Inherent powers and public policy can justify tax investigation into a prima facie sham transaction affecting revenue.

A civil court may, in an appropriate case, use inherent powers to direct an investigation by the tax authority where the record discloses a prima facie sham or accommodation transaction affecting public revenue and public policy. The Court stated that public policy is not rigid and may be applied to protect public interest and the State's welfare. It further held that, although inherent powers are exercised sparingly, they may be invoked ex debito justitiae when special facts emerge from the record and the direction serves the ends of justice. On that basis, the direction for tax investigation was held to be within the Court's competence and not illegal.

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Issues: Whether, in a civil suit for recovery of money, the Court could direct the income-tax authority to investigate the parties' transactions on the basis of a defence that the transaction was an accommodation entry or sham and may involve tax evasion, invoking public policy and inherent powers beyond the pleadings.

Analysis: The Court held that public policy is not rigid or static and may be expanded in appropriate cases to protect public interest, public conscience, and the welfare of the State. It noted that where the materials disclose a prima facie transaction with harmful tendencies affecting public revenue, the Court is not confined to a passive role merely because the suit is framed as a civil recovery action. Although inherent powers are ordinarily used sparingly and not to override express procedure, they may be invoked ex debito justitiae to secure the ends of justice when special facts emerge from the record. The unusual defence taken by the respondent created a prima facie concern of tax evasion and a disguised transaction, justifying a direction for investigation as an auxiliary step in aid of adjudication.

Conclusion: The direction to the tax authority was held to be within the Court's competence and was not found illegal.

Final Conclusion: The appeal failed and the challenged order was sustained, while the request for a certificate to appeal to the Supreme Court was also declined.

Ratio Decidendi: A civil court may, in an appropriate case where the record discloses a prima facie sham transaction implicating public revenue and public policy, invoke inherent powers to call for an investigation by the competent authority, even if such direction is not expressly sought in the pleadings.

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