and subsequent reference to the High Court (HC).
The primary issue revolved around the interpretation of section 3A of the U.P. Sales Tax Act, which provides for single point taxation. The State Government had issued a notification under this provision, declaring that sales tax on goods like cotton yarn and cloth should be paid at a single point by the manufacturer. The notification specified the conditions for tax liability, emphasizing that the tax is payable by the manufacturer when goods are manufactured in the state. This notification played a crucial role in determining the tax liability of the applicant in the present case.
Another significant aspect was the licensing requirements for purchasing controlled cotton cloth and yarn. The U.P. Controlled Cotton Cloth and Yarn Dealers' Licensing Order outlined different licenses, such as Form B for wholesale dealers directly obtaining cloth from manufacturers and Form B-1 for buying from sources other than manufacturers. The restrictions imposed under these licenses impacted the ability of the mill to sell directly to retail dealers, necessitating sales through licensed depots.
The court considered the unique circumstances of the case, where the mill, designated as an uneconomic mill, was granted concessions allowing it to operate through depots holding specific licenses. The depots were authorized to sell goods at a profit margin and charge taxes as per the original mill prices. The contention arose regarding the tax liability concerning the turnover of the mill versus the turnover of the depots, with arguments presented on behalf of both the applicant and the State.
Ultimately, the HC ruled in favor of the applicant, holding that the sales tax should be charged only on the turnover of the mill and not on the depots' turnover. The court reasoned that once the goods were transferred to the depots, the mill's function as a manufacturer ceased, and the depots operated as wholesale dealers. Additionally, the court emphasized that the depots, under their licenses, had the freedom to source goods from other mills, further supporting the decision to tax only the mill's turnover. The HC directed the Sales Tax Officer to reassess the tax liability accordingly, allowing the applicant's costs and potential refund of excess tax paid.
In conclusion, the judgment delved into the intricate interplay of tax laws, notifications, licensing requirements, and the operational dynamics of the applicant's business to resolve the dispute over tax assessment, providing clarity on the applicable tax liabilities and ensuring a fair outcome based on the legal provisions and factual circumstances presented in the case.
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1959 (3) TMI 50
Issues:
1. Interpretation of the term "manufacturer" for exemption from sales tax.
2. Determining if petitioners qualify as manufacturers under the exemption clause.
3. Application of the exemption clause to the petitioners' business model.
The High Court of Orissa heard eleven cases involving the interpretation of the term "manufacturer" for sales tax exemption. The petitioners, merchants selling gold ornaments, claimed exemption based on a government notification exempting sales by manufacturers who charge separately for gold value and manufacturing cost. The Sales Tax Officer denied the exemption, considering the petitioners as order-suppliers, not manufacturers. The petitioners supplied gold to artisans who made ornaments, then sold them. The court analyzed the definition of "manufacturer" in the context of sales tax law, emphasizing bringing raw materials into a form for sale. The Sales Tax Officer argued that artisans, not petitioners, were manufacturers. However, the court considered the intent of the exemption clause to promote the jewelry business in Orissa. The court referred to a Hosiery Act definition of "manufacturer" and concluded that petitioners, as first owners of goods made by artisans, qualified as manufacturers under the exemption clause. The court allowed the petitions, directing the revision of sales tax assessment based on the petitioners' entitlement to exemption. Costs were awarded to the petitioners, with a consolidated hearing fee specified. Judge Das concurred with the decision.
In conclusion, the Orissa High Court's judgment clarified the term "manufacturer" for sales tax exemption, emphasizing the role of bringing raw materials into a form for sale. The court considered the petitioners' business model, where artisans made ornaments supplied with gold by the petitioners. By interpreting the exemption clause's intent to promote the jewelry business and referencing a relevant definition from the Hosiery Act, the court held that the petitioners, as first owners of goods made by artisans, qualified as manufacturers. The court allowed the petitions, directing the Sales Tax Officer to revise the assessment based on the petitioners' entitlement to exemption and awarded costs to the petitioners.
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1959 (3) TMI 49
Issues:
1. Jurisdiction of Commercial Tax Officer to cancel registration certificate.
2. Interpretation of Section 7 of the Bengal Finance (Sales Tax) Act, 1941.
3. Compliance with rules and procedures for registration and cancellation.
4. Grounds for cancellation of registration certificate.
5. Failure to pursue legal remedies for challenging the cancellation.
Analysis:
1. The judgment dealt with the jurisdiction of the Commercial Tax Officer to cancel a registration certificate under the Bengal Finance (Sales Tax) Act, 1941. The petitioner argued that the Officer lacked the authority to cancel the certificate, but it was found that the Officer had been empowered by the Commissioner to do so. The petitioner's contention was that the cancellation could only be done at the dealer's request, not at the Commissioner's instance. However, the court disagreed, stating that the word "shall" in the Act denotes a compulsion, and the Commissioner is compelled to cancel the registration if a business has been discontinued, regardless of the dealer's request.
2. The interpretation of Section 7 of the Act was crucial in determining the validity of the registration cancellation. The section mandates that a dealer must be registered to carry on business and provides for the cancellation of registration if the business has been discontinued. The court emphasized that it is an administrative act to ascertain whether a business has ceased operations and that the dealer must be given an opportunity to show cause before cancellation. In this case, the facts supported the cancellation as the petitioner had indeed stopped business at the registered address.
3. The judgment highlighted the importance of compliance with rules and procedures for registration and cancellation. The prescribed forms for application and registration under the Act were discussed, emphasizing the necessity for dealers to disclose accurate information about their business, including the place of business. The court underscored that the authorities are obligated to register a dealer if the application is in order, as per the prescribed rules.
4. Grounds for cancellation of the registration certificate were thoroughly examined in the judgment. The court found that the petitioner had ceased business at the registered address, which warranted the cancellation as per the provisions of Section 7(6)(a) of the Act. The cancellation was based on factual findings from local inspections and reports indicating the discontinuation of business activities at the registered location.
5. The judgment also addressed the petitioner's failure to pursue legal remedies for challenging the cancellation. Despite having the right to seek revision under the Act, the petitioner did not pursue any legal recourse against the cancellation decision. The court noted that the petitioner neglected to exercise his alternative legal remedies, which weakened his case for challenging the cancellation. Ultimately, the application was dismissed, and the petitioner was deemed to have failed to establish grounds for interference in the cancellation of the registration certificate.
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1959 (3) TMI 48
Issues:
1. Validity of section 4 of the U.P. Sales Tax (Validation) Act, 1958.
2. Competency of the State Legislature to legislate in matters covered by Article 226 of the Constitution.
3. Interpretation of the powers of the High Court under Article 226 in relation to the Validation Act.
The judgment delivered by the High Court of Allahabad addressed an application under section 4 of the U.P. Sales Tax (Validation) Act, 1958, concerning the review of a previous order. The respondents argued that section 4 was ultra vires of the State Legislature, making the application not maintainable. The case originated from a notification issued by the Governor of Uttar Pradesh in 1956, imposing a sales tax on specified goods. Subsequently, a firm challenged the assessment order and demand notice, leading to a writ petition allowed by the Court in May 1957. In response to this, the State Legislature enacted the Validation Act in 1958. Section 4 of the Act allowed for the review of proceedings where a court had set aside an assessment due to lack of jurisdiction. The respondent firm contested the validity of section 4, claiming it impinged on the High Court's jurisdiction under Article 226 of the Constitution.
The Court analyzed the provisions of the Validation Act, particularly section 4, which mandated the reopening of proceedings and compelled the Court to reverse its earlier decision. The Court highlighted that the Legislature's power to legislate is subject to the Constitution, including Article 226. The judgment emphasized that the State Legislature cannot enact laws that directly or indirectly affect the powers conferred by Article 226 on the High Court. The Court noted that while the Legislature can legislate on sales tax matters, it cannot override constitutional provisions. The judgment also discussed the argument that the High Court must follow the law laid down by the Legislature, but it clarified that the Legislature cannot pass laws affecting the High Court's powers under Article 226.
Furthermore, the Court examined the High Court's power to review orders under Article 226 and the Civil Procedure Code. It concluded that section 4 of the Validation Act, by removing the discretion to refuse a review and mandating a specific outcome, encroached upon the High Court's powers under Article 226. The judgment highlighted that the Act's provisions conflicted with existing laws and were therefore invalid. Ultimately, the Court held that section 4 of the U.P. Sales Tax (Validation) Act, 1958, was invalid concerning the High Court's jurisdiction under Article 226, leading to the dismissal of the application for review.
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1959 (3) TMI 47
Issues Involved:
1. Unauthorized delegation of power.
2. Inconsistency with Article 14 of the Constitution.
3. Validity of the notification dated 31st March 1956.
4. Compliance with sub-section (3) of section 3A of the U.P. Sales Tax Act.
Detailed Analysis:
1. Unauthorized Delegation of Power:
The learned counsel for the petitioner argued that sub-sections (1) and (2) of section 3A of the U.P. Sales Tax Act constituted an improper delegation of authority to the State Government. The argument was that the Legislature had permitted the State Government to legislate in respect of tax and to select certain commodities for taxation, which should have been a legislative act. The court, however, was not impressed by this argument. It was held that the Legislature had laid down the policy in section 3 of the Principal Act by imposing a tax at the rate of 3 pies per rupee on every dealer's turnover. Section 3A merely authorized the State Government to select commodities for single-point taxation, with a maximum tax rate of one anna per rupee. The State Government's power was to determine under which section the tax was going to be imposed, not to legislate new taxes. The court concluded that this delegation of authority was not improper, as it was an accessory or subordinate power necessary to carry out the purpose and policy of the Sales Tax Act.
2. Inconsistency with Article 14 of the Constitution:
The petitioner contended that sub-sections (1) and (2) of section 3A were inconsistent with Article 14 of the Constitution because they allowed the State Government to select commodities for taxation without any guiding principles, leading to potential discrimination. The court referred to several Supreme Court cases, including Budhan Chowdhry v. State of Bihar and Sri Ram Krishna Dalmia v. Justice S. R. Tendolkar, to analyze the scope and implications of Article 14. The court held that the selection of commodities for single-point taxation depended on various factors and exigencies that could best be ascertained by the State Government. The court concluded that section 3A did not inherently provide for arbitrary or discriminatory treatment and was not inconsistent with Article 14.
3. Validity of the Notification Dated 31st March 1956:
The notification dated 31st March 1956, which was issued under section 3A of the U.P. Sales Tax Act, was challenged multiple times. Initially, it was held invalid by a Full Bench because it was issued before the amendment to section 3A came into operation. However, the U.P. Sales Tax (Validation) Act, 1958, was enacted to validate this and other notifications. The court held that section 3(1) of the Validation Act effectively validated the notification by introducing a legal fiction that the notification was issued under section 3A as it stood on the date of the Validation Act. The court agreed with the previous Division Bench decision in Haji Lal Mohammad Biri Works v. Sales Tax Officer, Allahabad, which upheld the validity of the Validation Act and the notification.
4. Compliance with Sub-section (3) of Section 3A of the U.P. Sales Tax Act:
The petitioner argued that the notification was not placed before the U.P. Legislative Assembly as required by sub-section (3) of section 3A. The court examined the affidavits and found that the notification, along with the U.P. Sales Tax (Amendment) Ordinance, was placed on the table of the Assembly on 2nd April 1956, although no announcement was made. A formal motion for placing the notification was made on 9th May 1956, and the Speaker confirmed that the notification had already been placed on 2nd April 1956. The court held that the requirement of placing the notification on the table was fully complied with, and the objection on this ground was rejected.
Conclusion:
The petition was dismissed with costs, and the court assessed the counsel's fee for the State at Rs. 400. The court upheld the validity of the U.P. Sales Tax (Validation) Act, 1958, and the notification dated 31st March 1956, finding no improper delegation of authority or inconsistency with Article 14 of the Constitution. The court also confirmed that the procedural requirements under sub-section (3) of section 3A were duly followed.
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1959 (3) TMI 38
Issues involved:
1. Validity of the unregistered charge under Section 125 of the Companies Act, 1956.
2. Applicability of Section 127 of the Companies Act, 1956.
3. Interpretation of the term "created" in Section 125(1) of the Companies Act, 1956.
4. Rights of the appellant as a secured creditor post-merger of Sayanas Ltd. and Messrs. Kutty and Rao Ltd.
5. Proper parties to the application before the judge.
Detailed Analysis:
1. Validity of the unregistered charge under Section 125 of the Companies Act, 1956:
The appellant claimed to be a secured creditor based on a charge created by Sayanas Ltd. However, the official liquidator refused to recognize this charge because it was not registered with the Registrar of Companies, rendering it void against the liquidator under Section 125 of the Companies Act, 1956. Section 125(1) states that any charge created by a company and not registered within 21 days of its creation is void against the liquidator and any creditor of the company. The court upheld this interpretation, stating that an unregistered charge is not void for all purposes but is void against the liquidator and creditors of the company. This principle is supported by previous judgments, such as In re Monolithic Building Co. and Aung Ban Zeya v. C.R.M.A. Chettiar Firm.
2. Applicability of Section 127 of the Companies Act, 1956:
Section 127 requires a company acquiring property subject to a charge to register the charge within 21 days after the acquisition is completed. However, unlike Section 125, it does not declare the charge void against the liquidator or creditors if not registered. The court noted that Section 127 imposes a duty on the acquiring company to register the charge, and failure to do so results in a fine but does not invalidate the charge against the liquidator or creditors of the acquiring company.
3. Interpretation of the term "created" in Section 125(1) of the Companies Act, 1956:
The court rejected the interpretation that the term "created" in Section 125(1) includes "accepted." Subrahmanyam, J., had construed "created" to include "accepted" to uphold the policy of the Act, ensuring that unregistered charges are void against the liquidator and creditors. However, the court held that such an extension is not justified, as it would conflict with the clear language of the statute. The court emphasized that statutory words should be given their plain and literal meaning unless an extension is necessary to avoid a clear conflict with the statute's intention.
4. Rights of the appellant as a secured creditor post-merger of Sayanas Ltd. and Messrs. Kutty and Rao Ltd.:
The court found that the appellant, as a creditor of Sayanas Ltd., could not rely on the unregistered charge against the creditors of Kutty and Rao Ltd. after the merger. The merger transferred the entirety of the assets and liabilities of Sayanas Ltd. to Kutty and Rao Ltd., making the appellant a creditor of the latter. Consequently, the appellant's unregistered charge was void against the liquidator and creditors of Kutty and Rao Ltd. under Section 125(1).
5. Proper parties to the application before the judge:
The court noted that other parties, such as Kalyanji N. Suchede and P.B. Raju, who had mortgages over the assets of Kutty and Rao Ltd., were not made parties to the appellant's application before Subrahmanyam, J. Although their advocates were heard on the last day of the hearing, they were not formally made parties. The court added these parties and heard their counsel in the appeal.
Conclusion:
The court dismissed the appeal, upholding the official liquidator's decision and the judgment of Subrahmanyam, J., that the appellant's claim to be recognized as a secured creditor was rightly rejected. The court emphasized the importance of adhering to the statutory requirements for registering charges and the consequences of failing to do so. The appeal was dismissed without any order as to costs.
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1959 (3) TMI 31
Whether in the facts and circumstances of this case, the applicant (the assessee) was entitled to have this dividend income grossed up under section 16(2) and claim credit for tax deducted at source under section 18(5) of the Income-tax Act ?
Held that:- The words of section 18(5) must accordingly be read in the light in which the word "shareholder" has been used in the subsequent sections, and read in that manner, the present assessee, notwithstanding the equitable right to the dividend, was not entitled to be regarded as a "shareholder" for the purpose of section 18(5) of the Act. That benefit can only go to the person who, both in law and in equity, is to be regarded as the owner of the shares and between whom and the company exists the bond of membership and ownership of a share in the share capital of the company.
In view of this, we are satisfied that the answer given by the Calcutta High Court on the question posed by the Tribunal was correct.Appeal dismissed.
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1959 (3) TMI 30
Issues Involved
1. Whether the debt of contributory No. 88 had been discharged in 1948 and if so, what is its effect?
2. Whether the contributories in this case are entitled to the benefit of section 19 of Act No. 70 of 1951?
3. Whether the contributories are not liable to pay the amount claimed against each?
4. Whether valid notice was issued to the contributories and if not, what is its effect?
5. Whether contributory No. 92 can claim set-off and if so, to what extent?
Detailed Analysis
Issue No. 1: Discharge of Debt for Contributory No. 88
This issue pertains to contributory No. 88, involving the unpaid amount of Rs. 2,75,000 on 5,500 shares. The bank had issued a notice on 19th September 1957, calling for payment by 20th October 1957. The respondents contended that they had tendered payment in 1948 through fixed deposit receipts, which were not returned by the bank. The court found that the bank had accepted the fixed deposit receipts as payment, citing exhibit C. 21, a letter from the bank's manager confirming the credit. The court dismissed the bank's objections regarding the form and completeness of the tender, emphasizing that no objections were raised at the time of tender. The court concluded that the debt of contributory No. 88 was discharged to the extent of Rs. 2,57,267-10-0.
Issue No. 2: Benefit of Section 19 of Act No. 70 of 1951
The contesting contributories claimed benefits under section 19 of the Displaced Persons (Debts Adjustment) Act, 1951. The court noted that no application under section 19 was made within the ten-year period from 15th August 1947 to 15th August 1957. The court reiterated its previous stance from Bhai Mohan Singh v. Hind Iran Bank Ltd., holding that section 19 applies only to companies that are going concerns, not those in liquidation. The court rejected the argument that the ten-year period could be extended under section 19(6), emphasizing that the provision was designed to provide relief within a fixed period.
Issue No. 3: Liability to Pay the Amount Claimed
The contributories argued that their liability was barred by limitation under article 112 of the Indian Limitation Act. The court, however, held that article 120 applied, providing a six-year limitation period for calls made by the liquidator. Citing various precedents, the court concluded that section 156 of the Indian Companies Act, 1913, imposed a new liability on shareholders in liquidation, recoverable even if the original debt was time-barred. The court held that the contributories were liable to pay the amounts claimed.
Issue No. 4: Validity of Notice Issued
This issue was not pressed by either party, and the court assumed that the notice issued to the contributories was valid and did not suffer from any infirmity.
Issue No. 5: Set-off Claim by Contributory No. 92
Contributory No. 92 claimed a set-off of Rs. 15,000 left in the bank against the call amount. The court found no evidence supporting the claim that the bank had agreed to this set-off. The court concluded that contributory No. 92 was not entitled to claim the set-off.
Conclusion
The court passed a payment order against contributory No. 88 for Rs. 17,732-6-0, considering the set-off allowed. Payment orders were also passed against all other contributories for the amounts shown in the attached list, except for those whose appeals were pending or whose cases had already been resolved.
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1959 (3) TMI 29
Issues Involved:
1. Locus standi of an unsecured creditor in a proceeding for extension of time for registration of a mortgage or charge.
2. Competency of the court to extend time for registration of a mortgage or charge under section 120 in a case falling under section 109A.
3. Validity and revocability of an order extending time for registration of a mortgage or charge.
Issue-wise Detailed Analysis:
1. Locus Standi of an Unsecured Creditor:
The primary issue was whether an unsecured creditor has the locus standi to file an application for revoking an order made under section 120 of the Indian Companies Act, 1913. The court examined the interpretation of the term "creditor" in sections 109 and 120. The appellant argued that "creditor" refers only to secured creditors, while the respondent contended it includes both secured and unsecured creditors. The court referred to English law, noting that under similar provisions, unsecured creditors neither require protection nor need to be served notice in proceedings for extension of time for registration of a mortgage or charge. The court concluded that under section 120, the court is not required to protect or serve notice upon unsecured creditors, and thus, the second subsection of section 120 is an exhaustive codification of the legal effect of an order made under the first subsection. Consequently, the respondent, being an unsecured creditor, had no locus standi in the proceeding.
2. Competency of the Court to Extend Time under Section 120 in Cases Falling under Section 109A:
The court considered whether it could extend time under section 120 for registration of a mortgage or charge in cases falling under section 109A. The court noted that section 120 authorizes extensions only for mortgages or charges not registered within the time required by section 109, which is 21 days from the creation of the mortgage. In contrast, section 109A pertains to registration within 21 days from the completion of acquisition by the company. The court found that the omission to include section 109A in section 120 was not accidental or due to inadvertence. The court rejected the argument that it should read section 109A into section 120, stating that such an action would constitute an encroachment upon the legislative domain. Thus, the court held that it is not competent to extend time under section 120 for cases falling under section 109A.
3. Validity and Revocability of the Order Extending Time:
The court addressed whether the order made by S.B. Sinha J. on April 4, 1949, extending the time for registration of a mortgage or charge, was a nullity and could be revoked. The respondent argued that the court could revoke an invalid order suo motu and that he, being affected by the order, was entitled to have it set aside. The court distinguished between orders made without jurisdiction and those made by irregular assumption of jurisdiction. It held that the order by S.B. Sinha J. was not void but merely voidable and could be revoked only at the instance of a party with an interest in the subject matter. Since the respondent had no such interest, the order could not be revoked at his instance. The court further noted that the delay in filing the application for extension and the omission to serve notice on the company were not grounds for revocation, as the company had not challenged the order, and the mortgage's validity under the Defence of India Rules should be decided in the pending mortgage suit.
Conclusion:
The court allowed the appeal, set aside the order by G.K. Mitter J., and dismissed the application filed by the respondent with costs. The court held that the respondent, being an unsecured creditor, had no locus standi to challenge the order, and the order by S.B. Sinha J. was not void but voidable, revocable only at the instance of a party with an interest in the subject matter.
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1959 (3) TMI 9
Whether on the interpretation of the sale deed it can be said that any good-will was purchased by the assessee ?
Whether in view of the said proviso to section 10(5)(a) the Income-tax Officer on the facts and circumstances arising out of this case was competent to go behind the conveyance and fix a valuation of his own in the way he has done ?"
Held that:- Question No. 1 was not allowed by us to be argued because the matter was not taken in the statement of case on behalf of the appellant and the only question which survives for consideration is the second one, i.e., No. 7, and this question, as it is or with modifications, should have been referred to the High Court.
.
We therefore direct that the question with the necessary modifications, if any, be referred and the case stated in accordance with section 66(1) of the Income-tax Act.
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1959 (3) TMI 8
Whether the computation of the loss by the assessee company at ₹ 35,801 is in accordance with law or whether the loss computed by the Income-tax Officer/Tribunal is in accordance with law ?
Held that:- The loss as calculated by the Tribunal is correct and according to law
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