Full Judgment Text
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PETITIONER:
CENTRAL COAL FIELDS LTD. ETC.
Vs.
RESPONDENT:
BHUBANESWAR SINGH & ORS.
DATE OF JUDGMENT23/08/1984
BENCH:
MISRA RANGNATH
BENCH:
MISRA RANGNATH
BHAGWATI, P.N.
SEN, AMARENDRA NATH (J)
CITATION:
1984 AIR 1733 1985 SCR (1) 618
1984 SCC (4) 429 1984 SCALE (2)299
CITATOR INFO :
RF 1986 SC2123 (5)
ACT:
Coking Coal Mines (Nationalisation) Act, 1971-Section
21 (2)-Whether value of stock of coking coal on April 30,
1972 should be taking into account for determining amount
payable to owner under s. 21 (2) Held: yes.
HEADNOTE:
The management of a coal mine owned by Respondent No.
1, a partnership firm, was taken over by the Central
Government with effect from October 17, 1971 under the
Coking Coal Mines (Emergency Provisions) Ordnance of 1971
which was later replaced by a statue. On the passing of the
Coking Coal Mines (Nationalisation) Act, 1971 (
Nationalisation Act’ for short) the right, title and
interest of the owner in the mine extinguished and became
vested in the Central Government with effect from May
1,1972. Section 21 (2) of the Nationlisation Act provided
that in addition to the sum referred to in sub-s. (1), the
Central Government shall pay such amount as may become due
to the owner of a coking coal mine--in relation to the
period during which the management of the coking coal mine-
remained vested in the Central Government. In a writ
petition filed before the High Court it was claimed by the
owner that while determining the amount payable to it or
recoverable from it in respect of the period when the mine
was under the management of the Custodian, credit for the
value of the stock of coking coal on April 30, 1972 shown in
the account books should have been given to it. The High
Court accepted the claim of the owner. The appellants (The
Government Companies) obtained special leave to appeal
against the decision of the High Court.
Dismissing the appeals,
^
HELD: The stock of coal had to be taken into account
for balancing the position.[624H]
The Nationalisation Act which contemplated the books of
account for the period from October 17, 1971 to April 30,
1972 to be closed and a statement of account as on April 30,
1972 to be prepared with a view to find out whether the
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Government Company which was in management for the relevant
period on behalf of the owner was to pay anything to the
owner or the Government
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Company having spent for the owner was entitled to recover
any sum from the owner, also contemplated preparation of a
balance-sheet on that date. In the absence of any particular
prescribed mode in the Act or the Coking Coal Mines
(Statement of Account) Rules, 1972 made thereunder, the
accounts and the balance-sheet had to be prepared according
to the normal commercial practice, which necessarily
required stock-in-trade to be reflected. [624D-E]
Under the Income-tax Act profits have to be ascertained
for the purposes of computing tax liability. For computing
true profits the value of the stock-in trade must be taken
into account. [624D]
Commissioner of Income-tax, Madras v. A. Krishnaswami
Mudaliar & Ors. 53 I.T.R. 122 at 130, referred to.
In the instant case, the appellants accepted the
position that if the extracted coal had been sold before the
appointed day, the owner would have been entitled to the
price. The mere fact that the extracted coal remained in
stock at the commencement of the appointed date can make no
difference to the position. [624F-G]
Statement 8 in the prescribed statutory form clearly
indicates that the stock as on April 30, 1972, had to be
taken into amount.
JUDGMENT:
CIVIL APPELLATE JURISDICTION. Civil Appeal Nos.
3374-75 of 1984
Appeals by Special leave from the Judgment and Order
dated the 14th. April, 1983 of the Patna High Court in
C.W.J.C. No. 1072 of 1982 (R).
L.N. Sinha, A. Sachthey and R.N. Sachthey for the
Appellant in C.A. 3374/84.
L.N. Sinha, S.C. Malik and M.L. Verma for the Appellant
in C.A. 3375/84.
D. Goburdhan for Respondent in C.A. 3374/84.
Shanti Bhushan, D.N. Goburdhan and D. Goburdhan for
Respondent in CA. No.3374/84.
The Judgment of the Court was delivered by
RANGANATH MISRA, J. Special leave granted.
Respondent No. 1, a partnership firm, held a coking
coal mine known as Tariya Colliery within the State of Bihar
the management
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where of was taken over under the Coking Coal Mines
(Emergency Provisions) Ordinance of 1971 with effect from
October 17,1971, along with several other coking coal mines
and some coke oven plants. The ordinance was in due course
replaced by a statute bearing the same title (hereinafter
referred to as the ’Management Act’). Then came the Coking
Coal Mines (Nationalisation) Act, 1971 (’Nationalisation
Act’ for short) which received Presidential assent on August
17, 1982, but under section 1, sub-section (2) there of, the
statute was deemed to have come into force with effect from
May 1, 1972. Under s. 3; sub-s. (a) of the Nationalisation
Act, May, 1, 1972 was the appointed day. Under the
provisions of the Ordinance followed by the Management Act,
ownership of the mines was not disturbed but management was
taken over. Under the Nationalisation Act, the right, title
and interest of the owner in the mines extinguished and
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became vested in the Central Government with effect from May
1,1972. Under the Management Act, the Custodian carried on
the management on behalf of the owner while under the
Nationalisation Act ownership was abolished and payment of a
sum to the owner by way of compensation was contemplated. So
far as the period between October 17, 1971 and April 30,
1972 when title in the colliery continued to vest in the
owner but only management had been taken over under the
provisions of the first statute, was concerned, the business
was run by the Custodian on account of the owner. Therefore,
the Nationalisation Act provided that upon accounts being
taken, either the owner was to be paid the surplus or if
there had been excess expenditure, the same had to be
recovered from the owner.
In the instant case there was a stock of 5650 tons of
coking coal and 602 tons of soft coke when management was
taken over on October 17,1971 and on April 30, 1972 at the
end of which ownership was extinguished, there was a stock
of 30,411 tons of coking coal and 956 tons of soft coke. A
total expenditure of about eight lak rupees had been
incurred for raising the said quantity of coal during the
period of management. This stock was not taken into account
and credit for it was not given to the owner but expenses of
extraction amounting to Rs. 7,95,071.94 were raised against
the owner. The owner laid claim to a sum of Rs. 1,01,755.37
as its entitlement under the Nationalisation Act on the
ground that if credit was given to the stock in trade on the
basis of the closing balance, it would be entitled to that
amount.
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Claim having been laid for the recovery of the
aforesaid amount from the owner under the Nationalisation
Act, that amount was certified to be recoverable. The owner
Respondent No. 1 challenged the order of the statutory
authority by filing a writ petition before the Patna High
Court impleading, inter alia, the Central Coal Fields Ltd.
as also M/s. Bharat Coking Coal Ltd. two Government
companies as respondents. The High Court after hearing the
parties came to the conclusion that the owner was entitled
to credit for the coal lying in stock when the closing
balance was drawn up and accordingly directed the accounts
to be recast and payments to be made on the basis of the
recast accounts. Central Coal Fields Ltd. and M/s. Bharat
Coking Coal Ltd. moved this Court under Article 136 of the
Constitution separately for leave to appeal against the said
decision of the High Court.
We have heard parties at length and detailed written
arguments have been furnished by Mr. Lal Narain Sinha on
behalf of the two appellants. The main plank of Mr. Sinha’s
argument against the decision of the High Court is the
definition of ’mine’ contained in the two statutes.
Admittedly, the definition of ’mine’ occurring in s. 2 of
both the Acts does specifically include all coal in stock
but obviously that inclusive definition is for the purpose
of either take over of management or abolition of right,
title and interest for the purpose of nationalisation. Mr.
Shanti Bhushan appearing for the respondent 1 does not
dispute the position that the stock of coal, at the time
when the title was abolished and vesting took place, was a
part of the mine and that title in the stock got
extinguished as a result of the nationalisation and vested
in the Central Government from the appointed day. He
concedes that the High Court was wrong in taking a contrary
view.
While there is no dispute that the stock in trade at
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the commencement of the appointed day vested in the Central
Government as a result of nationalisation, the question for
examination is whether that stock was liable to be taken
into account for the purpose of determining the amount
payable to the owner in respect of the period when the mine
was under the management of the Custodian. This necessitates
reference to some of the provisions of the Nationalisation
Act and the relevant provisions are sections 4, 10, 21 and
22. Under section 4 (1), on the appointed day the right,
title and interest of the owner in relation to the
622
coking coal mines specified in the First Schedule stood
transferred to, and vested absolutely in the Central
Government free from all encumbrances. Section 10
contemplates that the owner of every coking coal mine
specified in the second column of the First Schedule, shall
be given by the Central Government in cash and in the manner
specified in s. 21, for vesting in it under s. 4, the right,
title and interest of the owner in relation to such coking
coal mine, an amount equal to the amount specified against
it in the corresponding entry in the fifth column of the
said Schedule. Section 21, to which reference has been made
in s. 10, makes provision for payment. The first two sub-
sections of this section may be extracted:
"21. (1) The Central Government shall within thirty
days from the specified date. pay, in cash to
the Commissioner, for payment to the owner of
a coking coal mine......a sum equal to the
sum specified against the coking coal
mine......in the First Schedule or the Second
Schedule together with the amount and
interest, if any, referred to in s. 12".
"21. (2) In addition to the sum referred to in sub-s.
(1), the Central Government shall pay, in
cash, to the Commissioner, such amount as may
become due to the owner of a coking coal
mine...... in relation to the period during
which the management of the coking coal
mine.....remained vested in the Central
Government."
The present dispute is within the ambit of sub-s. (2)
of s. 21. Section 22 provides the procedure for the
statement of accounts to be drawn up in regard to the period
of management Sub-s. (1), so far as relevant, runs thus:
"22. (1) The Central Government or the Government
company, (the appellants before us are
Government companies), as the case may be,
shall cause the books in relation to each
coking coal mine...... the management of
which has vested in it under the Coking Coal
Mines (Emergency Provisions)
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Act, 1971, to be closed and balanced as on
the 30th day of April, 1972, and shall cause
a statement of accounts, as on that day, to
be prepared, within such time, in such from
and in such manner as may be prescribed, in
relation to each such mine......in respect of
the transactions effected by it during the
period for which the management of such
coking coal mine.............remained vested
in it..."
(underlining ours)
In exercise of the powers conferred by clause (e) of
sub-s. 12) of s.34 of the Nationalisation Act, the Central
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Government have made a set of Rules known as the Coking Coal
Mines (Statement of Account) Rules, 1972. The Rules
prescribe the form in which the accounts are to be prepared
and reference to this form we shall presently make.
A policy decision to nationalise the coking coal
companies was taken by the Central Government and with a
view to facilitating nationalisation, the management was
first taken over under the Management Ordinance followed by
the statute with effect from October 17, 1971. This position
continued till the Nationalisation Act came into force with
effect from May 1,1972. The Nationalisation Act contemplated
two types of payments to be made to the owner-one, a sum of
money contemplated under s. 10 of the Act for the
extinguishment of title, and two-the dues, if any, payable
in respect of the period of management as contemplated under
s. 21 (2) of the Act and arrived at on the basis of accounts
prepared in the manner prescribed. The Management Act did
not contemplate any kind of curtailment of the normal
incidents of ownership except the right of management. Very
appropriately, therefore, the Nationalisation Act
contemplated the books of account to be closed and a
statement of accounts, as on April 30, 1972, to be prepared,
with a view to determining the final position for the period
of management;-payment to be made to the owner if there was
a surplus fund and recovery to be made from him in case of
shortfall.
We find force in the submission of Mr. Shanti Bhushan
that the accounting for the period between October 17, 1971
and April 30, 1972, in the absence of any particular
prescribed mode in the
624
statute or the Rules made thereunder, had to be done
according to the normal commercial practice. Since the
statute contemplated the books to be closed and balanced, a
balance sheet according to the normal commercial practice
had to be drawn up. The observations of this Court in
Commissioner of Income tax, Madras v. A. Krishna Swami
Mudaliar & Ors., are worth quoting. Shah, J. (as he then
was), spoke for the Court thus:
"But whichever method of book-keeping is adopted
in the case of a trading venture, for computing the
true profits of the year the stock-in-trade must be
taken into account. If the value of stock-in-trade is
not taken into account, in the ultimate result the
profit or loss resulting from trading is bound to get
absorbed or reflected in the stock-in-trade unless the
value of the stock-in-trade remains unchanged at the
commencement of the year and the end of the year."
Under the Income-tax Act profits have to be ascertained
for the purpose of computing tax liability. Under the
Nationalisation Act the books had to be balanced with a view
to finding out whether the Government company which was in
management for the relevant period on behalf of the owner
was to pay anything to the owner or the Government company
having spent for the owner was entitled to recover any sum
from the owner. Therefore, we accept the submission of Mr.
Shanti Bhushan that the Nationalisation Act contemplated a
balance-sheet according to the commercial procedure to be
drawn up which necessarily required stock in trade to be
reflected.
Admittedly the amount claimed from the owner represents
the cost of extraction of the coal from the mine. The
appellants had conceded before the High Court and Mr. Sinha
appearing for them before us accepted the position that if
the extracted coal had been sold before the appointed day,
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the owner would have been entitled to the price. The mere
fact that the extracted coal remained in stock at the
commencement of the appointed date can make no difference to
the position. The expenses were to be set off against the
sale price of the stock to be received at the time of
disposal. Therefore, the stock of coal had to be taken into
account for balancing the position. Reliance on the
definition of ’mine’
625
and S. 10 of the Nationalisation Act to counteract this
conclusion cannot avail the appellants. Indeed, the
submission advanced on behalf of the appellants is so much
opposed to common sense logic of the matter that in the
absence of a legislative mandate we have no hesitation in
rejecting it.
Much of the controversy could have been avoided if
reference had been made to the statutory form. Statement 8
in the prescribed form clearly indicates that the stock as
on April 30, 1972, had to be taken into account. We are
sorry to observe that the High Court omitted to make a
reference to it, and are equally sorry to note that the
Government companies have failed to do their duty as cast on
them by law and driven the owner to unnecessary litigation
In view of what we have said, there is absolutely no
substance in the stand taken by the appellants before us.
Both the appeals fail and they are dismissed with costs.
Consolidated hearing fee is assessed at Rs. 10,000.
H.S.K. Appeal Dismissed.
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