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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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