# Commi'ssWner of Income Tax, Bombay v. Finlay Mills Ltd. Kania.C. /

- **Citation:** [1952] 1 S.C.R. 18
- **Court:** Supreme Court of India
- **Decided:** 1951-08-20
- **Case number:** Criminal Appeals Nos. 45 to 49 of 1951
- **Bench:** HARILAL KANIA c. J, Mehr Chand Mahajan, Chandrasekhaaa Aiyar Jj
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commi-sswner-of-income-tax-bombay-v-finlay-mills-ltd-kania-c-231
- **Pages:** 10

## Headnote

19
Preventive Detention Act (IV of 1950), s. 3(1)-Preveniive detention for black-marketing-Order based on past activities-Validity
-Power of Court to consider sufficiency of grounds-Effect of establishment of Advisory Boards under Preventive Detention (Amending)
/let, 1951.
An order of detention
to prevent black-marketing cannot be
held to be illegal merely because in the grounds for such deten·
tion the detaining authority has referred only to the past activities of the person
detained, inasmuch as
instances of past activities may give rise to a subjective mental conviction that it is
necessary to detain such person to prevent him from indulging in
black-marketing in the future.
Under the . Preventive Detention Act,
1950, the test as to
whether an order of detention should be made is the subjective
•atisfaction of the detaining authority; the Court has no power
to consider whether the grounds supplied by the authority are
rufficient to give rise to such satisfaction. The establishment of
the Advisory Board by the Amending Act of 1951 has not made
the matter a justiciable one, and even after the Amending Act
the Court has no power to c<lnsider whether the grounds supplied
are sufficient for making an order of detention.
CRIMINAL
APPELLATE
JURISDICTION :
Criminal
Appeals Nos. 45 to 49 of 1951.
Appeals from the judgments and orders dated 20th
August, 1951, of the High Court of Judicature at
Simla
(Bhandari and Soni JJ.)
in Criminal Writ
Cases Nos. 46 to 50 of 1951.
Jai Gopal Sethi (R. L. Kohli and Sri Ramkumar,
with him) for the appellants in Cr. Appeals Nos.- 45
and 49.
1951
Bhim Sen
v.
! he State of
Punjab.
..
1951
Rhim Sen
v.
The State of
Punjab.
Kania C. /.
20
SUPREME COURT REPORTS
[1952]
N. C. Chatterjee (Hardayal Hardy and R. L. Kohli,
with him) for the appellant in Cr. Appeal No. 46.
Hardyal Hardy for the appellant in Cr. Appeal No. 48.
S. M. Sikri, Advocate-General of the Punjab (N. S.
Doabia, with him) for the respondent in all the appeals.
M. C. Setalvad, Attorney-General for India ( G. N.
Joshi, with him) for the Intervener in Cr. Appeal
No. 45.
1951. October 4. The Judgment of the Court was
delivered by
KANIA C. }.-These are five companion appeals from
the judgments of the High Court of East Punjab and
the principal point argued before us is as to the legality of the detention of the appellants under the
Preventive Detention Act on the ground that they are
4
engaged in black-marketing in cotton piecegoods.
~
The Jullundur Wholesale Cloth Syndicate was formed to work out the distribution of cloth under the
Government of Punjab Control (Cloth) Order passed
under
the
Essential
Supplies Act.
Certain persons
who held licences as wholesale dealers in cloth formed
themselves into a corporation and all cloth controlled
by the Government was distributed in the district to
the retail quota holders through them.
The Government allotted quotas to the retailers and orders were
issued by the Government for giving each retailer
certain bales under the distribution control.
If some
of the retail licence holders did not take delivery of
the quotas allotted to them under the Notification of
the 4th of October, 1950, issued by the Government of
India, Department of Industries and Supplies, it was,
inter alia, provided that the wholesale syndicate may
give the bales not so lifted to another retail dealer. It
may be noted that all along the price for the cloth to
be sold wholesale and retail had been fixed under
Government orders. The Synilicate was suspected to
be dealing in black market and had been warned
against its activities by
the
District
Magistrate
of
Jullundur
several times.
On the 7th of June,
1951,
•
S.C.R.
SUPREME COURT REPORTS
21
an order was issued by the District Organiser, Civil
Supplies and Rationing, Jullundur, to the managing
agents of the wholesale cloth corporation, Jullundur
City ,intimating that they were strictly forbidden to
dispose of any unlifted stock against unexpired terms
without "his prior permission in

## Text

1951
Commi'ssWner of
Income Tax,
Bombay
v.
Finlay Mills
Ltd.
Kania.C. /.
1951
Oct. 4
18
SUPREME COURT REPORTS
[1952]
expenditure. It was first held by him that the payment in question was of a capital nature and of the
same character as premium paid on the grant of a, lease
and was therefore
necessarily of a capital
nature.
Having come to that conclusion, he only rejected the
contention that because the premium was paid in more
instalments than one it lost its character of a capital
expenditure. In our opinion, this is an entirely different thing from stating that the 'fact of the advantage being for a limited time altered the character of
the payment in any way.
As observed by Viscount
Cave L. C. the question is always one of fact depending on the circumstances of e~h case 'individually .
•
In our opinion, the decision of
the High Court reported in Commissioner of Income-tax, Bombay v. The
Century
Spinning and Weaving and Manufacturing
Co. Ltd.(') is correct and in the present case also the
contention of the appellant
must fail.
The appeal
therefore fails and is dismissed with costs.
Appeal dismissed.
Agent for the appellant : P. A. Mehta.
Agent for the respondent : R. A. Govind.
(1) [1947] 15 I.T.R. 105.
BHIM SEN for R. S. MALIK MATHRA DAS
v.
THE STATE OF PUNJAB
UNION OF INDIA-Intervener.
PREM NATH for CH. HARBANS LAL
fl.
THE STATE OF PUNJAB
BHIM SEN for RA TT AN CHAND
fl.
THE STATE OF PUNJAB
..
S.C.R.
SUPREME COURT REPORTS
CH. HANS RAJ for KANWAR KISHORE
ti.
THE STATE OF PUNJAB
ATMA SINGH for SHANTI SAROOP
ti.
THE STATE OF PUNJAB
[HARILAL KANIA c. J., MEHR CHAND MAHAJAN
AND CHANDRASEKHAAA AIYAR JJ.J
19
Preventive Detention Act (IV of 1950), s. 3(1)-Preveniive detention for black-marketing-Order based on past activities-Validity
-Power of Court to consider sufficiency of grounds-Effect of establishment of Advisory Boards under Preventive Detention (Amending)
/let, 1951.
An order of detention
to prevent black-marketing cannot be
held to be illegal merely because in the grounds for such deten·
tion the detaining authority has referred only to the past activities of the person
detained, inasmuch as
instances of past activities may give rise to a subjective mental conviction that it is
necessary to detain such person to prevent him from indulging in
black-marketing in the future.
Under the . Preventive Detention Act,
1950, the test as to
whether an order of detention should be made is the subjective
•atisfaction of the detaining authority; the Court has no power
to consider whether the grounds supplied by the authority are
rufficient to give rise to such satisfaction. The establishment of
the Advisory Board by the Amending Act of 1951 has not made
the matter a justiciable one, and even after the Amending Act
the Court has no power to c<lnsider whether the grounds supplied
are sufficient for making an order of detention.
CRIMINAL
APPELLATE
JURISDICTION :
Criminal
Appeals Nos. 45 to 49 of 1951.
Appeals from the judgments and orders dated 20th
August, 1951, of the High Court of Judicature at
Simla
(Bhandari and Soni JJ.)
in Criminal Writ
Cases Nos. 46 to 50 of 1951.
Jai Gopal Sethi (R. L. Kohli and Sri Ramkumar,
with him) for the appellants in Cr. Appeals Nos.- 45
and 49.
1951
Bhim Sen
v.
! he State of
Punjab.
..
1951
Rhim Sen
v.
The State of
Punjab.
Kania C. /.
20
SUPREME COURT REPORTS
[1952]
N. C. Chatterjee (Hardayal Hardy and R. L. Kohli,
with him) for the appellant in Cr. Appeal No. 46.
Hardyal Hardy for the appellant in Cr. Appeal No. 48.
S. M. Sikri, Advocate-General of the Punjab (N. S.
Doabia, with him) for the respondent in all the appeals.
M. C. Setalvad, Attorney-General for India ( G. N.
Joshi, with him) for the Intervener in Cr. Appeal
No. 45.
1951. October 4. The Judgment of the Court was
delivered by
KANIA C. }.-These are five companion appeals from
the judgments of the High Court of East Punjab and
the principal point argued before us is as to the legality of the detention of the appellants under the
Preventive Detention Act on the ground that they are
4
engaged in black-marketing in cotton piecegoods.
~
The Jullundur Wholesale Cloth Syndicate was formed to work out the distribution of cloth under the
Government of Punjab Control (Cloth) Order passed
under
the
Essential
Supplies Act.
Certain persons
who held licences as wholesale dealers in cloth formed
themselves into a corporation and all cloth controlled
by the Government was distributed in the district to
the retail quota holders through them.
The Government allotted quotas to the retailers and orders were
issued by the Government for giving each retailer
certain bales under the distribution control.
If some
of the retail licence holders did not take delivery of
the quotas allotted to them under the Notification of
the 4th of October, 1950, issued by the Government of
India, Department of Industries and Supplies, it was,
inter alia, provided that the wholesale syndicate may
give the bales not so lifted to another retail dealer. It
may be noted that all along the price for the cloth to
be sold wholesale and retail had been fixed under
Government orders. The Synilicate was suspected to
be dealing in black market and had been warned
against its activities by
the
District
Magistrate
of
Jullundur
several times.
On the 7th of June,
1951,
•
S.C.R.
SUPREME COURT REPORTS
21
an order was issued by the District Organiser, Civil
Supplies and Rationing, Jullundur, to the managing
agents of the wholesale cloth corporation, Jullundur
City ,intimating that they were strictly forbidden to
dispose of any unlifted stock against unexpired terms
without "his prior permission in writing. They were
further directed that thenceforth no such stock would
be allowed •to be sold to an individual retailer, but
permission would be granted to sell the same to associations of retailers only. It was stated that this letter
was not in accordance with clause 5 of the Notification
of the Government of India dated tile 4th October,
1950, which authorized the wholesale syndicate to be
at liberty to sell unlifted cloth to any other retailer or
an association of retail dealers of the same district. It ·
may be further noted that the Cotton Cloth Control
Order was in operation even prior to 1950. · For some
time control on the distribution of cloth was lifted but
the price remained under the control of· the Government. During that time it has beeen alleged that the
appellants and several others sold cloth at rates higher
than those fixed by the Government. Even when the.
distribution and price were both controlled, the manufacturing mills were allowed to sell at prices fixed by ..
the Government a certain percentage of cloth which
was not taken by the Government under its control.
This was described as free sale cloth and it was alleged
that the appellants and several others were doing
black-marketing in this free sale cloth.
·
By ari order passed by the District Magistrate on
19th June, 1951, he directed that the appellants be
detained under section 3 (2) of the Preventive Detention· Act to prevent them from acting in a manner·
prejudicial to the maintenance of supplies of cloth,
essential to the community. On the 2nd July, 1951,
the District Magistrate, Jullundur, directed that the
appellants be committed to District Jail, J ullundur
• from the 2nd July until the 1st October, 1951.
Th~
appellantswere detained accordingly. The grounds
for their detention were given to them on the morning
of the 6th July. The grounds set out the activiti~s of
1951
BhimBen
v.
The State of
Punjab.
J(ania O. J.
•
1951
Bhim Sen
v.
The State of
Punjab.
Kania C. /.
22
SUPREME COURT REPORTS
[1952]
the appellants
as
managing agents or partners in
different firms
or employees of the said firms or
corporations. It was
~tated that they had been disposing of most of the stocks of cloth received for the
Jullundur District in the black market at exhorbitant
rates
from
June, 1949, to October, 1950, during the
period when control on distribution was removed and
that even after the re-imposition of that control in
October, 1950, they disposed of cloth which has been
frozen under the directions of Director of Civil Supplies
in the short interval between the passing of the order
and its service on them.
The second ground was in
respect of their individual activities a• members of the
firm in which they were partners in disposing of stocks
of cloth in black market at rates higher than the controlled ones, to various dealers, through agents. The
particulars
were
specified
in
Appendix
'A'. They
refer to the free sale cloth. In the third ground it was
alleged that by illegal means they deprived the rightful claimants of the various stocks of cloth with a view
to pass the same into black market at exhorbitant
rates. We do not think it necessary to go into greater
details of these grounds or refer to the other grounds.
On the 9th of July, 1951, petitions under article 226
of the Constitution of India were filed in the East
Punjab High Court asking for writs of habeas corpus
against the State on the ground that the detention of
the appellants under the Preventive
Detention
Act
was illegal. The District Magistrate filed his affidavit
in
reply
challenging
the
allegation of mala fides
and
setting out
in some
detail
instances
o~ the
activities of the appellants and contended that on the
reports received by him he was satisfied that the
detention of the appellants was necessary.
Early
rn
August, 1951,
the executive authorities cancelled
the
licence of the appellants as cloth dealers. The High
Court dismissed the petitions and the petitioners have
come on appeal to us.
Section 3 of the Preventive Detention Act, 1950, provides that the Central Government or the State Government may, if satisfied with respect to any person that
I
..
S.C.R.
SUPREME COURT REPORTS
23
with a view to preventing him from acting in any
manner prejudicial to the maintenance of supplies and
services essential to the community it is necessary so
to do,
make an order directing
that such person be
detained. The power to act in accordance with the
terms of this provision was given by section 3 (2) to a
District
Magistrate. Such
Magistrate
however
was
reqllired to make a report to the State Government to
which he was subordinate about the order and also to
send the grounds on which the order had been made
and such other particulars as, in his opinion, had a
bearing on the necessity of the order.
It is not disputed that an order under section 3 (2)
of the Preventive Detention Act to prevent black~mar
keting can be passed by . the District Magistrate. On
behalf of the appellants it is contended that in the
grounds for their. detention reference is made to their
activities prior to June, 1951, only.
This cannot be
considered objectionable because having regard to those
activities it is alleged that the
satisfaction
required
tinder the section had arisen. It was next argued that
such loophole as existed in the total control' of distribution and sale and price of piecegods in the district
was sealed by the order of the District Organiser dated
the 7th June, 1951. By virtue of that order the syndieate or corporation could not sell any cloth without an
express order in writing from
the District Organiser,
and therefore there could be no black-marketing after
that date by any of the appellants and the order was
therefore unjustified. It was next contended that in
any event now as their licences are cancelled they cannot deal in cloth and the order of detention now maintained against them is more in the nature of punishment than prevention. It was argued that orders under
the Preventive Detention Act were for the purpose of
preventing a person from acting in future in the objectionable way contemplated by the Act and it was
beyond the scope of the Act to pass orders in respect
of their alleged activities anterior to June, 1951.
In our opinion the High Court approached the matter
t]Uite correctly.
Instances of past activities are relevant
1951
Bhim Sen
v;
The Sute of
Punjab. ·
Kania C. /.
1951
Rhim Sen
v.
Th< State of
Punjab.
Kania C . .J.
24
SUPREME COURT REPORTS
[1952]
to be considered in giving rise to the subjective mental
conviction of the District Magistrate that the appellants
were likely to indulge in objectionable activities. The
grounds which were given for the detention are relevant
and the question whether they are sufficient or not is
not for the decision of the Court. The Legislature has
made only the subjective satisfaction of the authority
making the order essential for passing the order. The
contention that because in the · Amending Act of 1951
an Advisory Board is constituted, which can supervise
and
override
the
decision taken
by
the
executive
author1ty,
and
therefore
the
question whether the
grounds are sufficient to give rise to the satisfaction
has become a justiciable issue in Court, is clearly unsound. The satisfaction for making the initial order is
and has always been under the Preventive Detention
Act, that of the authority making the order. Because
the Amending Act of 1951
establishes
a
supervisory
authority, that discretion and subjective test Is not
taken away and by the establishment of the Advisory
Board, in our opinion, the Court is not given the
jurisdiction to decide whether the subjective decision
of the authority making the order was right or not.
Proceeding on the footing, therefore, that the jurisdiction
to
decide
whether the
appellants
should
be
detained under the Preventive Detention Act on the
grounds conveyed to the appellants is of· the District
Magistrate.
In the present cases, two arguments were
advanced on behalf of the appellants. It was strenuously urged that by reason of the order of the District
Organiser of the 7th June, 1951, the only loophole which
remained in the scheme of distribution and sale of
cloth under control of the Government was sealed and
it was impossible after that order to do any black"
marketing by any of the appellants.
We are unable
to accept this contention. In the first place, this order
appears to be an administrative order and is in the
nature of a warning.
It is at variance
with the provisions of clause 5 of the Order of the Central Government of the 4th October, 1950. Moreover this order
does not bring about the result claimed for it. A lot
j
~ .
S.C.R.
SUPREME COURT REPORTS
25
of doth which the manufacturers are permitted to
distribute
through
persons
outside
the
Government
agencies can still be secured and sold at exhorbitant
rates, 1.e., at rates
higher than
those
fixed
by the
Government.
The second argument was that as the
licences of the appellants are now cancelled they cannot
. deal in textile cloth at all and therefore there can be
no apprehension of their indulging in black market
activities.
We are unable to accept this argument also
because it is common knowledge that licences can be
obtained in the name of nominees. Again while these
people may not have their licences in Jullundur District
they may have or may obtain licences in other districts.
From the fact that their licences have been cancelled
a month after the order of detention was passed we
are unable to hold that it is impossible on that ground
for the appellants to indulge in black market activities.
In this connection an extract from the further affidavit
of the District Magistrate of
Jullundur dated . 1st
August, 1951, rnay be usefully noticed. He stated :
"There have been orders for the release of certain
stocks of cloth in respect of other mills, as free sale
cloth after the 9th June, 1951. Any quantity of doth
not paid for and lifted by the owners' nominees will
revert to the Mills for free sale : vide letter No. CYC-21
SLM, dated the 31st M·ay, 1951, from the Textile
Cornmissionet, Bombay, to all selected Mills in Bombay
and Ahmedabad. This doth can be purchased by any
wholesale dealer of cloth of India, without any restriction. Not only this, free sale cloth can be transported
from one district to another without a permit: vide
Memo N0. 28894 CS (C) 50/48791, dated 2nd January,
19'51, frorn
the Joint Director, Givil
Supplies, and
tJnder~Secretary to Government Punjab to the District
Organiser,
Civil Supplies
and
Rationing,
Ludhiana.
Again free sale cloth is also procurable from individual
firms who conspired to make profit by black-marketing. The only 'information which is supplied by a purchaser of wholesale cloth to the District Magistrate is
as to what quantity of such cloth has been imported
1951
Bhim Sen
v.
The State of
Punjab.
Kania C. J •
1951
Bhim Sen
v.
The State of
Puniab.
Kania C. ].
26
SUPREME COURT REPORTS
[1952]
into the district. According to the report of the District
Organiser no such cloth was imported into Jullundur
by the corporation but there are reasons to believe that
the Corporation had been making their purchases in
free sale cloth from the Mills and using those bales to
make up the deficiency in the bales of quota cloth of
superior quality which they used to dispose of in the
black market in collusfon with the Mills. BeS\ides, the
firm Rattan Chand Mathra Dass, as would be evident
from the attached lists signed by the District Organiser,
had been dealing in free sale cloth and had also been
importing cloth as Reserve of Kangra and also Provincial Reserve.
Most of this quota also found its way
into the black market.
Similarly the firm
Madan
Gopal Nand Lall and Company had been dealing in
free sale cloth on a large scale. It would be evident
from 'the attached list. Santi S3)cup, the Secretary of
the Corporation, is believed to be a partner in the firm
Hari Chand Bindra Ban and this firm also had been
dealing in free sale cloth. The free sale
cloth acquired
by them used to be invariably sold in the black market
as reported by the District Organiser in his Memo No.
6306/6734-M/CT /Do. 7
dated
1st
August,
1950,
in
reply to my Memo. No. nil dated 30th July, 1951. There
is absolutely no bar for the wholesale cloth corporation,
Jullundur, to its getting free sale cloth from the Mills
or other wholesale dealers nor is there any bar for the
firms
Rattan Chand Mathra Dass and Madan Gopal
Nand Lal and Co. to the acquiring of free sale cloth."
It was next argued on behalf of the appellants that
the only order of detention made against them was the
order of the 2nd July and that did not refer to any
section of the Preventive Detention Act and did not
.suggest that there was any satisfaction of the detaining authority. It was argued that no order of the 19th
of June was ever shown to any of the appellants or
served
on
them and therefore their detention was
illegal. It should be pointed out that these contentions
are raised in the affidavits not of the detained persons,
but of their relations. Their affidavits do not show
that they have any personal knowledge. The affidavits
.)
)
I
S.C.R.
SUPREME COURT REPORTS
27
on this point are based only on their belief and information and the source of the information is not even
disclosed. As against this, there is the affidavh of the
District Magistrate
which · expressly
states
that
the
terms of the Order of the 19th of June were fully explained to each of the detenus. The petitions for the
writs of habeas corpus were filed within a week after
the service of the detention order and we do not think
there is any reason to doubt the correctness of the
statements of the District Magistrate. In our opinion
this ground of attack on the order of . detention has no
substance and the detention cannot be held illegal on
that ground.
The judgment of the High Court was
attacked on these grounds and as we are unable to
accept any of these contentions the appeals must fail.
One of the appellants is the secretary of one corporation and another is a salesman and clerk in one of
the firms. On thei,r behalf it was argued that they could
not indulge in black market activities. We are unable
to accept this contention in view of what is stated in
the affidavits of the District Magistrate.
It is there
pointed out that in addition to bring a secretary or a
clerk and in those capacities acuvely participating in
the
black market activities of their principals, they
were themselves indulging in black market activities
i.n cloth.
If these and other facts in respect of the
appellants are disputed the matter will be considered
by the Advisory Board. The question of the truth of
those statements however is not within the jurisdiction of this Court to decide. As all the grounds urged
against the judgment of the High Court fail, all the
five appeals are dismissed.
Appeals dismissed.
Agent for the appellants in all the appeals : R. S.
Narula.
Agent for the respondent and Intervener : P. A.
Mehta.
1951
Bhim Sen
v.
The State of
Punjab.
Kania C. /.