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Venkatachella Chettiar And Ors. v. Sampathu Chettiar And Ors.

Madras High Court

Sep 22, 1908

Judgment

Subsequent
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Analytical Summary of the Provided Opinion

Factual and Procedural Background

The learned Judge below dismissed a suit in which the plaintiffs asserted that certain vendees under Exhibit A held property as trustees or representatives of a class. The plaintiffs relied on alleged transactions and arrangements dating back to a letting in 1860 to Rangiah and Ramaswami Chetti, and an asserted appointment of trustees in 1875. Temple records and lease documents were not produced. The defendants, in insolvency proceedings, claimed the property as their own. The plaintiffs pointed to exclusion of the property from partition, defendants' participation in temple festivals, and levied contributions from shopkeepers as indicative of a trust or of the defendants' share in income from a shop.

The learned Judge found the plaintiffs' evidence insufficient and dismissed the suit. On appeal, the plaintiffs sought to admit certain statements said to have been made by one of the defendants before an Income-tax Deputy Collector. The Deputy Collector was summoned to produce documents but, acting under instructions from the Local Government, declined to produce them. The Advocate-General advanced arguments for non-production based on provisions of the Income-tax Act and the Indian Evidence Act. The Court addressed both the substantive trust claim (upholding the dismissal) and the procedural question of the admissibility and production of income-tax documents/statements.

Legal Issues Presented

Whether the evidence established a trust or that the defendants were trustees such that the plaintiffs could enforce the trust (i.e., whether the learned Judge was right to dismiss the suit).
Whether the Income-tax Deputy Collector must produce documents and statements in his possession when summoned to Court, despite claims of statutory or evidentiary privilege (particularly under Section 38 of the Income-tax Act, Rule 15, and Sections 123 and 124 of the Indian Evidence Act).
If production is required, whether the documents/statements are admissible in evidence or may be withheld as communications made in official confidence or as matter relating to affairs of State.

Arguments of the Parties

Plaintiffs' Position (as recorded)

The plaintiffs relied on Exhibit A and alleged that the vendees were trustees or representatives of a class entitled to enforce a trust.
They sought to admit statements said to have been made by a defendant before the Income-tax Deputy Collector in support of their claim regarding the plaint property.

Advocate-General's Arguments

The Deputy Collector, under instructions from the Local Government, declined to produce documents. The Advocate-General contended that Section 38 of the Income-tax Act and Rule 15 prevent disclosure of particulars in such documents.
He argued that the documents are communications made to the Collector in official confidence and that disclosure would be prejudicial to public interests, invoking Section 124 of the Indian Evidence Act to render them inadmissible.
Before Mr. Justice Boddam he also contended that the documents related to affairs of State and were therefore inadmissible under Section 123 of the Evidence Act.
He further submitted that statements made in belief of confidentiality for income-tax purposes must be treated as made "in official confidence" and therefore should not be produced or received in evidence.

Defendants' Position (as recorded)

The defendants' counsel (Mr. V. Krishnaswami Ayyar) did not contend that the income-tax returns, statements or orders were exempt from production under Section 123 (affairs of State) of the Evidence Act.
Defendants had claimed the property as their own in insolvency proceedings; otherwise, specific defensive arguments on the privilege point were presented primarily by the Advocate-General on behalf of the Local Government.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Lee v. Birrell (1813) 3 Camp. 337	Officer bound to produce books when summoned as a witness despite statutory oath of secrecy — statute/oath did not exempt production in court.	The Court relied on this authority to support the proposition that a Collector summoned to Court must produce documents and give evidence; the decision is treated as authoritative and not dissented from in English Courts.
Reg. v. Yakatazkhan (Madras Sessions, 1863)	Compulsion of production of income-tax schedules by an officer despite objection.	Cited as a follow-up instance where an officer was compelled to produce income-tax schedules, supporting the view that statutory or official secrecy does not bar production in Court.
Jadobram Dey v. Bulloram Dey, 26 C. 281	Application of the Income-tax Act rules to compel production; Jenkins, J., followed the principle that such documents may be produced.	Followed by Jenkins, J.; cited to show judicial practice supporting production of income-tax returns in Court.
Arbuthnot's Insolvency proceedings (Subrahmania Ayyar, J.)	Compelled production of income-tax returns in insolvency proceedings.	Referred to as a recent decision where production was compelled, reinforcing the Court's reading that Income-tax Act provisions do not preclude production in Court.
In re Joseph Hargreaves (1900) 1 Ch. 347	Turned on Section 115 of the Companies Act, leaving discretion to Judge to order production of documents including balance-sheets delivered for income-tax assessment.	Distinguished: Court noted that the Companies Act gave explicit discretion which the Income-tax Act does not; thus the cases’ reasoning is considered but not directly dispositive of the present statutory scheme.

Court's Reasoning and Analysis

The Court's reasoning proceeded in two main strands: (A) the sufficiency of evidence to establish a trust, and (B) the admissibility and required production of income-tax documents/statements.

(A) On the trust claim and dismissal of the suit

The Court agreed with the learned Judge that the evidence did not show that the vendees under Exhibit A were trustees or that they purchased the property as representatives of any class.
The plaintiffs failed to produce evidence of a lease for 1860, or accounts proving payment of rent until 1875 when it was alleged trustees were appointed; the evidence of appointment in 1875 was described as unreliable.
Temple records proving a trust were not produced. Although the defendants had claimed the property in insolvency proceedings, nothing was done to enforce any alleged trust.
Circumstantial facts relied on by plaintiffs (exclusion from partition, defendants conducting festivals, levied contributions) were found insufficient: the contributors did not form a defined class, festivals were uncertain, and the contributions were not shown to be certain or ascertainable for enforcement.
On this factual record, the Court could not hold that there existed any enforceable trust or that the defendants were trustees; thus the learned Judge's dismissal of the suit was upheld.

(B) On production and admissibility of Income-tax documents/statements

The Court examined Section 162 of the Indian Evidence Act: a witness summoned to produce a document must bring it to Court notwithstanding objections to production or admissibility; the Court must decide on the validity of objections and may receive evidence and inspect documents unless they refer to matters of State.
Applying Section 162, the Court held the Deputy Collector was bound to attend with the documents. Once present, the Collector could raise objections as to production or admissibility, but the Court must determine their validity and may inspect the documents (subject to the affairs-of-State exception).
The Advocate-General relied on Section 38 of the Income-tax Act and Rule 15 (forbidding public servants from disclosing certain income-related information except for purposes of the Act) and on Section 124 of the Indian Evidence Act (no public officer shall be compelled to disclose communications made to him in official confidence when he considers disclosure prejudicial to public interest). The Advocate-General also invoked Section 123 (affairs of State) before another judge.
The Court accepted the legal principle that if a communication was in "official confidence", Section 124 leaves it to the officer to decide whether disclosure would harm public interests and thereby avoid compulsion. However, the Court emphasized that (i) it is a pre-requisite that the communication be made in official confidence, and (ii) Section 162 places on the Court the power to decide whether communications/documents are so confidential (including by inspection and receiving evidence).
The Court reviewed authorities (including Lee v. Birrell and Reg. v. Yakatazkhan) which compelled production of income-tax material when summoned, concluding that provisions of the Income-tax Act and Rule 15 were aimed at guiding income-tax officers and did not preclude production in a Court of Justice.
The Court observed that certain orders of the Collector under Sections 14 or 26 of the Income-tax Act (orders determining tax) are not privileged under Section 124 because they are not communications made to the officer; this weighs against the asserted privilege for returns or statements on which such orders are based.
Section 28 of the Income-tax Act, which allows the Collector to compel production of documents and enforce attendance of witnesses, suggested to the Court that documents produced or statements made under process of law could not be regarded as made in official confidence.
Consequently, the Court concluded that neither the provisions of the Income-tax Act nor the cited sections of the Evidence Act supported the Advocate-General's contention that the documents should be withheld. The Court accordingly called for production of the papers for inspection and admission as appropriate.
After inspecting the produced documents, the Court found they did not advance the plaintiffs' claim and were not inconsistent with the conclusions reached from the other evidence.

Holding and Implications

HOLDING: The Court dismissed the appeal and affirmed that the learned Judge was right in dismissing the suit; costs were awarded against the appellants. APPEAL DISMISSED.

Implications:

Direct effect: The plaintiffs' suit remains dismissed; the appeal failed and costs were awarded to the respondents.
On the procedure and admissibility point, the Court clarified that a Deputy Collector summoned under Section 162 of the Evidence Act must bring the documents in his possession to Court; objections to production or admissibility may be raised but the Court decides their validity and may inspect the documents unless they genuinely refer to affairs of State.
The Court held that provisions of the Income-tax Act (including Rule 15) and the general duty of official confidentiality do not, by themselves, preclude production of income-tax returns or related documents in a Court of Justice; a communications privilege under Section 124 requires that the communication was made in official confidence (a matter the Court may examine).
The decision clarifies that documents produced or statements made under the process of law are unlikely to be privileged merely because they were submitted to a tax officer, and that the Income-tax Act's procedural provisions (such as Section 28) point away from a blanket claim of privilege.
No broader new legal rule beyond these clarified applications was set out beyond the resolution of the specific privilege and evidentiary questions in this case; the immediate consequence is limited to the parties and the handling of the summoned income-tax documents in this litigation.

Show all summary ...

1. We are of opinion that the learned Judge is right in dismissing the suit. It is not shown that the vendees under Exhibit A were trustees or purchased the property as representatives of any class of persons. There is no evidence to prove the letting to Rangiah, the grandfather of defendants Nos. 1 and 2, and his brother Ramaswami Chetti, in the year 1860. There is no lease nor any accounts produced by the plaintiffs to prove any payment of rent by them till 1875 when it is alleged they were appointed trustees. The evidence of their appointment as trustees in that year is quite unreliable. The temple records have not been produced to prove any trust. In the course of the Insolvency proceedings the property was claimed by the defendants as their own and yet nothing was done to enforce the trust. It is proved on behalf of the plaintiffs that this property was excluded from partition and the defendants carried out certain festivals in this temple and certain other temples; contributions also appear to have been levied from certain shopkeepers for this purpose and it appeal's probable, therefore, that the defendants' share consisted of at any rate some portion, if not the whole, of the income derived from this shop. But the contributors are shown not to have formed a defined class, the festivals were uncertain, and the defendants' contribution is not shown to have been a certain or ascertainable amount, for enforcement of payments. On this evidence, therefore, we are unable to hold that there was any trust which could be enforced by the plaintiffs or at their instance or that the defendants are trustees. It was then argued before us that the learned Judge was wrong in declining to admit in evidence certain statements alleged to have been made by one of the defendants in respect of the plaint property during certain inquiries before the Income-tax Deputy Collector. The Deputy Collector was summoned to produce the documents in appeal, and the Advocate-General represented to us that under instructions from the Local Government the Deputy Collector declines to produce them. He contends that, under Section 38 of the Income-tax Act and Rule 15 of the rules framed by the Government of India with reference thereto, the Collector is prevented from disclosing the particulars of those documents, and that they are communications made to the Collector in official confidence the disclosure of which in his opinion would be prejudicial to public interests, and that they are therefore inadmissible under Section 124 of the Indian Evidence Act. It was also contended before Mr. Justice Boddam that they related to affairs of State and were, therefore, inadmissible under Section 123 of the Evidence Act. As the question is one of general importance and the Advocate-General desires to obtain an authoritative ruling on the point, we proceed to give our reasons for our conclusions. Section 162 of the Indian Evidence Act runs thus: "A witness summoned to produce a document shall, if it is in his possession or power, bring it to Court notwithstanding any objection which there may be to its production or to its admissibility." The words are quite clear and the Deputy Collector is bound to attend with the documents. He was, therefore, wrong in declining to bring them to Court. Having brought them to Court, he is entitled to raise his objections to their production or admissibility, and under the same section the validity of any such objection shall be decided on by the Court" and for the purpose of deciding on the validity of the reason that may be offered for withholding them, the Court may receive evidence. The returns submitted to an Income-tax Collector, any statements made before him or any orders that may be made by him do not refer to matters of State and neither the Advocate-General nor Mr. V. Krishnaswami Ayyar on behalf of the defendants has contended that they are exempt from production under the terms of Section 123 of the Indian Evidence Act. Under the same section, i.e., 162, besides taking evidence to decide the question of admissibility "the Court may also inspect the document unless it refers to matters of State," and as the documents aforesaid in the custody of the Income-tax Collector do not refer to matters of State, the Court is also entitled to inspect them. The Collector's objection to such inspection cannot be upheld. The next question is whether they are admissible in evidence. Under Section 38 of the Income-tax Act II of 1886 the Governor-General in Council may make rules for preventing any disclosure, and by Rule 15 all public servants are forbidden to make public or disclose, except for the purpose of the working of the Act, any information contained in documents produced or delivered with respect to assessments under Part IV of the second schedule of the Act, i.e., produced for the purpose of showing the income of the assessee. In an old case, Lee v. Birrell (1813) 3 Camp. 337 decided in 1813, it was held by Lord Ellenborough that, notwithstanding the oath administered under the statute to a Collector of the property tax that he will not disclose anything ho learns in that capacity except with their consent or by virtue of an Act of Parliament, he is bound when summoned as a witness to produce the books in his possession as there is no reference in the statute or the oath about evidence to be given in a Court of Justice, and give evidence of facts within his knowledge. The learned Advocate-General contended that the decision was not right, and was opposed to the statute itself--46 Geo. III, chap. 65, Schedule (F), which contained by implication a prohibition against giving evidence in a Court of Justice except in certain cases of prosecution for perjury. But the decision has not been dissented from in the English Courts, and is treated as authoritative in the text books. The same principle was followed in 1863 by Scotland, C.J., who compelled the production of income-tax schedules, though the objection was taken by the officer who appeared: Reg. v. Yakatazkhan. 2 Madras Sessions 1863, Mayne's 'Criminal Law of India,' 3rd edition, p. 91.

2. With reference to this rule itself under the Income-tax Act, Jenkins, J., took the same view following the above decisions in Jadobram Dey v. Bulloram Dey 26 C. 281 at page 284. The same conclusion was arrived at by Subrahmania Ayyar, J., in the recent Arbuthnot's Insolvency proceedings when he compelled the production of income-tax returns. The case In re Joseph Hargreaves (1900) 1 Ch. 347; 69 L.J. Ch. 183; 82 L.T. 132; 48 W.R. 241; 7 Manson 354, turned upon Section 115 of the Companies Act, 1882, which left it to the discretion of the Judge to order the production of certain documents including the balance sheets of the company delivered to the surveyor of taxes for the purpose of assessment of income-tax. We have no such discretion given to us under the Income-tax Act. But it was contended by the learned Advocate-General that in these decisions the effect of Section 124 of the Evidence Act has not been considered. Section 124 is in these terms: "No public officer shall be compelled to disclose communications made to him in official confidence when he considers that the public interests would suffer by the disclosure." We agree with the Advocate-General that once it appears that a communication to a person was made in official confidence, it is left to him and not to the Courts to decide whether public interests would suffer by the disclosure, and the Courts have no power to compel production if he considers such production prejudicial to public interests. But it is a pre-requisite that the communication must have been made to him in "official confidence," and as already pointed out, it is left to the Court under Section 162 of the Indian Evidence Act to decide the question and for that purpose it is also open to the Court to inspect the document. It was argued by the Advocate-General that the income-tax records may contain confidential matters and it is of great importance that persons should be able to be certain that any statements which may be made by them for the purpose of income-tax should in no case be disclosed, and as those statements must have been made in that belief they must be held to have been made "in official confidence," and it would not be right to insist upon the production of the documents or to receive them in evidence. In support of this argument Section 38 of the Income-tax Act and Rule 15 already referred to were relied upon. We are unable to accept this view. Though the cases do not refer to Section 124 of the Evidence Act, they, in effect, decide that provisions of the Income-tax Act do not preclude the production of these documents in a Court of Justice, and any person, therefore, submitting any return could rely only upon the official not disclosing the information to other persons otherwise than in Court of Law. Further, on reading the sections of the Income-tax Act it appears to us, that the Rule 15 was intended for the guidance of the income-tax officers and not to preclude any evidence being given in a Court of Justice. The orders of the Collector under Section 14 or Section 26 of the Income-tax Act determining the amount of the income-tax payable, it is clear, are not privileged documents under Section 124 of the Indian Evidence Act as they are not communications made to him. This is a strong argument against the privilege claimed for the returns or statements on which such orders are made: under Section 28 of the Income-tax Act the Collector can compel the production of documents and enforce the attendance of witnesses. It is difficult to say that documents produced or statements made under process of law can be said to be made in official confidence. They have to be made even if, in fact, no confidence is reposed in the official by the person who makes the statement. We are, therefore, of opinion that neither the provision of the Income-tax Act, nor the sections of the Evidence Act support the contention of the Advocate-General. We have accordingly called for the production of those papers. On a perusal of those documents it appears to us, however, that they do not advance the plaintiff's claim and there is nothing in those papers in any way inconsistent with the conclusion formed upon the other evidence.

3. We accordingly dismiss the appeal with costs.