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. On the assumption that article 31 (5)(b)(ii) is concerned with saving the police power it may cover the laws authorising the destruction of rotten or adulterated foodstuff or the pulling down of a dangerous dilapidated building or the demolition a building to prevent fire from spreading. Consider the case of a law authorising the seizure and destruction of, say, obscene pictures or blasphemous literature. Colourable exercise of power or mala fides in the province of exercise of power came up for discussion in State of Punjab v.
Nobody can for a moment think of contending that such law will be void if it does not provide for compensation and yet that will be the result if we are to accept the suggested construction, for such a law made for protecting public morality is obviously not covered by article 31 (5)(b)(ii) and will, according to such construction, be hit by article 31(2). Take 648 the case of a law providing for the compulsory contribution by all banks based upon the average daily deposits for the purpose of creating a guarantee fund to secure the full repayment of deposits to all depositors in case any such bank becomes insolvent and i$ ordered to be wound up.
An asset which has appreciated or depreciated in value as the case may be in accordance with the fluctuations of the market ceases to be a part of the business, by the one process or the other. If considerations, foreign to the scope of the power or extraneous to the statute, enter the verdict or impel the action, mala fides or fraud on power vitiates the acquisition or other official act. When the asset is withdrawn by the assessee, the assessee obtains in his hands by reason of such withdrawal an asset which at the time of the withdrawal has appreciated or depreciated in value as the case may be in comparison with its value at the time when it was brought into the business and the assessee on such withdrawal would be able to deal with or dispose of an asset which had thus appreciated or depreciated in value.
When the asset is withdrawn from the stock-in-trade of the business the position in my opinion would be no different. (iv) To say that the entire police power of the State to deprive a person of his property is to be found only in article 31(5)(b)(ii) will be to confine the exercise of that power by the Legislature within a very narrow and inelastic limit, namely, only for the promotion of public health or NRI Legal Services
the prevention of danger to life or property.
To my mind it makes not the slightest difference whether an asset is realised in the course of the business or is withdrawn from the stock-in- trade of the business. In the words of Krishna Iyer, J. This appreciation or depreciation in value is not reflected in the books of account when the cost price basis is adopted for the valuation of the stock-in-trade at the close of the year of account, but is certainly reflected as above indicated in the books of account at the close of each year of account when the market value basis is adopted.
Having brought into the business an asset which was of a particular value at that time, he withdraws from the business that asset at a time when it has appreciated or depreciated in value. Fraud on power voids the order if it is not exercised bona fide for the end designed. What is material to consider is what is the value of the asset which he was withdrawn from the stock-in- trade of the business and that value can only be determined by the market value of the asset as at the date of its withdrawal.Fraud in this context is not
equal to moral turpitude and embraces all cases in which the action impugned is to effect some object which is beyond the purpose and intent of the power, whether this be malice-laden or even benign. Such law is clearly necessary for the promotion or protection of public morality. Gurdial Singh (1980) 2 SCC 471. A construction which leads to the astounding result of compelling the State to buy up obscene pictures and. blasphemous literature if it desires to preserve public morality cannot merit serious consideration and must be discarded at once.
So far as the, business is concerned it is entitled to credit in its goods account the price of that asset as has been realised by the sale thereof or the market value of that asset as at the date of its withdrawal, 232 Looking at the matter from assessee's point of view also it does not make any the slightest difference whether he realises the asset in the course of the business or withdraws it from the business and utilises it in any manner he chooses. 475, para 9) Pithily put, bad faith which invalidates the exercise of power " sometimes called colourable exercise or fraud on power and oftentimes overlaps motives, passions and satisfactions " is the attainment of ends beyond the sanctioned purposes of power by simulation or pretension of gaining a legitimate goal.
" Katyan also says(2): "What is left after the discharge of the father obliga- tion and after the payment of the father's debts shall be divided by the brothers so that the father, may not remain a debtor. When the custodian of power is influenced in its exercise by considerations outside those for promotion of which the power is vested the court calls it a colourable exercise and is undeceived by illusion. If the purpose is corrupt the resultant act is bad.
So far as the business is concerned the asset would go out and cease to be a part of its stock-in-trade and this again would be the measure of the profit or loss as the case may be of the business qua that particular asset. In my opinion the manner of his dealing with the asset after he withdraws it from the stock-in-trade of the business is really immaterial. The business would be entitled to the appreciation or depreciation in value of that asset in so far as the asset had become a part of the stock-in-trade of the NRI Legal Services
But it is quite easy to contemplate laws which do not fall within article 31 (5) (b) (ii) but are, nevertheless, made mistakably in exercise of the State's police power. In each case however the actual profit or loss to the business as the case may be in relation to the price at which the asset was brought into the business would be determined at the date when the asset is realised, That would be the measure of the appreciation or depreciation in value of the asset which till then formed a part of the stock-in-trade of the business, and would I also be the measure of the ultimate profit or loss as the case may be of the business in regard to that particular asset.