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+Appeal No. LXVI of 1949.
+Appeal from the High Court of judicature, Bombay, in a reference under section 66 of the Indian Income tax Act, 1022.
+K.M. Munshi (N. P. Nathvani, with him), for the appel lant. ' M.C. Setalvad, Attorney General for India (H. J. Umrigar, with him), for the respondent. 1950.
+May 26.
+The judgment of the Court was delivered by MEHR CHAND MAHAJAN J.
+This is an appeal against a judgment of the High Court of Judicature at Bombay in an income tax matter and it raises the question whether munici pal property tax and urban immoveable property tax payable under the relevant Bombay Acts are allowable deductions under section 9 (1) (iv) of the Indian Income tax Act.
+The assessee company is an investment company deriving its income from properties in the city of Bombay.
+For the assessment year 1940 41 the net income of the assessee under the head "property" was computed by the Income tax Officer in the sum of Rs. 6,21,764 after deducting from gross rents certain payments.
+The company had paid during the relevant year Rs. 1,22,675 as municipal property tax and Rs. 32,760 as urban property tax.
+Deduction of these two sums was claimed under the provisions of section 9 the Act.
+Out of the first item a deduction in the sum of Rs. 48,572 was allowed on the ground that this item represented tenants ' burdens paid by the assessee, otherwise the claim was disal lowed.
+The, appeals of the assessee to the Appellate As sistant Commissioner and to the Income tax Appellate Tribu nal were unsuccessful.
+The Tribunal, however, agreed to refer two questions of law to the High Court of Judicature at Bombay, namely, (1) Whether the municipal taxes paid by the applicant company are an allowable deduction under 555 the provisions of section 9 (1) (iv) of the Indian Income tax Act; (2) Whether the urban immoveable property taxes paid by the applicant company are an allowable deduction under section 9 (1) (iv) or under section 9 (1) (v) of the Indian Income tax Act.
+A supplementary reference was made covering a third question which was not raised before us and it is not there fore necessary to refer to it.
+The High Court answered all the three questions in the negative and hence this appeal.
+The question for our determination is whether the munic ipal property tax and urban immoveable property tax can be deducted as an allowance under clause (iv) of sub section (1) of section 9 of the Act.
+The decision of the point depends firstly on the construction of the language employed in sub clause (iv) of sub section (1) of section 9 of the Act, and secondly, on a finding as to the true nature and character of the liability of the owner under the relevant Bombay Acts for the payment of these taxes.
+Section 9 along with the relevant clause runs thus: (1) The tax shall be payable by an assessee under the head ' income from property ' in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto of Which he is the owner, . . subject to the following allowances, namely : (iv) where the property is subject to a mortgage or other capital charge, the amount of any interest on such mortgage or charge; where the property is subject to an annual charge not being a capital charge, the. amount of such charge; where the property is subject to a ground rent, the amount of such ground rent; and, where the property has been acquired, constructed, repaired, renewed or recon structed with borrowed capital, the amount of any interest payable on such capital; . . . " It will be seen that clause (iv) consists of four sub clauses corresponding to the four deductions allowed 556 under the clause.
+Before the amending Act of 1939, clause (iv) contained only the first, third and fourth sub clauses.
+Under the first sub clause interest is deductible whether the amount borrowed on the security of the property was spent on the property or not.
+There is no question of any capital or other expenditure on the property.
+The expression "capital charge" in the sub clause cannot connote a charge on the capital, that is, the property assessed.
+That would be a redundancy as the opening words themselves clearly indicate that the charge is on the property.
+We are therefore of opinion that capital charge here could only mean a charge created for a capital sum, i.e., a charge to secure the discharge of a liability of a capital nature.
+In 1933 the Privy Council decided the case of Bijoy Singh.
+Dudhuria vs Commissioner of Income tax, Calcutta (1 ).
+It was not an assessment under section 9 but an assess ment on the general income of an assessee who was liable to pay maintenance for his step mother which had been charged on all his assets by a decree of Court.
+It was not a li ability voluntarily incurred by him but one cast on him by law.
+The Privy Council held that the amount paid by him in discharge of that liability formed no part of his real income and so should not be included in his assessment.
+Though the decision proceeded on the principle that the outgoings were not part of the assessee 's income at all, the framers of the amending Act of 1939 wanted, apparently, to extend the principle, so far as the assessment of property was concerned, even to cases where obligatory payments had to be made out of the assessee 's income from the property charged with such payments, and the second sub clause, namely, "where the property is subject to an annual charge not being a capital charge, the amount of such charge" was added.
+It is this sub clause which the appellant invokes in support of its claim to deduction of the municipal and urban, property taxes in the present case.
+In view of the opening words of the newly added sub clause, the expression "capital charge" also used therein cannot have reference to a charge on the property, and we think it must (1) I.L.R. 60 cal.
+557 be understood in the same sense as in sub clause (1); that is to say, the first sub clause having provided for deduc tion of interest where a capital sum is charged on the property, this sub clause provides for a deduction of annual sums so charged, such sums not being capital sums, the limiting words being intended to exclude cases where capital raised on the security of the property is made repayable in instalments.
+In Commissioner of Income tax, Bombay vs Mahomedbhoy Rowji (1), a Bench of the Bombay High Court considered the meaning of these words.
+As regards "annual charge," Beau mont C.J. observed as follows : "The words, I think, would cover a charge to secure an annual liability." Kania J., as he then was, said as follows : "I do not see how a charge can be annual unless it means a charge in respect of a payment to be made annually." This construction of the words has been followed in the judgment under appeal.
+In Gappumal Kanhaiya Lal vs Commissioner of Income tax (2) (the connected appeal before us), the Bench of the Allahabad High Court agreed with the construction placed on these words in the Bombay case, i.e., the words "annual charge" mean a charge to secure an annual liability.
+It is therefore clear that there is no conflict of judicial deci sions as to the meaning of the phrase "annual charge" occur ring in section 3 (1) (iv) and the meaning given is the natural meaning of these words.
+As to the phrase "capital charge", Beaumont C.J. in the case above referred to took the view that the words mean a charge on capital.
+Kania J., however, took a different view and observed that he was not prepared to accept the sugges tion that a document which provides for a certain payment to be made monthly or annually and charged on immoveable property or the estate of an individual becomes a capital charge.
+In the Allahabad judgment under appeal these (1) I.L.R. (2) I.L.R. 1944 All.
+558 words were considered as not meaning a charge on capital.
+It was said that if an annual charge means a charge to secure the discharge of an annual liability, then, capital charge means a charge to secure the discharge of a liability of a capital nature.
+We think this construction is a natu ral construction of the section and is right.
+The determination of the point whether the taxes in dispute fall within the ambit of the phrase "annual charge not being a capital charge" depends on the provisions of the statutes under which they are levied.
+Section 143 of the City of Bombay Municipal Act, 1888, authorises the levy of a general tax on all buildings and lands in the city.
+The primary responsibility to pay this property tax is on the lessor (vide section 146 of the Act).
+In order to assess the tax provision has been made for the determination of the annual rateable value of the building in section 154.
+Section 156 provides for the maintenance of an assessment book in which entries have to be made every official year of all buildings in the city, their rateable value, the names of persons primarily liable for payment of the property tax on such buildings and of the amount for which each building has been assessed.
+Section 167 lays down that the assess ment book need not be prepared every official year but public notices shall be given in accordance with sections 160 to 162 every year and the provisions o+ the said sec tions and of sections 163 and 167 shall be applicable each year.
+These sections lay down a procedure for hearing objections and complaints against entries in the assessment book.
+From these provisions it is clear ' that the liabil ity for the tax is determined at the beginning of each official year and the tax is an annual one.
+It recurs from year to year.
+Sections 143to 168 concern themselves with the imposition, liability and assessment of the tax for the year.
+The amount of the tax for the year and the liability for its payment having been determined, the Act then pre scribes for its collection in the chapter "The collection of taxes.
+" Section 197 provides that each of the property taxes shall be payable in 559 advance in half yearly instalments on each first day of April and each first day of October.
+The provision as to half yearly instalment necessarily connotes an annual li ability.
+In other words, it means that the annual liability can be discharged by half yearly payments.
+Procedure has also been prescribed for recovery of the instalments by presentment of a bill, a notice of demand and then distress, and sale.
+Finally section 212 provides as follows : "Property taxes due under this Act in respect of any building or land shall, subject to the prior payment of the land revenue, if any, due to the provincial ,Government thereupon, be a first charge . . upon the said build ing or land . " It creates a statutory charge on the building.
+Urban immove able property tax is leviable under section 22 of Part VI of the Bombay Finance Act, 1932,on the annual letting value of the property.
+The duty to collect the tax is laid on the municipality and it does so in the same manner as in the case of the municipal property tax.
+Section 24 (2) (b) is in terms similar to section 212 of the Bombay Municipal Act.
+It makes the land or the building security for the payment of this tax also.
+For the purposes of section 9 of the Indian Income tax Act both these taxes, namely, the munici pal property tax as well as the urban immoveable property tax are of the same character and stand on the same foot ing.
+Mr. Munshi, the learned counsel for the appellant con tended that both the taxes are assessed on the annual value of the land or the building and are annual taxes, although it may be that they are collected at intervals of six months for the sake of convenience, that the income tax itself is assessed on an annual basis, that in allowing deductions all payments made or all liabilities incurred during the previ ous year of assessment should be allowed and that the taxes in question fell clearly within the language of section 9 (1) (iv).
+The learned Attorney General, on the other hand, argued that although the taxes are assessed for the year the liability to pay them arises at the beginning 560 of each half year and unless a notice of demand is issued and a bill presented there is no liability to pay them and that till then no charge under section 212 of the Act could possibly arise and that the liability to pay being half yearly in advance, the charge is not an annual charge.
+It was also suggested that the taxes were a capital charge in the sense of the property being security for the payment.
+We are satisfied that the contentions raised by the learned Attorney General are not sound.
+It is apparent from the whole tenor of the two Bombay Acts that the taxes are in the nature of an annual levy on the property ' and are assessed on the annual value of the property each year.
+The annual liability can be discharged by half yearly instalments.
+The liability being an annual one and the property having been subjected to it, the provisions of clause (iv) of sub sec tion (1) of section 9 are immediately attracted.
+Great emphasis was laid on the word"due" used in section 212 of the Municipal Act and it was said that as the taxes do not become due under the Act unless the time for the payment arrives, no charge comes into existence till then and that the charge is not an annual charge.
+We do not think that this is a correct construction of section 212.
+The words "property taxes due under this Act" mean property taxes for which a person is liable under the Act.
+Taxes payable during the year have been made a charge on the property.
+The liability and the charge both co exist and are co exten sive.
+The provisions of the Act affording facilities for the discharge of the liability do not in any way affect their true nature and character.
+If the annual liability is not discharged in the manner laid down by section 197, can it be said that the property cannot be sold for recovery of the whole amount due for the year ? The answer to this query can only be in the affirmative, i.e., that the proper ty is liable to sale.
+In Commissioner of Income tax, Bombay vs Mahomedbhoy Rowji(1) Beaumont C.J., while rejecting the claim for the deduction of the taxes, placed reliance on (1) I.L.R. 561 section 9 (1) (v) which allows a deduction in respect of any sums paid on account of land revenue.
+It was observed that land revenue stands on the same footing as municipal taxes and that as the legislature made a special provision for deduction of sums payable in regard to land revenue but not in respect of sums paid on account of municipal taxes that circumstance indicated that the deduction was not allowable.
+For the same purpose reference was also made to the provi sions of section 10 which deal with business allowances and wherein deduction of any sum paid on account of land reve nue, local rates or municipal taxes has been allowed.
+In the concluding part of his judgment the learned Chief Jus tice said that it was not necessary for him to consider what the exact meaning of the words was and that it was suffi cient for him to say that it did not cover municipal taxes which are made a charge on the property under section 212 of the Bombay Municipal Act.
+Without determining the exact meaning of the words used by the statute it seems to us it was not possible to arrive at the conclusion that the taxes were not within the ambit of the clause.
+It is elementary that the primary duty of a Court is to give effect to the intention of the legislature as expressed in the words used by it and no outside consideration can be called in aid tO find that intention.
+Again reference to clause (v) of the section is not very helpful because land revenue is a charge of a paramount nature on all buildings and lands and that being so, a deduction in respect of the amount was mentioned in express terms.
+Municipal taxes, on the other hand, do not stand on the same footing as land revenue.
+The law as to them varies from province to province and they may not be necessarily a charge on property in all cases.
+The legis lature seems to have thought that so far as municipal taxes on property are concerned, if they fall within the ambit of clause (iv), deduction will be claimable in respect of them but not otherwise.
+The deductions allowed in section 10 under the head "Income from business" proceed on a different footing and a construction of section 9 with the aid of section 10 is apt to mislead.
+562 Kania J. in the above case in arriving at his conclusion was influenced by the consideration that these taxes were of a variable character, i.e., liable to be increased or re duced under the various provisions of the Municipal Act and that the charge was in the nature of a contingent charge.
+With great respect, it may be pointed out that all charges in a way may be or are of a variable and contingent na ture.
+If no default is made, no charge is ever enforceable and whenever there is a charge, it can be increased or reduced during the year either by payment or by additional borrowing.
+In Moss Empires Ltd. vs Inland Revenue Commissioners (1) it was held by the House of Lords that the fact that certain payments were contingent and variable in amount did not affect their character of being annual payments and that the word, "annual" must be taken to have the quality of being recurrent or being capable of recurrence.
+In Cunard 's Trustees vs Inland Revenue Commissioners (2) it was held that the payments were capable of being recur rent and were therefore annual payments within the meaning of schedule D, case III, rule 1 (1), even though they were not necessarily recurrent year by year and the fact that they varied in amount was immaterial.
+The learned Attorney General in view of these decisions did not support the view expressed by Kania J. Reliance was placed on a decision of the High Court of Madras in Mamad Keyi vs Commissioner of Income tax, Madras(3), in which moneys paid as urban immoveable property tax under the Bombay Finance Act were disallowed as inadmis sible under section 9 (1) (iv) or 9 (1) (v) of the Indian Income tax Act. 'This decision merely followed the view expressed in Commissioner of income tax, Bombay vs Mahomedb hoy Rowji (4)and was not arrived at on any independent or fresh reasoning and is not of much assistance in the deci sion of the case.
+The Allahabad High Court (1) (2) [1948] 1 A.E.R. 150. (3) I.L.R. (4) I.L.R. 563 in Gappumal Kanhaiya Lal vs Commissioner of Incometax (1) (the connected appeal) took a correct view of this matter and the reasoning given therein has our approval.
+The result is that this appeal is allowed and the two questions which were referred to the High Court by the Income tax Tribunal and cited above are answered in the affirmative.
+The appellants will have their costs in the appeal.
+Appeal allowed.

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+Civil Appeal No.94 of 1949.
+107 834 Appeal from a judgment and decree of the High Court of Judi cature at Patna in Appeal from Appellate Decree No. 97 of 1946 (Mannohar Lall and Mukherji JJ.) dated 23rd Decem ber, 1947, confirming the judgment of the District Judge of Purulia in Appeal No. 159 of 1944.
+S.P. Sinha (P. K. Bose, with him) for the appel lant.
+N.C. Chatterjee and Panchanan Ghosh (Chandra Narayan Naik, with them) for the respondent. 1950.
+December 1.
+The Judgment of the Court was deliv ered by PATANJALI SASTRI J.
+This appeal arises out of a suit brought by the respondent in the court of the Subordinate Judge, Dhanbad, for recovery of arrears of royalty and cess from the appellant and another alleged to be due under a compromise decree passed on the 6th March, 1923, in a previ ous suit between the predecessors in interest of the par ties.
+The only plea which is material for the purpose of this appeal is that the compromise decree not having been registered was inadmissible in evidence.
+The courts below held that the document did not require registration and gave effect to its terms in decreeing the suit.
+The second defendant has preferred this appeal.
+The facts are not now in dispute and may be briefly stated.
+On 11th March, 1921, one Kumar Krishna Prasad Singh (hereinafter referred to as Kumar) granted a perma nent lease of the right to the underground coal in 5,800 bighas of land belonging to him to Shibsaran Singh and Sitaram Singh (hereinafter referred to as the Singhs) by a registered patta stipulating for a salami of Rs. 8,000 and royalty at the rate of 2a.
+per ton of coal raised subject to a minimum of Rs. 8,000 and for certain other cesses and interest.
+On 7th June, 1921, Kumar executed another perma nent patta leasing the right to the coal in 500 bighas out of the 5,800 bighas referred to above to one Prayngji Bal lavji Deoshi and his son Harakchand Deoshi (hereinafter referred to as the Deoshis).
+By this document.
+835 the Deoshis agreed inter alia to pay royalty at the rate of 2a. per ton on all classes of coal raised subject to a minimum of Rs. 750 a year.
+The Singhs feeling themselves aggrieved by the latter transaction brought a title suit (No. 1291 of 1921) in the Court of the Subordinate Judge of Dhanbad for a declaration of their title and for possession of the 500 bighas leased to the Deoshis under the aforesaid patta of 7th June, 1921.
+To that suit Kumar was made a party as defendant No. 3, the Deoshis being defendants 1 and 2.
+The suit was however cornpromised on 6th March, 1923, by all the parties and a decree based on the compromise was also passed on the same day.
+The interest of the Singhs was brought to sale in 193S in execution of a decree obtained against them and was purchased by the plaintiff who insti tuted the presnt suit on 3rd October, 1942, claiming the royalty and cesses payable under the compromise decree for the period from Pous 1345 to Asadh 1349 B.S. from defendants 1 and 2 as the representatives of the Deoshis who entered into the compromise of March, 1923.
+In order to appreciate the contentions of the parties, it is necessary to set out the relevant terms of the compro mise decree which are as follows : "The plaintiffs (the Singhs) within two months from this date shall pay Rs. 8,000 as salami to defendant No. 3 (Kumar).
+Otherwise all the terms of the compromise Will stand cancelled and the plaintiffs shall not be competent to claim any right to or possession over the.land covered by the patta dated 11th March, 1921.
+The patta which defend ant No. 3 executed in favour of the plaintiffs in respect of 5,800 bighas of coal land in village Rahraband shall remain in force, and the plaintiffs will get a decree of declara tion of their right and title to the 500 bighas of coal land in dispute but defendants 1 and 2 (the Deoshis) shall hold possession as tenants.
+Besides the terms mentioned below, defendants 1 and 2 shall remain bound by all the remaining terms under which they took settlement of the 500 bighas of coal land from defendant No. 3 under 836 patta and Kabuliyat, and both the defendants 1 and 2 shall possess the same under the plaintiffs from generation to generation and all the terms of the said patta and Kabuliyat shall remain effective and in force between them.
+Both the defendants 1 and 2 shall remain bound to pay to the plain tiffs commission at the rate of 2a.
+per ton on all sorts of coal instead of 2a.
+a ton as stated before in the patta of 5,800 bighas of land settled with the plaintiffs.
+The plaintiffs shall pay to defendant No. 3 in future the mini mum royalty of Rs. 6,000 instead of Rs. 8,000 as stipulated in the original patta of 11 th March 1921 and commission at the rate of la.
+a ton in place of 2a.
+a ton as stipulat ed in the patta of March 21 .
+Unless the plaintiffs pay to the defendant No. 3 Rs. 8,000 within 2 months from this day they shall not be competent to take out execution of this decree, nor shall they be competent to take posses sion of the land in dispute.
+The defendants 1 and 2 within one month from the date of payment of Rs. 8,000 as aforesaid to defendant No. 3 shall execute a new Kabuliyat in favour of the plaintiff in respect of the modified terms stated above, i.e., on the condition to pay commission at the rate of 2a.
+per ton.
+In the new patta which defendant No. 3 will execute in favour of the plaintiffs he shall embody the condition that the annual minimum royalty will be Rs. 6,000 instead of Rs. 8,000 and commission will be at the rate of la. 9p.
+per ton in place of 2a.
+per ton as mentioned in the aforesaid patta.
+If the defendant No. 3 does not execute the parts on the aforesaid modified terms in favour 'of the plaintiffs within the time aforesaid and both the defendants 1 and 2 also do not execute a kabuliyat on the aforesaid modified terms, then this very rafanama shall be treated as the parts and kabuliyat, and the plaintiffs in accordance with the terms of the rafanama shall pay to defendant No. 3, Rs. 6,000 only as minimum royalty and commission at the rate of la.
+per ton with respect to 5,800 bighas and shall continue to realise commission at the rate of 2a. 6p. per ton from defendants 1 and 2 who shall remain bound to pay the same.
+" 837 The answer to the question whether this compromise decree requires registration depends on the legal effect of the changes in the status quo ante of the parties brought about by the document.
+A careful analysis reveals the following alterations : (1) In the lease to the Singhs, the rate of royalty or commission was reduced from 2a.
+per ton of coal raised to la.
+per ton and the minimum royalty was reduced from Rs. 8,000 to Rs. 6,000 while the area of coal land in their khas possession was reduced by 500 bighas. (2) In the lease to the Deoshis the rate of royalty or commission was enhanced from 2a.
+per ton to 2a.
+per ton and tiffs was made payable to the Singhs.
+The Singhs and the Deoshis were brought into a new legal relationship, the former accepting the latter as tenants holding the disputed 500 bighas under them in consideration of the latter agreeing to pay the enhanced royalty to the former. (4) The whole arrangement was made conditional on the Singhs paying Rs. 8,000 to Kumar within 2 months from the date of the compromise, it being expressly provided that the Singhs were not to be entitled to execute the decree or to take possession of the disputed area of 503 bighas which evidently had not till then passed into their possession.
+Now, sub section (1) of section 17 of the , enumerates five categories of documents of which regis tration is made compulsory which include" (d) leases of immoveable property from year to year, or for any term exceeding one year, or reserving a yearly rent;".
+Sub sec tion (2) however provided that "nothing in clauses (b) and (c) of sub section (1)applies to . (vi) any decree or order of court.
+" It may be mentioned in passing that this clause was amended with affect from the 1st April, 1930, by the , so as to exclude from the scope of the exception compromise decrees comprising immovable property other than that which is the subject matter of the suit.
+But 838 the amendment cannot affect the document here in question which came into existence in 1923.
+Before the amendment, the clause was held to cover even compromise decrees comprising immovable property which was not the subject matter of the suit: [Vide Hemanta Kumari Debi vs Midnapur Zamindari Co. ( ')].
+That decision applies to the present case and obviates the objection that because the compromise in question covered also the remaining 5,300 bighas which were not the subject matter of the title suit of 1921, it was outside the scope of the exception in sub section (2), clause (vi).
+The only question, therefore, is whether the compromise decree is a "lease" [which expression includes "an agreement to lease" by the definition in section 2 (7)] within the meaning of el.
+(d) of sub section (1).
+It is obvious that if the compromise decree fails within clause (d) of sub section (1) it would not be protected under clause (vi) of sub section (2) which excepts only documents falling under the categories (b) and (c) of sub section (1).
+The High Court was of opinion that, on a proper construction of the terms of the compromise, it did not fall under clause (d).
+Mano har Lall J., who delivered the leading judgment, observed: "It was a tripartite agreement embodied in the decree of the court and was, therefore, exempt from registration.
+It will be oh.served also that so far as the defendants were con cerned, their possession of the 500 bighas was not inter fered with and they still remained in possession as the lessees, but instead of paying the royalty to the plaintiffs it was agreed between all the parties that the defendants would pay the royalty in future to Shibsaran and Sitcram.
+If the matter had stood there, the learned Advocate for the appellant could not have seriously contested the position, but he vehemently argued that when the agreement was not to pay the same amount of royalty or commission as previously agreed to but an altered amount of royalty and commission, the document should be held to fall within the mischief of section 17 (1)(d)of the (1) P.C. 839 .
+The answer to this contention is, as I have stated just now, to be found in the Full Bench decision of this court :" [see Charu Chandra Mitra 's case ()].
+It was there held that a mere alteration of the rent reserved does not make the transaction a new lease so as to bring it within clause (d)of subsection (1).
+We are unable to share this view.
+It oversimplifies the compromise transaction which, in our opinion, involves much more than a mere alteration of the royalties stipulated for in the previous pattas executed by Kumar.
+Nor can we accept the suggestion of Mr. Chatterjee for the respondents theft the compromise operated as an assignment to the Singhs by Kumar of the latter 's reversion under the "lease granted to the Deoshis and all that the latter did was to acknowledge the Singhs as their landlords and attern to them.
+On tiffs view it was said that the transaction would not fall under clause (d), although it would fall under clause (b) but then would be saved by the exception in clause (vi) of sub section (2).
+The argument, however, overlooks that Kumar had leased the area of 5,800 bighas to the Singhs by his patta dated 11th March, 1921, and the compromise by providing that the Singhs should pay the reduced royalty of 1a.
+per ton in respect of the whole area preserved Kumar 's reversion intact.
+He could not therefore be deemed to have assigned any part of his inter est in 5,800 bighas as landlord to the Singhs who continue to hold the entire extent as tenants under him.
+What the compromise really did was.
+as stated already, to bring the Singhs and the Deoshis into a new legal relationship as underlessor and under lessee in respect of 500 bighas which were the subject matter of the title suit; in other words, its legal effect was to create a perpetual underlease be tween the Singhs and the Deoshis which would clearly fall under clause (d) but for the circumstance that it was to take effect only on condition float the Singhs paid Rs. 8,000 to Kumar within 2 months (1) 840 thereafter.
+As pointed out by the Judicial Committee in Hemanta Kumar 's case (1) "An agreement for a lease, which a lease is by the statute declared to include, must, in their Lordships ' opinion, be a document which effects an actual demise and operates as a lease .
+The phrase which in the context where it occurs and in the statute in which it is found, must in their opinion relate to some document which creates a present and immediate interest in the land.
+" The compromise decree expressly provides that unless the sum of Rs. 8,000 was paid within the stipulated time the Singhs were not to execute the decree or to take possession of the disputed property.
+Until the payment was made it was impossible to determine whether there would be any under lease or not.
+Such a contingent agreement is not within clause (d) and although it is covered by clause (b). is excepted by clause (vi) of sub section ( '2).
+We therefore agree with the conclusion of the High Court though on dif ferent grounds and dismiss the appeal with costs.
+Appeal dismisseel.

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+iminal Appeal No. 40 of 1951, 127 Appeal from the Judgment and Order dated the 1st June, 1951, of the High Court of Judicature in Assam (Thadani C.J. and Ram Labhaya J.,) in Criminal Reference No. I of 1951, arising out of Judgment and Order dated the 15th November, 1950, of the Court of the Additional District Magistrate, Lakhimpur, in Case No. 1126C of 1950.
+Jindra Lal for the appellant.
+Nuruddin Ahmed for the respondent.
+October 23.
+The Judgment of the Court was delivered by CHANDRASEKHARA AIYAR J.
+Rameshwar Bhartia, the appellant, is a shopkeeper in Assam.
+He was prosecuted for storing paddy without a licence in excess of the quantity permitted by the Assam Food Grains Control Order, 1947.
+He admitted storage and possession of 550 maunds of paddy, but pleaded that he did not know that any licence was necessary.
+The 'Additional District Magistrate recorded a plea of guilty, but imposed him a fine of Rs. 50 only, as he considered his ignorance of the provisions of the Food Grains Control Order to be genuine.
+The stock of paddy was left in the possession of the appellant by the Procurement Inspector under a Jimmanama or security bond executed in his favour.
+He was subsequently unable to produce it before the court, as the whole of it was taken away by a Congress M.L.A. for affording relief to those who suffered in the earthquake, and so, the appellant was ordered to procure a similar quantity of paddy after taking an appropriate licence, and to make over the same to the procurement department payment of the price.
+The District Magistrate, being moved to do so by the procurement department, referred the case to the High Court under section 438, Criminal Procedure Code, for enhancement of the sentence, as in his opinion the sentence was unduly lenient and the Jimmanama, which was admittedly broken, should have been forfeited.
+128 The reference was accepted by the High Court, and the sent ence was enhanced to rigorous ' imprisonment for six months and a fine of Rs. 1,000.
+As regards the Jimmanama, the case was sent back to the trial court for taking action according to law under section 514, Criminal Procedure Code, for its forfeiture.
+The appellant applied to the High.
+Court for a certificate under article 134 (1) (c) of the Constitution that the case was a fit one for appeal to this Court.
+This application was granted.
+Out of the three points urged for the appellant, two were rejected, but the third one was accepted as a good ground, namely, that there was a contravention of the provisions of section 556, Criminal Procedure Code and that consequently the, trial before the Additional District Magistrate was void.
+One of the contentions urged before us was that Shri C.K. Bhuyan was not a "Director" at all and therefore there was no valid sanction under section 38 of the Order.
+A notifications dated 16th May) 1950, and published in the Assam Gazette of the 24th May, 1950, was produced before us to show that Sri C.K. Bhuyan was an Additional Deputy Commissioner and it was conceded by the appellant 's counsel before the High Court that if he was a Deputy Commissioner, he would be a Director under the Order, as all Deputy Commissioners in Assam were notified as Directors for the purposes of the Order.
+Mr. Jindra Lal sought to draw a distinction between a Deputy Commissioner and an Additional Deputy Commissioner in this respect, but there is no warrant for the same,, apart from the circumstance that it is a question of fact which has to be investigated afresh, and which we cannot allow to be raised now for the first time.
+The primary question to consider in this appeal is whether there has been any infringement of Section 556, Criminal Procedure Code, and a consequent want of jurisdiction in the court which tried the offence.
+The facts relevant to this question lie 129 within a narrow compass.
+The Procurement Inspector sent a report , Ist July,1950 about the nature of the offence ; he wrote out a short note the, subject, and requested that the accused might be prosecuted and the Assistant Director of Procurement, Dibru garh, might be authorised to dispose of the paddy immediately to avoid loss due to deterioration, Sri 0.
+K. Bhuyan,who was the then District Magistrate Lakhimpur, made the following order: "Prosecution sanctioned under section 7 (1) of ,the Essential Supplies (Temporary Powers) Act, 1946, for violation of sections 3 and 7 of the Assam Food Grains Oontrol Order, 1947.
+" The case happened to be tried by the same gentleman in his capacity as Addtional District Magistrate, and the accused was convicted as aforesaid.
+The argument for the appellant was that having sanctioned the prosecution, Sri C.K. Bhuyan became "personally interested" in the case within the meaning of section 556, and was therefore incompetent to try the same.
+It was contended that the trial was not only irregular but illegal.
+There is no question that "personal interest" within the meaning of the section is not limited to private interest, and that it may well include official interest also.
+But what is the extent of the interest which will attract the disability is a subject which different views are possible and have been taken.
+Section 556 itself indicates the difficulty.
+The Explanation to the section runs in these terms: "A Judge or Magistrate shall not be deemed a party, or personally interested, within the , meaning of this section, to or in any case by reason only that be is a Municipal Commissioner or otherwise concerned therein in a public capacity, or by reason only that he has viewed the place in which an offence, is alleged to have been committed, or any other place .in which any other transaction material to the case 'is alleged to have occurred, and made an inquiry III connection with the case.
+" 130 This shows that to be connected with a case in a public capacity is not by itself enough to render the person incompetent to try it.
+Even if he had made an enquiry in connection with this case, it would not matter.
+But look at the illustration: "A, as collector, upon consideration of information furnished to him, directs the prosecution of B for a breach of the excise laws.
+A is disqualified from trying this case as a Magistrate.
+" It is evident from the words of the illustration that if a prosecution is directed by a person in one capacity, he shall not try the case acting in another capacity as a Magistrate.
+The explanation and illustration lend some support to the view that there is a distinction between a passive interest and an active interest, and that it is only in the latter case that the disqualification arises or intervenes.
+Under sub section (3) (a) of section 2 of the Assam Food Grains Control Order "Director" means "the Director of Supply, Assam, and includes, for the purpose of any specific. provision of this Order, any other officer duly authorised in that behalf by him or by the Provincial Government by notification in the Official Gazette.
+" Section 38 provides: No prosecution in respect of an alleged contravention of any provision of this Order shall be instituted without the sanction of the Director.
+" A little confusion is likely to arise from the employment of the word " Director" in the Control Order and the word "directs" in the illustration to section 556 of the Code '.
+It has to be borne in mind that a sanction by the Director within the meaning of the Code does not necessarily mean "a direction given by him that the accused should be prosecuted.
+" In both cases of sanction and direction, an application of the mind is necessary, but there is this essential difference that in the one case there is a legal impediment to the prosecution if there be no sanction, and in the other case, there is a positive order that 131 the prosecution should be launched.
+For a sanction, all that is necessary for one to be satisfied about is the existence of a prima facie case.
+In the case of a, direction, a further element that the accused deserves to be prosecuted is involved.
+The question whether a Magistrate is personally interested or not has essentially to be decided the facts in each case.
+Pecuniary interest, however small, will be a disqualification but as regards other kinds of interest, there is no measure or standard except that it should be a substantial one, giving rise to a real bias, or a reasonable apprehension the part of the accused of such bias.
+, The maxim " Nemo debet esse judex in propria sua causa" applies only when the interest attributed is such as to render the case his own cause.
+The fulfllment of a technical requirement imposed by a statute may not, in many cases, amount to a mental satisfaction of the truth of the facts placed before the officer.
+Whether sanction should be granted or not may conceivably depend upon consideration extraneous to the merits of the case.
+But where a prosecution is directed, it means that the authority who gives the direction is satisfied in his own mind that the case must be initiated.
+Sanction is in the nature of a permission while a direction is in the nature of a command.
+Let us now examine some of the decisions the subject.
+For the appellant, strong reliance was placed the judgment of the Privy Council in Gokulchand Dwarkadas vs King(1), and it was argued the basis of some of the observations of the Judicial Committee that a sanction was an important and substantial matter and not a mere formality.
+The facts in that case were that while there was a sanction of the Government for a prosecution under the Cotton Cloth and Yarn Control, Order, there was nothing in the sanction itself, or in the shape of extraneous evidence, to show that the sanction was accorded after the relevant facts were placed before the sanctioning authority.
+To quote their Lordships ' own words; (1) (1948) 52 C.W.N.325.
+132 "There is no evidence to show that the report of the Sub Inspector to the District Superintendent of Police, which was not put in evidence, was forwarded to the District Magistrate, nor is there any evidence is to the contents of the endorsement of the District Magistrate, referred to in the sanction, which endorsement also was not put in evidence.
+The prosecution was in a position either to produce or to account for the absence of the 'report made to the District Superintendent of Police and the endorsement of the District Magistrate referred to in the sanction, and to call any necessary oral evidence to supplement the documents and show what were the facts which the sanction was given.
+" It is in this connection that their Lordships em phasise that the sanction to prosecute is an important step constituting a condition precedent, and observe: "Looked at as a matter of substance it is plain that the Government cannot adequately discharge the obligation of deciding whether to give or withhold a sanction without a knowledge of the facts of the case.
+Nor, in their Lordships ' view, is a sanction given without reference to the facts constituting the offence a compliance with the actual terms of clause 23.
+" This, however, is no authority for the position that a sanction stands the same footing as a direction.
+It is true that the facts should be known to the sanctioning authority ; but it is not at all necessary that the authority should embark also an investigation of the facts, deep or perfunctory, before according the sanction.
+The decision lends no support to the view that wherever there is a sanction, the sanctioning authority is disabled under section 556 of the Code from trying the case initiated as a result of the sanction. the other hand, there is plenty of support for the opposite) view.
+In the very early case of The Government of Bengal vs HeeraLall Dass and Others(1), at a time when there (1) (1872) 17 Weekly Reporter, Criminal Rulings, 39. 133 was no such statutory provision as section 556 of the Code but, only the general rule of law that a man could not be judge in a case in which he had an interest, the facts were that a Sub Registrar, who was also an Assistant Magistrate, having come to know in his official capacity as a registering officer that an offence under the Registration Act had been committed, sanctioned a prosecution, and subsequently tried the case himself.
+A Full Bench consisting of Sir Richard Couch C. ' J. and five other learned Judges came to the conclusion, after an examination of some of the English cases, that the trial was not vitiated.
+The learned Chief Justice said: "In this case, I think, the Sub Registrar has not such an interest in the matter as disqualifies him from trying the case; and I may observe with reference to some of the arguments that have been used as to the Sub Registrar having made up his mind, and that the accused would have no chance of a fair trial, that the sanction of the superior officer, the Registrar, is required before the prosecution can be instituted, and certainly I do not consider that the prosecution will not be instituted unless the Sub Registrar has made up his mind as to the guilt of the party.
+It is his duty, when he comes to know that an offence has been committed, to cause a prosecution to be instituted, by which I understand that there is prima facie evidence of an offence having been committed, that there is that which renders it proper that there should be ail enquiry, and the Registrar accordingly gives his sanction to it ; and certainly, I cannot suppose that, because an officer in his position sanctions the institution of a prosecution, his mind is made up as to the guilt of the party and .
+that he is not willing to consider the evidence which may be produced before him when he comes to try the case.
+In this case, there appears to 'be no such interest as would prevent the case from going" before the Magistrate as the trying authority . 134 In Queen Empress vs Chenchi Reddi(1) it was pointed out that when there was only an authorisation and not a direction, there was no supervening disability ; and the case of Girish Chunder Ghose vs The QueenEmpress(2) was distinguished, the ground that there the Magistrate had taken a very active part in connection with the case as an executive officer.
+The Bombay High Court went even a step further in the case reported in Emperor vs Bavji(3), where the Magistrate who tried the case had earlier held a departmental enquiry and forwarded the papers to the Collector with his opinion that there was sufficient evidence to justify a criminal prosecution.
+As he did no more than express an opinion that there was evidence, which he, had neither taken nor sifted, which made a criminal prosecution desirable, it was held that the Magistrate was not disqualified from holding the trial, though, no doubt it would have been more expedient had the Collector sent the case for disposal to another of his subordinates.
+As stated already, the question whether the bar under section 556 comes into play depends upon the facts and circumstances of each particular case, the dividing line being a thin one somewhat but still sufficiently definite and tangible, namely, the removal of a legal impediment by the grant 'of sanction and the initiation of criminal proceedings as the result of a direction.
+In the present case before us, we have nothing more than a sanction, and consequently we are unable to hold that the trial has become vitiated by reason of the provisions of section 556, Criminal Procedure Code.
+The other point taken behalf of the appellant is a more substantial one.
+The security bond was taken from him not by the court but by the Procurement Inspector.
+It is true that it contained the undertaking that, the seized paddy would be produced before the court, but still it was a promise made to the particular official and not to the court.
+The High (1) Mad. 238.
+(3) (19O3) (2) Cal.
+857. 135 Court was in error in thinking that section 514, Criminal Procedure Code, applied.
+Action could be taken only when the bond is taken by the court under the provisions of the Code such as section 91 for appearance, the several security sections or those relating to bail.
+Clause (1) of section 514 runs: "Whenever it is proved to the satisfaction of the, Court by which a bond under this Code has been taken, or of the Court of a Presidency Magistrate or Magistrate of the first class, or when the bond is for appearance before a Court, to the satisfaction of such Court, that such bond has been forfeited, the Court shall record the grounds of such proof, and may call upon any person bound by such bond to pay the penalty thereof, or to show cause why it should not be paid.
+" The language is perfectly clear; the power to forfeit and the imposition of the penalty provided for in the later parts of the section arise only if the preliminary conditions are satisfied.
+There was no argument addressed to us that the High Court in suggesting that action should be taken under section 514 for forfeiture of the bond acted in the exercise of its inherent powers under section 561 A.
+It did not purport to exercise any such power; and, moreover, there will then arise the question whether when the Code contains an express provision a particular subject, there could be any resort to inherent jurisdiction, under a general provision.
+We have got an additional circumstance in the appellant 's favour in this case that the seized paddy was taken away by a member of the Legislative Assembly for giving relief to those affected by the earthquake, and if that is true, as it seems to be from the letter written by the ' M.L.A. to the Additional District Magistrate the 1st November, 1950, it appears to us harsh, if not unjust, to ask him to produce the same paddy or a similar quantity of paddy.
+The order of the High Court sending back the case to the 136 Magistrate for taking action according to law under section 514 will, therefore, stand set aside.
+We generally do not interfere in the matter of sentence, but in this case we find that the Magistrate has held that the appellant 's plea that he was ignorant of the provisions of the Assam Food Grains Control Order, 1947, was a genuine one.
+Having regard to this circumstance and the fact that from a fine of Rs. 50 to 6 months ' rigorous imprisonment and a fine of Rs. 1,000 is a big jump, we think it is appropriate that the sentence of imprisonment imposed by the High Court should be set aside and we order accordingly.
+The fine of Rs. 1,000 will stand.
+Sentence reduced.

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+Appeal No. 388 of 1960.
+Appeal by special leave from the judgment and order dated February 3, 1959, of the Patna High Court in Election Appeal No. 10 of 1958.
+section P. Varma, for the appellant.
+L. K. Jha and D. Govardhan, for respondent No. 1.
+L. K. Jha and K. K. Sinha, for respondent No. 2. 1960.
+November 17.
+The Judgment of the Court was delivered by 471 GAJENDRAGADKAR, J.
+Is the appellant Ram Padarath Mahto disqualified for membership of the Bihar Legislature under section 7(d) of the Representation of the People Act, 1951 (hereafter called the Act)? That is the short question which arises for our decision in the present appeal by special leave.
+The appellant was one of the candidates for the Dalsinghsarai Constituency in the District of Darbhanga in Bihar for the State Legislature.
+The said Constituency is a Double Member Constituency; it was required to elect two members, one for the general and the other for the reserved seat for scheduled castes in the Bihar Legislative Assembly.
+It appears that the said Constituency called upon voters to elect members on January 19, 1957.
+January 29, 1957 was fixed as the last date for the filing of the nomination papers.
+The appellant filed his nomination paper on January 28, 1957, and on the next day seven other members filed their nomination papers.
+On February 1, 1957, the nomination paper filed by the appellant was rejected by the returning officer on two grounds; he held that the appellant being an Inspector of Co operative Societies was a Government servant at the material time and so was disqualified from standing for election.
+He also found that the appellant was a member of a joint and undivided Hindu family which carried on the business of Government as stockiest of grain under a contract between the Government of Bihar and a firm of the joint family known as Nebi Mahton Bishundayal Mahto.
+Thereafter the election was duly held, and Mr. Mishri Singh and Mr. Baleshwar Ram, respondents 1 and 2 were declared duly elected to the general and reserved seat respectively.
+The validity of this election was challenged by the appellant by his Election Petition No. 428 of 1957.
+To this petition he impleaded the two candidates declared to have been duly elected and five others who had contested in the election.
+Before the Election Tribunal the appellant urged that he was not in the employ of the Government of Bihar at the material time.
+He pointed out that he had resigned his job on January 13, 472 1957, and his resignation had been accepted on January 25, 1957, relieving him from his post as from the later date.
+He also contended that there was a partition in his family and that he had no share or interest in the contract in question.
+Alternatively it was argued that even if the appellant had an interest in the said contract it did not fall within the mischief of section 7(d) of the Act.
+These pleas were traversed by respondents 1 and 2 who contested the appellant 's election petition.
+The Election Tribunal found that the petitioner was not a Government servant on the day he filed his nomination paper, and so according to it the returning officer was wrong in rejecting his nomination paper on the ground that he was a Government servant at the material time.
+The Election Tribunal rejected the appellant 's case that there was a partition in the family, and held that at the relevant time the appellant continued to be a member of the joint Hindu family which had entered into the contract in question with the Government of Bihar.
+However, in its opinion, having regard to the nature of the said contract it was not possible to hold that the appellant was disqualified under section 7(d), and so it came to the conclusion that the returning officer was in error in rejecting the appellant 's nomination paper on this ground as well.
+In the result the Tribunal allowed the election petition, declared that the nomination paper had been improperly rejected, and that the election of the two contesting respondents was void.
+Against this decision the two contesting respondents filed two appeals in the High Court at Patna (Election Appeals Nos. 9 and 10 of 1958).
+The High Court has confirmed the finding of the Tribunal that the appellant was not a Government servant at the material time.
+It has also agreed with the conclusion of the Tribunal that at the relevant time the appellant was a member of the undivided Hindu family.
+On the construction of the contract, however, it differed from the view adopted by the Tribunal, and it has held that as a result of the said contract the appellant was disqualified under section 7(d) of the Act.
+This finding 473 inevitably led to the conclusion that the appellant 's nomination paper had been properly rejected.
+On that view the High Court did not think it necessary to consider whether the Tribunal was right in declaring void the election of not only respondent 1 but of respondent 2 as well.
+It is against this decision of the High Court that the appellant has come to this Court by special leave; and the only question which is raised on his behalf is that the High Court was in error in coming to the conclusion that he was disqualified under section 7(d).
+The decision of this question naturally depends primarily on the construction and effect of the contract in question.
+Section 7 of the Act provides for disqualification for membership of Parliament or of State Legislatures.
+Section 7(d), as it stood at the material time and with which we are concerned in the present appeal provides,, inter alia, that a person shall be disqualified for being chosen as, and for being, a member of the Legislative Assembly of a State, if whether by himself or by any person or body of persons in trust for him or for his benefit or on his account, he has any share or interest in a contract for the supply of goods to, or for the execution of any works or the performance of any services undertaken by, the appropriate Government.
+On the concurrent findings recorded by the High Court and the Tribunal it cannot now be disputed that the appellant has interest in the contract in question; so that the first part of section 7(d) is satisfied.
+The High Court has found that the contract attracts the last part of section 7(d) inasmuch as according to the High Court the Government of Bihar had undertaken to discharge the service of supplying grain to the residents of Bihar and the firm of the appellant 's family had entered into a contract for the performance of the said services.
+The last part of section 7(d) postulates that the appropriate Government has undertaken to perform certain specific services, and it is for the performance of such services that the contract had been entered into by a citi zen.
+In other words, if a citizen has entered into a contract with the appropriate Government for the 60 474 performance of the services undertaken by the said Government he attracts the application of section 7(d).
+This provision inevitably raises two questions: what are the services undertaken by the appropriate Government? Has the contract been entered into for the performance of the said services? At this stage it is necessary to consider the material terms of the contract.
+This contract was made on February 8, 1956, between the Governor of Bihar who is described as the first party and the firm which is described as the second party.
+The preamble to the contract shows that the first party had to stock and store foodgrains in Darbhanga District for sale in pursuance of the Grain Supply Scheme of the Government for which a proper custodian and bailee for reward was necessary.
+It also recites that the second party had applied to become such custodian and bailee of such stock of foodgrains as the first party shall deliver to the second party in one lump or from time to time on terms and in the manner expressly specified under the contract, or as may be necessarily implied.
+Clause 1 of the contract provides that the second party shall, at the direction of the first party, take over foodgrains from the railway wagons or from any place as directed by the first party; thereafter the second party had to cause the grains to be stored in his godown at Dalsinghsarai and had to redeliver the same to the first party after weighing either at the second party 's godown approved by the first party or at any other place as directed by the first party.
+The movement of the grain had to be done by the second party himself or by a transport contractor appointed by the first party.
+Clause 2 imposed on the second party the liability to maintain a register and keep accounts as prescribed thereunder.
+Under cl. 3 the second party undertook to keep such stocks and establishments as may be necessary at his own expense.
+Clause 4 imposed upon the second party the obligation to protect the stock of foodgrains or to make good the losses except as thereinafter provided: Clauses 5 to 8 are not material for our purpose.
+Clause 9 provides that the second party shall deposit the sum of 475 Rs. 5,000 in a Savings Bank account which has been pledged to the District Magistrate, Darbhanga, and comply with the other conditions specified in the clause.
+Clause 10 deals with the remuneration of the second party.
+It provides that the first party shall be liable to pay to the second party remuneration for the undertaking in this agreement at the rate of Re. 1 per( cent on the value of the stocks moved or taken over from his custody under the orders or directions of the first party or his agent calculated at the rate fixed by the Government from time to time for wholesale sales of grain.
+The clause adds that no remuneration shall be payable to the second party if the first party takes over the whole of the balance stock lying with the second party for reasons of the termination of the agreement.
+The rest of the clauses need not be recited.
+It would thus be seen that the agreement in terms is one of bailment.
+The State Government wanted to entrust the work of stocking and storing foodgrains to a custodian or bailee.
+In that behalf the appellant 's firm made an application and ultimately was appointed a bailee.
+There is no doubt that by this contract the firm has undertaken to do the work of stocking and storing foodgrains belonging to the State Government; and if it can be reasonably held that the service undertaken by the State Government in the present case was that of stocking the foodgrains the contract in question would obviously attract the provisions of section 7(d).
+Mr. Varma, however, contends that the service undertaken by the State Government is the sale of foodgrains under its Grain Supply Scheme; and he argues that unless the contract shows that it was for sale of the said goods it cannot attract the provisions of section 7(d).
+Unfortunately the scheme adopted by the State Government for the supply of grain has not been produced before the Election Tribunal, and so the precise nature and extent of the services undertaken by the State Government fall to be determined solely by reference to the contract in question.
+It is true that the contract relates to the stocking and storing of foodgrains which the State Government wanted to sell to the residents of Bihar; but can it be said 476 that stocking and storing of foodgrains was such an integral or essential part of the selling of goods that a contract for stocking and storing foodgrains should necessarily be regarded as a contract for their sale? In our opinion, it is difficult to accept the argument that stocking and storing of foodgrains is shown to be such an essential and integral part of the supply scheme adopted by the State Government.
+Theoretically speaking stocking and storing foodgrains cannot be said to be essential for the purpose of carrying out the scheme of sale of foodgrains, because it would conceivably be possible for the State Government to adopt a scheme whereby goods may be supplied without the State Government having to store them; and so the work of stocking and storing of foodgrains may in some cases be conceivably incidental to the scheme and not its essential part.
+It is significant that sale of goods under the contract was never to take place at the godown of the firm.
+It had always to take place at other selling, centers or shops; and thus, between the stocking and storing of goods and their sale there is an element of time lag.
+The only obligation that was imposed on the firm by this contract was to be a custodian or bailee of the goods, keep them in good order and deliver them after weighment as directed by the first party.
+It cannot be denied that the remuneration for the bailee has been fixed at the rate, of Re. 1 per cent on the value of the stocks moved or taken over from his custody; but that only shows the mode or method adopted by the con tract for determining the remuneration including rent of the godowns; it cannot possibly show the relationship of the contract with the sale of goods even indirectly.
+Can it be said that the contract entered into by the State Government for purchasing foodgrains from agriculturists who grow them or for transporting them after purchase to the godowns are contracts for the sale or supply of goods? Purchase of goods and their transport are no doubt preparatory to the carrying out of the scheme of selling them or supplying them, and yet it would be difficult to hold that contracts entered into by the State Government with the agriculturists or the transport agency is a contract for the 477 sale of goods.
+We have carefully considered the material terms of this contract, and on the record as it stands we are unable to accept the conclusion of the High Court that a contract of bailment which imposed on the bailee the obligation to stock and store the foodgrains in his godown can be said to be a contract for the purpose of the service of sale of grain which the State Government had undertaken within the meaning of section 7(d).
+It appears that before the High Court it was not disputed by the appellant that the service whose performance had been undertaken by the State Government consisted in the supply of grain to the people of the State of Bihar; and the High Court thought that from this concession it inevitably followed that the firm had a share and was interested in the contract for the performance of the service undertaken by the Government of Bihar.
+It seems to us that the concession made by the appellant does not inevitably or necessarily lead to the inference drawn by the High Court.
+If the service undertaken by the State Government is one of supplying grain how does it necessarily follow that a contract by which the bailee undertook to store the grain was a contract for the supply of grain? It may sound technical, but in dealing with a statutory provision which imposes a disqualification on a citizen it would be unreasonable to take merely a broad and general view and ignore the essential points of distinction on the ground that they are technical.
+The narrow question is: if the State Government undertook the work of supplying the grain, is the contract one for the supply of grain?; in our opinion, the answer to this question must be in the negative; that is why we think the High Court did not correctly appreciate the effect of the contract when it held that the said contract brought the appellant 's case within the mischief of section 7(d).
+In coming to its conclusion the High Court thought that its view was supported by a decision of this Court in N. Satyanathan vs K. Subramanyan (1).
+In that case the appellant who was a contractor had entered into an agreement with the Central Government (1) ; 478 whereby he had offered to contract with the Governor General for the provision of a motor vehicle service for the transit and conveyance of all postal articles for the period specified in the contract, and the Governor General had accepted the offer.
+As a consideration for the same the Government had agreed to pay to the contractor Rs. 200 per month during the subsistence of the agreement "as his remuneration for the service to be rendered by him".
+It appears that on this contract two questions were raised before this Court.
+First it was urged that it could not be said that the Central Government had undertaken any service within the meaning of section 7(d) of the Act when it made arrangements for the carriage of mailbags and postal articles through the contractor.
+This contention was rejected on the ground that though the Government was not bound in the discharge of its duties as a sovereign State to make provision for postal mail service, it had in fact undertaken to do so under the Indian Post Offices Act for the convenience of the public. "It cannot be gainsaid", observed Sinha, J., as he then was, "that the postal department is rendering a very useful service, and that the appellant has by his contract with the Government undertaken to render that kind of service on a specified route"; and he added, "the present case is a straightforward illustration of the kind of contract contemplated under section 7(d) of the Act".
+This straightforward illustration, in our opinion, clearly brings out the class and type of contracts which fall within section 7(d) of the Act.
+Government must undertake to render a specified service or specified services and the contract must be for the rendering of the said service or services.
+That was precisely what the contract in the case of N. Satyanathan (1) purported to do.
+It is difficult to see how this case can be said to support the conclusion of the High Court that the contract for stocking and storing of goods is a contract for rendering the service of supplying and selling the same to the residents of the place.
+In this connection Mr. Jha, for the respondents, has drawn our attention to a decision of the Madras High (1) ; 479 Court in V. V. Ramaswamy vs Election Tribunal, Tirunelveli (1).
+In that case the Court was concerned with four contracts by which the contracting party agreed "to hold the reserve grain stock belonging to the Government of Madras, safely store it, and dispose of it according to the directions of the Government".
+In other words, it was a contract not only for the stocking and storing of foodgrains but also of disposing of it, and that naturally meant that the contract was for service which the State Government had undertaken to perform.
+This decision cannot assist the respondents in the present appeal.
+In the result we hold that the High Court was not justified in reversing the finding of the Tribunal that the contract in question did not attract the provisions of section 7(d) of the Act.
+The appeal must, therefore, be allowed and the order passed by the High Court set aside.
+We cannot finally dispose of the matter, because one question still remains to be considered, and that is whether the conclusion that the appellant 's nomination paper had been improperly rejected would lead to the decision that the election of not only respondent 1 but also respondent 2 should be declared to be void.
+The Election Tribunal has declared the whole election to be void, and in their respective appeals filed before the High Court both the respondents have challenged the correctness of that finding.
+The High Court, however, thought that since in its opinion the nomination paper of the appellant had been properly rejected it was unnecessary to deal with the other point.
+The point will now have to be considered by the High Court.
+We would, therefore, set aside the order passed by the High Court and remand the pro ceedings to it in order that it may deal with the other question and dispose of the appeals expeditiously in accordance with law.
+In the circumstances of this case we direct that the parties should bear their own costs in this Court.
+Costs in the High Court will be costs in the appeal before it.
+Appeal allowed.

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+Appeal No. 198 of 1954.
+Appeal from the judgment and order dated October 16, 1952, of the former Nagpur High Court in Misc. Petn.; No. 1231 of 1951.
+M. section K. Sastri, for the appellant.
+H. L. Khaskalam, B. K. B. Naidu and I. N. Shroff, for the respondent.
+64 502 1960.
+November 18.
+The Judgment of the Court was delivered by IMAM, J.
+This is an appeal from the judgment of the Nagpur High Court dismissing the appellants petition under articles 226 and 227 of the Constitution of India.
+The High Court certified under article 132(1) of the Constitution that the case involved a substantial question of law as to the interpretation of the Constitution.
+Hence the present appeal.
+The appellant was the Ruler of the State of Baster.
+After the passing of the Indian Independence Act, 1947, the appellant executed an Instrument of Accession to the Dominion of India on August 14, 1947.
+Thereafter, he entered into an agreement with the Dominion of India popularly known as "The Stand Still Agreement".
+On December 15, 1947, he entered into an agreement with the Government of India whereby he ceded the State of Baster to the Government of India to be integrated with the Central Provinces and Berar (now the State of Madhya Pradesh) in such manner as the Government of India thought fit.
+Con sequently the Governments in India came to have exclusive and plenary authority, jurisdiction and powers over the Baster State with effect from January 1, 1948.
+The Legislature of the State of Madhya Pradesh passed the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, Alienated Lands) Act, 1950 (Madhya Pradesh Act 1 of 1951), hereinafter referred to as the Act, which received the assent of the President of India on January 22, 1951.
+The preamble of the Act stated that it was one to provide for the acquisition of the rights of proprietors in estates, mahals, alienated villages and alienated lands in Madhya Pradesh and to make provisions for other matters connected therewith.
+Under section 3 of the Act, vesting of proprietary rights in the State Government takes place on certain conditions,, mentioned in that section, being complied with.
+The definition of 'proprietor ' is stated in section 2 cl.
+(m) and it is "in relation to 503 (i) the Central Provinces, includes an inferior proprietor, a protected thekadar or other thekadar, or protected headman; (ii) the merged territories, means a maufidar including an ex Ruler of an Indian State merged with Madhya Pradesh, a Zamindar, Ilaquedar, Khorposhdar or Jagirdar within the meaning of wajib ul arz, or any sanad, deed or other instrument, and a gaontia or a thekadar of a village in respect of which by or under the provisions contained in the wajib ul arz applicable to such village the maufidar, the gaontia, or the thekadar, as the case may be, has a right to recover rent or revenue from persons holding land in such village;".
+The definition of 'mahal ' is stated in section 2(j) and it is "mahal", in relation to merged territories, means any area other than land in possession of a raiyat which has been separately assessed to land revenue, whether such land revenue be payable or has been released, compounded for or redeemed in whole or in part;".
+Before the High Court the appellant contended that he was still a Sovereign Ruler and absolute owner of the villages specified in Schedules A and B of his petition under articles 226 and 227 of the Constitution.
+He urged that his rights had been recognized and guaranteed under the agreements entered into by him with the Government of India.
+The provisions of the Act, therefore, did not apply to him.
+It was further contended that the provisions of the Act did not apply to a Ruler or to the private property of a Ruler which was not assessed to land revenue.
+He relied on article 6 of the Instrument of Accession and the first paragraph of article 3 of the Merger Agreement.
+The High Court held that if the petitioner 's rights under article 6 of the Instrument of Accession and article 3 of the Merger Agreement had been infringed it was clear from the provisions of article 363 of the Constitution that interference by the courts was barred in disputes arising out of these two instruments.
+The High Court was also of the opinion that article 362 of the Constitu tion was of no assistance to the appellant.
+504 After referring to the definition of the word 'proprietor ' in the Act, the High Court was of the opinion that the word 'maufidar ' in section 2(m) of the Act had not been used in any narrow or technical sense.
+A 'maufidar ' was not only a person to whom a grant of maufi lands had been made but was also one who held land which was exempt from the payment of "rent or tax".
+It accordingly rejected the contention on behalf of the appellant that the word 'maufidar ' is necessarily confined to a grantee from the State or Ruler and therefore a Ruler could not conceivably be a maufidar.
+The High Court also rejected the contention on behalf of the appellant that as he was a "Ruler" within the meaning of that expression in article 366(22) of the Constitution he did not come within the expression 'ex Ruler ' as contained in the definition of the word 'proprietor ' in the Act.
+The expression 'Ruler ' as defined in article 366(22) of the Constitution applied only for interpreting the provisions of the Constitution.
+The expression 'ex Ruler ' given in the Act must therefore be given the ordinary dictionary meaning.
+According to Shorter Oxford English Dictionary, 'Ruler ' means "one who, or that which, exercises rule, especially of a supreme or sovereign kind.
+One who has control, management, or head ship within some limited sphere".
+The High Court accordingly took the view that although the appellant did exercise such a rule in the past he ceased to exercise it in his former Domain after the agreements of accession and merger had come into operation.
+Accordingly the appellant must be regarded as an ex Ruler and as he was also a maufidar he fell within the definition of the word 'proprietor ' in the Act.
+The question whether the villages mentioned in Schedules A and B of the petition under articles 226 and 227 of the Constitution fell in any of the categories, "Estates, Mahals, Alienated lands", was also considered by the High Court.
+In its opinion they did not fall within the category of Estates or Alienated lands but they did fall within the category of Mahals.
+According to the definition of 'Mahal ' in section 2(j) of the Act the same must be separately assessed to land 505 revenue.
+According to the appellant they had not been assessed to land revenue but this was denied on behalf of the State of Madhya Pradesh.
+The High Court was of the opinion that in these circumstances it was for the appellant to establish that the villages in question had never been assessed to land revenue but no evidence had been led to this effect.
+On the contrary, according to the High Court, it would appear from the documents on the record that the villages known as 'Bhandar villages ' had been assessed to land revenue.
+As the rest of the villages in Schedule A and the villages in Schedule B, upto the date of the High Court judgment, had not been recognized as the private property of the appellant by the Government of India as required by the second and third paragraphs of the Merger Agreement, the appellant could not assert his ownership over them.
+The High Court, accordingly, dismissed his petition under articles 226 and 227 of the Constitution.
+Two questions in the main were urged before us (1) whether the appellant is a proprietor within the meaning of that expression in the Act and (2) whether the villages in question came within the definition of the word 'mahal ' contained in the Act.
+On behalf of the appellant it had also been urged that the Act could not defeat the rights of the appellant guaranteed under article 3 of the Merger Agreement.
+It seems clear to us, however, that in view of the provisions of article 363(1) of the Constitution any dispute arising out of the Merger Agreement or the Instrument of Accession is beyond the competence of the courts to enquire into.
+The High Court rightly decided this point against the appellant.
+With reference to the first point we would first consider whether the appellant is an ex Ruler for the purposes of the Act.
+That he is so factually cannot be denied, since he ceded his State to the Government of India to be integrated with the Central Provinces and Berar (now the State of Madhya Pradesh) in such manner as the Government of India thought fit.
+He further ceded to the Government ' of India full and exclusive authority, jurisdiction and powers in relation 506 to the governance of his State when he agreed that the administration of that State would be transferred to the Government of India as from January 1, 1948.
+The question is whether his recognition for the purposes of the Constitution as Ruler by virtue of the provisions of article 366(22) of the Constitution of India continues his status as a Ruler for purposes other than the Constitution.
+article 366(22) states: " "Ruler" in relation to an Indian State means the Prince, Chief or other person by whom any such covenant or agreement as is referred to in clause (1) of article 291 was entered into and who for the time being is recognised by the President as the Ruler of the State, and includes any person who for the time being is recognised by the President as the successor of such Ruler".
+Article 291 refers to the privy purse payable to Rulers.
+It states: "Where under any covenant or agreement entered into by the Ruler of any Indian State before the commencement of this Constitution, the payment of any sums, free of tax, has been guaranteed or assured by the Government of the Dominion of India to any Ruler of such State as privy purse (a) such sums shall be charged on, and paid out of, the Consolidated Fund of India; and (b) the sums so paid to any Ruler shall be exempt from all taxes on income.
+" Article 291 refers to any covenant or agreement entered into by the Ruler of any Indian State before the commencement of the Constitution.
+The covenant or agreement referred to in this Article certainly includes the Instrument of Accession and the Merger Agreement.
+The effect of the Merger Agreement is clearly one by which factually a Ruler of an Indian State ceases to be a Ruler but for the purposes of the Constitution and for the purposes of the privy purse guaranteed, he is a Ruler as defined in article 366(22) of the Constitution.
+There is nothing in the provisions of article 366(22) which requires a court to recognise such a person as a Ruler for purposes outside the Constitution.
+In our opinion, the High Court rightly held that 507 the appellant was an ex Ruler and that article 366(22) of the Constitution did not make him a Ruler for the purposes of the Act.
+As the appellant was an 'ex Ruler ', he was within the class of persons who were by name specifically included in the definition of 'proprietor ' and therefore clearly within the scope of the Act.
+That the appellant was not only an ex Ruler but a maufidar appears to us to be clear.
+The ordinary dictionary meaning of maufi is "Released, exempted, exempt from the payment of rent or tax, rent free" and maufidar is "A holder of rent free land, a grantee".
+It was common ground in the High Court that the villages in question were exempt from the payment of rent or tax.
+In our opinion, the High Court rightly took the view that the expression 'maufidar ' was not necessarily confined to a grantee from a State or a Ruler of a State.
+A maufidar could be a person who was the holder of land which was exempted from the payment of rent or tax.
+In our opinion, the appellant certainly came within the expression 'maufidar ' besides being an ex Ruler ' of an Indian State merged with Madhya Pradesh.
+It is, however, contended on behalf of the appellant that the most important part of the definition was the concluding portion where it was stated that in the case of a maufidar he must be a person who by or under the provisions contained in the wajib ul arz applicable to his village, had the right to recover rent or revenue from persons holding land in such village.
+It was contended that even if the appellant was a maufidar, there was nothing to show that with reference to any village held by him it was entered in the wajib ul arz, that he had a right to recover rent or revenue from persons holding land in such village.
+In the petition under articles 226 and 227 of the Constitution, filed by the appellant in the High Court, it was nowhere asserted that even if he was regarded as a maufidar it was not entered in the wajib ul arz with respect to any of his maufi villages that he had a right to recover rent or revenue from persons holding land in such villages.
+From the judgment of the High 508 Court it would appear that no such argument was advanced before it.
+In the application for a certificate under article 132(1) of the Constitution we can find no mention of this.
+In the statement of the case filed in this Court also there is no mention of this fact.
+There is thus no material on the record to establish that the appellant as a maufidar had no right to recover rent or revenue from persons holding land in his villages.
+The burden was on the appellant to prove this fact which he never attempted to discharge.
+It is impossible therefore to accept this contention on behalf of the appellant raised for the first time before us in the course of the submissions made on behalf of the appellant.
+Regarding the second point arising out of the definition of 'Mahal ', the High Court definitely found that the petitioner had given no evidence to establish that the villages in question were not assessed to land revenue.
+On the contrary, at least with reference to the Bhandar villages documents on the record showed that these villages had been assessed to land revenue.
+Since it was a question of fact whether the villages had been assessed to land revenue, which was denied on behalf of the State of Madhya Pradesh, the High Court rightly held that the contention of the appellant in this respect could not be accepted.
+As for the other villages, in Schedules A and B of the petition of the appellant under articles 226 and 227 of the Constitution the High Court, in our opinion, rightly held that the petition was not maintainable as these villages had not yet been recognised by the Government of India as the private property of the appellant.
+In our opinion, the appeal accordingly fails and is dismissed with costs.
+Appeal dismissed.

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+Appeals Nos. 155 to 160 of 1956.
+Appeals from the judgments and orders of the Bombay High Court dated July 6, 1954, in Special Civil Applications Nos. 393, 395, 409 and 632 of 1954; July 19, 1954, in Special Civil Application No. 1205 of 1954; and July 30, 1954, in Special Civil Application No. 1309 of 1954.
+Purshottam Trikamdas, V. M. Limaye, E. Udayaratnam and section section Shukla, for the appellants.
+H. N. Sanyal, Additional Solicitor General of India, N. P. Nathwani, K. L. Hathi and R. H. Dhebar, for the respondents. 1960.
+October 3.
+The Judgment of the Court was delivered by WANCHOO J.
+These six appeals on a certificate granted by the Bombay High Court raise a common question as to the constitutionality of the Bombay Personal Inams Abolition Act, No. XLII of 1953, (hereinafter called the Act) and will be disposed of by this judgment.
+The appellants hold personal inams which are covered by Bombay Acts Nos. 11 and VII of 1863.
+The Act was attacked on a number of grounds in the High Court of which only two have 945 been urged before us, namely, (i) that the property which has been dealt with under the Act is not an estate and (ii) that no compensation has been provided in the Act for taking away the property of the appellants: The writ petitions were opposed by the State of Bombay and the main contention on its behalf was that the Act was protected under article 31 A of the Constitution.
+Before we deal with the two points raised before us, we should like briefly to refer to the rights which holders of personal inams had by virtue of Bombay Acts Nos.
+II and VII of 1863.
+Act No. 11 extended to certain parts of the Presidency of Bombay and dealt with holders of lands in those parts who were holding lands wholly or partially exempt from the payment of government land revenue.
+The Act provided for the cases of holders of such lands whose title to exemption had not till then been formally adjudicated.
+It laid down that if such holders of lands consented to submit to the terms and conditions prescribed in the Act in preference to being obliged to prove their title to the exemption enjoyed by them, the Provincial Government would be prepared to finally authorise and guarantee the continuance, in perpetuity, of the said land to the said holders, their heirs and assigns upon the said terms and subject to the said conditions.
+The main provision of the Act in this respect was that such holders of land would be entitled to keep their lands in perpetuity subject to payment of (i) a fixed annual payment as nazrana in commutation of all claims of the Crown in respect of succession and transfer which shall be calculated at the rate of one anna for each rupee of assessment and (ii) a quit rent equal to one fourth of the assessment.
+There were other provisions in the Act for those cases where the holders of such lands were not prepared to abide by the conditions of the Act and wanted their claims to be adjudicated; but we are not concerned with those provisions for present purposes.
+Thus the main right which the holders of lands got by Act 11 was that they held their lands on payment of one fourth of the assessment instead of full 946 assessment plus further one sixteenth of the assessment; thus they paid in all five annas in the rupee of the full assessment and retained eleven annas in the rupee for themselves.
+Act No. VII dealt with similar holders of lands in the remaining parts of the Presidency of Bombay, and made similar provisions with this difference that such holders of lands were to pay two annas for each rupee of the assessment as quit rent under section 6.
+Thus those who came under Act VII paid only two annas in the rupee of the assessment and retained fourteen annas in the rupee for themselves.
+We now turn to the provisions of the Act.
+By section 2(c) inamdar " is defined as a holder of personal inam and includes any person lawfully holding under or through him.
+Section 2(d) defines an " inam village or " inam land " while section 2(e) defines " personal inam Section 3 provides that the Act will not apply to certain inams including devasthan inams or inams held by religious or charitable institutions.
+The Explanation to the section lays down that by the term " inams held by religious or charitable institu tions " will be meant devasthan or dharmadaya inams granted or recognized by the ruling authority for the time being for a religious or charitable institution and entered as such in the alienation register kept under section 53 of the Bombay Land Revenue Code, 1879 (hereinafter called the Code), or in the records kept under the rules made under the .
+Thus so far as religious or charitable institutions were concerned those inams which they held from the very beginning as devasthan or dharmadaya inams and which were entered in the relevant records were out of the provisions of the Act.
+Section 4 extinguishes all personal inams and save as expressly provided by or under the provisions of the Act, all rights legally subsisting on the said date in respect of such personal inams were also extinguished subject to certain exceptions which are, however, not material now.
+Section 5 provides that all inam villages or inam lands are and shall be liable to the payment of land revenue in accordance with the provisions of the Code or the 947 rules made thereunder and the provisions of the Code and the rules relating to unalienated lands shall apply to such lands.
+It further provides that an inamdar in respect of the inam land in his actual possession or in possession of a person holding from him other than an inferior holder (subject to an exception which we shall mention just now) would be primarily liable to the State Government for the payment of land revenue due in respect of such land held by him and shall be entitled to all the rights and shall be liable to all obligations in respect of such land as an occupant under the Code or the rules made thereunder or any other law for the time being in force.
+Thus by section 5 the holder of a personal inam became for all practical purposes an occupant under the Code liable to pay full land revenue and the advantage that he had under Acts II and VII of 1863 of paying only a part of the land revenue and retaining the rest for himself was taken away.
+The exception which we have refer. red to above was where the inferior holder holding inam land paid an amount equal to the annual assess ment to the holder of the personal inam, such inferior holder would be liable to the State Government and would become an occupant of the land under the Code.
+Section 7 then vests certain lands like public roads, paths and lanes, the bridges, ditches, dikes and fences, the bed of the sea and harbours, creeks below high water mark and of rivers, streams, nallas, lakes, wells and tanks, and all canals, water courses, all standing and flowing water, all unbuilt village sites, all waste lands and all uncultivated lands (excluding lands used for building or other non agricultural purposes) in the State Government and extinguishes the rights of inamdar in them.
+Section 8 deals with right to trees and section 9 with right to mines and mineral products.
+Section 10 provides for compensation for extinguishment of rights under section 7 while section 11 gives a right of appeal from the order of the Collector under section 10.
+Sections 12 to 16 deal with procedural matters and section 17 provides for payment of compensation for extinction or modification of an inamdar 's right which may not be covered by section 10.
+Sub section (5) 948 of section 17 however says that " nothing in this section shall entitle any person to compensation on the ground that any inam village or inam land which was wholly or partially exempt from the payment of land revenue has been under the provisions of this Act made subject to the payment of full assessment in accordance with the provisions of the Code ".
+Section 17 A provides for the issue of bonds while section 18 provides for the application of the Bombay Tenancy and Agricultural Lands; Act, 1948, to any inam village or. inam land or the mutual rights and obligations of an inamdar and his tenants.
+Section 19 provides for making of rules and section 20 deals with repeals and amendments.
+It will be seen from this analysis of the Act that the main provisions are sections 4, 5 and 7.
+So far as section 7 is concerned, there is provision for compensation with respect to lands vested in the State by virtue of that section.
+But no compensation is provided for the rights extinguished by as. 4 and 5.
+As we have seen already the main right of an inamdar was to hold his lands on payment of land revenue which was less than the full assessment and it is this right which has been abolished by sections 4 and 5 and the inamdar will now have to pay the full assessment.
+No compensation has been provided for the loss which the inamdar suffers by having to pay the full assessment.
+This brings us to the first contention.
+On behalf of the appellants it is urged that what sections 4 and 5 extinguish is the right of the inamdar to appropriate to himself the difference between the full assessment and the quit rent, and this is not an estate within the meaning of Art, 3 1 A of the Constitution.
+The relevant provisions in article 31 A for present purposes aref these: " 31 A (1) Notwithstanding anything contained in article 13, no law providing for (a) the acquisition by the State of any estate or of any rights therein or the extinguishment or modification of any such rights, or (b). . . . (c). . . . 949 (d). . . . (e). . . . shall be deemed to be void on the ground that it is in consistent with or takes away or abridges any of the rights conferred by article 14, art 19 or article 31 ; Provided. . . (2) In this article (a) the expression ' estate ' shall, in relation to any local area, have the same meaning as that expression or its local equivalent has in the existing law relating to land tenures in force in that area, and shall also include any jagir, inam or muafi or other similar grant and in the States of Madras and Kerala any janmam right; (b) the expression 'rights ' in relation to an estate shall include any rights vesting in a proprietor, sub proprietor, under proprietor, tenure holder, raiyat, under raiyat or other intermediary and any rights or privileges in respect of land revenue ".
+It will be, clear from the definition of the word estate " in article 31 A(2)(a) that it specifically includes an " inam " within it.
+As such it would be in our opinion idle to contend that inams are not estates within the meaning of the expression " estate " for the purpose of article 31 A.
+The Act specifically deals with inams and would thus be obviously protected under article 31 A from any attack under article 14, article 19 or article 31.
+It is, however, urged that the right of the inamdar to appropriate to himself that part of full assessment which was left over after he had paid the quit rent to the Government is not a right in an estate.
+This contention also has no force.
+Inams being estates, the right of the inamdar to retain part of the full assessment over and above the quit rent payable to the Government arises because he holds the inam estate.
+The right therefore can be nothing more than a right in an estate.
+Besides the definition of the expression " rights " in article 31 A(2)(b) makes the position clear beyond all doubt, for it provides that the rights in relation to an estate would include any rights or privileges in respect of land revenue 121 950 Even if it were possible to say that the right of the inamdar to appropriate to himself the difference between the full assessment and the quit rent was not a right in an estate as such, it would become a right in an estate by virtue of this inclusive definition for the inamdar 's right could only be a right or privilege in respect of land revenue.
+Besides, it is clear that the right in question falls under section 3(5) of the Code and as such also it is an estate under Art.31 A.
+The contention of the appellants therefore that inams dealt with by the Act are not covered by the expression " estate " in article 31 A fails.
+Their further contention that their right to retain the difference between full assessment and quit rent is not a right in an estate also fails.
+The Act therefore when it extinguishes or modifies the rights of inamdars in the inam estates is clearly protected by article 31 A.
+The next contention is that the Act does not provide for compensation and is therefore ultra vires in view of article 31.
+We find, however, that the Act has provided for compensation under section 10 so far as that part of inam lands which are vested in the State by section 7 are concerned.
+Further section 17 provides for compensation in a possible case where anything has been left out by section 7 and the inamdar is entitled to compensation for it.
+It is true that by sub section (5) of section 17 no compensation is to be paid for the loss to the inamdar of what he used to get because of the difference between the quit rent and the full assessment.
+It is how ever clear that article 31 A saves the Act from any attack under article 31 which is the only Article providing for compensation.
+In this view of the matter the constitutionality of the Act cannot be assailed on the ground that it provides no compensation for extinction of certain rights.
+There is no force in these appeals and they are hereby dismissed with costs.
+One set only of hearing costs.
+Appeals dismissed.

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+iminal Appeal No. 68 of 1958.
+Appeal by special leave from the judgment and order dated July 11, 1957, of the Allahabad High Court (Lucknow Bench), Lucknow, in Criminal Appeal No. 515 of 1955, arising out of the judgment and order dated October 31, 1955, of the Special Judge, Anti corruption, Lucknow, in Criminal Case No. 2/3/32/45 of 1953 55.
+Frank Anthony, Udai Pratap Singh and P. C. Agarwala, for the appellant.
+G. C. Mathur and O. P. Lal, for the respondent.
+December 15.
+The Judgment of the Court was delivered by GAJENDRAGADKAR J.
+This appeal by special leave Gajendragadkar j. has been filed by C. 1.
+Emden (hereinafter called the appellant) who has been convicted under section 161 of the Indian Penal Code and under section 5(2) of the Prevention of Corruption Act 2 of 1947 (hereinafter called the Act).
+The case against him was that he had accepted a bribe of Rs. 375 from Sarat Chandra Shukla on January 8, 1953.
+The appellant was a Loco Foreman at Alambagh Loco Shed, and Shukla had secured a contract at the same place for the removal of cinders 76 594 from ash pits and for loading coal.
+This contract had been given to Shukla in June 1952.
+The prosecution case was that the appellant demanded from Shukla Rs. 400 per month in order that Shukla may be allowed to carry out his contract peacefully without any harassment.
+Shukla was told by the appellant that he had been receiving a monthly payment from Ram Ratan who had held a similar contract before him and that it would be to his interest to agree to pay the bribe.
+Shukla, however, refused to accede to this request and that led to many hostile acts on the part of the appellant.
+On January 3, 1953, the appellant again asked Shukla to pay him the monthly bribe as already suggested; Shukla then requested him to reduce the demand on the ground that the contract given to him was for a much lesser amount than that which had been given to his predecessor Ram Ratan; the appellant thereupon agreed to accept Rs. 375.
+Shukla had no money at the time and so he asked for time to make the necessary arrangement.
+The agreement then was that Shukla would pay the money to the appellant on January 8, 1953.
+Meanwhile Shukla approached the Deputy Superintendent, of Police, Corruption Branch, and gave him information about the illegal demand made by the appellant.
+Shukla 's statement was then recorded before a magistrate and it was decided to lay a trap.
+Accordingly, a party consisting of Shukla, the magistrate, the Deputy Superintendent of Police and some other persons went to the Loco Yard.
+Shukla and Sada Shiv proceeded inside the Yard while the rest of the party stood at the gate.
+Shukla then met the appellant and informed him that he had brought the money; he was told that the appellant would go out to the Yard and accept the money.
+At about 3 p.m. the appellant went out to the Yard and, after making a round, came to the place which was comparatively secluded.
+He then asked Shukla to pay the money and Shukla gave him a bundle containing the marked currency notes of the value of Rs. 375.
+A signal was then made by Shukla and the raiding party immediately arrived on the scene.
+The magistrate disclosed his identity to the 595 appellant and asked him to produce the amount paid to him by Shukla.
+The appellant then took out the currency notes from his pocket and handed them over to the magistrate.
+It is on these facts that charges under section 161 of the Indian Penal Code and section 5(2) of the Act were framed against the appellant.
+The appellant denied the charge.
+He admitted that he had received Rs. 375 from Shukla but his case was that at his request Shukla had advanced the said amount to him by way of loan for meeting the expenses of the clothing of his children who were studying in school.
+The appellant alleged that since he had been in need of money he had requested Kishan Chand to arrange for a loan of Rs. 500; but knowing about his need Shukla offered to advance him the loan, and it was as such loan that Shukla paid him Rs. 375 and the appellant accepted the said amount.
+Both the prosecution and the defence led evidence to support their respective versions.
+The learned special judge who tried the case believed the evidence given by Shukla, held that it was sufficiently corroborated, and found that the defence story was improbable and untrue.
+The learned judge also held that on the evidence led before him the presumption under section 4 of the Act had to be raised and that the said presumption had not been rebutted by the evidence led by the defence.
+Accordingly, the learned judge convicted the appellant of both the offences charged and sentenced him to suffer one year 's rigorous imprisonment and to pay a fine of Rs. 500 under section 161 of the Code and two years ' rigorous imprisonment under section 5 of the Act.
+Both the sentences were ordered to run concurrently.
+The appellant challenged the correctness and propriety of this order by his appeal before the High Court of Allahabad.
+The High Court saw no reason to interfere with the order under appeal because it held that, on the facts of the case, a statutory presumption under section 4 had to be raised and that the said presumption had not been rebutted by the appellant.
+In other words the High Court did not consider the prosecution evidence apart from the presumption since 596 it placed its decision on the presumption and the failure of the defence to rebut it.
+In the result the conviction of the appellant was confirmed, the sentence passed against him under section 161 was maintained but the sentence under section 5(2) of the Act was reduced to one year.
+The sentences thus passed were ordered to run concurrently.
+It is against this order that the present appeal by special leave has been preferred by the appellant.
+This appeal has been placed before a Constitution Bench because one of the points which the appellant raises for our decision is that section 4(1) of the Act which requires a presumption to be raised against an accused person is unconstitutional and ultra vires as it violates the fundamental right guaranteed by article 14 of the Constitution.
+We would, therefore, first examine the merits of this point.
+The Act was passed in 1947 with the object of effectively preventing bribery and corruption.
+Section 4(1) provides that where in any trial of an offence punishable under section 161 or section 165 of the Indian Penal Code it is proved that an accused person has accepted or obtained, or has agreed to accept or attempted to obtain, for himself or for any other person, any gratification (other than legal remuneration) or any valuable thing from any person, it shall be presumed unless the contrary is proved that he accepted or obtained or agreed to accept or attempted to obtain, that gratification or that valuable thing, as the case may be, as a motive or reward such as is mentioned in the said section 161, or as the case may be, without consideration or for a consideration which he knows to be inadequate.
+Mr. Anthony, for the appellant, contends that this section offends against the fundamental requirement of equality before law or the equal protection of laws.
+It is difficult to appreciate this argument.
+The scope and effect of the fundamental right guaranteed by article 14 has been considered by this Court on several occasions; as a result of the decisions of this Court it is well estab.
+lished that article 14 does not forbid reasonable classific ation for the purposes of legislation; no doubt it forbids class legislation; but if it appears that the 597 impugned legislation is based on a reasonable classification founded on intelligible differentia and that the said differentia have a rational relation to the object Sought to be achieved by it, its validity cannot be successfully challenged under article 14 (Vide: Shri Ram Krishna Dalmia vs Shri Justice section R. Tendolkar (1).
+In the present case there can be no doubt that the basis adopted by the Legislature in classifying one class of public servants who are brought within the mischief of section 4(1) is a perfectly rational basis.
+It is based on an intelligible differentia and there can be no difficulty in distinguishing the class of persons covered by the impugned section from other classes of persons who are accused of committing other offences.
+Legislature presumably realised that experience in courts showed how difficult it is to bring home to the accused persons the charge of bribery; evidence which is and can be generally adduced in such cases in support of the charge is apt to be treated as tainted, and so it is not very easy to establish the charge of bribery beyond a reasonable doubt.
+Legislature felt that the evil of corruption amongst public servants posed a serious problem and bad to be effectively rooted out in the interest of clean and efficient administration.
+That is why the Legislature decided to enact section 4(1) with a view to require the raising of the statutory presumption as soon as the condition precedent prescribed by it in that behalf is satisfied.
+The object which the Legislature thus wanted to achieve is the eradication of corruption from amongst public servants, and between the said object and the intelligible differentia on which the classification is based there is a rational and direct relation.
+We have, therefore, no hesitation in holding that the challenge to the vires of section 4(1) on the ground that it violates article 14 of the Constitution must fail.
+Incidentally, we may refer ' to the decision of this Court in A. section Krishna vs The State of Madras (2) in which a similar challenge to the vires of a statutory presumption required to be raised under section 4(2) of the Madras Prohibition Act, 10 of 1937, has been repelled.
+(1) ; (2) ; 598 That takes us to the question of construing section 4(1).
+When does the statutory presumption fall to be raised, and what is the content of the said presumption? Mr. Anthony contends that the statutory presumpion cannot be raised merely on proof of the fact that the appellant had received Rs. 375 from Shukla; in order to justify the raising of the statutory presumption it must also be shown by the prosecution that the amount was paid and accepted as by way of bribe.
+This argument involves the construction of the words " any gratification other than, legal remuneration " used in section 4(1).
+It is also urged by Mr. Anthony that even if the statutory presumption is raised against the appellant, in deciding the question as to whether the contrary is proved within the meaning of section 4(1) it must be borne in mind that the onus of proof on the appellant is not as heavy as it is on the prosecution in a criminal trial.
+Let us first consider when the presumption can be raised under section 4(1).
+In dealing with this question it may be relevant to remember that the presumption is drawn in the light of the provisions of section 161 of the Indian Penal Code.
+In substance the said section provides inter alia that if a public servant accepts any gratification whatever other than legal remuneration as a motive or reward for doing or forbearing to do any official act, he is guilty of accepting illegal gratification.
+Section 4(1) requires the presumption to be raised whenever it is proved that an accused person has accepted " any illegal gratification (other than legal remuneration) or any valuable thing.
+" This clause does not include the receipt of trivial gratification or thing which is covered by the exception prescribed by sub section
+The argument is that in prescribing the condition precedent for raising a presumption the Legislature has advisedly used the word " gratification " and not money or gift or other consideration.
+In this connection reliance has been placed on the corresponding provision contained in section 2 of the English Prevention of Corruption Act, 1916 (6 Geo. 5, c. 64) which uses the words "any money, gift, or other consideration ".
+The use of the 599 word gratification emphasises that it is not the receipt of any money which justifies the raising of the presumption; something more than the mere receipt of money has to be proved.
+It must be proved that the money was received by way of bribe.
+This contention no doubt is supported by the decision of the Rajasthan High Court in The State vs Abhey Singh (1) as well as the decision of the Bombay High Court in the State vs Pandurang Laxman Parab (2).
+On the other hand Mr. Mathur, for the State, argues that the word " gratification " should be construed in its literal dictionary meaning and as such it means satisfaction of appetite or desire; that is to say the presumption can be raised whenever it is shown that the accused has received satisfaction either of his desire or appetite.
+No doubt it is conceded by now that in most of the cases it would be the payment of money which would cause gratification to the accused; but he contests the suggestion that the word " gratification " must be confined only to the payment of money coupled with the right that the money should have been paid by way of a bribe.
+This view has been accepted by the Bombay High Court in a subsequent decision in State vs Pundlik Bhikaji Ahire (3) and by the Allahabad High Court in Promod Chander Shekhar vs Rex (4).
+Paragraph 3 of section 161 of the Code provides that the word " gratification " is not restricted to pecuniary gratification or to gratifications estimable in money.
+Therefore " gratification " mentioned in section 4(1) cannot be confined only to payment of money.
+What the prosecution has to prove before asking the court to raise a presumption against an accused person is that the accused person has received a " gratification other than legal remuneration "; if it is shown, as in the present case it has been shown, that the accused received the stated amount and that the said amount was not legal remuneration then the condition prescribed by the section is satisfied.
+In the context of the remuneration legally payable to, and receivable by, a (1) A.I.R. (2) xi.
+(3) (4) I.L.R. 1950 All.
+600 public servant, there is no difficulty in holding that where money is shown to have been paid to, and accepted by, such public servant and that the said money does not constitute his legal remuneration, the presumption has to be raised as required by the section.
+If the word " gratification " is construed to mean money paid by way of a bribe then it would be futile or superfluous to prescribe for the raising of the presumption.
+Technically it may no doubt be suggested that the object which the statutory presumption serves on this construction is that the court may then presume that the money was paid by way of a bribe as a motive or reward as required by section 161 of the Code.
+In our opinion this could not have been the intention of the Legislature in prescribing the statutory presumption under section 4(1).
+In the context we see no justification for not giving the word " gratification " its literal dictionary meaning.
+There is another consideration which supports this construction.
+The presumption has also to be raised when it is shown that the accused person has received any valuable thing.
+This clause has reference to the offence punishable under section 165 of the Code; and there.
+is no doubt that one of the essential ingredients of the said offence is that the valuable thing should have been received by the accused without consideration or for a consideration which he knows to be inadequate.
+It cannot be suggested that the relevant clause in section 4(1) which deals with the acceptance of any valuable thing should be interpreted to impose upon the prosecution an obligation to prove not only that the valuable thing has been received by the accused but that it has been received by him without consideration or for a consideration which he knows to be inadequate.
+The plain meaning of this clause undoubtedly requires the presumption to be raised whenever it is shown that the valuable thing has been received by the accused without anything more.
+If that is the true position in respect of the construction of this part of section 4(1) it would be unreasonable to hold that the word " gratification " in the same clause imports the necessity to prove not only the payment 601 of money but the incriminating character of the said payment.
+It is true that the Legislature might have used the word " money " or " consideration " as has been done by the relevant section of the English statute; but if the dictionary meaning of the word " gratification " fits in with the scheme of the section and leads to the same result as the meaning of the word " valuable thing " mentioned in the same clause, we see no justification for adding any clause to qualify the word " gratification"; the view for which the appellant contends in effect amounts to adding a qualifying clause to describe gratification.
+We would accordingly hold that in the present appeal the High Court was justified in raising the presumption against the appellant because it is admitted by him that he received Rs. 375 from Shukla and that the amount thus received by him was other than legal remuneration.
+What then is the content of the presumption which is raised against the appellant ? Mr. Anthony argues that in a criminal case the onus of proof which the accused is called upon to discharge can never be as heavy as that of the prosecution, and that the High Court should have accepted the explanation given by the appellant because it is a reasonably probable explanation.
+He contends that the test which can be legitimately applied in deciding whether or not the defence explanation should be accepted cannot be as rigorous as can be and must be applied in deciding the merits of the prosecution case.
+This question has been considered by courts in India and in England on several occasions.
+We may briefly indicate some of the relevant decisions on this point.
+In Otto George Gfeller vs The King(1) the Privy Council was dealing with the case where the prosecution had established that the accused were in possession of goods recently stolen and the point which arose for decision was how the explanation given by the accused about his possession of the said goods would or should be considered by the jury.
+In that connection Sir George Rankin observed that the appellant did not (1) A.I.R. 1943 P.C. 211. 77 602 have to prove his story, but if his story broke down the jury might convict.
+In other words, the jury might think that the explanation given was one which could not be reasonably true, attributing a reticence or an incuriosity or a guilelessness to him beyond anything that could fairly be supposed.
+The same view was taken in Rex vs Carr Briant (1) where it has been observed that in any case where either by statute or at common law some matter is presumed against an accused, " unless the contrary is proved the jury should be directed that it is for them to decide whether the contrary is proved, that the burden of proof required is less than that required at the bands of the prosecution in proving the case beyond a reasonable doubt, and that the burden may be discharged by evidence satisfying the jury of the probability of that which the accused is called upon to establish " (p. 612).
+In other words, the effect of these observations appears to be to relax to some extent the rigour of "the elementary proposition that in civil cases the preponderance of probability may constitute sufficient ground for a verdict " (p. 611),(Also vide: Regina vs Dunbar (2)).
+It is on the strength of these decisions that Mr. Anthony contends that in deciding whether the contrary has been proved or not under section 4(1) the High Court should not have applied the same test as has to be applied in dealing with the prosecution case.
+The High Court should have inquired not whether the explanation given by the appellant is wholly satisfactory but whether it is a reasonably possible explanation or not.
+On behalf of the State it is urged by Mr. Mathur that in construing the effect of the clause " unless the contrary is proved " we must necessarily refer to the definition of the word " proved " prescribed by section 3 of the Evidence Act.
+A fact is said to be proved when, after considering the matter before it, the Court either believes it to exist or considers its existence so probable that a prudent man ought under the circumstances of the particular case to act on the supposition that it exists.
+He has also relied on section 4 which provides that whenever it is directed that the (1) (2) at p. 11.
+603 court shall presume a fact it shall record such fact as proved unless and until it is disproved.
+The argument is that there is not much room for relaxing the onus of proof where the accused is called upon to prove the contrary under section 4(1).
+We do not think it necessary to decide this point in the present appeal.
+We are prepared to assume in favour of the appellant that even if the explanation given by him is a reasonably probable one the presumption raised against him can be said to be rebutted.
+But is the explanation.
+given by him reasonably probable ? That is the question which must now be considered.
+What is his explanation ? He admits that he received Rs. 375 from Shukla but urges that Shukla gave him this amount as a loan in order to enable him to meet the expenses of the clothes for his school going children.
+In support of this the appellant gave evidence himself, and examined other witnesses, Kishan Chand and Ram Ratan being the principal ones amongst them.
+The High Court has examined this evidence and has disbelieved it.
+It has found that Kishan Chand is an interested witness and that the story deposed to by him is highly improbable.
+Apart from this conclusion reached by the High Court on appreciating oral evidence adduced in support of the defence plea, the High Court has also examined the probabilities in the case.
+It has found that at the material time the appellant was in possession of a bank balance of Rs. 1,600 and that his salary was about Rs. 600 per month.
+Besides his children for whose clothing he claims to have borrowed money had to go to school in March and there was no immediate pressure for preparing their clothes.
+The appellant sought to overcome this infirmity in his explanation by suggesting that he wanted to reserve his bank balance for the purpose of his daughter 's marriage which he was intending to perform in the near future.
+The High Court was not impressed by this story; and so it thought that the purpose for which the amount was alleged to have been borrowed could not be a true purpose.
+Besides the High Court has also considered whether it would have been probable that Shukla 604 should have advanced money to the appellant.
+Having regard to the relations between the appellant and Shukla it was held by the High Court that it was extremely unlikely that Shukla would have offered to advance any loan to the appellant.
+It is on a consideration of these facts that the High Court came to the conclusion that the explanation given by the accused was improbable and palpably unreasonable.
+It is true that in considering the explanation given by the appellant the High Court has incidentally referred to the statement made by him on January 8, 1953, before the magistrate, and Mr. Anthony has strongly objected to this part of the judgment.
+It is urged that the statement made by the appellant before the magistrate after the investigation into the offence had commenced is inadmissible.
+We are prepared to assume that this criticism is wellfounded and that the appellant 's statement in question should not have been taken into account in considering the probability of his explanation; but, in our opinion, the judgment of the High Court shows that not much importance was attached to this statement, and that the final conclusion of the High Court was substantially based on its appreciation of the oral evidence led by the defence and on considerations of probability to which we have already referred.
+Therefore, we are satisfied that the High Court was right in discarding the explanation given by the appellant as wholly unsatisfactory and unreasonable.
+That being so it is really not necessary in the present appeal to decide the question about the nature of the onus of proof cast upon the accused by section 4(1) after the statutory presumption is raised against him.
+In the result the appeal fails, the order of conviction and sentence passed against the appellant is confirmed and his bail bond cancelled.
+Appeal dismissed.

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+minal Appeal No. 124 of 1959.
+Appeal by special leave from the judgment and order dated June 19 and 20, 1959, of the former Bombay High Court in Criminal Appeal No. 411 of 1959 arising out of the judgment and order dated March 17, 1959, of the Presidency Magistrate XX Court, Mazagaon, Bombay in Case Nos.
+1952 54/P of 1958.
+B. M. Mistri, Ravinder Narain, section N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra for the Appellants.
+Nur ud din Ahmed and R. H. Dhebar, for the Respondent. 1960.
+November 18.
+The Judgment of the Court was delivered by IMAM, J.
+The appellants were convicted under sections 65(b), 65(f) and 66(b) of the Bombay Prohibition Act of 1949, hereinafter referred to as the Act, by the Presidency Magistrate XX Court, Mazagaon, Bombay.
+The appellant No. 1 was sentenced to 9 months ' rigorous imprisonment and a fine of Rs. 1,000 under section 65(b).
+No separate sentence was imposed under the other sections.
+Appellant No. 2 was sentenced to 6 months ' rigorous imprisonment and fine of Rs. 500 under section 65(b).
+No separate sentence was imposed under the other sections.
+They appealed to the Bombay High Court against their convictions and sentence.
+The High Court set aside their convictions under sections 65(b) and 66(b) of the Act but maintained their conviction under section 65(f ) read with section 81 relying on the presumption against the appellants arising out of section 103 of the Act.
+The High Court accordingly directed that the sentence of imprisonment and fine imposed upon the appellants by the Presidency Magistrate under section 65(b) be regarded as the sentence of imprisonment and fine imposed on the appellants under section 65(f) read with section 81.
+66 518 According to the case of the prosecution, there was a search on August 2,1958, of certain premises in the occupation of appellant No. 1 on the third floor of Dhun Mansion, Khetwadi 12th Lane.
+A complete working still was found there and both the appellants were working it.
+Appellant No. 2 was pumping air into the cylinder with a motor pump while appellant No. 1 was holding a rubber tube attached to the tank.
+An iron stand with a boiler on it was also found there.
+Below the boiler there was a stove which was burning.
+There was also a big jar near the still.
+According to the prosecution, this big jar contained illicit liquor.
+Another glass jar was used as a receiver which, according to the prosecution, also contained 20 drams of illicit liquor.
+The, boiler contained four gallons of wash.
+There were also 11 wooden barrels containing wash.
+In the drawing room of the premises a small glass jar containing 20 drams of illicit liquor, a bottle of 1 1/2 drams of illicit liquor and a pint bottle containing 3 drams of illicit liquor were also found.
+A _panchnama was drawn up concerning the recovery of these articles.
+It was the case of the prosecution that the appellants were manufacturing illicit liquor and were in possession of a still and other materials for the purpose of manufacturing intoxicant and were also in possession of illicit liquor.
+The Presidency Magistrate was satisfied that a working still and illicit liquor in the glass jars and the two bottles were found in the premises in question.
+The High Court also was of the opinion that a working still was found there but it thought that it would not be safe to rely upon the conflicting and unsatisfactory evidence in the case to hold that illicit liquor had been found in the premises in question, as it had not been satisfactorily proved that the bottles and the glass jars had been sealed in the presence of the panchas.
+The High Court was further of the opinion that there was no evidence on the record to show that the very bottles which were attached and the sample bottles in which was contained the wash were the bottles which were examined by the Chemical Examiner in respect 519 of which he made a report to the Magistrate.
+Accordingly, it was of the opinion that the convictions under sections 65(b) and 66(b) could not stand.
+On behalf of the appellants it was urged that no presumption under section 103 of the Act could arise as it had not been established, on the findings of the High Court, that the still was an apparatus for the manufacture of any intoxicant as is ordinarily used in the manufacture of any intoxicant.
+It was further argued that no questions were put to the accused, when they were examined under section 342 of the Code of Criminal Procedure, in this connection and therefore they had been denied the opportunity to rebut the presumption.
+The Presidency Magistrate had not used the provision,,; of section 103 against the appellants because he had found that in fact illicit liquor had been recovered from the premises and that the still was for manufacturing such intoxicant.
+If the Presidency Magistrate had at all intended to use the presumption under section 103 against the appellants, he was bound to have given them an opportunity to rebut it.
+If at the appellate stage the High Court was of the opinion that it had not been established that any illicit liquor had been recovered as a result of the search, then it ought not to have convicted the appellants on the presumption arising under section 103 without giving the appellants an opportunity to rebut the same.
+In this case the offence under section 65(f) would be the using, keeping or having in possession a still or apparatus for the purpose of manufacturing any intoxicant other than toddy.
+It was not established by the evidence that the still or apparatus recovered from the premises occupied by appellant No. 1 was one which is not ordinarily used for the manufacture of toddy.
+It was further urged on behalf of appellant No. 2 that he could not be convicted either for being in possession of the still or under section 65(f) read with section 81, that is to say, abetment of an offence under section 65(f) of the Act.
+This appellant was merely a servant of appellant No. 1.
+If any one was in possession of the still it was appellant No. 1.
+There was also no evidence to show that appellant No. 2 had abetted 520 appellant No. 1 in coming into possession of the still.
+Appellant No. 2 was merely using the pump, presumably under the orders of his master, and as he could not be said to be in possession of the still, no presumption against this appellant could arise under section 103 of the Act.
+We would deal with the case of appellant No. 2 first.
+There is no evidence that he in any way aided his master to come into possession of the still.
+It would be reasonable to suppose that when he was using the pump he was doing so on the orders of his master and he may not have been aware of what was being manufactured, whatever suspicion may arise from his conduct.
+It cannot also be said that he was in possession of the still.
+The still was in the possession of his master.
+He was merely an employee in the premises and cannot be said to be in physical possession of things belonging to his master unless they were left in his custody.
+It seems to us that whatever suspicion there may be against the appellant No. 2 it cannot be said that it has been established beyond reasonable doubt that he was in such possession of the still as would amount to an offence under section 65(f) of the Act.
+In the circumstances, no presumption could arise under section 103 against him that he was in posses sion of the still for which he could not account satis factorily.
+We would accordingly allow the appeal of appellant No. 2 and set aside his conviction and sentence.
+So far as the appellant No. 1 is concerned, there can be no question that he was found in possession of a still which, having regard to the nature of the still as disclosed by the evidence, is ordinarily used for the manufacture of an intoxicant such as liquor.
+Having regard to the description of the still, as found on the record, we are satisfied that the still in question is not ordinarily used for the manufacture of toddy.
+Indeed, it is doubtful that any still is required for the manufacture of toddy because toddy is either fermented or not.
+If the toddy is unfermented the need for a still is unnecessary.
+On the other hand, if the toddy is fermented, the process of fermentation is a natural 521 one and does not require the aid of any apparatus to ferment it.
+It was said, however, that by heating the toddy, a higher degree of fermentation takes place and it becomes more potent.
+We have, however, no evidence on the record as to this.
+Even if we assume that toddy, when heated, becomes highly fermented and therefore more potent, there is nothing to show that the heating process to achieve this required an elaborate still of the kind found in the premises of appellant No. 1.
+It was, however, pointed out that no questions were put to the appellant in order to give him an opportunity to rebut the presumption arising out of section 103 of the Act.
+It is, however, to be remembered that when the appellant was examined under section 342 of the Code of Criminal Procedure he had volunteered the statement that he did not know about the various contraband seized by the police.
+Since this was his attitude in the matter, it is difficult 'to understand what further questions could have been put to him to explain the possession of the still and the various other articles found in the premises occupied by him.
+It is not possible to say in this particular case that this appellant had been prejudiced by the failure of the Magistrate to put to him any specific questions about the still and the other articles found in the premises occupied by him.
+The presumption which arises under section 103 of the Act is that an offence under the Act is committed where a person is found in mere possession, without further evidence, of any still, utensil, implement or apparatus whatsoever for the manufacture of any intoxicant as are ordinarily used in the manufacture of such intoxicant until the contrary is proved.
+it is difficult to conceive that the appellant could have given any satisfactory evidence to establish that the still and other articles found in the premises occupied by him could ordinarily be used for the manufacture of toddy.
+We are accordingly satisfied that there was no prejudice caused to the appellant, in the circumstances of the present case, when the High Court relied upon the presumption arising under section 103 522 to uphold his conviction under section 65(f) of the Act.
+It was finally urged that the sentence should be reduced.
+In our opinion, the sentence imposed cannot be said to be unduly severe having regard to the provisions of the Act.
+Accordingly, the appeal of appellant No. 2 is allowed and his conviction and sentence are set aside but the appeal of appellant No. 1 is dismissed.
+Appeal disposed of accordingly.

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+Appeal No. 198 of 1954.
+Appeal from the judgment and order dated October 16, 1952, of the former Nagpur High Court in Misc.
+; No. 1231 of 1951.
+M. section K. Sastri, for the appellant.
+H. L. Khaskalam, B. K. B. Naidu and I. N. Shroff, for the respondent.
+64 502 1960.
+November 18.
+The Judgment of the Court was delivered by IMAM, J.
+This is an appeal from the judgment of the Nagpur High Court dismissing the appellants petition under articles 226 and 227 of the Constitution of India.
+The High Court certified under article 132(1) of the Constitution that the case involved a substantial question of law as to the interpretation of the Constitution.
+Hence the present appeal.
+The appellant was the Ruler of the State of Baster.
+After the passing of the Indian Independence Act, 1947, the appellant executed an Instrument of Accession to the Dominion of India on August 14, 1947.
+Thereafter, he entered into an agreement with the Dominion of India popularly known as "The Stand Still Agreement".
+On December 15, 1947, he entered into an agreement with the Government of India whereby he ceded the State of Baster to the Government of India to be integrated with the Central Provinces and Berar (now the State of Madhya Pradesh) in such manner as the Government of India thought fit.
+Con sequently the Governments in India came to have exclusive and plenary authority, jurisdiction and powers over the Baster State with effect from January 1, 1948.
+The Legislature of the State of Madhya Pradesh passed the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, Alienated Lands) Act, 1950 (Madhya Pradesh Act 1 of 1951), hereinafter referred to as the Act, which received the assent of the President of India on January 22, 1951.
+The preamble of the Act stated that it was one to provide for the acquisition of the rights of proprietors in estates, mahals, alienated villages and alienated lands in Madhya Pradesh and to make provisions for other matters connected therewith.
+Under section 3 of the Act, vesting of proprietary rights in the State Government takes place on certain conditions,, mentioned in that section, being complied with.
+The definition of 'proprietor ' is stated in section 2 cl.
+(m) and it is "in relation to 503 (i) the Central Provinces, includes an inferior proprietor, a protected thekadar or other thekadar, or protected headman; (ii) the merged territories, means a maufidar including an ex Ruler of an Indian State merged with Madhya Pradesh, a Zamindar, Ilaquedar, Khorposhdar or Jagirdar within the meaning of wajib ul arz, or any sanad, deed or other instrument, and a gaontia or a thekadar of a village in respect of which by or under the provisions contained in the wajib ul arz applicable to such village the maufidar, the gaontia, or the thekadar, as the case may be, has a right to recover rent or revenue from persons holding land in such village;".
+The definition of 'mahal ' is stated in section 2(j) and it is "mahal", in relation to merged territories, means any area other than land in possession of a raiyat which has been separately assessed to land revenue, whether such land revenue be payable or has been released, compounded for or redeemed in whole or in part;".
+Before the High Court the appellant contended that he was still a Sovereign Ruler and absolute owner of the villages specified in Schedules A and B of his petition under articles 226 and 227 of the Constitution.
+He urged that his rights had been recognized and guaranteed under the agreements entered into by him with the Government of India.
+The provisions of the Act, therefore, did not apply to him.
+It was further contended that the provisions of the Act did not apply to a Ruler or to the private property of a Ruler which was not assessed to land revenue.
+He relied on article 6 of the Instrument of Accession and the first paragraph of article 3 of the Merger Agreement.
+The High Court held that if the petitioner 's rights under article 6 of the Instrument of Accession and article 3 of the Merger Agreement had been infringed it was clear from the provisions of article 363 of the Constitution that interference by the courts was barred in disputes arising out of these two instruments.
+The High Court was also of the opinion that article 362 of the Constitu tion was of no assistance to the appellant.
+504 After referring to the definition of the word 'proprietor ' in the Act, the High Court was of the opinion that the word 'maufidar ' in section 2(m) of the Act had not been used in any narrow or technical sense.
+A 'maufidar ' was not only a person to whom a grant of maufi lands had been made but was also one who held land which was exempt from the payment of "rent or tax".
+It accordingly rejected the contention on behalf of the appellant that the word 'maufidar ' is necessarily confined to a grantee from the State or Ruler and therefore a Ruler could not conceivably be a maufidar.
+The High Court also rejected the contention on behalf of the appellant that as he was a "Ruler" within the meaning of that expression in article 366(22) of the Constitution he did not come within the expression 'ex Ruler ' as contained in the definition of the word 'proprietor ' in the Act.
+The expression 'Ruler ' as defined in article 366(22) of the Constitution applied only for interpreting the provisions of the Constitution.
+The expression 'ex Ruler ' given in the Act must therefore be given the ordinary dictionary meaning.
+According to Shorter Oxford English Dictionary, 'Ruler ' means "one who, or that which, exercises rule, especially of a supreme or sovereign kind.
+One who has control, management, or head ship within some limited sphere".
+The High Court accordingly took the view that although the appellant did exercise such a rule in the past he ceased to exercise it in his former Domain after the agreements of accession and merger had come into operation.
+Accordingly the appellant must be regarded as an ex Ruler and as he was also a maufidar he fell within the definition of the word 'proprietor ' in the Act.
+The question whether the villages mentioned in Schedules A and B of the petition under articles 226 and 227 of the Constitution fell in any of the categories, "Estates, Mahals, Alienated lands", was also considered by the High Court.
+In its opinion they did not fall within the category of Estates or Alienated lands but they did fall within the category of Mahals.
+According to the definition of 'Mahal ' in section 2(j) of the Act the same must be separately assessed to land 505 revenue.
+According to the appellant they had not been assessed to land revenue but this was denied on behalf of the State of Madhya Pradesh.
+The High Court was of the opinion that in these circumstances it was for the appellant to establish that the villages in question had never been assessed to land revenue but no evidence had been led to this effect.
+On the contrary, according to the High Court, it would appear from the documents on the record that the villages known as 'Bhandar villages ' had been assessed to land revenue.
+As the rest of the villages in Schedule A and the villages in Schedule B, upto the date of the High Court judgment, had not been recognized as the private property of the appellant by the Government of India as required by the second and third paragraphs of the Merger Agreement, the appellant could not assert his ownership over them.
+The High Court, accordingly, dismissed his petition under articles 226 and 227 of the Constitution.
+Two questions in the main were urged before us (1) whether the appellant is a proprietor within the meaning of that expression in the Act and (2) whether the villages in question came within the definition of the word 'mahal ' contained in the Act.
+On behalf of the appellant it had also been urged that the Act could not defeat the rights of the appellant guaranteed under article 3 of the Merger Agreement.
+It seems clear to us, however, that in view of the provisions of article 363(1) of the Constitution any dispute arising out of the Merger Agreement or the Instrument of Accession is beyond the competence of the courts to enquire into.
+The High Court rightly decided this point against the appellant.
+With reference to the first point we would first consider whether the appellant is an ex Ruler for the purposes of the Act.
+That he is so factually cannot be denied, since he ceded his State to the Government of India to be integrated with the Central Provinces and Berar (now the State of Madhya Pradesh) in such manner as the Government of India thought fit.
+He further ceded to the Government ' of India full and exclusive authority, jurisdiction and powers in relation 506 to the governance of his State when he agreed that the administration of that State would be transferred to the Government of India as from January 1, 1948.
+The question is whether his recognition for the purposes of the Constitution as Ruler by virtue of the provisions of article 366(22) of the Constitution of India continues his status as a Ruler for purposes other than the Constitution.
+article 366(22) states: " "Ruler" in relation to an Indian State means the Prince, Chief or other person by whom any such covenant or agreement as is referred to in clause (1) of article 291 was entered into and who for the time being is recognised by the President as the Ruler of the State, and includes any person who for the time being is recognised by the President as the successor of such Ruler".
+Article 291 refers to the privy purse payable to Rulers.
+It states: "Where under any covenant or agreement entered into by the Ruler of any Indian State before the commencement of this Constitution, the payment of any sums, free of tax, has been guaranteed or assured by the Government of the Dominion of India to any Ruler of such State as privy purse (a) such sums shall be charged on, and paid out of, the Consolidated Fund of India; and (b) the sums so paid to any Ruler shall be exempt from all taxes on income.
+" Article 291 refers to any covenant or agreement entered into by the Ruler of any Indian State before the commencement of the Constitution.
+The covenant or agreement referred to in this Article certainly includes the Instrument of Accession and the Merger Agreement.
+The effect of the Merger Agreement is clearly one by which factually a Ruler of an Indian State ceases to be a Ruler but for the purposes of the Constitution and for the purposes of the privy purse guaranteed, he is a Ruler as defined in article 366(22) of the Constitution.
+There is nothing in the provisions of article 366(22) which requires a court to recognise such a person as a Ruler for purposes outside the Constitution.
+In our opinion, the High Court rightly held that 507 the appellant was an ex Ruler and that article 366(22) of the Constitution did not make him a Ruler for the purposes of the Act.
+As the appellant was an 'ex Ruler ', he was within the class of persons who were by name specifically included in the definition of 'proprietor ' and therefore clearly within the scope of the Act.
+That the appellant was not only an ex Ruler but a maufidar appears to us to be clear.
+The ordinary dictionary meaning of maufi is "Released, exempted, exempt from the payment of rent or tax, rent free" and maufidar is "A holder of rent free land, a grantee".
+It was common ground in the High Court that the villages in question were exempt from the payment of rent or tax.
+In our opinion, the High Court rightly took the view that the expression 'maufidar ' was not necessarily confined to a grantee from a State or a Ruler of a State.
+A maufidar could be a person who was the holder of land which was exempted from the payment of rent or tax.
+In our opinion, the appellant certainly came within the expression 'maufidar ' besides being an ex Ruler ' of an Indian State merged with Madhya Pradesh.
+It is, however, contended on behalf of the appellant that the most important part of the definition was the concluding portion where it was stated that in the case of a maufidar he must be a person who by or under the provisions contained in the wajib ul arz applicable to his village, had the right to recover rent or revenue from persons holding land in such village.
+It was contended that even if the appellant was a maufidar, there was nothing to show that with reference to any village held by him it was entered in the wajib ul arz, that he had a right to recover rent or revenue from persons holding land in such village.
+In the petition under articles 226 and 227 of the Constitution, filed by the appellant in the High Court, it was nowhere asserted that even if he was regarded as a maufidar it was not entered in the wajib ul arz with respect to any of his maufi villages that he had a right to recover rent or revenue from persons holding land in such villages.
+From the judgment of the High 508 Court it would appear that no such argument was advanced before it.
+In the application for a certificate under article 132(1) of the Constitution we can find no mention of this.
+In the statement of the case filed in this Court also there is no mention of this fact.
+There is thus no material on the record to establish that the appellant as a maufidar had no right to recover rent or revenue from persons holding land in his villages.
+The burden was on the appellant to prove this fact which he never attempted to discharge.
+It is impossible therefore to accept this contention on behalf of the appellant raised for the first time before us in the course of the submissions made on behalf of the appellant.
+Regarding the second point arising out of the definition of 'Mahal ', the High Court definitely found that the petitioner had given no evidence to establish that the villages in question were not assessed to land revenue.
+On the contrary, at least with reference to the Bhandar villages documents on the record showed that these villages had been assessed to land revenue.
+Since it was a question of fact whether the villages had been assessed to land revenue, which was denied on behalf of the State of Madhya Pradesh, the High Court rightly held that the contention of the appellant in this respect could not be accepted.
+As for the other villages, in Schedules A and B of the petition of the appellant under articles 226 and 227 of the Constitution the High Court, in our opinion, rightly held that the petition was not maintainable as these villages had not yet been recognised by the Government of India as the private property of the appellant.
+In our opinion, the appeal accordingly fails and is dismissed with costs.
+Appeal dismissed.

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+Appeal No. 285 of 1959.
+Appeal by Special Leave from the Judgment and Decree dated the 13th July, 1956, of the Patna High Court in M. J. C. No. 404 of 1954.
+M. C. Setalvad, Attorney General for India and section P. Varma, for the Appellants.
+A. V. Viswanatha Sastri, Suresh Aggarwala and D. P. Singh, for the Respondent. 1960.
+November 21.
+The Judgment of the Court was delivered by 524 SINHA, C.J.
+This appeal, by special leave, is directed against the judgment and order of the High Court of Patna dated July 13, 1956 disposing of a reference under section 25(1) of the Bihar Sales Tax Act, 1947, which hereinafter will be referred to as the Act, made by the Board of Revenue, Bihar.
+The facts of this case have never been in dispute and may shortly be stated as follows.
+The appellant is a Corporation incorporated under the Damodar Valley Corporation Act (XIV of 1948) and will hereinafter be referred to as the Corporation.
+It is a multipurpose Corporation, one of its objects being the construction of a number of dams in Bihar and Bengal with a view to controlling floods and utilising the stored water for purposes of generation of electricity.
+One of such dams is the Konar Dam in the district of Hazaribagh in Bihar.
+For the construction of the aforesaid Dam the Corporation entered into an agreement with Messrs Hind Construction Ltd. and Messrs Patel Engineering Co. Ltd. on May 24, 1950, and appointed them contractors for the aforesaid purpose.
+They will hereinafter be referred to as the Contractors.
+As a result of a change in the design of the Dam, it became necessary to enter into a supplementary agreement and on March 10, 1951, cl. 8 of Part II of the original agreement was amended and a fresh cl. 8 was substituted.
+Under the new cl. 8 of the agreement, as amended, the Corporation agreed to make available to the contractors such equipment as was necessary and suitable for the construction aforesaid.
+The Contractors are charged the actual price paid by the Corporation for the equipment and machinery thus made available, inclusive of freight and customs duty, if any, as also the cost of transport, but excluding sales tax.
+The equipment thus supplied by the Corporation to the Contractors was classified into two groups, Group A and Group B, as detailed in Schedule No. 2.
+The machinery in Group A was to be taken over from the Contractors by the Corporation, after the completion of the work at their "residual value" which was to be calculated in the manner set out in the agreement.
+The machinery in Group B was to become the 525 property of the Contractors after its full price had been paid by them.
+No more need be said about the machinery in Group B, because there is no dispute about that group, the Contractors having accepted the position that Group B machinery had been sold to them.
+The controversy now remaining between the parties relates to the machinery in Group A.
+On August 12, 1952, the Superintendent of Sales Tax, Hazaribagh, assessed the Corporation under section 13(5) of the Act for the period April, 1950 to March, 1952.
+It is not necessary to set out the details of the tax demand, because the amount is not in controversy.
+What was contended before the authorities below and in this Court was that the transaction in question did not amount to a "sale" within the meaning of the Act.
+The Superintendent rejected the contention raised on behalf of the Corporation that it was not liable to pay the tax in respect of the machinery sup plied to the Contractors.
+The Corporation went up in appeal to the Deputy Commissioner of Sales Tax against the said order of assessment.
+By his order dated May 5, 1953, the Deputy Commissioner rejected the contention of the appellant as to its liability under the Act, but made certain amendments in the assessment which are not material to the points in controversy before us.
+The Deputy Commissioner repelling the Corporation 's contentions based on the Act, held inter alia that the supply of equipment in Group A of the agreement aforesaid amounted to a sale and was not a hire ; that the condition in the agreement for the "taking over" of the equipment on conditions laid down in the agreement was in its essence a condition of repurchase and that the Corporation was a "dealer" within the meaning of the Act.
+The Corporation moved the Board of Revenue, Bihar, in its revisional jurisdiction under section 24 of the Act.
+The Board of Revenue by its resolution dated October 1, 1953, rejected the revisional application and upheld the order of the authorities below.
+Thereafter, the Corporation made an application to the Board of Revenue under section 25 of the Act for a reference to refer the following 67 526 questions to the High Court at Patna, namely, (a) whether the assessment under section 13(5) of the Act is maintainable, (b) whether, in the facts and circumstances of the case, it can be held that the property in the goods included in Schedule A did pass to the Contractors and the transaction amounted to a sale, and (c) whether the terms of the agreement amount to sale transactions with the Contractors and taking over by the Corporation amounts to repurchase.
+This application was made on December 22, 1953, but when the application for making a reference to the High Court came up for hearing before the Board of Revenue on May 20, 1954, and after the parties had been heard, counsel for the Corporation sought leave of the Board to withdraw questions (a) and (c) from the proposed reference and the Board passed the following order: "Leave is sought by the learned advocate for the petitioner to drop questions (a) and (c) from the reference.
+The leave is granted.
+There remains only question (b) for reference to the High Court. . " Thus only question (b) set out above was referred to the High Court for its decision.
+After hearing the parties, a Division Bench of the High Court, Ramaswami, C. J. and Raj Kishore Prasad, J., heard the reference and come to the conclusion by its judgment dated July 13, 1956, that the reference should be answered in the affirmative, namely, that the transaction in question amounted to a sale within the meaning of section 2(g) of the Act.
+Thereupon the Corporation made an application headed as under article 132(1) of the Constitution and prayed that the High Court "be pleased to grant leave to appeal to the Supreme Court of India and grant the necessary certificate that this case is otherwise a fit case for appeal to the Supreme Court. . " Apart from raising the ground of attack dealt with by the High Court on the reference as aforesaid, the Corporation at the time of the hearing of the applica tion appears to have raised other questions as would appear from the following extract from the judgment and order of the High Court dated January 31, 1957 : 527 "It was conceded by learned counsel for the petitioner that the case does not fulfill the requirements of Article 133(1) of the Constitution; but the argument is that leave may be granted under Article 132 of the Constitution as there is a substantial question of law with regard to the interpretation of the Constitution involved in this case.
+We are unable to accept this argument as correct.
+It is not possible for us to hold that there is any substantial question of law as to the interpretation of the Constitution involved in this case.
+The question at issue was purely a matter of construction of section 2(g) of the Bihar Sales Tax Act and that question was decided by this Court in favour of the State of Bihar and against the petitioner.
+It is argued now on behalf of the petitioner that the provisions of section 2(g) of the Bihar Sales Tax Act are ultra vires of the Constitution, but no such question was dealt with or decided by the High Court in the reference.
+We do not, therefore, consider that this case satisfies the requirements of article 132(1) of the Constitution and the petitioner is not entitled to grant of a certificate for leave to appeal to the Supreme Court under this Article.
+The application is accordingly dismissed.
+" Having failed to obtain the necessary certificate from the High Court, the Corporation moved this Court and obtained special leave to appeal under article 136 of the Constitution.
+The leave was granted on March 31, 1958.
+Though the scope of the decision of the High Court under section 25 of the Act on a reference made to it is limited, the Corporation has raised certain additional points of controversy, which did not form part of the decision of the High Court.
+Apart from the question whether the transaction in question amounted to a sale within the meaning of the Act, the statement of the case on behalf of the appellant raises the following additional grounds of attack, namely, (1) that the Corporation is not a dealer within the meaning of the Act, (2) that the proviso to section 2(g) of the Act is ultra vires the Bihar Legislature and (3) that the Act itself is ultra vires the Bihar Legislature by reason of the 528 legislation being beyond the scope of entry 48 in List II of Schedule 7 of the Government of India Act, 1935.
+Hence, a preliminary objection was raised on behalf of the respondent that the additional grounds of attack were not open to the Corporation in this Court.
+It is, therefore, necessary first to determine whether the additional grounds of attack set out above are open to the Corporation.
+In our opinion, those additional grounds are not open.
+They were never raised at any stage of the proceedings before the authorities below, or in the High Court.
+This Court is sitting in appeal over the decision of the High Court under section 25 of the Act.
+The High Court in coming to its conclusion was acting only in an advisory capacity.
+It is well settled that the High Court acting in its advisory capacity under the taxing statute cannot go beyond the questions referred to it, or on a reference called by it.
+The scope of the appeal to this Court, even by special leave, cannot be extended beyond the scope of the controversy that could have been legally raised before the High Court.
+It is manifest that the High Court could not have expressed its opinion on any matter other than the question actually before it as a result of the reference made by the Board of Revenue.
+The preliminary objection must, therefore, be allowed and the appeal limited to the question whether the transaction in question in this case amounted to a sale within the meaning of the Act.
+It is manifest that this controversy between the parties has to be resolved with reference to the terms of the contract itself.
+Clause 8 of the agreement as amended is a very complex one as will presently appear from the following extracts, being the relevant portions of that clause : "The Corporation may hire or make available such of its equipment as is suitable for construction for the use of the Contractor.
+The actual prices paid by the Corporation for the equipment thus made available, inclusive of freight, insurance and custom duties, if any, and the cost of its transport to site but excluding such tax as sales tax whether local, municipal, State or Central, shall be charged to the 529 Contractor and the equipment shall remain the property of the Corporation until the full prices thereof have been realised from the Contractor.
+Equipment lent for the Contractor 's use, if any, shall be charged to him on terms of hiring to be mutually agreed upon; such terms will cover interest on capital cost and the depreciation of the equipment.
+The Corporation will supply to the Contractor the machinery mentioned in Schedule No. 2, Group A and Group B below." Then follows a description seriatim of the many items of machinery in Group A with the number of such machinery and the approximate cost thereof.
+In this Group A, there are fourteen items of which it is only necessary to mention the first one, that is to say, four excavators with accessories approximately valued at Rs. 12,46,390; and No. 14, two excavators of another model, approximately costing Rs. 3,35,000.
+The total approximate cost of the machinery in Group A is estimated to be Rs. 42,63,305.
+Then follow the descriptions of machinery in Group B, the approximate cost of which is Rs. 21,84,148.
+Then follow certain conditions in respect of equipments included in Group A, in these words: "The Corporation will take over from the Contractor item 1 and 14 on the completion of the work at a residual value calculated on the basis of the actual number of hours worked assuming the total life to be 30,000 hours and assuming that the machinery will be properly looked after during the period of its operation.
+The remaining items of this group will be taken over by the Corporation at their residual value taking into account the actual number of hours worked and the standard life of such machinery for which Schedule F. as last relished, ? of the U. section Bureau of Industrial Revenue, on the probable useful life and depreciation rates allowable for Income Tax purpose (vide Engineering News Record dated March 17, 1949) will serve as a basis, provided that the machinery shall be properly looked after by the Contractor during the period of its operation.
+Provided further that such residual value of the machinery shall be assessed 530 jointly by representatives of the Corporation and of the Contractor and that in case of difference of opinion between the two parties the matter shall be settled through arbitration by a third party to be agreed to both by the Corporation and the Contractor.
+The items included in this group will be taken over by the Corporation from the Contractor either on the completion of the work or at an earlier date if the Contractor so wishes, provided that in the latter case the equipments will be taken over by the Corporation only when they are declared surplus at Konar and such declaration is duly certified by the Consulting Engineer, within a period of 15 days of such declaration being received by the Corporation.
+In respect of the machinery which shall have been delivered to the Contractor on or before the 31st of December 1950, their cost shall be recovered from the Contractor in eighteen equal instalments beginning with January 1951 and in respect of the remaining items included in this group of machinery, their cost will be recovered from the Contractor in eighteen equal instalments beginning with July 1951, provided that these remaining items shall have been delivered to the Contractor prior to the last specified date.
+Provided (a) that the total actual price for these equipments which has been provisionally estimated at Rs. 42,63,305 will be chargeable to the Contractor as per first para of clause 1 above.
+(b) that after approximately two thirds of total cost or an amount of Rs. 28,43,000 (Rupees twenty eight lakhs forty three thousand) approximately has been recovered from the Contractor on account of these equipments the Corporation will consider the date or dates when it could take over the equipments still under use by the Contractor, assess the, extent to which they have already been depreciated and thereby arrive at, their residual value; and (c) that the recovery or refund of the amount payable by or to the Contractor on account of these equipments will be decided only if the Corporation is fully satisfied that their residual life at the time of 531 their being finally handed over to the Corporation shall under no circumstances fall below one third of their respective standard life as agreed upon by the Corporation and the Contractor." Then follow terms and conditions in respect of Group 'B ' which are not relevant to our purpose.
+Thereafter, the following conditions appear: "In respect of equipments whether in Group A or B made available by the Corporation to the Contractor.
+The following conditions shall apply to all equipments, i.e., those included in Group A and B above and others, if any (a) The Contractor shall continuously maintain proper machine cards separately in respect of each item of equipment, clearly showing therein, day by day, the number of actual hours the machine has worked together with the dates and other relevant particulars.
+(b) The Contractor shall maintain all such equipments in good running condition and shall regularly and efficiently give service to all plant and machinery, as may be required by the Corporation 's Chief Engineer who shall have the right to inspect, either personally or through his authorised representatives all such plant and equipment and the machine cards maintained in respect thereof at mutually convenient hours.
+(c) No item of equipment made available by the Corporation on loan or hire shall at any time be removed from the work site under any circumstances until the full cost thereof has been recovered from the Contractor by the Corporation and thereafter only if in the opinion of the Consulting Engineer the removal of such item or items is not likely to impede the satisfactory prosecution of the work.
+Similarly no item of equipment or material belonging to the Contractor but towards the cost of which money has been advanced by the Corporation shall at any time be removed from the work site under any circumstances until the amount of money so advanced has been recovered from the Contractor by 532 the Corporation and thereafter if in the opinion of the Consulting Engineer the removal of such item or items is not likely to impede the satisfactory prosecution of the work.
+(d) The Corporation shall supply to the Contractor whatever spares have been procured or ordered for the equipment already supplied or to be supplied by the Corporation to the Contractor under the terms of this Agreement and that thereafter the replenishment of the stock of spares shall be entirely the responsibility of the Contractor who shall therefore take active steps in time to procure fresh spares so as to maintain a sufficient reserve.
+The spares to be supplied by the Corporation will be issued to the Contractor by the Executive Engineer, Konar as and when required by the Contractor against indent accompanied by a certificate that the spares previously issued to him have been actually used up on the machines for which they were intended.
+(e) Whenever spares are issued to the Contractor in accordance with this provision, their actual prices inclusive of freight, insurance and customs but excluding storage and handling charges shall be debited against him and recovered from his next fortnightly bill.
+(f) In order to enable the Contractor to take active steps for planning the procurement of additional spares in advance, the Corporation shall forthwith furnish to him a complete list of all the spares which it has procured or ordered for the equipment to be supplied to the Contractor.
+" The portions quoted above contain the relevant terms and conditions in respect of the transaction in question, so far as it is necessary to know them for the purpose of this case.
+It will be noticed that the Corporation made available to the Contractors different kinds of machinery and equipment detailed in Group A of the approximate value of Rs. 42,63,000 odd, for which the price paid by the Corporation inclusive of freight, insurance, customs duty etc.
+has to be charged to them.
+But the machinery and the equipment so 533 made available to the Contractors were to remain the property of the Corporation until the, full price thereof had been realised from the Contractors.
+It is also noteworthy that the agreement makes a distinction between the aforesaid part of the agreement and the equipment lent to the contractors in respect of which the contractors had to be charged in terms of hiring, including interest on capital cost and the depreciation of equipment.
+Thus clearly the agreement between the parties contemplated two kinds of dealings between them, namely (1) the supply of machinery and equipments by the Corporation to the Contractors and (2) loan on hire of other equipment on terms to be mutually agreed between them in respect of the machinery and equipment supplied by the Corporation to the Contractors.
+There is a further condition that the Corporation will take over from the contractors items 1 and 14, specifically referred to above, and the other items in Group A at their "residual value" calculated on the basis indicated in the paragraph following the description of the machinery and the equipments.
+But there is a condition added that the "taking over" is dependent upon the condition that the machinery will be properly looked after during the period of its operation.
+There is an additional condition to the taking over by the Corporation, namely, the work for which they were meant had been completed, or earlier, at the choice of the Contractors, provided that they are declared surplus for the purposes of the construction of the Konar Dam and so certified by the Consulting Engineer.
+Hence, it is not an unconditional agreement to take over the machinery and equipment as in Group B.
+The total approximate price of Rs. 42,63,305 is payable by the Contractors in 18 equal instalments.
+Out of the total cost thus made realisable from the Contractors two thirds, namely, Rs. 28,42,000 approximately, has to be realised in any case.
+After the two thirds amount aforesaid has been realised from the contractors on account of supply of the equipments by the Corporation, the Corporation had to consider the date or dates of the "taking over" of the equipment after assessing the extent to which it 534 had depreciated as a result of the working on the project in order to arrive at the "residual value" of the same.
+The refund of the one third of the price or such other sum as may be determined as the "residual value" would depend upon the further condition that the Corporation was fully satisfied that their "residual life" shall, under no circumstances, fall below one third of their respective standard life as agreed upon by the parties.
+It would, thus, appear that the "taking over" of such of the equipments as were available to be returned was not an unconditional term.
+The Corporation was bound to take them over only if it was satisfied that their "residual life" was not less than one third of the standard life fixed by the parties.
+It is clear from the terms and conditions quoted above that there was no right in the contractors to return any of the machinery and equipments at any time they liked, or found it convenient to do so.
+The conditions which apply to all equipments, whether in Group A or in Group B, are also relevant to determine the nature of the transaction.
+The contractors are required to "continuously maintain proper machine cards showing certain relevant particulars".
+It is their duty to maintain the equipments in good running condition and to regularly and effectively service them.
+No item of machinery and equipment could be removed by the contractors under any circumstances until the full cost thereof had been recovered from them and even then only if the removal of those items of machinery or equipment was not likely to impede the satisfactory progress of the work.
+Then follows the most important condition that the Contractors themselves shall have to replenish their stock of spare parts of the machinery made available to them by the Corporation.
+When spare parts are supplied to the Contractors by the Corporation, they shall be liable for the actual price of those parts inclusive of freight, insurance and customs duty.
+Those substantially are the terms of the contract between the parties and the sole question for determination in this appeal is whether, in respect of the machinery and equipments admittedly supplied by the Corporation to the Contractors, it was a mere 535 contract of hiring, as contended on behalf of the appellant Corporation, or a sale or a hire purchase, as contended on behalf of the respondent State.
+The law on the subject is not in doubt, but the difficulty arises in applying that law to the facts and circumstances of a particular case on a proper construction of the document evidencing the transaction between the parties.
+It is well settled that a mere contract of hiring, without more, is a species of the contract of bailment, which does not create a title in the bailee, but the law of hire purchase has undergone consider able development during the last half a century or more and has introduced a number of variations, thus leading to categories, and it becomes a question of some nicety as to which category a particular contract between the parties comes under.
+Ordinarily, a contract of hire purchase confers no title on the hirer, but a mere option to purchase on fulfillment of certain conditions.
+But a contract of hire purchase may also provide for the agreement to purchase the thing hired by deferred payments subject to the condition that title to the thing shall not pass until all the instalments have been paid.
+There may be other variations of a contract of hire purchase depending upon the terms agreed between the parties.
+When rights in third parties have been created by acts of parties or by operation of law, the question, which does not arise here, may arise as to what exactly were the rights and obligations of the parties to the original contract.
+It is equally well settled that for the purpose of determining as to which category a particular contract comes under, the court will look at the substance of the agreement and not at the mere words describing the category.
+One of the tests to determine the question whether a particular agreement is a contract of mere hiring or whether it is a contract of purchase on a system of deferred payments 'of the purchase price is whether there is any binding obligation on the hirer to purchase the goods.
+Another useful test to determine such a controversy is whether there is a right reserved to the hirer to return the goods at any time during the subsistence of the contract.
+If there is such a right reserved, then 536 clearly there is no contract of sale, vide Helby vs Matthews and others (1).
+Applying these two tests to the transaction in the present case, it becomes clear that it was a case of sale of goods with a condition of repurchase on certain conditions depending upon the satisfaction of the Corporation as to whether the "residual life" of the machinery or the equipment was not less than one third of the standard life in accordance with the terms agreed between the parties.
+It is clear on those terms that there is no right reserved to the contractors to return the goods at any time that they found it convenient or necessary.
+On the other hand, they were bound to pay two thirds of the total approximate price fixed by the parties in equal instalments.
+The Contractors were not bound under the terms to return any of the machinery or the equipments, nor was the Corporation bound to take them back unconditionally.
+The term in the agreement regarding the "taking over" of the machinery or equipments by the Corporation on payment of the "residual value" is wholly inconsistent with a contract of mere hiring and is more consistent with the property in the goods having passed to the Contractors, subject to the payment of all the instalments of the purchase pride.
+Furthermore, the stipulation that the Contractors themselves will have to supply the spare parts, as and when needed, for replacements of the worn out parts is also consistent with the case of the respondent that title had passed to the contractors and that they were responsible for the upkeep of the machinery and equipments and for depreciation.
+If it were a mere contract of hiring, the owner of the goods would have continued to be liable for replacements of worn out parts and for depreciation.
+Applying those tests to the terms of the agreement between the parties, it is clear that the transaction was a sale on deferred payments with an option to repurchase and not a mere contract of hiring, as contended on behalf of the appellant.
+It must, therefore, be held that the judgment of the High Court is entirely correct and the appeal must be dismissed with costs.
+Appeal dismissed.

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+Appeal No. 353 of 1959.
+Appeal from the judgment and order dated April 22, 1958, of the Punjab High Court (Circuit Bench) at Delhi in Civil Writ No. 257 D of 1957.
+M. C. Setalvad, Attorney General of India, section N. Andley, J. B. Dadachanji Rameshwar Nath and P. L. Vohra, for the Appellant.
+G. section Pathak, R. L. Anand and Janardan Sharma, for the respondent No. 2. 591 1960.
+November 22.
+The Judgment of the Court was delivered by WANCHOO, J.
+This is an appeal on a certificate granted by the Punjab High Court.
+Sharda Singh (hereinafter called the respondent) was in the service of the appellant mills.
+On August 28, 1956, the respondent was transferred from the night shift to the day shift in accordance with para 9 of the Standing Orders governing the workmen in the appellant mills.
+At that time an industrial dispute was pending bet ween the appellant mills and their workmen.
+The transfer was to take effect from August 30, 1956; but the respondent failed to report for work in the day shift and was marked absent.
+On September 1, 1956, he submitted an application to the General Manager to the effect that he had reported for duty on August 30, at 10 30 p.m. and had worked during the whole night, but had not been marked present.
+He had again gone to the mills on the night of August 31, but was not allowed to work on the ground that he had been transferred to the day shift.
+He complained that he had been dealt with arbitrarily in order to harass him.
+Though he said that he had no objection to carrying out the orders, he requested the manager to intervene and save him from the high handed action taken against him, adding that the mills would be responsible for his wages for the days he was not allowed to work.
+On September 4, 1956, he made an application to the industrial tribunal, where the previous dispute was pending, under section 33 A of the , No. XIV of 1947, (hereinafter called the Act) and complained that he had been transferred without any rhyme or reason from one shift to another and that this amounted to alteration in the conditions of his service, which was prejudicial and detrimental to his interest.
+As this alteration was made against the provisions of section 33 of the Act, he prayed for necessary relief from the tribunal under section 33 A.
+On September 5, 1956, the General Manager replied to the letter of September 1, and told the respondent that his transfer from.
+one shift to the other had been ordered on 592 August 28, and he had been told to report for work in the day shift from August 30; but instead of obeying the order which was made in the normal course and report for work as directed he had deliberately disobeyed the order and reported for work on August 30 in the night shift.
+He was then ordered to leave and report for work in the day shift.
+He however did not even then report for work in the day shift and absented himself intentionally and thus disobeyed the order of transfer.
+The General Manager therefore called upon the respondent to show cause why disciplinary action should not be taken against him for wailfully refusing to obey the lawful orders of the departmental officers and he was asked to submit his explanation within 48 hours.
+The respondent submitted his explanation on September 7, 1956.
+Soon after it appears the appellant mills received notice of the application under section 33 A and they submitted a reply of it on October 5, 1956.
+Their case was that transfer from one shift to another was within the power of the management and could not be said to be an alteration in the terms and conditions of service to the prejudice of the workman and therefore the complaint under section 33 A was not maintainable.
+The appellant mills also pointed out that a domestic inquiry was being held into the subsequent conduct of the respondent and prayed that proceedings in the application under section 33 A should be stayed till the domestic inquiry was concluded.
+No action seems to have been taken on this complaint under section 33 A, for which the appellant mills might as they had prayed for stay However, the domestic inquiry continued and on February 25, be partly responsible of those proceedings.
+against the respondent 1957, the inquiry officer reported that t e charge of misconduct was proved.
+Thereupon the General Manager passed an order on March 5, 1957, that in view of the serious misconduct of the respondent and looking into his past records, he should be dismissed; but as an industrial dispute was pending then, the General Manager ordered that the permission of the industrial tribunal should be taken before the order of dismissal was 593 passed and an application should be made for seeking such permission under section 33 of the Act.
+In the meantime, a notification was issued on March 1, 1957, by which 10th March, 1957, was fixed for the coming into force of certain provisions of the Central Act, No. XXXVI of 1956, by which sections 33 and 33 A were amended.
+The amendment made a substantial change in section 33 and this change came into effect from March 10, 1957.
+The change was that the total ban on the employer against altering any condition of ser vice to the prejudice of workmen and against any action for misconduct was modified.
+The amended section provided that where an employer intended to take action in regard to any matter connected with the dispute or in regard to any misconduct connected with the dispute, he could only do so with the express permission in writing of the authority before which the dispute was pending; but where the matter in regard to which the employer wanted to take action in accordance with the Standing Orders applicable to a workman was not connected with the dispute or the misconduct for which action was proposed to be taken was not connected with the dispute, the employer could take such action as he thought proper, subject only to this that in case of discharge or dismissal one month 's wages should be paid and an application should be made to the tribunal before which the dispute was pending for approval of the action taken against the employee by the employer.
+In view of this change in the law, the appellant mills thought that as the misconduct of the respondent in the present case was not connected with the dispute then pending adjudication, they were entitled to dismiss him after paying him one month 's wages and applying for approval of the action taken by them.
+Consequently, no application was made to the tribunal for permission in accordance with the order of the General Manager of March 5, 1957, already referred to.
+Later, on April 2, 19579 an order of dismissal was passed by the General Manager after tendering one month 's wages to the respondent and an application was made to the authority concerned for approval of the action taken against the respondent.
+594 Thereupon the respondent filed another application under section 33 A of the Act on April 9, 1957, in which he complained that the appellant mills had terminated his services without the express permission of the tribunal and that this was a contravention of the provisions of section 33 of the Act; he therefore prayed for necessary relief.
+On April 18, 1957, an interim order was passed by the tribunal on this application by which as a measure of interim relief, the appellant mills were ordered to permit the respondent to work with effect from April 19 and the respondent was directed to report for duty.
+It was also ordered that if the management failed to take the respondent back, the respondent would be paid his full wages with effect from April 19 after he had reported for duty.
+On May 6, 1957, however, the application dated April 9, 1957, was dismissed as defective and therefore the interim order of April 18 also came to an end.
+On the same day (namely, May 6, 1957), the respondent made another application under section 33 A in which he removed the defects and again complained that his dismissal on April 2, 1957, without the express previous permission of the tribunal was against section 33 and prayed for proper relief.
+It is this application which is pending at present and has not been disposed of, though more than three years have gone by.
+It is also not clear what has happened to the first application of September 4,1956, in which the respondent complained that his conditions of service had been altered to his prejudice by his transfer from one shift to another.
+Applications under section 33 and section 33 A of the Act should be disposed of quickly and it is a matter of regret that this matter is pending for over three years, though the appellant mills must also share the blame for this state of affairs ' However, the appellant mills gave a reply on May 14,1957, to the last application under section 33 A and objected that there was no breach of section 33 of the Act, their case being that the amended section 33 applied to the order of dismissal passed on April 2, 1957.
+Further, on the merits, the appellant mills ' case was that the dismissal was in the circumstances justified.
+595 The matter came up before the tribunal on May 16, 1957.
+On this date, the tribunal again passed an interim order, which was to the effect that as a measure of interim relief, the respondent should be permitted to work from May 17 and the respondent was directed to report for duty.
+It was further ordered that in case the management failed to take him back, they would pay him his full wages with effect from the date he reported for duty.
+Thereupon the appellant mills filed a writ petition before the High Court.
+Their main contention before the High Court was two fold.
+In the first place it was urged that the tribunal had no jurisdiction to entertain an application under section 33 A of the Act in the circumstances of this case after the amended sections 33 and 33 A came into force from March 10, 1957.
+In the alternative it was contended that the tribunal had no jurisdiction to pass an interim order of reinstatement or in lieu thereof payment of full wages to the respondent even before considering the questions raised in the application under section 33 A on the merits.
+The High Court held on the first point that in view of section 30 of the Industrial Disputes (Amendment and Miscellaneous Provisions) Act, No. XXXVI of 1956, the present case would be governed by section 33 as it was before the amendment and therefore the tribunal would have jurisdiction to entertain the complaint dated May 6, 1957, under section 33 A of the Act.
+On the second point, the High Court held that the order of the tribunal granting interim relief was within its jurisdiction and was justified.
+In consequence, the writ petition was dismissed.
+Thereupon the appellant mills applied and was granted a certificate by the High Court to appeal to this Court; and that is how the matter has come up before us.
+The same two points which were raised in the High Court have been urged before us.
+We are of opinion that it is not necessary in the present case to decide the first point because we have come to the conclusion that the interim order of May 16, 1957, is manifestly erroneous in law and cannot be supported.
+Apart from the question whether the tribunal had jurisdiction 596 to pass an interim order like this without making an interim award, (a point which was considered and left open by this Court in The Management of Hotel Imperial vs Hotel Workers ' Union (1)), we are of opinion that where the tribunal is dealing with an application under section 33 A of the Act and the question before it is whether an order of dismissal is against the provisions of section 33 it would be wrong in law for the tribunal to grant reinstatement or full wages in case the employer did not take the workman back in its service as an interim measure.
+It is clear that in case of a complaint under section 33 A based on dismissal against the provisions of section 33, the final order which the tribunal can pass in case it is in favour of the workman, would be for reinstatement.
+That final order would be passed only if the employer fails to justify the dismissal before the tribunal, either by showing that proper domestic inquiry was held which established the misconduct or in case no domestic inquiry was held by producing evidence before the tribunal to justify the dismissal: See Punjab National Bank Ltd. vs All India Punjab National Bank Employees ' Federation (2), where it was held that in an inquiry under section 33 A, the employee would not succeed in obtaining an order of reinstatement merely by proving contravention of section 33 by the employer.
+After such contravention is proved it would still be open to the employer to justify the impugned dismissal on the merits.
+That is a part of the dispute which the tribunal has to consider because the complaint made by the employee is to be treated as an industrial dispute and all the relevant aspects of the said dispute fall to be considered under section 33 A.
+Therefore, when a tribunal is considering a complaint under section 33 A and it has finally to decide whether an employee should be reinstated or not, it is not open to the tribunal to order reinstatement as an interim relief, for that would be giving the workman the very relief which he could get only if on a trial of the complaint the employer failed to justify the order of dismissal.
+The interim relief ordered in this case was that the work (1) ; (2) ; 597 man should be permitted to work: in other words he was ordered to be reinstated; in the alternative it was ordered that if the management did not take him back they should pay him his full wages.
+We are of opinion that such an order cannot be passed in law as an interim relief, for that would amount to giving the, respondent at the outset the relief to which he would be entitled only if the employer failed in the proceedings under section 33 A. As was pointed out in Hotel Imperial 's case (1),ordinarily, interim relief should not be the whole relief that the workmen would get if they succeeded finally.
+The order therefore of the tribunal in this case allowing reinstatement as an interim relief or in lieu thereof payment of full wages is manifestly erroneous and must therefore be set aside.
+We therefore allow the appeal, set aside the order of the High Court as well as of the tribunal dated May 16, 1957, granting interim relief.
+Learned counsel for the respondent submitted to us that we should grant some interim relief in case we came to the conclusion that the order of the tribunal should be set aside.
+In the circumstances of this case we do not think that interim relief to the respondent is justified hereafter.
+As we have pointed above, applications under sections 33 and 33 A should be dealt with expeditiously.
+We trust that the applications dated September 4, 1956, which appears to have been overlooked and of May 6, 1957, will now be dealt with expeditiously and finally disposed of by the tribunal, as all applications under section 33 A should be.
+In the circumstances we pass no order as to costs.
+Appeal allowed.

1008.txt

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+87 of 1959.
+Petition under article 32 of the Constitution of India for enforcement of Fundamental Rights.
+M. P. Amin, Dara P. Mehta, P. M. Amin; section N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra for the petitioners.
+A. V. Viswanatha Sastri, R. Ganapathy Iyer, P. Kesava Pillai and T. M. Sen, for the respondents.
+H. N. Sanyal, Additional Solicitor General of India, B. Sen and R. H. Dhebar, for the Intervener.
+541 1960.
+November, 21.
+The, Judgment of P. B. Gajendragadkar, A. K. Sarkar, K. Subba Rao and J. R. Mudholkar, JJ., was delivered by P. B. Gajendragadkar J., K. N. Wanchoo, J., delivered a separate judgment.
+GAJENDRAGADKAR, J. This is a petition filed under article 32 of the Constitution in which the validity of the Orissa Mining Areas Development Fund Act,( , 1952 (XXVII of 1952), is challenged.
+The first petitioner is a public limited company which has its registered office at Bombay.
+A large majority of its shareholders are citizens of India; some of them are themselves companies incorporated under the Indian Companies Act.
+Petitioners Nos.
+2 to 7 are the Directors of Petitioner No. 1, the second petitioner being the Chairman of its Board of Directors.
+These petitioners are all citizens of India.
+At all material times the first petitioner carried on and still carries on the business of producing and selling coal excavated from its collieries at Rampur in the State 'of Orissa.
+Two leases have been executed in its favour; the first was executed on October 17, 1941, by the Governor of Orissa whereby all that piece or parcel of land in the registration district of Sambalpur admeasuring about 3341.79 acres has been demised for a period of 30 years commencing from September 1, 1939, in consideration of the rent reserved thereby and subject to the covenants and conditions prescribed thereunder; and the second is a surface lease executed in its favour by Mr. Mohan Brijraj Singh Dee on April 19, 1951, in relation to a land admeasuring approximately 211.94 acres for a like period of 30 years commencing from February 4, 1939, in consideration of the rent and subject to the terms and conditions prescribed by it.
+Pursuant to section 5 of the Orissa Estates Abolition Act, 1951, all the right, title and interest of the Zamindar of Rampur in the lands demised to the first petitioner under the second lease vested in respondents, the State of Orissa.
+Since then the first petitioner has duly paid the rent reserved by the said lease to the appropriate authorities appointed by respondent 1, 69 542 and has observed and performed all the conditions and covenants of the said lease.
+In exercise of its rights under the said two leases the first petitioner entered upon the lands demised and has been carrying on the business of excavating and producing coal at its collieries at Rampur.
+In December, 1952, the Legislature of the State of Orissa passed the impugned Act; and it received the assent of the Governor of Orissa on December 10, 1952.
+It was, however, not reserved for the consideration of the President of India nor has it received his assent.
+In pursuance of the rule making power conferred on it by the impugned Act respondent 1 has purported to make rules called the Orissa Mining Areas Development Act Rules, 1955; these rules have been duly notified in the State Gazette on January 25, 1955.
+Subsequently, the Administrator, respondent 2, appointed under the impugned Act issued a notification on June 24, 1958, whereby the first petitioner 's Rampur colliery has been notified for the purpose of liability for the payment of cess under the impugned Act.
+The area of this colliery has been determined at 3341.79 acres.
+In its appeal filed under rule 3 before the Director of Mines the first petitioner objected to the issue of the said notification, inter alia, on the ground that the impugned Act and the rules framed under it were ultra vires and invalid; no action has, however, been taken on the said appeal presumably because the authority concerned could not enter tain or deal with the objections about the vires of the Act and the rules.
+Thereafter on March 26, 1959, the Assistant Administrative Officer, respondent 3, called upon the first petitioner to submit monthly returns for the assessment of the cess.
+The first petitioner then represented that it had filed an appeal setting forth its objections against the notification, and added that until the said appeal was disposed of no returns would be filed by it.
+In spite of this representation respondent 3, by his letter of May 6, 1959, called upon the 543 first petitioner to submit monthly returns in the prescribed form and issued the warning that failing compliance the first petitioner would be prosecuted under section 9 of the impugned Act.
+A similiar demand was made and a similar warning issued by respondent 3 by his letter dated June 6, 1959.
+It is under these circumstances that the present petition has been filed.
+The petitioners contend that the impugned Act and ' the rules made thereunder are ultra vires the powers of the Legislature of the State of Orissa, or in any event they are repugnant to the provisions of an existing law.
+According to the petition the cess levied under the impugned Act is not a fee but is in reality and in substance a levy in the nature of a duty of excise on the coal produced at the first petitioner 's Rampur colliery, and as such is beyond the legislative competence of the Orissa Legislature.
+Alternatively it is urged that even if the levy imposed by the impugned Act is a fee relatable to Entries 23 and 66 in List II of the Seventh Schedule, it would nevertheless be ultra vires having regard to the provisions of Entry 54 in List I read with Central Act LIII of 1948.
+The petitioners further allege that even if the said levy is held to be a fee it would be similarly ultra vires having regard to Entry 52 in List I read with Central Act LXV of 1951.
+According to the petitioners the impugned Act is really relatable to Entry 24 in List III, and since it is repugnant with Central Act XXXII of 1947 relatable to the same Entry and covering the same field the impugned Act is invalid to the extent of the said repugnancy under article 254.
+On these allegations the petitioners have applied for a writ of mandamus or a writ in the nature of the said writ or any other writ, order or direction prohibiting the respondents from enforcing any of the provisions of the impugned Act against the first petitioner; a similar writ or order is claimed against respondent 3 in respect of the letters addressed by him to the 1st petitioner on March 3, 1959 and June 6, 1959.
+This petition is resisted by respondent 1 on several grounds.
+It is urged on its behalf that the levy 544 imposed by the impugned Act is a fee relatable to Entries 23 and 66 in List II and its validity is not affected either by Entry 54 read with Act LIII of 1948 or by 'Entry 52 read with Act LXV of 1951.
+In the alternative it is contended that if the said levy is held to be a tax and not a fee, it would be a tax relatable to Entry 50 in List II, and as such the legislative competence of the State Legislature to impose the same cannot be successfully challenged.
+Respondent 1 disputes the petitioner 's contention that the impugned Act is relatable to Entry 24 in List III; and so, according to it, no question of repugnancy with the Central Act XXXII of 1947 arises.
+After this appeal was fully argued before us Mr. Amin suggested and Mr. Sastri did not object that we should hear the learned Attorney General on the question as to whether even if the levy imposed by the impugned Act is a fee relatable to Entries 23 and 66 in List II of the Seventh Schedule, it would nevertheless be ultra vires having regard to the provisions of Entry 54 in List I read with Central Act LIII of 1948.
+Accordingly we directed that a notice on this point should be served on the learned Attorney General and the case should be set down for hearing on that point again.
+For the learned Attorney General the learned Additional Solicitor General appeared before us in response to this notice and we have had the benefit of hearing his arguments on the point in question.
+The first question which falls for consideration is whether the levy imposed by the impugned Act amounts to a fee relatable to Entry 23 read with Entry 66 in List II.
+Before we deal with this question it is necessary to consider the difference between the concept of tax and that of a fee.
+The neat and terse definition of tax which has been given by Latham, C. J., in Matthews vs Chicory Marketing Board (1) is often cited as a classic on this subject.
+"A tax", said Latham, C. J., "is a compulsory exaction of money by public authority for public purposes enforceable by law, and is not payment for services rendered".
+In bringing out the essential features of a tax this defini (1) ; , 276.
+545 tion also assists in distinguishing a tax from a fee.
+It is true that between a tax and a fee there is no generic difference.
+Both are compulsory exactions of money.
+by public authorities; but whereas a tax is imposed for public purposes and is not, and need not, be supported by any consideration of service rendered in return, a fee is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it.
+If specific services are rendered to a specific area or to a specific class of persons or trade or business in any local area, and as a condition precedent for the said services or in return for them cess is levied against the said area or the said class of persons or trade or business the cess is distinguishable from a tax and is described as a fee.
+Tax recovered by public authority invariably goes into the consolidated fund which ultimately is utilised for all public purposes, whereas a cess levied by way of fee is not intended to be, and does not become, a part of the consolidated fund.
+It is earmarked and set apart for the purpose of services for which it is levied.
+There is, however, an element of compulsion in the imposition of both tax and fee.
+When the Legislature decides to render a specific service to any area or to any class of persons, it is not open to the said area or to the said class of persons to plead that they do not want the service and therefore they should be exempted from the payment of the cess.
+Though there is an element of quid pro quo between the tax payer and the public authority there is no option to the tax payer in the matter of receiving the service determined by public authority.
+In regard to fees there is, and must always be, co relation between the fee collected and the service intended to be rendered.
+Cases may arise where under the guise of levying a fee Legislature may attempt to impose a tax; and in the case of such a colourable exercise of legislative power courts would have to scrutinise the scheme of the levy very carefully and determine whether in fact there is a co relation between the service and the levy, or whether the levy is either not co related with service or is levied to such an 546 excessive extent as to be a presence of a fee and not a fee in reality.
+In other words, whether or not a particular cess levied by a statute amounts to a fee or tax would always be a question of fact to be determined in the circumstances of each case.
+The distinction between a tax and a fee is, however, important, and it is recognised by the Constitution.
+Several Entries in the Three Lists empower the appropriate Legislatures to levy taxes; but apart from the power to levy taxes thus conferred each List specifically refers to the power to levy fees in respect of any of the matters covered in the said List excluding of course the fees taken in any Court.
+The question about the distinction between a tax and a fee has been considered by this Court in three decisions in 1954.
+In The Commissioner, Hindu Religious Endowments, Madras vs Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt (1) the vires of the Madras Hindu Religious and Charitable Endowments Act, 1951 (Madras Act XIX of 195 1), came to be examined.
+Amongst the sections challenged was section 76(1).
+Under this section every religious institution had to pay to the Government annual contribution not exceeding 5% of its income for the services rendered to it by the said Government; and the argument was that the contribution thus exacted was not a fee but a tax and as such outside the competence of the State Legislature.
+In dealing with this argument Mukherjee, J., as he then was, cited the definition of tax given by Latham, C.J., in the case of Matthews (2), and has elaborately considered the distinction between a tax and a fee.
+The learned judge examined the scheme of the Act and observed that "the material fact which negatives the theory of fees in the present case is that the money raised by the levy of the contribution is not earmarked or specified for defraying the expense that the Government has to incur in performing the services.
+All the collections go to the consolidated fund of the State and all the expenses have to be met not out of those collections but out of the general revenues by a proper method of appropriation as is done in the (1) ; (2) ; 547 case of other Government expenses".
+The learned judge no doubt added that the said circumstance was not conclusive and pointed out that in fact there was a total absence of any co relation between the expenses incurred by the Government and the amount raised by contribution.
+That is why section 76(1) was struck down as ultra vires.
+The same point arose before this Court in respect of the Orissa Hindu Religious Endowments Act, 1939, as amended by amending Act 11 of 1952 in Mahant Sri Jagannath Ramanuj Das vs The, State of Orissa (1).
+Mukherjea, J., who again spoke for the Court, upheld the validity of section 49 which imposed the liability to pay the specified contribution on every Mutt or temple having an annual income exceeding Rs. 250 for services rendered by the State Government.
+The scheme of the impugned Act was examined and it was noticed that the collections made under it are not merged in the general public revenue and are not appropriated in the manner laid down for appropriation of expenses for other public purposes.
+They go to constitute a fund which is contemplated by section 50 of the Act, and this fund to which the Provincial Government contributes both by way of loan and grant is specifically set apart for the rendering of services involved in carrying out the provisions of the Act.
+The same view was taken by this Court in regard to section 58 of the Bombay Public Trust Act, 1950 (Act XXIX of 1950) which imposed a similar contribution for a similar purpose in Ratilal Panachand Gandhi vs The State of Bombay (2).
+It would thus be seen that the tests which have to be applied in determining the character of any impugned levy have been laid down by this Court in these three decisions; and it is in the light of these tests that we have to consider the merits of the rival contentions raised before us in the present petition.
+On behalf of the petitioners Mr. Amin has relied on three other decisions which may be briefly considered.
+In P. P. Kutti Keya vs The State of Madras (3), the Madras High Court was called upon to consider, inter (1) ; (2) [1954] S.C.R. 1055.
+(3) A.I.R. 1954 Mad. 621.
+548 alia, the validity of section 11 of the Madras Commercial Crops Markets Act 20 of 1933 and Rules 28(1) and 28(3) framed thereunder.
+Section 11(1) levied a fee on the sales of commercial crops within the notified area and section 12 provided that the amounts collected by the Market Committee shall be constituted into a Market Fund which would be utilised for acquiring a site for the market, constructing a building, maintaining the market and meeting the expenses of the Market Committee.
+The argument that these provisions amounted to services rendered to the notified area and thus made the levy a fee and not a tax was not accepted by the Court.
+Venkatarama Aiyar, J., took the view that the funds raised from the merchants for a construction of a market in substance amounted to an exaction of a tax.
+Whether or not the construction of a market amounted to a service to the notified area it is unnecessary for us to consider.
+Besides, as we have already pointed out we have now three decisions of this Court which have authoritatively dealt with this matter, and it is in the light of the said decisions that the present question has to be considered.
+In Attorney General for British Columbia vs Esquimalt and Nanaimo Railway Co. (1), the Privy Council had to deal with the validity of forest protection impost levied by the relevant section of the Forest Act R. section B. C. 1936.
+The lands in question were statutorily exempted from taxation, and it was urged against the validity of the impost that the levy of the said impost was not a service charge but a tax; and since it contravened the exemption from taxation granted to the land it was invalid.
+This plea was upheld by the Privy Council.
+The Privy Council did consider two circumstances which were relevant; the first that the levy was on a defined class of interested individuals, and the second that the fund raised did not fall into the general mass of the proceeds of taxation but was applicable for a special and limited purpose.
+It was conceded that these considerations were relevant but the Privy Council thought that the weight to be attached to them should not be exagge (1) 540 rated.
+In appreciating the weight of the said relevant circumstances the Privy Council was impressed by the fact that the lands in question formed an important part of the national wealth of the Province and their proper administration, including in particular protection against fire, is a matter of high public concern ' as well as one of particular interest to individuals.
+In other words, the effect of the impugned provision was, that the expenses of what was the public service of the greatest importance for the Province as a whole had been divided between the general body of tax.
+payers and those individuals who had a special interest in having their property protected.
+It would thus appear that this decision proceeded on the basis that what was claimed to be a special service to the lands in question was in reality an item in public service itself, and so the element of quid pro quo was absent.
+It is true that when the Legislature levies a fee for rendering specific services to a specified area or to a specified class of persons or trade or business, in the last analysis such services may indirectly form part of services to the public in general.
+If the special service rendered is distinctly and primarily meant for the benefit of a specified class or area the fact that in benefiting the specified class or area the State as a whole may ultimately and indirectly be benefited would not detract from the character of the levy as a fee.
+Where, however, the specific service is indistinguishable from pub lic service, and in essence is directly a part of it, diffe rent considerations may arise.
+In such a case it is necessary to enquire what is the primary object of the levy and the essential purpose which it is intended to achieve.
+Its primary object and the essential purpose must be distinguished from its ultimate or incidental results or consequences.
+That is the true test in determining the character of the levy.
+In Parton.
+vs Milk Board (Victoria)(1), the validity of the levy imposed on dairymen and owners of milk depots by section 30 of the Milk Board Act of 1933 as amended by subsequent Acts of 1936 1939 was (1) ; 70 550 challenged, and it was held by Dixon, J., that the levy of the said contribution amounted to the imposition of a duty of excise.
+This decision was substantially based on the ground that the statutory board "performs no particular service for the dairyman or the owner of a milk depot for which his contribution may be considered as a fee or recompense" that is to say the element of quid pro quo was absent qua the persons on whom the levy had been imposed.
+Therefore none of the decisions on which Mr. Amin has relied can assist his case.
+Let us now examine the scheme of the impugned Act.
+As the preamble shows it has been passed because it was thought expedient to constitute mining areas and a Mining Areas Development Fund in the State of Orissa.
+It consists of 11 sections.
+Section 3 of the Act provides for the constitution of a mining area whenever it appears to the State Government that it is necessary and expedient to provide amenities like communications, water supply and electricity for the better development of any area in the State of Orissa wherein any mine is situated, or to provide for the welfare of the residents or to workers in any such areas within which persons employed in a mine or a group of mines reside or work.
+Under this section the State Government has to define the limits of the area.
+and is given the power to include within such area any local area contiguous to the same or to exclude from such area any local area comprised therein; that is the effect of section 3(1).
+Section 3(2) empowers the owner or a lessee of a mine or his duly constituted representative in the said area to file objections in respect of any notification issued under section 3(1) within the period specified, and the State Government is required to take the said objection into consideration.
+After considering objections received the State Government is authorised to issue a notification constituting a mining area under section 3(3).
+Section 4 deals with the imposition and collection of cess.
+The rate of the levy authorised shall not exceed 5 per centum of the valuation of the minerals at the pit 's mouth.
+Section 5 provides for the constitution of the Orissa Mining Areas Development 551 Fund.
+This fund vests in the State Government and has to be administered by such officer or officers as may be appointed by the State Government in that, behalf Section 5(2) requires that there shall be paid to the credit of the said fund the proceeds of the cess recovered under section 4 for each mining area during the quarter after deducting expenses, if any, for collection and recovery.
+Section 5(3) contemplates that to the credit of the said fund shall be placed all collections of cess under section 5(2) as well as amounts from State Government and the local authorities and public subscriptions specifically given for any of the purposes of the fund.
+Section 5(4) deals with the topic of the appli cation of the said fund.
+The fund has to be utilised to meet expenditure incurred in connection with such measures which in the opinion of the State Government are necessary or expedient for providing amenities like communications, water supply and electricity, for the better development of the mining areas, and to meet the welfare of the labour and other persons residing or working in the mining areas.
+Section 5(5) lays down that without prejudice to the generality of the foregoing provisions the fund may be utilised to defray any of the purposes specified in cls.
+(a) to (e).
+Under section 5(6) the State Government is given the power to decide whether any particular expenditure is or is not debitable to the fund and their decision is made final; and section 5(7) imposes on the State Government an obligation to publish annually in the gazette a report of the activities financed from the fund together with an estimate of receipts and expenditure of the fund and a statement of account.
+Section 6 prescribes the mode of constituting an advisory committee.
+It has to consist of such number of members and chosen in such manner as may be prescribed, provided however that each committee shall include representatives of mine owners and workmen employed in mining industry.
+The names of the members of the committee are required to be published in the gazette.
+Section 7 deals with the appointment and functions of the statutory authorities to carry out the purpose of the Act, while section 8 confers on the State Government power to 552 make rules.
+Section 9 prescribes penalties and provides for prosecutions; and section 10 gives protection to the specified authorities or officers in respect of anything done or intended to be done by them in good faith in pursuance of the Act or any rules or order made thereunder.
+Section 11, which is the last section confers on the State Government the power to do anything which may appear to them to be necessary for 'the purpose of removing difficulties in giving effect to the provisions of the Act.
+The scheme of the Act thus clearly shows that it has been passed for the purpose of the development of mining areas in the State.
+The basis for the operation of the Act is the constitution of a mining area, and it is in regard to mining areas thus constituted that the provisions of the Act come into play.
+It is not difficult to appreciate the intention of the State Legislature evidenced by this Act.
+Orissa is an underdeveloped State in the Union of India though it has a lot of mineral wealth of great potential value.
+Un fortunately its mineral wealth is located generally in areas sparsely populated with bad communications.
+Inevitably the exploitation of the minerals is handicapped by lack of communications, and the difficulty experienced in keeping the labour force sufficiently healthy and in congenial surroundings.
+The mineral development of the State, therefore, requires that provision should be made for improving the communications by constructing good roads and by providing means of transport such as tramways; supply of water and electricity would also help.
+It would also be necessary to provide for amenities of sanitation and education to the labour force in order to attract workmen to the area.
+Before the Act was passed it appears that the mine owners tried to put up small length roads and tramways for their own individual purpose, but that obviously could not be as effective as roads constructed by the State and tramway service provided by it.
+It is on a consideration of these factors that the State Legislature decided to take an active part in unsystematic development of its mineral areas which would help the mine owners in moving their 553 minerals quickly through the shortest route and would attract labour to assist the excavation of the minerals.
+Thus there can be no doubt that the primary and the principal object of the Act is to develop ' the mineral areas in the State and to assist more efficient and extended exploitation of its mineral wealth.
+The constitution of the advisory committee as prescribed by section 4 emphasises the fact that the policy of the Act would be to carry out with the assistance of the mine owners and their workmen.
+Thus after a mining area is notified an advisory committee is constituted in respect of it, and the task of carrying out the objects of the Act is left to the care of the said advisory committee subject to the provisions of the Act.
+Even before an area is notified the mine owners are allowed an opportunity to put forward their objections.
+These features of the Act are also relevant in determining the question as to whether the Act is intended to render service to the specified area and to the class of persons who are subjected to the levy of the cess.
+Section 5 shows that the cess levied does not become a part of the consolidated fund and is not subject to an appropriation in that behalf; it goes into the special fund earmarked for carrying out the purpose of the Act, and thus its existence establishes a correlation between the cess and the purpose for which it is levied.
+It was probably felt that some additions should be made to the special fund, and so section 5(3) contemplates that grants from the State Government and local authorities and public subscriptions may be collected for enriching the said fund.
+Every year a report of the activities financed by the fund has to be published together with an estimate of receipt and expenditure and a statement of accounts.
+It would thus be clear that the administration of the fund would be subject to public scrutiny and persons who are called upon to pay the levy would have an opportunity to see whether the cess collected from them has been properly utilised for the purposes for which it is intended to be used.
+It is not alleged by the petitioners 554 that the levy imposed is unduly or unreasonably excessive so as to make the imposition a colourable exercise of legislative power.
+Indeed the fact that the accounts have to be published from year to year affords an indication to the contrary.
+Thus the scheme of the Act shows that the cess is levied against the class of persons owning mines in the notified area and it is levied to enable the State Government to render specific services to the said class by developing the notified mineral area.
+There is an element of quid pro quo in the scheme, the cess collected is constituted into a specific fund and it has not become a part of the consolidated fund, its application is regulated by a statute and is confined to its purposes, and there is a definite co relation between the impost and the purpose of the Act which is to render service to the notified area.
+These features of the Act impress upon the levy the character of a fee as distinct from a tax.
+It is, however, urged that the cess levied by section 4(2) is in substance and reality a duty of excise.
+As we have already noticed section 4(2) provides that the rate of such levy shall not exceed 5 per centum of the valuation of the minerals at the pit 's mouth; in other words it is the value of the minerals produced which is the basis for calculating the cess payable by mine owners, and that precisely is the nature in which duty of excise is levied under Entry 84 in List I. The said Entry empowers Parliament to impose duties of excise, inter alia, on goods manufactured or produced in India.
+When minerals are produced from mines and a duty of excise is intended to be imposed on them it would be normally imposed at the pit 's mouth, and that is precisely what the impugned Act purports to do.
+It is also contended that the rate prescribed by section 4(2) indicates that it operates not as a mere fee but as a duty of excise.
+This argument must be carefully examined before the character of the cess is finally determined.
+It is not disputed that under Entry 23 in List II read with Entry 66 in the said List the State Legislature can levy a fee in respect of mines and mineral development.
+Entry 23 reads thus: "Regu lation of Mines and mineral development subject to 555 the provisions of List I with respect to regulation and development under the control of the Union".
+We will deal with the condition imposed by the latter part of this Entry later.
+For the present it is enough to state that regulation of mines and mineral development is within the competence of the State Legislature.
+Entry 66 provides that fees in respect of any of the matters in the said List can be imposed by the State Legislature subject of course to the exception of fees taken in any Court.
+The argument is that though the State Legislature is competent to levy a fee in respect of mines and mineral development, if the statute passed by a State Legislature in substance and in effect imposes a duty of excise it is travelling outside its jurisdiction and is trespassing on the legislative powers of Parliament.
+This argument is based on two considerations.
+The first relates to the form in which the levy is imposed, and the second relates to the extent of the levy authorised.
+The extent of the levy authorised would always depend upon the nature of the services intended to be rendered and the financial obligations incurred thereby.
+If the services intended to be rendered to the notified mineral areas require that a fairly large cess should be collected and co relation can be definitely established between the proposed services and the impost levied, then it would be unreasonable to suggest that because the rate of the levy is high it is not a fee but a duty of excise.
+In the present case, if the development of the mining areas involves con siderable expenditure which necessitates the levy of the prescribed rate it only means that the services being rendered to the mining areas are very valuable and the rate payer in substance is compensating the State for the services rendered by it to him.
+It is significant that the petitioners do not seriously suggest that the services intended to be rendered are a cloak and not genuine, or that the taxes levied have no relation to the said services, or that they are unreasonable and excessive.
+Therefore, in our opinion, the extent of the rate allowed to be imposed by section 4(2) cannot by itself alter the character of the levy from a 556 fee into that of a duty of excise.
+If the co relation between the levy and the services was not genuine or real, or if the levy was disproportionately higher than the requirements of the services intended to be rendered it would have been another matter.
+Then as to the form in which the impost is levied, it is difficult to appreciate how the method adopted by the Legislature in recovering the impost can alter its character.
+The character of the levy must be determined in the light of the tests to which we have already referred.
+The method in which the fee is recovered is a matter of convenience, and by itself it cannot fix upon the levy the character of the duty of excise.
+This question has often been considered in the past, and it has always been held that though the method in which an impost is levied may be relevant in determining its character its significance and effect cannot be exaggerated.
+In Balla Ram vs The Province of East Punjab (1) the Federal Court had to consider the character of the tax levied by section 3 of the Punjab Urban Immoveable Property 'tax Act XVII of 1940.
+Section 3 provided as follows: "There shall be charged, levied and paid an annual to tax on buildings and lands situated in the rating areas shown in the schedule to this Act at such rate not exceeding twenty per centum of the annual value of such buildings and lands as the Provincial Government may by notification in official gazette direct in respect of each such rating area".
+The argument urged before the Federal Court was that the tax imposed by the said section was in reality a tax on income within the meaning of Item 54 in List I of the Seventh Schedule to the Constitution Act of 1935, and as such it was not covered by Item 42 in List II of the said Schedule.
+This argument was rejected on the ground that the tax levied by the Act was in pith and substance a tax on lands and buildings covered by Item 42.
+It would be noticed that the basis of the tax was the annual value of the building which is the basis used in the Indian Income tax Act for determining income from property; and so, the attack against the section was based on (1) 557 the ground that it had adopted the same basis for leaving the impost as the Income tax Act and the said basis determined its character whatever may be the appearance in which the impost was purported to be levied.
+In repelling this argument Fazl Ali, J. observed that the crucial question to be answered was whether merely because the Income tax Act has adopted the annual value as the standard for determining the income it must necessarily follow that if the same standard is employed as a measure for any other tax that tax becomes a tax on income.
+The learned judge then proceeded to add that if the answer to this question is to be given in the affirmative then certain taxes which cannot possibly be described as income tax must be held to be so.
+In other words, the effect of this decision is that the adoption of the standard used in Income tax Act for getting at the income by any other act for levying the tax authorised by it would not be enough to convert the said.
+tax into an income tax.
+During the course of this judgment Fazl Ali, J. also noticed with approval a similar view taken by the Bombay High Court in Sir Byramjee Jeejeebhoy vs The Province of Bombay (1).
+This decision has been expressly approved by the Privy Council in Governor General in Council vs Province of Madras (2).
+Consistently with the decision of the Federal Court their Lordships expressed the opinion that "a duty of excise is primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced.
+It is a tax on goods and not on sales or the proceeds of the sale of goods.
+The two taxes, the one levied on the manufacturer in respect of his goods and the other on the vendor in respect of his sales may in one sense overlap, but in law there is no overlapping; the taxes are separate and distinct imposts.
+If in, fact they overlap that may be because the taxing authority imposing a duty of excise finds it convenient to impose that duty at the moment when the excisable article (1) I.L.R. (2) (1945) L.R. 72 I.A. 91.
+71 558 leaves the factory or workshop for the first time on the occasion of its sale".
+In that case the question was whether the tax authorised by the Madras General Sales Tax Act, 1939, was a tax on the sale of goods or was a duty of excise, and the Privy Council held it was the former and not the latter.
+Therefore, in our opinion, the mere fact that the levy imposed by the impugned Act has adopted the method of determining the rate of the levy by reference to the minerals produced by the mines would not by itself make the levy a duty of excise.
+The method thus adopted may be relevant in considering the character of the impost but its effect must be weighed along with and in the light of the other relevant circumstances.
+In this connection it is always necessary to bear in mind that where an impugned statute passed by a State Legislature is relatable to an Entry in List II it is not permissible to challenge its vires only on the ground that the method adopted by it for the recovery of the impost can be and is generally adopted in levying a duty of excise.
+Thus considered the conclusion is inevitable that the cess levied by the impugned Act is neither a tax nor a duty of excise but is a fee.
+The next question which arises is, even if the cess is a fee and as such may be relatable to Entries 23 and 66 in List II its validity is still open to challenge because the legislative competence of the State Legislature under Entry 23 is subject to the provisions of List I with respect to regulation and development under the control of the Union; and that takes us to Entry 54 in List I.
+This Entry reads thus: "Regulation of mines and mineral development to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest".
+The effect of reading the two Entries together is clear.
+The jurisdiction of the State Legislature under Entry 23 is subject to the limitation imposed by the latter part of the said Entry.
+If Parliament by its law has declared that regulation and development of mines should in public interest be under the control of the Union, to 559 the extent of such declaration the jurisdiction of the State Legislature is excluded.
+In other words, if a Central Act has been passed which contains a declaration by Parliament as required by Entry 54, and if the said declaration covers the field occupied by the impugned Act the impugned Act would be ultra vires, not because of any repugnance between the two statutes but because the State Legislature had no jurisdiction to pass the law.
+The limitation imposed by the latter part of Entry 23 is a limitation on the legislative competence of (,he State Legislature itself.
+This position is not in dispute.
+It is urged by Mr. Amin that the field covered by the impugned Act has already been covered by the Mines and Minerals (Regulation and Development) Act, 1948, (LIII of 1948) and he contends that in view of the declaration made by section 2 of this Act the impugned Act is ultra vires.
+This Central Act was passed to provide for the regulation of mines and oil fields and for the development of minerals.
+It may be stated at this stage that by Act LXVII of 1957 which has been subsequently passed by Parliament, Act LIII of 1948 has now been limited only to oil fields.
+We are, however, concerned with the operation of the said Act in 1952, and at that time it applied to mines as well as oil fields.
+Section 2 of the Act contains a declaration as to the expediency and control by the Central Government.
+It reads thus: "It is hereby declared that it is expedient in the public interest that the Central Government should take under its control the regulation of mines and oil fields and the development of minerals to the extent hereinafter provided".
+It is common ground that at the relevant time this Act applied to coal mines.
+Section 4 of the Act provides that no mining lease shall be granted after the commencement of this Act otherwise than in accordance with the rules made under this Act.
+Section 5 empowers the Central Government to make rules by notification for regulating the grant of mining leases or for prohibiting the grant of such leases in respect of any mineral or in any area.
+Sections 4 and 5 thus 560 purport to prescribe necessary conditions in accordance with which mining leases have to be executed.
+This part of the Act has no relevance to our present purpose.
+Section 6 of the Act, however, empowers the Central Government to make rules by notification in the official gazette for the conservation and development of minerals.
+Section 6(2) lays down several matters in respect of which rules can be framed by the Central Government.
+This power is, however, without prejudice to the generality of powers conferred on the Central Government by section 6(1).
+Amongst the matters covered by section 6(2) is the levy and collection of royalties, fees or taxes in respect of minerals mined, quarried, excavated or collected.
+It is true that no rules have in fact been framed by the Central Government in regard to the levy and collection of any fees; but, in our opinion, that would not make any difference.
+If it is held that this Act contains the declaration referred to in Entry 23 there would be no difficulty in holding that the declaration covers the field of conservation and development of minerals, and the said field is indistinguishable from the field covered by the impugned Act.
+What Entry 23 provides is that the legislative competence of the State Legislature is subject to the provisions of List I with respect to regulation and development under the control of the Union, and Entry 54 in List I requires a declaration by Parliament by law that regulation and development of mines should be under the control of the Union in public interest.
+Therefore, if a Central Act has been passed for the purpose of providing for the conservation and development of minerals, and if it contains the requisite declaration, then it would not be competent to the State Legislature to pass an Act in respect of the subject matter covered by the said declaration.
+In order that the declaration should be effective it is not necessary that rules should be made or enforced; all that this required is a declaration by Parliament that it is expedient in the public interest to take the regulation and development of mines under the control of the Union.
+In such a case the test must be whether the legislative declaration covers the field 561 or not.
+Judged by this test there can be no doubt that the field covered by the impugned Act is covered by the Central Act LIII of 1948.
+It still remains to consider whether section 2 of the said Act amounts in law to a declaration by Parliament as required by article 54.
+When the said Act was passed in 1948 the legislative powers of the Central and the Provincial Legislatures were governed by the relevant Entries in the Seventh Schedule to the Constitution Act of 1935.
+Entry 36 in List I corresponds to the present Entry 54 in List I.
+It reads thus: "Regulation of Mines and Oil Fields and mineral development to the extent to which such regulation and development under Dominion control is declared by Dominion law to be expedient in public interest".
+It would be notic ed that the declaration required by Entry 36 is a declaration by Dominion law.
+Reverting then to section 2 of the said Act it is clear that the declaration contained in the said section is put in the passive voice; but in the context there would be no difficulty in holding that the said declaration by necessary implication has been made by Dominion law.
+It is a declaration contained in a section passed by the Dominion Legislature ' and so it is obvious that it is a declaration by a Dominion law; but the question is: Can this declaration by a Dominion law be regarded constitutionally as declaration by Parliament which is required by Entry 54 in List I. It has been urged before us by the learned Additional Solicitor General and Mr. Amin that in dealing with this question we should bear in mind two general considerations.
+The Central Act has been continued under article 372(1) of the Constitution as an existing law, and the effect of the said constitutional provision must be that the continuance of the existing law would be as effective and to the same extent after the Constitution came into force as before.
+It is urged that after the said Act was passed and before the Con stitution came into force no Provincial Legislature could have validly made a law in respect of the field covered by the said Act, and it would be commonsense to assume that the effect of the continuance of the 562 said law under article 372(1) cannot be any different.
+In other words, if no Provincial Legislature could have trespassed on the field covered by the said Act before the Constitution, the position would and must be the same even after the Constitution came into force.
+It is also contended that for the purpose of bringing the provision of existing laws into accord with the provisions of the Constitution the President was given power to make by order appropriate adaptations and modifications of such laws, and the object of making such adaptations obviously was to make the continuance of the existing laws fully effective.
+It is in the light of these two general considerations, so the.
+argument runs, must the point in question be considered.
+The relevant clause in the Adaptation of Laws Order, 1950, on which reliance has been placed in support of this argument is el. 16 in the Supplementary Part of the said Order.
+This clause provides that subject to the provisions of this Order any reference by whatever form of words in any existing law to any authority competent at the date of the passing of that law to exercise any powers or authorities, or to discharge any functions, in any part of India shall, where a corresponding new authority has been constituted by or under the Constitution, have effect until duly repealed or amended as if it were a reference to that new authority.
+The petitioners contend that as a result of this clause the declaration made by the Dominion Legislature in section 2 of the Central Act must now be held to be the declaration made by Parliament.
+Is this contention justified on a fair and reasonable construction of the clause? That is the crux of the problem.
+In considering this question it would be relevant to recall the scheme of the Adaptation of Laws Order, 1950.
+It consists of Three Parts.
+Part 1 deals with the adaptation of Central Laws and indicates the adaptation made therein; Part 11 deals with the adaptation of Provincial Laws and follows the same pattern; and Part III is a Supplementary Part which contains provisions in the nature of supplementary provisions.
+A perusal of the clauses contained in Part 563 I would show that though some adaptation was made in Act LIII of 1948 it was not thought necessary to make an adaptation in section 2 of the said Act whereby the declaration implied in the said section has been expressly adapted into a declaration by Parliament.
+Now, the effect of el. 16 in substance is to equate an authority competent at the date of the passing of the existing law to exercise any powers or authorities, or to discharge any functions with a corresponding new authority which has been constituted by or under the Constitution.
+Reference to the authority in the con.
+text would suggest cases like reference to the Governor General eo nomine, or Central Government which respectively would be equated with the President or the Union Government.
+Prima facie the reference to authority would not include reference to a Legislature; in this connection it may be relevant to point out that article 372(1) refers to a competent Legislature as distinguished from other competent authorities.
+That is the first difficulty in holding that el.
+16 refers to the Dominion Legislature and purports to equate it with the Parliament.
+It is clear that for the application of this clause it is necessary that a reference should have been made to the authority by some words whatever may be their form.
+In other words it is only where the existing law refers expressly to some authority that this clause can be invoked.
+It is difficult to construe the first part of this clause to include authorities to which no reference is made by any words in terms, but to which such reference may be implied; and quite clearly the Dominion Legislature is not expressly referred to in section 2.
+In construing the present clause we think it would be straining the language of the clause to hold that an authority to which no reference is made by words in any part of the existing law could claim the benefit of this clause.
+Besides, there is no doubt that when the clause refers to any authority competent to exercise any powers or authorities, or to discharge any functions, it refers to the powers, authorities or functions attributable to the existing law itself; that is to say, authorities 564 which are competent to exercise powers or to discharge functions under the existing laws are intended to be equated with corresponding new authorities.
+It is impossible to hold that the Dominion Legislature is an authority which was competent to exercise any power or to discharge any function under the existing law.
+Competence to exercise power to discharge functions to which the clause refers must inevitably be related to the existing law and not to the Constitution Act of 1935 which would be necessary if Dominion Legislature was to be included as an authority under this clause.
+The Constitution Act of 1935 had been repealed by the Constitution and it was not, and could not obviously be, the object of the Adaptation of Laws Order to make any adaptation in regard to the said Act.
+Therefore, the competence of the Dominion Legislature which flowed from the relevant provisions of the Constitution Act of 1935 is wholly outside this clause.
+We have carefully considered the arguments urged before us by the learned Additional Solicitor General and Mr. Amin but we are unable to hold that cl.
+16 can be pressed into service for the purpose of supporting the conclusion that the declaration by the Dominion Legislature implied in section 2 of Act LIII of 1948 can, by virtue of cl. 16, be held to be a declaration by Parliament within the meaning of the relevant Entries in the Constitution.
+If that be the true position then the alternative challenge to the vires of the Act based on el.
+16 of the Adaptation of Laws Order must fail.
+There is another possible argument which may prima facie lead to the same conclusion.
+Let us assume that the result of reading article 372 and cl. 16 of the Adaptation of Laws Order is that under section 2 of Act LIII of 1948 there is a declaration by Parliament as suggested by the petitioners and the learned Additional Solicitor General.
+Would that meet the requirements of Entry 54 in List I of the Seventh Schedule? It is difficult to answer this question in the affirmative because the relevant provisions of the Constitution are prospective and the declaration by Parliament specified by Entry 54 must be declaration made by 565 Parliament subsequent to the date when the Constitution came into force.
+Unless a declaration is made by Parliament after the Constitution came into force it will not satisfy the requirements of Entry 54, and that inevitably would mean that the impugned Act is validly enacted under Entry 23 in List II of the Seventh Schedule.
+If that be the true position then it would follow that even on the assumption that el. 16 of the Adaptation of Laws Order and article 372 can be construed as suggested by the petitioners the impugned Act would be valid.
+Faced with this difficulty, both the learned Additional Solicitor General and Mr. Amin argued that cl.
+21 of the said Order may be of some assistance.
+Clause 21 reads thus: "Any Court, Tribunal, or authority required or empowered to enforce any law in force in the territory of India immediately before the appointed day shall, notwithstanding that this Order makes no provision or insufficient provision for the adaptation of the law for the purpose of bringing it into accord with the provisions of the Constitution, construe the law with all such adaptations as are necessary for the said purpose".
+Assuming that this clause is valid we do not see how it is relevant in the present case.
+All that this clause purports to do is to empower the Court to construe the law with such adaptations as may be necessary for the purpose of bringing it in accord with the provisions of the Constitution.
+There is no occasion to make any adaptation in construing Act LIII of 1948 for bringing it into accord with the provisions of the Constitution at all.
+The said Act has been continued under article 372(1) and there is no constitutional defect in the said Act for the avoidance of which any adaptation is necessary.
+In fact what the petitioners seek to do is to read in section 2 of the said Act the declaration by Parliament required by Entry 54 so as to make the impugned Act ultra vires.
+Quite clearly cl. 21 cannot be pressed into service for such a purpose.
+Therefore, we reach this position that the field covered by Act LIII of 1948 is substantially the same as the field covered by the 72 566 impugned Act but the declaration made by section 2 of the said Act does not constitutionally amount to the requisite declaration by Parliament, and so the limitation imposed by Entry 54 does not come into operation in the present case.
+Act LIII of 1948 continues in operation under article 372; with this modification that so far as the State of Orissa is concerned it is the impugned Act that governs and not the Central Act.
+Article 372(1) in fact provides for the continuance of the existing law until it is altered, repealed or amended by a competent Legislature or other competent authority.
+In the absence of the requisite parliamentary declaration the legislative competence of the Orissa Legislature under Entry 23 read with Entry 66 is not impaired, and so the said Legislature is competent either to repeal, alter or amend the existing law which is the Central Act LIII of 1948; in effect, after the impugned Act was passed, so far as Orissa is concerned the Central Act must be deemed to be repealed.
+This position is fully consistent with the provisions of article 372.
+The result is that the material words used in cls.
+16 and 21 being unambiguous and explicit, it is difficult to give effect to the two general considerations on which reliance has been placed by the petitioners.
+Incidentally the present case discloses that in regard to the requisite parliamentary declaration prescribed by Entry 54 in List I in its application to the pre Constitution Acts under corresponding Entry 36 in List I of the Constitution Act of 1935, there is a lacuna which has not been covered by any clauses of the Adaptation of Laws Order; that, however, is a matter for Parliament to consider.
+There is one more point which is yet to be considered.
+Mr. Amin contends that Entry 23 in List II is subject to the provisions in List I with respect to regulation and development under the control of the Union, and according to him Entry 52 in List I is one of such provisions.
+In this connection he relies on the said Entry which deals with industries the control of which by the Union is declared by Parliament by law to be expedient in the public interest, and Industries (Development and Regulation) Act, 1951 (LXV 567 of 1951).
+This Act has been passed to provide for the development and regulation of certain industries one of which undoubtedly is coal mining industry.
+Section 2 of this Act declares that it is expedient in the public interest that the Union should take under its control the industries specified in the First Schedule.
+This declaration is a declaration made by Parliament, and if the provisions of the Act read with the said declaration covered the same field as is covered by the impugned Act, it would undoubtedly affect the vires of the impugned Act; but in dealing with this question it is important to bear in mind the doctrine of pith and substance.
+We have already noticed that in pith and substance the impugned Act is concerned with the development of the mining areas notified under it.
+The Central Act, on the other hand, deals more directly with the control of all industries including of course the industry of coal.
+Chapter II of this Act provides for the constitution of the Central Advisory Council and Development Councils, chapter III deals with the regulation of scheduled industries, chapter IIIA provides for the direct management or control of industrial undertakings by Central Government in certain cases, and chapter IIIB is concerned with the topic of control of supply, distribution, price, etc, of certain articles.
+The last chapter deals with miscellaneous incidental matters.
+The functions of the Development Councils constituted under this Act prescribed by section 6(4) bring out the real purpose and object of the Act.
+It is to increase the efficiency or productivity in the scheduled industry or group of scheduled industries, to improve or develop the service that such industry or group of industries renders or could render to the community, or to enable such industry or group of industries to render such service more economically.
+Section 9 authorises the imposition of cess on scheduled industries in certain cases.
+Section 9(4) provides that the Central Government may hand over the proceeds of the cess to the Development Council there specified and that the Development Council shall utilise the said proceeds to achieve the objects mentioned in cls.
+(a) to (d).
+These 568 objects include the promotion of scientific and industrial research, of improvements in design and quality, and the provision for the training of technicians and labour in such industry or group of industries.
+It would thus be seen that the object of the Act is to regulate the scheduled industries with a view to improvement and development of the service that they may render to the society, and thus assist the solution of the larger problem of national economy.
+It is difficult to hold that the field covered by the declaration made by section 2 of this Act, considered in the light of its several provisions, is the same as the field covered by the impugned Act.
+That being so, it cannot be said that as a result of Entry 52 read with Act LXV of 1951 the vires of the impugned Act can be successfully challenged.
+Our conclusion, therefore, is that the impugned Act is relatable to Entries 23 and 66 in List II of the Seventh Schedule, and its validity is not impaired or affected by Entries 52 and 54 in List I read with Act LXV of 1951 and Act LIII of 1948 respectively.
+In view of this conclusion it is unnecessary to consider whether the impugned Act can be justified under Entry 50 in List II, or whether it is relatable to Entry 24 in List III and as such suffexs from the vice of repugnancy with the Central Act XXXII of 1947.
+The result is the petition fails and is dismissed with costs.
+WANCHOO, J. I have read the judgment just delivered by my learned brother Gajendragadkar J. and regret that I have not been able to persuade myself that the cess levied in this case on all extracted minerals from any mine in any mining area at a rate not exceeding five per centum of the value of the minerals at the pit 's mouth by the Orissa State Legislature under section 4 of the Orissa Mining Areas Development Fund Act, No. XXVII of 1952, (hereinafter called the Act) is a fee properly so called and not a duty of ex cise.
+The facts are all set out in the judgment just delivered and I need not repeat them.
+The scheme of the Act, as appears from section 3 thereof is to give power to the State Government, whenever it 569 thinks it necessary and expedient to provide amenities, like communications, water supply and electricity for the better development of any area in the State where , in any mine is situated or to provide for the welfare of residents or workers in any such area within.
+which persons employed in a mine or a group of mines reside or work, to constitute such an area to be a mining area for the purposes of the Act, to define the limits of the area, to include within such area any local area contiguous to the same and defined in the notification and to exclude from such area any local area comprised therein and defined in the notification.
+A notification under section 3 is made, after hearing objections from owners or lessees of mines.
+After such an area is con stituted under section 3, a cess is imposed under section 4 on all extracted minerals from any mine in any such area at the rate not exceeding five per centum of the value of the minerals at the pit 's mouth.
+The cess so collected is credited to a fund called the Orissa Mining Area Development Fund created under section 5 of the Act, besides other amounts with which we are not concerned in this case.
+The Fund is to be applied to meet expenditure incurred in connection with such measures, which in the opinion of the State Government, are necessary or expedient for providing amenities like communications, water supply and electricity, for the better development of mining areas and to meet the welfare of labour and other persons residing or working in the mining areas.
+Then come other provisions for working out the above provisions including section 8, which gives power to the State Government to frame rules to carry.
+into effect the purposes of the Act.
+The Rules were framed under the Act in January, 1955.
+The constitutional competence of the Orissa State Legislature to levy the cess under the Act is attacked on two main grounds.
+In the first place, it is urged that the cess is in pith and substance a duty of excise under item 84 of List I of the Seventh Schedule and therefore the levy of such a cess is beyond the competence of the Orissa State Legislature.
+In the second place, it is urged that even if the cess is a fee, in view 570 of the two Acts of the Central Legislature and Parliament, namely, The Mines and Minerals (Regulation and Development) Act, No. LIII of 1948 and The Industries (Development and Regulation) Act, No. LXV of 1951, the Orissa Legislature was not competent to pass the Act.
+The petition has been opposed on behalf of the State of Orissa and the main contentions urged on its behalf are that the cess is a fee properly so called and not a duty of excise and therefore the Orissa State Legislature was competent to levy it and the two Central Acts do not affect that competence.
+In the alternative it has been urged that even if the cess is a tax the State Legislature was competent to levy it under item 50 of List If of the Seventh Schedule.
+The first question therefore that falls for consideration is whether the cess in this ' ease is a tax or a fee.
+Difference between a tax properly so called and a fee properly so called came up for consideration before this Court in three cases in 1954 and was considered at length.
+In the first of them, namely, The Commissioner, Hindu Religious Endowments, Madras vs Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt it was pointed out that "though levying of fees is only a particular form of the exercise of the taxing power of the State, our Constitution has placed fees under a separate category for purposes of legislation and at the end of each one of the three legislative lists, it has given a power to the particular legislature to legislate on the imposition of fees in respect to every one of the items dealt with in the list itself".
+It was also pointed that "the essence of a tax is compulsion, that is to say, it is imposed under statutory power without the taxpayer 's consent and the payment is enforced by law.
+The second characteristic of a tax is that it is an imposition made for public purpose without reference to any special benefit to be conferred on the payer of the tax.
+This is expressed by saying that the levy of tax is for the purposes of general revenue, which when (1) ; 571 collected forms part of the public revenues of the State.
+As the object of a tax is not to confer any special benefit upon any particular individual, there is, as it is said, no element of quid pro quo between the tax payer and the public authority.
+Another feature of taxation is that as it is a part of the common burden, quantum of imposition upon the tax payer depends generally upon his capacity to pay.
+" As to fees, it was pointed out that "a 'fee ' is generally defined to be a charge for a special service rendered to individuals by some governmental agency.
+The amount of fee levied is supposed to be based on the expenses incurred by the Government in rendering the service, though in many cases the costs are arbitrarily assessed.
+Ordinarily, the fees are uniform and no account is taken of the varying abilities of different recipients to pay.
+" Finally, it was pointed out that "the distinction between a tax and a fee lies primarily in the fact that a tax is levied as a part of a common burden, while a fee is a payment for a special benefit or privilege. . .
+Public interest seems to be at the basis of all impositions, but in a fee it is some special benefit which the individual receives.
+" The consequence of these principles was that "if, as we hold, a fee is regarded as a sort of return or consideration for services rendered, it is absolutely necessary that the levy of fees should, on the face of the legislative provision be co related to the expenses incurred by Government in rendering the services. . .
+If the money thus paid is set apart and appropriated specifically for the performance of such work and is not merged in the public revenues for the benefit of the general public, it could be counted as fees and not a tax." Having laid down these principles, that case then considered the vires of section 76 of the Madras Hindu Religious and Charitable Endowments Act, No. XIX of 1951, and it was pointed out that the material fact which negatived the theory of fees in that case was that the money raised by levy of the contribution was not ear marked or specified for defraying the expenses 572 that the Government had to incur in performing the services.
+All the collections went to the consolidated fund of the State and all the expenses had to be met not out of those collections but out of the general revenues by a proper method of appropriation as was done in the case of other government expenses.
+That in itself might not be conclusive, but in, that case there was total absence of any co relation between the expenses incurred by the Government and the amount raised by contribution under the provision of section 76 and in those circumstances the theory of return or counter payment or quid pro quo could not have any possible application to that case.
+Consequently, the contribution levied under section 76 was held to be a tax and not a fee.
+In the second case of Mahant Sri Jagannath Ramanuj Das vs The State of Orissa (1), a similar imposition by the Orissa Legislature came up for consideration.
+After referring to the earlier case, it was pointed out that "two elements are thus.
+essential in order that a payment may be regarded as a fee.
+In the first place, it must be levied in consideration of certain services which the individuals accepted either willingly or unwillingly.
+But this by itself is not enough to make the imposition a fee, if the payments demanded for rendering of such services are not set apart or specifically appropriated for that purpose but are merged in the general revenue of the State to be spent for general public purposes." The Orissa imposition was held to be a fee because the collections made were not merged in the general public revenue and were meant for the purpose of meeting the expenses of the Commissioner and his office which was the machinery set up for due administration of the affairs of the religious institution.
+They went to constitute a fund which was contemplated by section 50 of the Orissa Act and this fund was specifically set apart for rendering services involved in carrying out the provisions of the Act.
+The third case, namely, Ratilal Panachand Gandhi (1) ; 573 vs The State of Bombay (1) came from Bombay.
+58 of the Bombay Act, No. XXIX of 1950, provided for an imposition in proportion to the gross annual income of the trust.
+This imposition was levied for the purpose of due administration of the trust property and for defraying the expenses incurred in connection with the same.
+After referring to the two earlier cases, the Court went on to say that "taxis a common burden and the only return which the taxpayer gets is participation in the common benefits of the State.
+Fees, on the other hand, are payments primarily in the public interest, but for some special service rendered or some special work done for the benefit of those from whom the payments are demanded.
+Thus in fees there is always an element of quid pro quo which is absent in a tax. .
+But in order that the collections made by the Government can rank as fees, there must be co relation between the levy imposed and the expenses incurred by the State for the purpose of rendering such services.
+" It was then pointed out that the contributions, which were collected under section 58, were to be credited in the Public Trusts Administration Fund as constituted under section 57.
+This fund was to be applied exclusively for the payment of charges for expenses incidental to the regulation of public trusts and for carrying into effect the provisions of the Act.
+The imposition therefore was in that case held to be a fee.
+These decisions clearly bring out the difference between a tax and a fee and generally speaking there is always an element of quid pro quo in a fee and the amount raised through a fee is co related to the expenses necessary for rendering the services which are the basis of quid pro quo.
+Further, the amount collected as a fee does not go to augment the general revenues of the State and many a time a special fund is created in which fees are credited though this is not absolutely necessary.
+But as I read these deci sions, they cannot be held to lay down that 'What is in pith and substance a tax can become a fee merely (1) [1954] S.C.R. 1055.
+574 because a fund is created in which collections are credited and some services may be rendered to the persons from whom collections are made.
+If that were so, it will be possible to convert many taxes not otherwise leviable into fees by the device of creating a special fund and attaching some service to be rendered through that fund to the persons from whom collections are made.
+I am therefore of opinion that one must first look at the pith and substance of the levy, and if in its pith and substance it is not essentially different from a tax it cannot be converted into a fee by creating a special fund in which the collections are credited and attaching some services to be rendered through that fund.
+Let me then look at the pith and substance of the cess, which has been imposed in this case.
+The cess consists of a levy not exceeding five per centum of the value of the minerals at the pit 's mouth on all extracted minerals.
+Prima facie such a levy is nothing more nor less than a duty of excise.
+Item 84 of List I gives power to levy duties of excise exclusively to the Union and is in these terms : "Duties of excise on tobacco and other goods manufactured or produced in India except (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub paragraph (b) of this entry.
+" This item gives power to Parliament to impose duties of excise on all goods manufactured.
+or produced in India with certain exceptions mentioned therein.
+Taking this particular case, coal is produced from the mine and would clearly be covered by the words " other goods produced in India" and a duty of excise can be levied on it.
+What then exactly is meant by a duty of excise? Reference in this connection may be made to Governor General in Council vs Province of Madras (1).
+In that case the point arose whether the sales tax imposed by the Madras Legislature was a duty of excise.
+The Privy Council pointed out that (1) (1945) L.R. 72 I.A. 91.
+575 "in a Federal constitution in which there is a division of legislative powers between Central and Provincial legislatures, it appears to be inevitable that controversy should arise whether one or other legislature is not exceeding its own, and encroaching on the other 's, constitutional legislative power, and in such a controversy it is a principle, which their Lordships do not hesitate to apply in the present case, that it is not the name of the tax but its real nature, its 'pith and substance ' as it has sometimes been said which must determine into what category it falls.
+" The Privy Council went on to consider what a duty of excise was and said that "it is primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced.
+It is a tax on goods not on sales or the proceeds of sale of goods.
+Though sometimes a duty of excise may be imposed on first sales, a duty of excise and a tax on the sale of goods were separate and distinct imposts and in law do not overlap." The Privy Council approved of the decisions of the Federal Court in re The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 (1) and The Province of Madras vs Messrs. Boddu Paidanna and Sons (2).
+It seems to have been urged that because in some cases a duty of excise may be levied on the occasion of the first sale and a sales tax may also be levied on the same occasion, there is really no difference between the two.
+It is however clear that a duty of excise is primarily a tax on goods manufactured or produced; it is not a tax on the sale of goods, though the taxing authority may as a matter of concession to the producer not charge the tax immediately the goods are produced and may postpone it, to make it easy for the producer to pay the tax, till the first sale is made by him; nevertheless the charge is still on the goods and is therefore a duty of excise.
+On the other hand, a sales tax can only be levied when a sale is made and there is nothing to prevent its levy on the first sale.
+The two concepts (1) (2) (1948) F.C.R. go.
+576 are however different and, as the Privy Council pointed out, a sales tax and a duty of excise are separate and distinct imposts and in law do not overlap.
+The pith and substance of a duty of excise is that it is primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced.
+Let me therefore see what the Orissa Legislature has done in the present case.
+It has levied a cess at a rate not exceeding five per centum on the value of minerals at the pit 's mouth on all extracted minerals.
+All the extracted minerals are nothing other than goods produced and the cess is levied on the goods produced at a rate not exceeding five per centum of the value at the pit 's mouth.
+The cess therefore in the present case cannot be anything other than a duty of excise.
+The pith and substance of the cess in this case falls fairly and squarely within entry 84 of List I and is therefore a duty of excise, which cannot be levied by the Orissa State Legislature.
+I may in this connection refer to the cesses levied by the Central Legislature and Parliament by Act XXXII of 1947 and by the Act No. LXV of of Act XXXII of 1947 lays down that there shall be levied and collected as a cess for the purposes of that Act a duty of excise on all coal and coke dispatched from collieries at such rate not less than four annas and not more than eight annas per ton as may from time to time be fixed by the Central Government by notification in the Official Gazette.
+This is obviously a tax on the goods produced, the basis of the tax being so much per ton.
+Again sec.
+9 of Act LXV of 1951 lays down that there may be levied and collected as a cess for the purposes of that Act on all goods manufactured or produced in any such scheduled industry as may be specified in this behalf by the Central Government by notified order a duty of excise at a rate not exceeding two annas per centum of the value of the goods.
+This again is clearly a tax on goods produced or manufactured and is in the nature of a duty of excise, the basis of the tax being so much of the value of the goods.
+If these two taxes are duties of excise, 577 I fail to see any difference in pith and substance between these two taxes and the cess levied under the Act.
+It is however urged that the method employed in the Act for realising the cess is only a method of quantification of the fee and merely because of this quantification, the pith and substance of the impost does not change from a fee to a duty of excise.
+Reference in this connection was made to three cases of quantification.
+In Sir Byramjee Jeejeebhoy vs The Province of Bombay (1), a question arose with respect to a tax imposed on urban immovable property, whether it was a tax on lands and buildings.
+The challenge to the tax was on the ground that it was tax on income or capital value within items 54 and 55 of List I of the Seventh Schedule of the Government of India Act and could not therefore be imposed by the Bombay Legislature.
+It was held that the tax was a tax on lands and buildings within the meaning of item 42 of List II of the same Schedule and that the basis of the tax, which was the annual value, would not convert it into a tax on income or capital value.
+The High Court considered the pith and substance of the said Act and came to the conclusion that every tax on annual value was not necessarily a tax on income and it was held that the mode of assessment of a tax did not determine its character and one has to look to the essential character of the tax to decide whether it was a tax on income or on lands and buildings.
+Looking to the pith and substance of the tax it was held in that case that it was a tax on lands and buildings.
+That decision was in the circumstances of that case right because the intention of the legislature was not to tax the income of any one; the essential character of the tax in that case was to tax the lands and buildings and the annual value of the lands and buildings was only taken as a mode of levying the tax.
+In the present case, however, the very mode of the levy of the cess is nothing other than the levy of a duty of excise and therefore the principle of quantification for purposes of a fee cannot be extended to (1) I.L.R. 578 such an extent as to convert what is in pith and substance a tax into a fee on that basis.
+The next case to which reference was made is Municipal Corporation, Ahmedabad vs Patel Gordhandas Hargovandas (1).
+In that case the Ahmedabad Bo.
+rough Municipality had levied a rate on open lands and the basis of the levy was one per centum of the capital value of the land.
+It was urged that this amounted to a capital levy within entry 54 of List I; but the court repelled that contention and held that the levy was in pith and substance a tax on lands, which came within entry 42 of List II of the Seventh Schedule to the Government of India Act.
+A distinction was made between a tax on land which is levied on the basis of its capital value and a tax which is on capital treating it as an asset itself.
+This decision also, if I may say so with respect, is correct, for the basic idea was to tax lands and some method had to be found for doing so and the method evolved, though it might look like a capital levy, was in pith and substance not so.
+But the theory of quantification which is the basis of these two cases cannot be stretched so far as to turn levies which are in pith and substance taxes into fees, by the process of attaching certain services and creating a fund.
+The third case is Ralla Ram vs The Province of East Punjab (2).
+That was a case of a tax on lands and buildings and annual value was the basis on which the tax was levied.
+The Federal Court rightly pointed out that the pith and substance of the levy had to be seen and on that view it was not income tax but a tax on lands and buildings and the method adopted was merely a method of quantification.
+The Federal Court also pointed out that "where there is an apparent conflict between an Act of the Federal Legislature and an Act of the Provincial Legislature, we must try to ascertain the pith and substance or the true nature and character of the conflicting provisions and that before an Act is declared ultra vires, there should be an attempt to reconcile the two conflicting jurisdictions, and, only if such a reconciliation should prove (1) I.L.R. (2) 579 impossible, the impugned Act should be declared invalid.
+" It may also be pointed out that in all these three cases, one source of income of an individual or one item out of the total capital of an individual was the basis of calculation while income tax or capital levy is generally on the total income or the total capital of a person.
+That aspect must have gone into the decision that the method employed was merely a mode for imposing a tax on lands and buildings.
+In the present case, however, I see no difference between the method of imposing a duty of excise and the method employed in the Act for imposing a cess a matter which will be clear from the cesses imposed under the two Central Acts already referred to (No. XXXII of 1947 and No. LXV of 1951).
+It is not as if there could be no method of imposing a fee properly so called in this case except the one employed.
+Two methods readily suggest themselves.
+A lump sum annual fee could be levied on each mine even on a graded scale depending on the size of the mine as evidenced by its share capital.
+Or a similar graded fee could be levied on each mine depending on its size determined by the number of men employed therein.
+Where therefore the result of quantification is to bring a particular impost entirely within the ambit of a tax it would not be right to say that such an impost is still a fee, because certain services have to be rendered and a fund has been created in which collections of the impost are credited.
+If this were permissible many taxes not otherwise leviable would be converted into fees by the simple device of creating a special fund and attaching certain services to be rendered from the amount in that fund.
+That would in my opinion be a colourable exercise of the power of legislation, as explained in K. C. Gajapati Narayan Deo vs The State of Orissa (1).
+Let me illustrate how taxes can be turned into fees on the so called basis of quantification with the help of the device of creating a fund and attaching certain services to be rendered out of monies in the fund.
+Take the case of income tax under item 82 of List I of the Seventh Schedule, which is exclusively reserved (1) ; 580 for the Union.
+Suppose that some State Legislature wants to impose a tax on income other than agricultural income in the garb of fees.
+All that it has to do is then to create a special fund out of the amounts collected and to attach rendering of certain services to the fund.
+All that would be necessary would be to define the services to be rendered so widely that the amount required for the purpose would be practically limitless.
+In that case there would be no difficulty in levying any amount of tax on income, for the amount collected would always be insufficient for the large number of services to be rendered.
+What has to be done is to find out a number of items in Lists II and III of the Seventh Schedule in respect of which fees can be levied by the State Legislature.
+These fees can be levied on a total basis for a large number of services under various entries of Lists II and III.
+A fund can be created, say, for rendering services of various kinds to residents of one district.
+In order to meet the expenses of tendering such services, suppose, the legislature imposes a tax on every one in the district at 10 per centum of the net total income (other than agricultural income); the amount so collected is put in a separate fund and ear marked for such special services to be rendered to the residents of that district.
+Can it be said that such a levy is a fee justified under various entries of Lists II and III, and not a tax on income, on the ground that this is merely a mode of quantification? As an instance, take, item 6 of List II, "Public health and sanitation, hospitals and dispensaries"; item 9, "Relief of the disabled and unemployable"; item II, Education; item 12, Libraries, museums and similar institutions"; item 13, communications, that is to say, roads, bridges and other means of communications; item 17, "Water, that is to say, water supplies, irrigation and canals, drainage and embankments, water storage and water power"; and item ', 25, "Gas and gas works"; item 23 of List III, "Social security and social insurance, employment and unemployment"; item 24, "Welfare of labour including conditions of work, provident funds, employers ' liability workmen 's compensation, invalidity and old age 581 pensions and maternity benefits"; item 25, "Vocational and technical training of labour"; and item 38, "Electricity". Assume that a fund is created for rendering, these services to the residents of a district.
+The State Legislature is entitled to impose fees for rendering these services to the residents of the district; the costs of these services would obviously be limitless and in order to meet these costs, the State legislature levies a consolidated fee for all these purposes at 10 per centum of the total net income on the residents of the district (excluding his agricultural income) as a measure of quantification of the fee.
+Can it be said in the circumstances that such a levy would not be Income tax, simply because a fund is created to be used in the district where collections are made and these services have to be rendered out of the fund so created to the residents of that district and to no others? The answer can only be one, viz., that the nature of the impost is to be seen in its pith and substance; and if in pith and substance it is income tax within item 82 of List I of the Seventh Schedule it will still remain income tax in spite of the creation of a fund and the attaching of certain services to the monies in that fund to be rendered in a particular area.
+Such an impost can never be justified as a consolidated fee on the ground that it is merely a method of quantification.
+Compare what has been done in this case.
+Sec. 3 of the Act which refers to the services to be rendered mentions communications, that is,, roads, bridges and other means of communication (barring those given in List I), water supply and electricity, for the better development of the area.
+These three items themselves would mean expenditure of such large amounts that anything could be charged as a fee to meet the costs, particularly in an undeveloped State like Orissa.
+Further, the section goes on to mention provision for the welfare of residents or workers in any such area, which would include such things as social security and social insurance, provident funds, employer 's liability, workmen 's compensation, invalidity and old age pensions and maternity benefits and may be even employment and unemployment.
+Again large funds would 74 582 be required for these purposes.
+Therefore, the services enumerated in section 3 being so large and requiring such large sums, any amount can be levied as a fee and in the name of quantification any tax, even though it may be in List I, can be imposed; and that is exactly what has been done, namely, what is really a duty of excise has been imposed as a fee for these purposes which fall under items 13 and 17 of List II and 23, 24 and 38 of List III.
+There can be no doubt in the circumstances that the levy of a cess as a fee in this case is a colourable piece of legislation.
+I do not say that the Orissa State Legislature did this deliberately.
+The motive of the legislature in such cases is irrelevant and it is the effect of the legislation that has to be seen.
+Looking at that, the cess in this case is in pith and substance nothing other than a duty of excise under item 84 of List I and therefore the State legislature was incompetent to levy it as a fee.
+The next contention on behalf of the State of Orissa is that if the cess is not justified as a fee, it is a tax under item 50 of List II of the Seventh Schedule.
+Item 50 provides for taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development.
+This raises a question as to what are taxes on mineral rights.
+Obviously, taxes on mineral rights must be different from taxes on goods produced in the nature of duties of excise.
+If taxes on mineral rights also include taxes on minerals produced, there would be no difference between taxes on mineral rights and duties of excise under item 84 of List I. A comparison of Lists I and II of the Seventh Schedule shows that the same tax is not put in both the Lists.
+Therefore, taxes on mineral rights must be different from duties of excise which are taxes on minerals produced.
+The difference can be understood if one sees that before minerals are extracted and become liable to duties of excise somebody has got to work the mines.
+The usual method of working them is for the owner of the mine to grant mining leases to those who have got the capital to work the mines.
+There should 583 therefore be no difficulty in holding that taxes on mineral rights are taxes on the right to extract minerals and not taxes on the minerals actually extracted.
+Thus tax on mineral rights would be confined, for example, to taxes on leases of mineral rights and on premium or royalty for that.
+Taxes on such premium and royalty would be taxes on mineral rights while taxes on the minerals actually extracted would be duties of excise.
+It is said that, there may be cases where the owner himself extracts minerals and does not give any right of extraction to somebody else and that in such cases in the absence of mining leases or sub leases there would be no way of levying tax on mineral right, ,.
+It is enough to say that these cases also, rare though they are, present no difficulty.
+Take the case of taxes on annual value of buildings.
+Where there is a lease of the building, the annual value is determined by the lease money; but there are many cases where owners themselves live in buildings.
+In such cases also taxes on buildings are levied on the annual value worked out according to certain rules.
+There would be no difficulty where an owner himself works the mine to value the mineral rights on the same principles on which leases of mineral rights are made and then to tax the royalty which, for example, the owner might have got if instead of working the mine himself he had leased it out to somebody else.
+There can be no doubt therefore that taxes on mineral rights are taxes of this nature and not taxes on minerals actually produced.
+Therefore the present case is not a tax on mineral rights; it is a tax on the minerals actually produced and can be no different in pith and substance from a tax on goods produced which comes under Item 84 of List I, as duty of excise.
+The present levy therefore under section 4 of the Act cannot be justified as a tax on mineral rights.
+In the view I have taken, it is not necessary to consider the other point, raised on behalf of the petitioners, namely, that even if it is a fee, in view of the two Central Acts (mentioned earlier) the, Orissa Legislature was not competent to pass the Act.
+I would 584 therefore allow the petition, and declare that the Orissa Mining Areas Development Fund Act, 1952, is beyond the constitutional competence of the Orissa Legislature to pass it.
+The whole Act must be struck down because there will be very little left in the Act if section 4 falls as it must.
+The legislature would never have passed the Act without section 4.
+By COURT.
+In accordance with the majority Judgment of the Court, the Writ Petition is dismissed with costs.

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+Appeal No. 364 of 1957.
+Appeal from the judgment and order dated February 22, 1956, of the former Bombay High Court in I.T.R. No. 31/1955.
+N. A. Palkhivala and I. N. Shroff, for the Appellants.
+A. N. Kripal and D. Gupta, for the Respondent. 1960.
+November 22.
+The Judgment of the Court was delivered by SHAH, J.
+This is an appeal by seven appellants with leave granted by the High Court of Judicature at Bombay certifying that it involves a question of importance.
+The appellants held 570 out of a total issue of 800 shares of the Navjivan Mills Ltd., Kalol, a public limited company hereinafter referred to as the Mills.
+Between the years 1943 47, the Mills purchased 5,000 shares of the Bank of India Ltd. At an extraordinary general meeting of the shareholders of the Bank of India held on May 6, 1948, a resolution was passed increasing the share capital of the Bank and for that purpose offering new shares to the existing shareholders in the proportion of one new share for every three shares held by the shareholders.
+The face value of the new shares was to be Rs. 50, but the shares were issued at a premium of Rs. 50.
+The shareholders had to pay Rs. 100 for each new share.
+The Mills as the holder of 5,000 shares became entitled to receive 1,6662 shares of the Bank of India at the rate of Rs. 100 per share.
+The Bank of India communicated its resolution by letter dated May 25, 1948 and enclosed therewith three forms, form A for acceptance, form 586 B for renunciation and 'form C which may compendiously be called a form for allotment to nominees.
+On receiving the circular letter, the Directors of the Mills passed the following resolution: "Resolved that the company having a holding of 5,000 ordinary shares in the capital of the Bank of India Ltd. having now received an intimation from the said Bank that this company is entitled to get 1,6662 more ordinary shares on payment of Rs. 50 as capital and Rs. 50 as premium per each share and it is considered proper to invest in the said issue of the said Bank the funds of this company to the extent of 66 shares only and to distribute the right of this company to the remaining 1,600 shares of the said issue amongst the shareholders of this company in the proportion of the shares held by them in this company.
+IT IS HEREBY RESOLVED that the funds of this company may be invested in the 66 shares out of 1,666 shares offered by 'the Bank of India Ltd., and the right to the remaining 1,600 shares is hereby distributed among 800 shares of this company in the proportion of right to two shares of the Bank per one ordinary share held in this company.
+The Managing Agents may take steps to intimate the shareholders to exercise the right if they like to do so.
+" Accordingly, the Mills exercised the right to take over only 66 shares out of the shares offered and resolved that the right to the remaining 1,600 shares be distributed amongst its 800 share holders.
+The seven appellants as holders of 570 shares of the Mills became entitled to 1,140 shares of the Bank of India.
+The appellants agreed to the allotment of these shares and ultimately transferred them to a private company Jesinghbai Investment Co. ' Ltd. The assessment of the seven appellants and of other shareholders of the Mills was reopened under section 34(1)(a) of the Indian Income Tax Act by the Income Tax Officer on the footing that, the release by the Mills of the shares of the Bank of India amounted to a distribution of "dividend" and the value of the right released in favour of the shareholders though taxable 587 under section 12 of the Act, had escaped tax.
+The order of the Income Tax Officer reassessing the income of the seven appellants was confirmed in appeal by the Appellate Assistant Commissioner and by the Appellate Tribunal.
+At the instance of the appellants, the i following question was submitted by the Tribunal to the High Court at Bombay under section 66(1) of the Income Tax Act: "Whether on the facts and circumstances of the case the distribution of the right to apply for the shares of the Bank of India by Navjivan Mills Ltd. in favour of the assessees amounted to a distribution of "dividend" within the meaning of section 2(6A) of the Indian Income Tax Act.
+" The High Court reframed the question as follows: "Whether on the facts and circumstances of the case, the distribution of the right to apply for the shares of the Bank of India by Navjivan Mills Ltd., in favour of the assessees amounted to a distribution of "dividend"?" and answered it in the affirmative.
+The High Court observed that the definition of "dividend" in section 2(6A) was an inclusive and not an exhaustive definition, and even if the distribution of the right to the shares of the Bank of India could not be regarded as dividend within the extended meaning of that expression in section 2(6A), it was still dividend within the ordinary meaning of that expression and was taxable as income in the hands of the appellants.
+Counsel for the appellants contended that the High Court was not justified, having regard to the form of the question which expressly related to the distribution of the right to the Bank of India shares being dividend within the meaning of the definition in section 2(6A) of the Income Tax Act, in enlarging the scope of the question and in answering it in the light of its ordinary meaning.
+There is no substance in this contention.
+"Dividend" is defined in section 2(6A) as inclusive of various items and exclusive of certain others which it is not necessary to set out for the purpose of this appeal.
+"Dividend" in its ordinary meaning is a 588 distributive share of the profits or income of a company given to its shareholders.
+When the Legislature by section 2(6A) sought to define the expression "dividend" it added to the normal meaning of the expression several other categories of receipts which may not otherwise be included therein.
+By the definition in section 2(6A), "dividend" means dividend as normally understood and includes in its connotation several other receipts set out in the definition.
+The Tribunal had referred the question whether the distribution of the right to apply for the Bank of India shares amounted to distribution of dividend within the meaning of section 2(6A) and in answering that question, the High Court had to take into account both the normal and the extended meaning of that expression.
+In the question framed by the Tribunal, there is nothing to indicate that the High Court was called upon to advise on the question whether the receipts by the appellants amounted to dividend only within the extended definition of that expression in section 2(6A).
+It was also urged that in nominating its shareholders to exercise the option to purchase the new issue of the Bank of India, the Mills did not distribute any dividend.
+The Mills were, it is true, not obliged to accept the offer made by the Bank of India, however advantageous it might have been to the Mills to accept the offer: it was open to the Mills to renounce the offer.
+The Mills had three options, (1) to accept the shares, (2) to decline to accept the shares, or (3) to surrender them in favour of its nominee.
+It is undisputed that when the shares were offered by the Bank of India to its shareholders, the right to apply for the shares had a market value of Rs. 100 per share.
+The face value of the new share was Rs. 50 but the shareholders had to pay a premium of Rs. 50, thus making a total payment of Rs. 100 for acquiring the new share.
+The new shares were quoted in the market at more than Rs. 200: and the difference between the amount payable for acquiring the shares under the right offered by the Bank of India and the market quotation of the shares was indisputably the value of the right.
+The Mills could not be compelled to obtain 589 this benefit if it did not desire to do so: it could accept the shares or decline to accept those shares or exercise the option of surrendering them in favour of its nominees.
+This last option could be exercised by nominating the persons who were to take over the shares and that is what the Mills did.
+The Mills requested the Bank of India to allot the shares to its nominees, and the request for allotment to its nominees amounted to transfer of the right.
+By its resolution, the Mills in truth transferred a right of the value of Rs. 200 for each share held by its shareholders.
+This was manifestly not distribution of the capital of the Mills.
+It was open to the Mills to sell the right to the shares of the Bank of India in the market, and to distribute the proceeds among the shareholders.
+Such a distribution would undoubtedly have been distribution of dividend.
+If instead of selling the right in the market and then distributing the proceeds, the Mills directly transferred the right, the benefit in the hands of the shareholders was still dividend.
+Dividend need not be distributed in money; it may be distributed by delivery of property or right having monetary value.
+The resolution, it is true, did not purport to distribute the right amongst the shareholders as dividend.
+It did not also take the form of a resolution for distribution of dividend; it took the form of distribution of a right which had a monetary value.
+But by the form of the resolution sanctioning the distribution, the true character of the resolution could not be altered.
+We are therefore of the view that the High Court was right in holding that the distribution of the right to apply for and obtain two shares of the Bank of India (at half their market value) for each share held by the shareholders of the Mills amounted to distribution of dividend.
+The appeal fails and is dismissed with costs.
+Appeal dismissed.

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+Appeal No. 405 of 1957.
+Appeal from the judgment and order dated May 15, 1956, of the Calcutta High Court in I.T.R. No. 20 of 1953.
+section Mitra, B. Das and section N. Mukherjee, for appellants Nos. 2 to 41.
+A. N. Kripal and D. Gupta, for the respondent.
+November 23.
+The Judgment of the Court was delivered by HIDAYATULLAH, J.
+The point involved in this appeal is a very short one; but it requires a long narration of facts to reach it.
+The appeal is against the judgment and order of the High Court of Calcutta dated May 15, 1956, arising out of an Income tax Reference.
+By the Calcutta Municipal Act VI of 1863, there was established a Corporation under the name of "The Justices of the Peace for the Town of Calcutta".
+By a notification issued on November 2, 1864, one square mile of land forming part of the Panchannagram Estate was acquired by the Government of Bengal at the instance of the Justices.
+Section CXII of the Municipal Act provided that the Justices might "agree with the owners of any land for the absolute purchase thereof. . for any other purpose whatever connected with the conservancy of the Town".
+Under section CXIII, it was provided that if there was any hindrance to acquisition by private treaty, the Government of Bengal upon the representation of the Justices would compulsorily acquire the land and vest 600 such land in the Justices on their paying compensation awarded to the proprietor.
+The action which was taken by the notification was under section CXIII of the Municipal Act, and the acquisition was under Act VI of 1857, an Act for the acquisition of land for public purposes.
+The Panchannagram Estate was permanently settled under Regulation 1 of 1793.
+After the acquisition, the proprietor of Panchannagram Estate was granted abatement of land revenue assessed on the Estate to the extent of Rs. 386 7 1.
+This represented the proportionate land revenue on the land acquired.
+In August, 1865, the Justices were required to pay Rs. 54,685 2 10 as compensation payable to the proprietor and to other persons holding interest in the land.
+Another piece of land which is described as an open level sewer, was also acquired about the same time, and separate compensation was paid for it.
+With the amount of conveyance charges, the total compensation thus paid by the Justices was Rs. 57,965 8 10.
+On October 27,1865, the Government called upon the Justices to pay a further sum of Rs. 7,728 13 8.
+This order has not been produced in the case; but from other correspondence, it is easy to see that the amount represented an amount capitalized at 20 years ' purchase of land revenue attributed to the area acquired, which, as has been stated above, came to Rs. 386 7 1.
+This payment was made on or about January 12, 1866.
+Similarly, another amount was paid in July of the same year for redemption of the land revenue in respect of the strip of land for the open sewer.
+On December 5, 1870, a conveyance was executed by the Secretary of State in favour of the Justices of the Peace.
+It was there stated, inter alia: "Whereas the Honourable the Lieutenant Governor of Bengal hath thought fit that the said land so acquired as aforesaid would be vested in the said Justices of the Peace for the Town of Calcutta a Corporation created by and authorised to hold land under the said Act No. VI of 1863 of the Council of the Lieutenant Governor of Bengal to the end and intent 601 that the said land may be held by the said Justices for a public purpose, namely, for the conservancy of the Town. . and subject in every way to the same ' Act but free and discharged from all payment of land revenue, land tax and all and every tax or imposition in the nature of revenue derivable from land payable to Government in respect thereof; NOW THIS IN DENTURE WITNESSETH. .to hold the saidpieces of land, hereditaments and premises intended to be conveyed with the appurtenances except as aforesaid unto the said Justices of the Peace for the Town of Calcutta and their successors for ever free and clear and for ever discharged from all Government land revenue whatever or any payment or charge in the nature thereof to the end and intent that the said land may be used for a public purpose namely for the conservancy of the town upon the trusts and subject to the powers, provisions, terms and conditions contained in the said Act No. VI of 1863 of the Council of the Lieutenant Governor of Bengal and to the rules heretofore passed or hereafter to be passed by the Government of Bengal under the the said last mentioned Act;".
+On January 23, 1880, a temporary lease of the land known as the 'Square Mile ' was granted by the Justices of the Peace to the predecessors in title of the appellant (assessee), Srish Chandra Sen who has, since the filing of the appeal, died, leaving behind 40 legal representatives who have been shown in the cause title of the appeal.
+The lease was renewed for further periods, and the rent was also progressively increased.
+The conservancy arrangements for which the land 'was held were carried out, but, the lessee had the right to carry on cultivation with the aid of sewage.
+The assessee derived from this land various kinds of income, some being purely agricultural and some, non agricultural.
+For the assessment year 1942 43, the total agricultural income was computed at Rs. 99,987 9 6, and non agricultural income, at Rs. 12,503 8 0.
+Agricultural income tax was charged by the State of Bengal under the Agricultural Income 602 tax Act, on the agricultural income less expenses.
+For the assessment years, 1943 44, 1944 45, 1945 46 and 1946 47, the assessments were made along similar lines.
+In 1947, the Income tax Officer reassessed the income for the assessment year, 1942 43 after reopening the assessment under section 34 of the Income tax Act on the ground that the so called agricultural income had escaped assessment to income tax under the Indian Income tax Act.
+Assessments for the other years, 1943 44, 1944 45, 1945 46 and 1946 47 were also reopened, and the income in those years wag also similarly reassessed.
+The assessee appealed to the Appellate Assistant Commissioner against all these orders of the Income tax Officer, but his appeals failed.
+Against the orders of the Appellate Assistant Commissioner, appeals were filed before the Income tax Appellate Tribunal (Calcutta Bench).
+The Tribunal dealt with the assessment for 1942 43 separately, and allowed the appeal as regards assessment for that year.
+It held that the reassessment was improper under section 34 of the Income tax Act, because the Income tax Officer had not proceeded on any definite information but in the course of a "roving enquiry".
+The Tribunal also held that the income was exempt from taxation to income tax under section 4(3)(viii) of the Act, inasmuch as this income was derived from land used for agricultural purposes, which continued to be assessed to land revenue.
+In the appeals arising out of assessments for the subsequent years, a common order was passed by the Tribunal, remanding the appeals to the Appellate Assistant Commissioner for a rehearing.
+The Tribunal stated that the appellants had filed a number of documents to establish that land revenue was assessed on the land which, the Department contended, proved the contrary.
+The Tribunal felt that the matter should be reconsidered by the Appellate Assistant Commissioner, and hence remanded the cases.
+The Appellate Assistant Commissioner in the rehearing held that the land in question continued subject to land revenue, and that the lump sum payment was merely payment of revenue in advance.
+He accordingly allowed the appeals, and ordered exclusion of the income 603 from the assessments for the four years in question.
+On appeal by the Department, the Tribunal changed its opinion, and came to the conclusion that the ' payment of a lump sum was not a payment in advance of the land revenue due from year to year but was land revenue capitalised.
+It referred to the deed by which the proprietorship in the land was ves ted in the Corporation by the Secretary of State, and stated that by the document and the capitalisation of land revenue, the demand for land revenue was extinguished for ever.
+It accordingly allowed the appeals, and restored the orders of assessment made by the Income tax Officer.
+The assessee next moved the Tribunal for a reference setting out a number of questions which, he contended, arose out of the Tribunal 's order.
+The Tribunal referred the following question of law for the opinion of the High Court: "Whether on the facts and in the circumstances of this case the Tribunal 's conclusion that the land was not assessed to land revenue within the meaning of section 2(1)(a) of the Indian Income tax Act is justified?" The reference was heard by Chakravarti, C. J., and Sarkar, J., (as he then was).
+In an elaborate judgment, the learned Chief Justice upheld the conclusions of the Tribunal, and answered the question in the affirmative.
+Sarkar, J., in an equally elaborate order expressed his doubts about the correctness of the Chief Justice 's reasons, but declined to disagree with him.
+The question that arises in this case, as we have stated in the opening of this judgment, is a very short one.
+It is an admitted fact that by payment of ' a lump sum the liability to pay land revenue was redeemed and no land revenue was de manded or was ever demandable from the Justices or their assigns in perpetuity.
+The contention of the assessee is that this redemption saved the Justices from the liability for payment but did not affect the assessability of the land to revenue under Regulation I of 1793.
+Unless, it is contended,.
+there was a cancellation of the assessment, a,% is to be found in the 604 Land Tax and Tithe Redemption Acts in England, the liability must be deemed% to continue and land would still be assessed to land revenue for purposes of section 2(1)(a) of the Indian Income tax Act.
+That section reads as follows: "2(1) 'Agricultural income ' means (a) any rent or revenue derived from land which is used for agricultural purposes, and is either assessed to land revenue in (the taxable territories) or subject to a local rate assessed and collected by Officers of (the Government) as such".
+It is not denied that both the conditions, namely, "used for agricultural purposes" and "is either assessed to land revenue or subject to a local rate. . . have to co exist.
+It is admitted by the Department that there is no question of subjection to a local rate assessed and collected, in this case.
+The income derived from the land was from its use for agricultural purposes, and the first condition is thus satisfied.
+The dispute centres round the point whether the land .can be said to be assessed to land revenue, in spite of the lump sum payment in 1865.
+In the High Court, the matter was examined from three different points of view.
+The first was the effect of acquisition of the land by Government upon the continued assessability of the land to land revenue.
+The learned Chief Justice held that by the acquisition the assessment ceased to subsist.
+The second was the effect of the redemption of land revenue by the Justices by a lump sum payment.
+The learned Chief Justice was of opinion that it had the effect of cancelling the assessment.
+The last was the effect of the grant free from land revenue, about which the learned Chief Justice was of opinion that it freed the land from assessment to land revenue.
+Sarkar, J., agreed as to the first, but expressed doubts about the second and third propositions.
+According to the learned Judge, the acceptance of a lump sum payment in lieu of recurring annual payments was more a matter of agreement than a cancellation of assessment to land revenue.
+The matter has been argued before us from the 605 argument about the interpretation to be placed on the, conveyance by the Secretary of State which, according to him, only freed the Justices from 'payment ' of the assessed land revenue but did not cancel the assessment.
+No Act of Legislature bearing upon the power of Government to accept a Iump sum payment in lieu of the annual demands for land revenue has been brought to our notice.
+Counsel admitted that they were unable to find any such legislative provision.
+We have thus to proceed, as did the High Court, without having before us the authority of a legislative enactment.
+The only materials to which reference was made are: an extract from the explanatory notes in the Revenue Roll of the Touzi which shows that an abatement of land revenue pro tanto was granted to the proprietor of Panchannagram Estate, and a despatch from the Secretary of State for India (Lord Stanley) No. 2 (Revenue) dated December 31, 1858 recommending redemption of land revenue by an immediate payment of a sum of equivalent value, together with a Resolution of Government (Home Department No. 3264 (Rev) dated October 17, 1861) on permission to redeem the existing land revenue by the immediate payment of one sum equal in value to the revenue redeemed.
+By the resolution, it was provided that such redemption would be limited to 10 per cent of the total revenue in the Collectorate and the price to be paid was to be fixed at 20 years ' purchase of the existing assessment.
+It may be mentioned that in Despatch No. 14 dated July 9, 1862, the Secretary of State for India (Sir Charles Wood) did not agree with the earlier policy, but did not cancel it.
+It may thus be assumed that what was done was under the authority of the Crown, which was then paramount, which paramountcy included the prerogative to free land from the demand of land revenue with or without conditions.
+We have, therefore, to examine three things: the effect of acquisition on the continuance of the assessment to land revenue, the effect of redemption by a down payment on the same, 77 606 and the effect of the grant, free from land revenue, to the Justices.
+The acquistion was under Act VI of 1857.
+That Act provided in B. XXVI as follows: "When any land taken under this Act forms part of an estate paying revenue to Government, the award shall specify the net rent of the land including the Government Revenue, and the computed value of such rent: and it shall be at the discretion of the Revenue authorities either to pay over the whole of such value to the owner of the estate on the condition of his continuing to pay the jumma thereof without abatement; or to determine what proportion of the net rent shall be allowed as a remission of revenue, in which case a deduction shall be made from the said value proportionate to the value of such remission.
+" This provision only saved the Estate assessed to land revenue from liability to pay land revenue proportionately falling upon the land acquired compulsorily, subject to a like proportionate reduction in the amount of compensation payable to the proprietor of the estate, but the provision cannot be stretched to mean that the liability of the land actually acquired, to land revenue in the hands of grantees from the Government also ceased.
+Be that as it may, it is hardly necessary to view the present case from this angle at all, because, whether the land acquired continued to be subject to an assessment or must be deemed to be reassessed as a separate estate, the result would be the same if Government demand still subsisted on it, as, in fact, it did.
+There could have been no redemption of the liability by a down payment if no land revenue could have been demanded.
+The fact that the recurring liability was redeemed by a lump sum payment itself shows that in the view of Government as well as of the Justices, the 'Square Mile ' was still subject to the recurring demand and was thus still assessed to land revenue.
+It is, therefore, not profitable to investigate the effect of acquisition on the continued liability of the land to land revenue between the time there was acquisition and the vesting of the land in the Justices.
+For the above reason, we need not examine at 607 length the case in Lord Colchester vs Kewnoy where the acquisition by the Crown was held not to make, the area acquired immune from land tax, because the burden of the tax would then have fallen upon the remaining land situated in the unit from which it was acquired and on which unit a quota of the land tax was chargeable.
+Such a position does not arise here, because the Panchannagram Estate was given abatement and a lump sum was paid to free the land acquired from the liability to land revenue.
+Similarly, the decision of this Court in The Collector of Bombay vs Nusserwanji Rattanji Mistri and Others (2), where on the acquisition of some Foras lands held under Foras Land Act (Bombay Act VI of 1851) the Foras tenure was declared to have come to an end and on the same lands being resold by Government as freehold, they were declared not to be subject to assessment to which they were previously subject, is not very helpful.
+There do not appear to be any rules prior to 1875, which were framed under the Land Acquisition Act of 1870 (Act X of 1870) and which are to be found in the Calcutta Gazette of July 7, 1875, p. 818.
+If there were, they have not been brought to our notice.
+But a practice similar to the rules seems to have obtained under section XXVI of the Act of 1857.
+That Act also did not contain any provision for making rules, as are to be found in the subsequent Acts for compulsory acquisition of land.
+In the absence of any statutory law or rules, we must take the facts to be that after acquisition the Panchannagram Estate was given abatement of land revenue, and the demand for land revenue was transferred to the land acquired and granted to the Justices.
+At that stage, the liability to assessment remained, and it was that liability which was redeemed by a down payment.
+We next consider the effect of redemption.
+Learned counsel for the appellant contends that redemption in this connection means that by a single payment, the liability for periodical payments is saved but the assessment on the land remains uncancelled.
+He has cited Wharton 's Law Lexicon to show the meaning of (1) (2) ; 608 the word "redemption", which is "commutation or the substitution of one lump payment for a succession of annual ones: e.g. See the Land Tax and the Tithe Redemption Acts and many other statutes".
+Redemption is the act of redeeming which in its ordinary meaning is equal to bringing off a charge or obligation by payment.
+To what extent this redemption freed the land or its holder from the obligation depends not so much upon what the obligation was before redemption as what remained of that obligation after it.
+Here, the payment itself was meant to be "an immediate payment of one sum equal in value to the revenue redeemed" (vide the Resolution of Government dated October 17, 1861).
+By the down payment, the entire land revenue to be recovered from that land was redeemed.
+The payment was equal to the capitalised value of the land revenue.
+When such a payment took place, it cannot be said that the assessment for land revenue remained.
+The land was freed from that assessment as completely as if there was no assessment.
+Thenceforward, the land would be classed as revenue free, in fact and in law.
+In The Land Law of Bengal (Tagore Law Lectures, 1895) p. 81 section C. Mitra described these revenue free lands as follows: "There is another class of revenue free lands which comes within these rules laid down in the Registration and Tenancy Acts, namely, lands of which Government has, in consideration of the payment of a capitalised sum, granted proprietary title free in perpetuity from any demand of land revenue.
+" That this is what had happened here is quite apparent from the conveyance by the Secretary of State vesting the land in the Justices.
+It is significant that there is no mention of the payment of Rs. 7,728 13 8, nor of the assessability of the lands to land revenue.
+On the other hand, the deed of conveyance merely reaffirmed the position, which existed before by stating: ". to hold the said pieces of land, hereditaments and premises intended to be conveyed with the appurtenances except as aforesaid unto the said Justices of the Peace for the Town of Calcutta and their successors for ever free and clear and for ever discharged 609 from all Government land revenue whatever or any payment or charge in the nature thereof.
+" There can be no doubt that the land revenue was for ever extinguished and the land became free from land revenue, assessment in perpetuity.
+It cannot thereafter be said that the land was still assessed to land revenue.
+Mr. Mitra made a great effort to construe the operative part quoted above with the aid of the recital in the deed, where it was stated: ". but free and discharged from all payment of land revenue, land tax and all and every tax or imposition in the nature of revenue derivable from land payable to Government.
+He drew attention to the word 'payment ', and contended that what was saved was payment of land revenue.
+He argued that in case of ambiguity it was permissible to construe the operative portion of a deed in the light of the recitals, and cited Halsbury 's Laws of England, 3rd Edn., Vol.
+XI, p. 421, para.
+680, Gwyn vs Neath Canal Co. (1) and Orr vs Mitchell (2).
+If there was any ambiguity in the operative portion of the deed, we may have taken the aid of the recitals.
+But there is no ambiguity in the deed.
+The history of redemption is a matter of record, and it is plain that Government was accepting a down payment and freeing land from land revenue.
+This is precisely what was done, and the result of the down payment is set out with great clarity in the deed itself, and it is that there was no land revenue assessed on or demandable from that land.
+In fact, no demand or payment or charge in the nature of land revenue could ever be made on it.
+In view of this, it is, in our judgment, quite satisfactorily established that this land was not assessed to land revenue and the income from it did not fall within section 2(1)(a) of the Income tax Act.
+The answer given by the High Court was thus correct.
+In the result, the appeal fails, and will be dismissed with costs.
+(1868) L R. Appeal dismissed (2) , 254.

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+Appeal No. 405 of 1957.
+Appeal from the judgment and order dated May 15, 1956, of the Calcutta High Court in I.T.R. No. 20 of 1953.
+section Mitra, B. Das and section N. Mukherjee, for appellants Nos. 2 to 41.
+A. N. Kripal and D. Gupta, for the respondent.
+November 23.
+The Judgment of the Court was delivered by HIDAYATULLAH, J.
+The point involved in this appeal is a very short one; but it requires a long narration of facts to reach it.
+The appeal is against the judgment and order of the High Court of Calcutta dated May 15, 1956, arising out of an Income tax Reference.
+By the Calcutta Municipal Act VI of 1863, there was established a Corporation under the name of "The Justices of the Peace for the Town of Calcutta".
+By a notification issued on November 2, 1864, one square mile of land forming part of the Panchannagram Estate was acquired by the Government of Bengal at the instance of the Justices.
+Section CXII of the Municipal Act provided that the Justices might "agree with the owners of any land for the absolute purchase thereof. . for any other purpose whatever connected with the conservancy of the Town".
+Under section CXIII, it was provided that if there was any hindrance to acquisition by private treaty, the Government of Bengal upon the representation of the Justices would compulsorily acquire the land and vest 600 such land in the Justices on their paying compensation awarded to the proprietor.
+The action which was taken by the notification was under section CXIII of the Municipal Act, and the acquisition was under Act VI of 1857, an Act for the acquisition of land for public purposes.
+The Panchannagram Estate was permanently settled under Regulation 1 of 1793.
+After the acquisition, the proprietor of Panchannagram Estate was granted abatement of land revenue assessed on the Estate to the extent of Rs. 386 7 1.
+This represented the proportionate land revenue on the land acquired.
+In August, 1865, the Justices were required to pay Rs. 54,685 2 10 as compensation payable to the proprietor and to other persons holding interest in the land.
+Another piece of land which is described as an open level sewer, was also acquired about the same time, and separate compensation was paid for it.
+With the amount of conveyance charges, the total compensation thus paid by the Justices was Rs. 57,965 8 10.
+On October 27,1865, the Government called upon the Justices to pay a further sum of Rs. 7,728 13 8.
+This order has not been produced in the case; but from other correspondence, it is easy to see that the amount represented an amount capitalized at 20 years ' purchase of land revenue attributed to the area acquired, which, as has been stated above, came to Rs. 386 7 1.
+This payment was made on or about January 12, 1866.
+Similarly, another amount was paid in July of the same year for redemption of the land revenue in respect of the strip of land for the open sewer.
+On December 5, 1870, a conveyance was executed by the Secretary of State in favour of the Justices of the Peace.
+It was there stated, inter alia: "Whereas the Honourable the Lieutenant Governor of Bengal hath thought fit that the said land so acquired as aforesaid would be vested in the said Justices of the Peace for the Town of Calcutta a Corporation created by and authorised to hold land under the said Act No. VI of 1863 of the Council of the Lieutenant Governor of Bengal to the end and intent 601 that the said land may be held by the said Justices for a public purpose, namely, for the conservancy of the Town. . and subject in every way to the same ' Act but free and discharged from all payment of land revenue, land tax and all and every tax or imposition in the nature of revenue derivable from land payable to Government in respect thereof; NOW THIS IN DENTURE WITNESSETH. .to hold the saidpieces of land, hereditaments and premises intended to be conveyed with the appurtenances except as aforesaid unto the said Justices of the Peace for the Town of Calcutta and their successors for ever free and clear and for ever discharged from all Government land revenue whatever or any payment or charge in the nature thereof to the end and intent that the said land may be used for a public purpose namely for the conservancy of the town upon the trusts and subject to the powers, provisions, terms and conditions contained in the said Act No. VI of 1863 of the Council of the Lieutenant Governor of Bengal and to the rules heretofore passed or hereafter to be passed by the Government of Bengal under the the said last mentioned Act;".
+On January 23, 1880, a temporary lease of the land known as the 'Square Mile ' was granted by the Justices of the Peace to the predecessors in title of the appellant (assessee), Srish Chandra Sen who has, since the filing of the appeal, died, leaving behind 40 legal representatives who have been shown in the cause title of the appeal.
+The lease was renewed for further periods, and the rent was also progressively increased.
+The conservancy arrangements for which the land 'was held were carried out, but, the lessee had the right to carry on cultivation with the aid of sewage.
+The assessee derived from this land various kinds of income, some being purely agricultural and some, non agricultural.
+For the assessment year 1942 43, the total agricultural income was computed at Rs. 99,987 9 6, and non agricultural income, at Rs. 12,503 8 0.
+Agricultural income tax was charged by the State of Bengal under the Agricultural Income 602 tax Act, on the agricultural income less expenses.
+For the assessment years, 1943 44, 1944 45, 1945 46 and 1946 47, the assessments were made along similar lines.
+In 1947, the Income tax Officer reassessed the income for the assessment year, 1942 43 after reopening the assessment under section 34 of the Income tax Act on the ground that the so called agricultural income had escaped assessment to income tax under the Indian Income tax Act.
+Assessments for the other years, 1943 44, 1944 45, 1945 46 and 1946 47 were also reopened, and the income in those years wag also similarly reassessed.
+The assessee appealed to the Appellate Assistant Commissioner against all these orders of the Income tax Officer, but his appeals failed.
+Against the orders of the Appellate Assistant Commissioner, appeals were filed before the Income tax Appellate Tribunal (Calcutta Bench).
+The Tribunal dealt with the assessment for 1942 43 separately, and allowed the appeal as regards assessment for that year.
+It held that the reassessment was improper under section 34 of the Income tax Act, because the Income tax Officer had not proceeded on any definite information but in the course of a "roving enquiry".
+The Tribunal also held that the income was exempt from taxation to income tax under section 4(3)(viii) of the Act, inasmuch as this income was derived from land used for agricultural purposes, which continued to be assessed to land revenue.
+In the appeals arising out of assessments for the subsequent years, a common order was passed by the Tribunal, remanding the appeals to the Appellate Assistant Commissioner for a rehearing.
+The Tribunal stated that the appellants had filed a number of documents to establish that land revenue was assessed on the land which, the Department contended, proved the contrary.
+The Tribunal felt that the matter should be reconsidered by the Appellate Assistant Commissioner, and hence remanded the cases.
+The Appellate Assistant Commissioner in the rehearing held that the land in question continued subject to land revenue, and that the lump sum payment was merely payment of revenue in advance.
+He accordingly allowed the appeals, and ordered exclusion of the income 603 from the assessments for the four years in question.
+On appeal by the Department, the Tribunal changed its opinion, and came to the conclusion that the ' payment of a lump sum was not a payment in advance of the land revenue due from year to year but was land revenue capitalised.
+It referred to the deed by which the proprietorship in the land was ves ted in the Corporation by the Secretary of State, and stated that by the document and the capitalisation of land revenue, the demand for land revenue was extinguished for ever.
+It accordingly allowed the appeals, and restored the orders of assessment made by the Income tax Officer.
+The assessee next moved the Tribunal for a reference setting out a number of questions which, he contended, arose out of the Tribunal 's order.
+The Tribunal referred the following question of law for the opinion of the High Court: "Whether on the facts and in the circumstances of this case the Tribunal 's conclusion that the land was not assessed to land revenue within the meaning of section 2(1)(a) of the Indian Income tax Act is justified?" The reference was heard by Chakravarti, C. J., and Sarkar, J., (as he then was).
+In an elaborate judgment, the learned Chief Justice upheld the conclusions of the Tribunal, and answered the question in the affirmative.
+Sarkar, J., in an equally elaborate order expressed his doubts about the correctness of the Chief Justice 's reasons, but declined to disagree with him.
+The question that arises in this case, as we have stated in the opening of this judgment, is a very short one.
+It is an admitted fact that by payment of ' a lump sum the liability to pay land revenue was redeemed and no land revenue was de manded or was ever demandable from the Justices or their assigns in perpetuity.
+The contention of the assessee is that this redemption saved the Justices from the liability for payment but did not affect the assessability of the land to revenue under Regulation I of 1793.
+Unless, it is contended,.
+there was a cancellation of the assessment, a,% is to be found in the 604 Land Tax and Tithe Redemption Acts in England, the liability must be deemed% to continue and land would still be assessed to land revenue for purposes of section 2(1)(a) of the Indian Income tax Act.
+That section reads as follows: "2(1) 'Agricultural income ' means (a) any rent or revenue derived from land which is used for agricultural purposes, and is either assessed to land revenue in (the taxable territories) or subject to a local rate assessed and collected by Officers of (the Government) as such".
+It is not denied that both the conditions, namely, "used for agricultural purposes" and "is either assessed to land revenue or subject to a local rate. . . have to co exist.
+It is admitted by the Department that there is no question of subjection to a local rate assessed and collected, in this case.
+The income derived from the land was from its use for agricultural purposes, and the first condition is thus satisfied.
+The dispute centres round the point whether the land .can be said to be assessed to land revenue, in spite of the lump sum payment in 1865.
+In the High Court, the matter was examined from three different points of view.
+The first was the effect of acquisition of the land by Government upon the continued assessability of the land to land revenue.
+The learned Chief Justice held that by the acquisition the assessment ceased to subsist.
+The second was the effect of the redemption of land revenue by the Justices by a lump sum payment.
+The learned Chief Justice was of opinion that it had the effect of cancelling the assessment.
+The last was the effect of the grant free from land revenue, about which the learned Chief Justice was of opinion that it freed the land from assessment to land revenue.
+Sarkar, J., agreed as to the first, but expressed doubts about the second and third propositions.
+According to the learned Judge, the acceptance of a lump sum payment in lieu of recurring annual payments was more a matter of agreement than a cancellation of assessment to land revenue.
+The matter has been argued before us from the 605 argument about the interpretation to be placed on the, conveyance by the Secretary of State which, according to him, only freed the Justices from 'payment ' of the assessed land revenue but did not cancel the assessment.
+No Act of Legislature bearing upon the power of Government to accept a Iump sum payment in lieu of the annual demands for land revenue has been brought to our notice.
+Counsel admitted that they were unable to find any such legislative provision.
+We have thus to proceed, as did the High Court, without having before us the authority of a legislative enactment.
+The only materials to which reference was made are: an extract from the explanatory notes in the Revenue Roll of the Touzi which shows that an abatement of land revenue pro tanto was granted to the proprietor of Panchannagram Estate, and a despatch from the Secretary of State for India (Lord Stanley) No. 2 (Revenue) dated December 31, 1858 recommending redemption of land revenue by an immediate payment of a sum of equivalent value, together with a Resolution of Government (Home Department No. 3264 (Rev) dated October 17, 1861) on permission to redeem the existing land revenue by the immediate payment of one sum equal in value to the revenue redeemed.
+By the resolution, it was provided that such redemption would be limited to 10 per cent of the total revenue in the Collectorate and the price to be paid was to be fixed at 20 years ' purchase of the existing assessment.
+It may be mentioned that in Despatch No. 14 dated July 9, 1862, the Secretary of State for India (Sir Charles Wood) did not agree with the earlier policy, but did not cancel it.
+It may thus be assumed that what was done was under the authority of the Crown, which was then paramount, which paramountcy included the prerogative to free land from the demand of land revenue with or without conditions.
+We have, therefore, to examine three things: the effect of acquisition on the continuance of the assessment to land revenue, the effect of redemption by a down payment on the same, 77 606 and the effect of the grant, free from land revenue, to the Justices.
+The acquistion was under Act VI of 1857.
+That Act provided in B. XXVI as follows: "When any land taken under this Act forms part of an estate paying revenue to Government, the award shall specify the net rent of the land including the Government Revenue, and the computed value of such rent: and it shall be at the discretion of the Revenue authorities either to pay over the whole of such value to the owner of the estate on the condition of his continuing to pay the jumma thereof without abatement; or to determine what proportion of the net rent shall be allowed as a remission of revenue, in which case a deduction shall be made from the said value proportionate to the value of such remission.
+" This provision only saved the Estate assessed to land revenue from liability to pay land revenue proportionately falling upon the land acquired compulsorily, subject to a like proportionate reduction in the amount of compensation payable to the proprietor of the estate, but the provision cannot be stretched to mean that the liability of the land actually acquired, to land revenue in the hands of grantees from the Government also ceased.
+Be that as it may, it is hardly necessary to view the present case from this angle at all, because, whether the land acquired continued to be subject to an assessment or must be deemed to be reassessed as a separate estate, the result would be the same if Government demand still subsisted on it, as, in fact, it did.
+There could have been no redemption of the liability by a down payment if no land revenue could have been demanded.
+The fact that the recurring liability was redeemed by a lump sum payment itself shows that in the view of Government as well as of the Justices, the 'Square Mile ' was still subject to the recurring demand and was thus still assessed to land revenue.
+It is, therefore, not profitable to investigate the effect of acquisition on the continued liability of the land to land revenue between the time there was acquisition and the vesting of the land in the Justices.
+For the above reason, we need not examine at 607 length the case in Lord Colchester vs Kewnoy where the acquisition by the Crown was held not to make, the area acquired immune from land tax, because the burden of the tax would then have fallen upon the remaining land situated in the unit from which it was acquired and on which unit a quota of the land tax was chargeable.
+Such a position does not arise here, because the Panchannagram Estate was given abatement and a lump sum was paid to free the land acquired from the liability to land revenue.
+Similarly, the decision of this Court in The Collector of Bombay vs Nusserwanji Rattanji Mistri and Others (2), where on the acquisition of some Foras lands held under Foras Land Act (Bombay Act VI of 1851) the Foras tenure was declared to have come to an end and on the same lands being resold by Government as freehold, they were declared not to be subject to assessment to which they were previously subject, is not very helpful.
+There do not appear to be any rules prior to 1875, which were framed under the Land Acquisition Act of 1870 (Act X of 1870) and which are to be found in the Calcutta Gazette of July 7, 1875, p. 818.
+If there were, they have not been brought to our notice.
+But a practice similar to the rules seems to have obtained under section XXVI of the Act of 1857.
+That Act also did not contain any provision for making rules, as are to be found in the subsequent Acts for compulsory acquisition of land.
+In the absence of any statutory law or rules, we must take the facts to be that after acquisition the Panchannagram Estate was given abatement of land revenue, and the demand for land revenue was transferred to the land acquired and granted to the Justices.
+At that stage, the liability to assessment remained, and it was that liability which was redeemed by a down payment.
+We next consider the effect of redemption.
+Learned counsel for the appellant contends that redemption in this connection means that by a single payment, the liability for periodical payments is saved but the assessment on the land remains uncancelled.
+He has cited Wharton 's Law Lexicon to show the meaning of (1) (2) ; 608 the word "redemption", which is "commutation or the substitution of one lump payment for a succession of annual ones: e.g. See the Land Tax and the Tithe Redemption Acts and many other statutes".
+Redemption is the act of redeeming which in its ordinary meaning is equal to bringing off a charge or obligation by payment.
+To what extent this redemption freed the land or its holder from the obligation depends not so much upon what the obligation was before redemption as what remained of that obligation after it.
+Here, the payment itself was meant to be "an immediate payment of one sum equal in value to the revenue redeemed" (vide the Resolution of Government dated October 17, 1861).
+By the down payment, the entire land revenue to be recovered from that land was redeemed.
+The payment was equal to the capitalised value of the land revenue.
+When such a payment took place, it cannot be said that the assessment for land revenue remained.
+The land was freed from that assessment as completely as if there was no assessment.
+Thenceforward, the land would be classed as revenue free, in fact and in law.
+In The Land Law of Bengal (Tagore Law Lectures, 1895) p. 81 section C. Mitra described these revenue free lands as follows: "There is another class of revenue free lands which comes within these rules laid down in the Registration and Tenancy Acts, namely, lands of which Government has, in consideration of the payment of a capitalised sum, granted proprietary title free in perpetuity from any demand of land revenue.
+" That this is what had happened here is quite apparent from the conveyance by the Secretary of State vesting the land in the Justices.
+It is significant that there is no mention of the payment of Rs. 7,728 13 8, nor of the assessability of the lands to land revenue.
+On the other hand, the deed of conveyance merely reaffirmed the position, which existed before by stating: ". to hold the said pieces of land, hereditaments and premises intended to be conveyed with the appurtenances except as aforesaid unto the said Justices of the Peace for the Town of Calcutta and their successors for ever free and clear and for ever discharged 609 from all Government land revenue whatever or any payment or charge in the nature thereof.
+" There can be no doubt that the land revenue was for ever extinguished and the land became free from land revenue, assessment in perpetuity.
+It cannot thereafter be said that the land was still assessed to land revenue.
+Mr. Mitra made a great effort to construe the operative part quoted above with the aid of the recital in the deed, where it was stated: ". but free and discharged from all payment of land revenue, land tax and all and every tax or imposition in the nature of revenue derivable from land payable to Government.
+He drew attention to the word 'payment ', and contended that what was saved was payment of land revenue.
+He argued that in case of ambiguity it was permissible to construe the operative portion of a deed in the light of the recitals, and cited Halsbury 's Laws of England, 3rd Edn., Vol.
+XI, p. 421, para.
+680, Gwyn vs Neath Canal Co. (1) and Orr vs Mitchell (2).
+If there was any ambiguity in the operative portion of the deed, we may have taken the aid of the recitals.
+But there is no ambiguity in the deed.
+The history of redemption is a matter of record, and it is plain that Government was accepting a down payment and freeing land from land revenue.
+This is precisely what was done, and the result of the down payment is set out with great clarity in the deed itself, and it is that there was no land revenue assessed on or demandable from that land.
+In fact, no demand or payment or charge in the nature of land revenue could ever be made on it.
+In view of this, it is, in our judgment, quite satisfactorily established that this land was not assessed to land revenue and the income from it did not fall within section 2(1)(a) of the Income tax Act.
+The answer given by the High Court was thus correct.
+In the result, the appeal fails, and will be dismissed with costs.
+(1868) L R. Appeal dismissed (2) , 254.

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+minal Appeal No. 118 of 1959.
+Appeal by special leave from the judgment and order dated July 2, 1957, of the Calcutta High Court in Criminal Appeal No. 101 of 1956 arising out of the judgment and order dated January 16, 1956, of the Second Court of the Municipal Magistrate, Calcutta, in case No. 208B of 1955.
+C. B. Aggarwala, B. B. Tawakley and B. P. Maheshwari, for the appellant.
+Nalin Chandra Bannerjee, Sunil K. Basu, section N. Mukherjee for P. K. Bose, for the respondent No. 2. 1960.
+November 24.
+The Judgment of the Court was delivered by RAGHUBAR DAYAL, J.
+This is an appeal by special leave against the 'Order of the Calcutta High Court affirming the conviction of the appellants Messrs. Madan Mohan Damma Mal Ltd., and Om Prokash Manglik, its Manager, under section 462 of the Calcutta Municipal Act, 1951 (W. B. XXXIII of 1951) hereinafter called the Act.
+The facts leading to this appeal are that Messrs. Madan Mohan Damma Mal Ltd., (hereinafter called appellant No. 1) sent a consignment of mustard oil, about 499 maunds in weight, from Firozabad, the place of manufacture, to itself, at Calcutta, on December 25, 1954, in tank wagon No. 75612.
+This wagon was placed at the Pathuriaghat siding at Calcutta at 666 about 8.45 a.m., on January 3, 1955.
+Dr. Nityananda Bagui, Food Inspector of the Calcutta Corporation, accompanied by certain police officers, went to that siding and took three samples of mustard oil contained in this wagon, after arranging with Om Prokash Manglik, appellant No. 2, who was found near the wagon, the purchase of 12 ounces of oil for annas eight.
+He took the sample of oil in three phials.
+They were properly sealed.
+One of them was given to appel lant No. 2.
+The other two were kept by Dr. Bagui.
+He sent one of them to the Public Analyst for examination, the same day.
+Ashit Ranjan Sen, the Public Analyst, examined the oil contained in that phial on January 3, 1955, but could not come to any positive opinion about its purity.
+Dr. Bagui, however, seized the tank wagon that evening, sealed it with the Corporation 's seal and left it in the custody of appellant No. 2.
+The oil in the tank was allowed to be removed to the godown of the appellants on January 6, 1955.
+The lock of the godown was then sealed with the seal of the Corporation.
+Mr. Sen reported on January 4, 1955, that the oil was adulterated.
+He sent a detailed report about the result of the examination on January 24, 1955.
+On receipt of the report about the mustard oil being adulterated, Dr. Bagui filed a complaint against the appellants on February 4, 1955, with respect to their.
+selling and keeping for sale mustard oil, a sample of which was found on analysis to be mustard oil which was adulterated with groundnut oil.
+During the course of the trial, the trial Court, on an application on behalf of the appellants, ordered the despatch of the third sample phial of the oil in the custody of the Corporation 's Health Officer, to the Director of Health Services, Government of West Bengal, for analysis and report.
+This sample was analysed by Dulal Chandra Dey, Court Witness No. 1, and found to be adulterated with groundnut oil.
+The report of the Analyst was, however, sent to the Court under the signature of Dr. section K. Chatterjee, D. W. 2, Deputy Director of Health Services, Government of West Bengal.
+667 The appellants appear to have sent the sample of oil in their possession to Om Prakash, Oil Expert to the U.P. Government, who reported on July 27, 1955, that the sample 'conforms to Agmark Specification for Mustard Oil and is considered to be free from adulterants such as sesame, groundnut and linseed oil '.
+This report, however, has not been proved.
+The Deputy Commissioner of Police, Enforcement Branch, Calcutta, sent a sample of mustard oil on January 10, 1955, to the Public Analyst, Food & Water, West Bengal Public Health Laboratory.
+Sri section N. Mitra, D. W. 7, examined this sample and reported, on the basis of its saponification value to be 173.3, and iodine value to be 105, that the sample approximated to the standards of genuine mustard oil.
+This report does not establish that the sample was of pure mustard oil.
+Sri Mitra 's reply to the query from the Deputy Commissioner of Police for clarification, makes this very clear.
+It is: "But, unless conclusive evidence of the presence of a foreign oil, corroborated in some instances by the figures of the usual oil contents, is obtained, the sample is not and cannot be declared adulterated.
+In the present case the sample of mustard oil has already been examined exhaustively and has been certified as `approximating to standards ' but not as genuine.
+The legal implication of the expression is that the sample will have the benefit of doubt.
+" Further, there is no good evidence on the record to establish that the sample sent to Sri Mitra was a sample from the appellants ' tank wagon.
+Dr. Bagui does not depose about the police people taking a sample of oil.
+He was not questioned about the police taking any sample of the oil.
+There seems to be no good reason for the police taking a sample of oil for the purpose of analysis and finding out whether the mustard oil was pure or not.
+The case put to Dr. Bagui during his cross examination, on behalf of the appellants, appears to have been that he himself had taken four samples of the mustard oil in question and that one of those samples was sent to the Enforcement Branch.
+Dr. Bagui denied that he had taken 668 four samples of the mustard oil, His statement is fully corroborated by the statement of Kalidas Ganguli, Sub Inspector, Calcutta Enforcement Branch, Police Department, who had accompanied Dr. Bagui on the occasion.
+He stated that the Corporation Food Inspector took three samples and the police took the one ,,sample which was sealed with the Corporation seal.
+We are not satisfied that the police actually took one sample of the oil and had it sealed with the Corporation seal as deposed to by Kalidas Ganguli.
+The Courts below found on the evidence that the mustard oil in the appellants ' tank wagon was adulterated with groundnut oil, that the appellants were in possession of that oil and had stored that oil for sale, in view of the presumption arising under subs.
+(4) of section 462 of the Act, and which had not been rebutted on behalf of the appellants.
+Learned counsel for the appellants has questioned the correctness of these findings.
+We have considered the evidence in connection with the analysis of the samples of mustard oil by the Chemists.
+Ashit Ranjan Sen, P.W. 2, Public Analyst, who examined the first sample sent by Dr. Bagui on January 3 4, 1955, found it adulterated, on the basis of the data that the B. R. Index at 40 degree C was 60.4 and the Bellier 's test for groundnut oil was positive inasmuch as it gave turbidity at 28 degree C. Court Witness No. 1, Dulal Chand Dey, who actually analysed the sample sent by the Court, also found it adulterated, on the basis of his obtaining the saponification value to be 175.5, iodine value to be 106degree 8 and the appearance of turbidity at 27 degree C. He also found indication of the presence of a small amount of linseed oil.
+The correctness of his opinion on these data is admitted by Sri Mitra, D.W. 7.
+In these circumstances, the finding of the Courts below that the mustard oil in the appellant 's tank wagon was adulterated is correct.
+It is not established that the sample of mustard oil sent to Sri Mitra by the Deputy Commissioner of the Enforcement Branch contained mustard oil from this tank wagon.
+The opinion of Sri Mitra about the nature of that sample therefore does not go against the opinion 669 of Sri Sen and Sri Dey that the mustard oil analysed by them was adulterated with groundnut oil.
+The other contention for the appellants is that they were not in possession of the oil when the sample of mustard oil was taken by Dr. Bagui and that therefore no presumption under sub section
+(4) of section 462 of the Act can be raised against them for holding that the oil was stored for sale.
+It appears from the judgment of the High Court under appeal that it was not disputed at the hearing before it that the appellants were in possession of the mustard oil whose sample had been taken.
+On the evidence on the record we are of opinion that they were in possession of the mustard oil.
+The consignment of oil was from the manufacturing firm, appellant No. 1, to itself at Calcutta.
+Its manager, appellant No. 2, took delivery of the wagon from the railway authorities on January 3, 1955.
+There is no direct evidence to the effect that such delivery was taken prior to Dr. Bagui 's taking sample of the mustard oil.
+But the circumstances, in our opinion, conclusively establish that appellant No. 2 had taken delivery of the wagon prior to Dr. Bagui 's visit and taking samples of oil from the wagon.
+Appellant No. 2 is not expected to and could not have got the wagon opened for 'the purpose of taking samples of oil, if he had not taken delivery of the wagon from the railway authorities.
+The railway authorities themselves would have seen to it that nobody tampers with the contents of the wagon in its charge.
+Appellant No. 2 must have therefore paid the freight for the wagon prior to Dr. Bagui 's visit and thus obtained delivery of the wagon.
+It was thereafter that he got control over the wagon and was in a position to take out oil from it or to permit anyone else to take out oil.
+We therefore hold that the appellants were in possession of the oil in the tank wagon when Dr. Bagui took samples of the oil from it.
+The main contention, however, for the appellants is that the presumption that the mustard oil was stored for sale by the appellants, under sub section
+(4) of section 462 of the Act, is rebuttable and has been fully rebutted in view of certain arrangements between the 83 670 U.P. Oil Millers Association and the Deputy Commissioner of Police, Enforcement Branch, and the letter of the appellants to the Secretary of the Association (Exhibit R) on January 3, 1955.
+We have considered the various documents which have been referred to in support of the arrangement between the Association stand the Deputy Commissioner, Enforcement Branch, but do not find therein anything which would restrain legally the appellants from selling the oil even if it is found to be adulterated.
+The proceedings of the meeting of the U. P. Oil Millers Association held on June 9, 1954, and attended by the Deputy Commissioner and Assistant Commissioner of the Enforcement Branch show that no such agreement has been arrived at.
+Even the suggestion of the Deputy Commissioner that all the members of the Association should write to their respective mills that all the quantity of oil which would be imported should at first be passed and then made delivery of, was not fully accepted, the members simply stating that they always and invariably imported pure mustard oil.
+It was, however, decided that the samples of oil be taken from the next morning, i.e., June 10, 1954.
+We however find that in November 1954 the U. P. Oil Millers Association wrote to appellant No. I that according to the decision of the Deputy Commissioner of Police, Enforcement Branch, every application to draw sample and test it should be accompanied by a certificate signed by the Chemist or the Manager or the Proprietor of the Mills to the effect that the mustard oil in the tank wagon was pure mustard oil free from Argemoni, linseed or any other adulteration, and that in February 1955 and April 1955, the Deputy Commissioner of Police, Enforcement Branch had to remind the U. P. Oil Millers Association that it should advise all its members that whenever they indent any mustard oil from outside Bengal, they would see that the railway receipts be accompanied by a clear certificate of examination from the Chemist of the factory who examined the same.
+Such directions from the Deputy Commissioner of Police, Enforcement Branch, do not appear to have 671 had any great effect, as the consignment of oil received by the appellants was without any such certificate.
+Mahendra Kumar Gupta, D.W. 1, Chemist of the appellants ' mill, deposed however that he had taken the sample of the oil sent in that wagon and found it to be genuine mustard oil, free from any adulteration.
+Any such certificate about the purity of the mustard oil sent is not proved to have accompanied the railway receipt and to have been shown or made over to Dr. Bagui, or to the Police Officers who had accompanied him at the time.
+Letter Exhibit R was sent on behalf of appellant No. I to the Secretary of the U. P. Oil Millers Association at 10 a.m., on January 3, 1955.
+The letter said: "Please arrange for sample and test through the proper authorities concerned, so that we may take the delivery of oil only if it is found pure on analysis." Any such statement can hardly be sufficient to rebut the presumption that the oil which was consigned by appellant No. I to itself at Calcutta was stored for sale.
+The letter itself does not say that the oil will not be sold.
+It simply says that they may take the delivery of the oil only if it is found pure on analysis.
+What would be done to the oil if it is found to be impure, is not stated.
+The Association was not in any arrangement with the Corporation which had the sole authority to take action with respect to the adulterat ed mustard oil.
+The Enforcement Branch of the Police had nothing to do with it.
+In the circumstances, all the so called arrangement with the Enforcement Branch of the Police and the consequent letters, similar to letter Exhibit R, seem to be a subtle device to make things difficult for the proper authorities responsible to see that mustard oil fit for sale be pure.
+It is obvious in this case itself, how this sort of arrangement has provided an occasion for the coming into existence of the alleged fourth sample of mustard oil from the appellants ' tank wagon and the non committal report about its purity.
+We are therefore of opinion that this letter Exhibit R, or the arrangement which led to such communication, does not establish 672 that the mustard oil in the wagon which will be otherwise presumed to be stored for sale by the appellants, was not stored for sale.
+We are therefore of opinion that the conviction of the appellants of the offence under section 462 of the Act is correct.
+The appeal therefore stands dismissed.
+Appeal dismissed.

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+Appeal No.110 of 1957.
+Appeal by special leave from the judgment and order dated February 25, 1955, of the former Bombay High Court in I.T.R. No. 57/X of 1954.
+N. A. Palkhivala and I. N. Shroff, for the Appellant.
+A. N. Kripal and D. Gupta, for the Respondent.
+November 24.
+The Judgment of the Court was delivered by KAPUR, J.
+This is an appeal by special leave against the judgment and order of the High Court of Bombay answering the question submitted to it.
+against the assessee firm who is the appellant before 653 us, the respondent being the Commissioner of Income tax.
+The appeal relates to the assessment year 1949 50, the accounting year ended on July 25, 1948.
+The appellant is a firm doing the business of importing dates from abroad and selling them in India.
+During the accounting year the appellant imported dates from Iraq.
+At the relevant time the import of dates by steamers was prohibited by two notifications dated December 12, 1946, and June 4, 1947, but they were permitted to be brought by country craft.
+Goods which had been ordered by the appellant were received partly by steamer and partly by country craft.
+Consignments, which were imported by steamer and were valued at Rs. 5 lacs were confiscated by the Customs Authorities under section 167, item 8 of the Sea Customs Act but under section 183 of that Act the, appellant was given an option to pay fines aggregating Rs. 1,63,950 which sum on appeal was reduced to Rs. 82,250.
+This sum was paid and the dates were released.
+On the sale of the goods certain profits accrued out of which it sought to deduct Rs. 82,250 paid as penalty on ordinary principles of commercial accounting.
+The Income tax Officer disallowed this claim which was also disallowed by the Appellate Assistant Commissioner.
+On appeal to the Income tax Appellate Tribunal this sum was held to be allowable by a majority of two to one.
+At the instance of the respondent the Tribunal referred the following question to the High Court for its opinion: "Whether on the facts and in the circumstances of the case, the payment of Rs. 82,250 is an allowable expenditure under Section 10(2) (xv) of the Indian Income tax Act?" The High Court held that the above amount of Rs. 82,250 could not be said to have been paid for salvaging the goods but was paid as a penalty incurred in consequence of an illegal, act on the part of the appellant and was therefore not an allowable item under section 10(2)(xv) of the Income tax Act.
+Against this judgment the appellant firm has come in appeal to this Court by special leave.
+83 654 any contract of hire purchase was contemplated, cannot be applied simpliciter, because such a contract has in it not only the element of bailment but also the element of sale.
+At common law the term 'hire purchase ' properly applies only to contracts of hire conferring an option to purchase, but it is often used to describe contracts which are in reality agreements to purchase chattels by instalments, subject to a condition that the property in them is not to pass until all instalments have been paid.
+The distinction between these two types of hire purchase contracts is, however, a most important one, because under the latter type of contract there is a binding obligation on the hirer to buy and the hirer can therefore pass a good title to a purchaser or pledgee dealing with him in good faith and without notice of the rights of the true owner, whereas in the case of a contract which merely confers an option to purchase there is no binding obligation on the hirer to buy, and a purchaser or pledgee can obtain no better title than the hirer had, except in the case of a sale in market overt, the contract not being an agreement to buy within the Factors Act, 1889, or the Sale of Goods Act, 1893." The observations quoted above are based mostly on two leading cases which have come to be regarded as the locus classicus upon the subject, namely Lee vs Butler (1) in which the transaction was described by Lord Esher, M.R., as "Hire and Purchase Agreements" and Helby vs Matthews (2) in which the House of Lords distinguished the former case on the ground that in that case there was a binding contract to buy and not merely an option to buy, without any obligation to buy.
+Both these cases were decided in terms of Factors Act of 1889 (52 & 53 Viet.
+c. 45, section 9).
+Both the kinds of agreements exemplified by the two leading cases aforesaid would now be included in the definition of 'hire purchase ' as contained in section 21 of the Hire Purchase Act, 1938 (1 & 2 Geo., 6, c. 53): " 'Hire purchase agreement ' means an agreement for the bailment of goods under which the bailee (1) (2) (1895] A.C. 471.
+655 may buy the goods or under which the property in the goods will or may pass to the bailee, and where, by virtue of two or more agreements, none of which by itself constitutes a hire purchase agreement, there is a bailment of goods and either the bailee may buy the goods, or the property therein will or may pass to the bailee, the agreements shall be treated for the purposes of this Act as a single agreement made at the time when the last of the agreements was made.
+" It is clear that under the Law, as it now stands, which has now been crystallised into the section of the Hire Purchase Act, quoted above, the transaction partakes of the nature of a contract or bailment with an element of sale, as aforesaid, added to it. 'in such an agreement, the hirer may not be bound to purchase the thing hired;.
+he may or may not be.
+But in either case, if there is an obligation to buy, or an option to buy, the goods delivered to the hirer by the owner on the terms that the hirer, on payment of a premium as also of a number of instalments, shall enjoy the use of the goods, which ultimately may become his property, the transaction amounts to one of hire purchase, even though the title to the goods has remained with the owner and shall not pass to the hirer until a certain event has happened, namely, that all the stipulated instalments have been paid, or that the hirer has exercised his option to finalise the purchase on payment of a sum, nominal or otherwise.
+But it has been contended on behalf of the petitioners that there is no binding agreement to purchase the goods and that title is retained by the owner not as a security for payment of the price but absolutely.
+According to third term of the agreement, on the hirer duly performing and observing the terms of the agreement, with particular reference to the payment of the monthly instalments, "the hiring shall come to an end and the vehicle shall, at the option of the hirer, become his absolute property; but until such payments as aforesaid have been made, the vehicle shall remain the property of the owners.
+The hirer shall also have the option of purchasing the vehicle at any 656 belonging to him may be, the name and residence of the said person and the amount of penalty or increased rate of duty unrecovered; and such Magistrate shall thereupon proceed to enforce payment of the said amount in like manner as if such penalty or increased rate had been a fine inflicted by himself.
+" These sections show the punishments provided for the breach of the prohibitions in regard to importation or exportation of goods under sections 18 and 19; the power of the Customs Authorities to give an option to pay in lieu of confiscation and how the penalties are to be imposed.
+Therefore when the appellants incurred the liability they did so as a penalty for an infraction of the law; but it cannot be said that the money which they had to pay was not paid as a penalty and in fact under section 167(8) it was a penalty.
+In support of his argument counsel for the appellant firm referred to Maqbool Hussain etc.
+vs The State of Bombay etc.
+(1) and to the following passage at p. 742 where Bhagwati, J., said: "Confiscation is no doubt one of the penalties which the Customs Authorities can impose but that is more in the nature of proceedings in rem than proceedings in personam, the object being to confiscate the offending goods which have been dealt with contrary to the provisions of the law and in respect of the confiscation also an option is given to the owner of the goods to pay in lieu of confiscation such fine as the officer thinks fit.
+All this is for the enforcement of the levy of and safeguarding the recovery of the sea customs duties.
+" Similar observations were made by section K. Das, J., in Shewpujanrai Indrasanrai Ltd. vs The Collector of Customs & Ors.
+(2) where it was said that a distinction must be drawn between an action in rem and proceeding in personam and that confiscation of the goods is a proceeding in rem and the penalties are enforced against the goods whether the offender is known or not.
+The view taken by this Court in the other two cases cited by counsel for the appellants, i.e., Leo Roy (1) ; (2) ; , 836.
+657 Frey vs The Superintendent, District Jail, Amritsar (1) and Thomas Dana vs The State of Punjab (2) is the same.
+In Dana case (2) Subba Rao, J., said at p. 298: "If the authority concerned makes an order of confiscation it is only a proceeding in rem and the penalty is enforced against the goods.
+On the other hand, if it imposes a penalty against the person concerned, it is a proceeding against the person and he is punished for committing the offence.
+It follows that in the case of confiscation there is no prosecution against the person or imposition of a penalty on him." In Maqbool Hussain 's case (3) the question for decision was whether after proceedings had been taken under the Sea Customs Act an accused person could be prosecuted and could or could not rely upon the plea of double jeopardy, it was held that he could not.
+In Shewpujanrai 's case (4) the contention raised was that after proceedings had been taken under the Foreign Exchange Regulation Act it was not open to the Customs Authorities to take any action under the Sea Customs Act.
+The other two cases were similar to Maqbool Hussain 's case (3).
+The contention now raised before us is quite different.
+What is to be decided in the present case is whether the penalty which was paid by the appellant firm was an allowable deduction within section 10(2)(xv) of the Income tax Act which provides: section 10(2)(xv) "any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation.
+" The words "for the purpose of such business" have been construed in Inland Revenue vs Anglo Brewing Co. Ltd. (5) to mean "for the purpose of keeping the trade going and of making it pay".
+The essential condition of allowance is that the expenditure should have been laid out or expended wholly and exclusively for the purpose of such business.
+(1) ; (2) [1959] Supp.
+I S.C.R. 274, 298.
+(3) ; (4) ; , 836.
+(5) , 813.
+658 In deciding this case, reference to decisions in some English cases will be fruitful.
+In Commissioners of Inland Revenue vs Warnes & Co. (1), the assessee who carried on the business of oil exporters were sued for a penalty on an information exhibited by the Attorney General under the Sea Customs Consolidation Act for breach of orders and proclamations.
+The matter was settled by consent on the assessee agreeing to pay a mitigated penalty of pound 2,000.
+All imputations on the moral culpability of the assessees were withdrawn.
+The provisions of the Act under which this information was lodged and penalty paid was similar to the provisions of the Indian Sea Customs Act.
+This amount was held not to be a proper deduction because in order to be within the provision similar to section 10(2) (xv) of the Indian Act the loss had to be something within commercial contemplation and in the nature of a commercial loss.
+Rowlatt, J., relying on the observation of Lord Loreburn, L. C., in Strong & Co. vs Woodifield (2) said at p. 452: "but it seems to me that a penal liability of this kind cannot be regarded as a loss connected with or arising out of a trade.
+I think that a loss connected with or arising out of a trade must, at any rate, amount to something in the nature of a loss which is contemplable and in the nature of a commercial loss.
+I do not intend that to be an exhaustive definition, but I do not think it is possible to say that when a fine which is what the penalty in the present case amounted to has been inflicted upon a trading body, it can be said that that is a "loss connected, with or arising out of" the trade within the meaning of this rule.
+" This statement of the law was approved in the Commissioners of Inland Revenue vs Alexander Von Glehn & Co. Ltd. (3) where also in similar circumstances by consent of the assessee penalty of pound 3,000 was paid and the penalty plus the costs were claimed as deduction in arriving at the profits.
+The Special Commissioners had found that the penalty and costs were incurred by the assessee in the course of carrying on (1) (2) ; (3) [1920] .2
+K.B. 553.
+659 their trade and so incidental thereto and were admissible deductions.
+Rowlatt, J., on a reference held it to be a non deductible item.
+This judgment was affirmed on appeal by the Court of Appeal.
+Lord Sterndale, M. R., was of the opinion that it was immaterial whether technically the proceedings were criminal or not.
+The money that was paid was paid as a penalty and it did not matter if in the information it was called a forfeiture.
+It was argued by the assessee in that case that no moral obliquity was attributed to them and that it did not matter whether the expense was incurred in consequence of an infraction of the law or whether it was a penalty for doing an illegal act.
+At p. 565 Lord Sterndale said: "Now what is the position here? This business could perfectly well be carried on without any infraction of the law.
+This penalty was imposed because of an infraction of the law, and that does not seem to me to be, any more than the expense which had to be paid in Strong & Co. vs Woodifield (1) appeared to Lord Davey to be, a disbursement or expense which was laid out or expended for the purpose of such trade. ." Warrington L.J. said at p.569: "It is a sum which the persons conducting the trade have had to pay because in conducting it they have so acted as to render themselves liable to this penalty.
+It is not a commercial loss, and I think when the Act speaks of a loss connected with or arising out of such trade it means a commercial loss, connected with or arising out of the trade.
+" In Strong & Co. vs Woodifield (1) a brewing company owned a licensed house in which they carried on the business of inn keepers.
+They incurred a liability to pay damages on account of injuries caused to a visitor, by the falling in of a chimney.
+This sum was held not to be allowable as a deduction in computing the profits ' Lord Loreburn, L. C., in his speech said no sum could be deducted unless it be money wholly and exclusively laid out or expended for the purpose of such (1) ; 660 trade and that only such losses could be deducted as were connected with it in the sense that they were really incidental to the trade itself and they could not be deducted if they were mainly incidental to some other vocation or fell on the trader in some character other than that of a trader.
+Lord Davey observed:"I think the disbursements permitted are such as are made for that purpose.
+It is not enough that the disbursement is made in the course of, or arise out of, or is connected with the trade or is made out of the profits of the trade.
+It must be made for the purpose of earning profits.
+" The following passage from Lord Sterndale 's judgment at p. 566 in Von Glehn 's case (1) from which we have already quoted shows the effect of incurring a penalty as a result of a breach of the law: "During the course of the trading this company committed a breach of the law.
+As I say, it has been agreed that they did not intend to do anything wrong in the sense that they were willingly and knowingly sending these goods to an enemy destination; but they committed a breach of the law, and for that breach of the law, they were fined.
+That, as it seems to me, was not a loss connected with the business, but was a fine imposed upon the company personally, so far as a company can be considered to be a person, for a breach of the law which it had committed.
+It is perhaps a little difficult to put the distinction into very exact language, but there seems to me to be a difference between a commercial loss in trading and a penalty imposed upon a person or a company for a breach of the law which they have committed in that trading.
+For that reason I think that both the decision of Rowlatt, J., in this case, and his former decision in Inland Revenue Commissioners vs Warnes & Co. (2) which he followed were right, and that this appeal should be dismissed with costs." In Spofforth and Prince vs Glider (3) the assessee was a firm of chartered accountants, who claimed a deduction for certain legal costs paid in connection with a (1) [1920) 2 K.B. 55.3.
+(2) (3) 661 successful defence of one of the partners in a Police Court.
+The assessee firm also sought legal advice in regard to matters connected with some proceedings.
+Summons were issued against the assessee firm but were eventually dismissed.
+The assessee contended that the whole of the costs incurred in connection with the proceedings were "wholly and exclusively" laid out or expended for the appellant 's profession and were therefore allowable deductions.
+The Special Commissioner had held against the assessee which was upheld by the Court.
+The test laid down by Lord Davey in Strong & Co. vs Woodifield (1) was applied and applying that test it was held that except the expenses for obtaining legal advice the other expenses were not admissible.
+In Farrie vs Hall (2) F, a sugar broker was sued in the High Court for libel and the Court held that F had acted maliciously and that the defence of privilege could not prevail and awarded damages against him.
+F sought to claim the amount of damages as an allowable deduction contending that it was an expenditure laid out wholly and exclusively for the purposes of his trade or was a loss connected with or arising out of the trade.
+Relying on the cases above mentioned this amount was disallowed because it fell on the assessee in his character of a calumniator of a rival sugar broker and it was only remotely connected with his trade as a sugar broker.
+Therefore it was not laid out exclusively and wholly for the purpose of his business.
+We were also referred to the observations of Danckwerts, J. in Newson vs Robertson (3) where it was said that if the expenditure is incurred by the tax payer for more than one purpose including the commercial purposes in the sense that it is incurred for the purposes of earning profits of the trade and also some outside purpose then the expenses cannot be claimed at all as not being wholly and exclusively laid out or expended for the purpose of the trade.
+In that case expenses claimed by a Barrister for (1) ; (2) (3) , 459.
+84 662 travelling between his house and his chambers were disallowed because his object and purpose in travelling was mixed and not wholly and exclusively for the purpose of the profession.
+Coming now to Indian cases; In Mask & Co. vs Commissioner of Income tax, Madras (1) the assessee in breach of his contract sold crackers at a lower rate and a decree was passed against him for damages for breach of contract which he claimed as an allowable deduction.
+It was held that as the assessee had disregarded the undertaking given and his conduct was palpably dishonest it did not constitute an allowable expenditure.
+Sir Lionel Leach, C. J., after referring to Warne 's case (2) and Von Glehn 's case (3) held that the amount did not constitute an expenditure falling within section 10(2)(xii).
+The Madras High Court in Senthikumara Nadar & Sons vs Commissioner of Income tax, Madras (4) held that payments of penalty for an in.
+fraction of the law fell outside the scope of permissible deductions under section 10(2)(xv).
+In that case the assessee had to pay liquidated damages which was akin to penalty incurred for an act opposed to public policy a policy underlying the Coffee Market Expansion Act, 1942, and which was left to the Coffee Board to enforce.
+Reference was also made during the course of arguments to Commissioner of Income tax vs Hirjee (1).
+In that case the assessee was prosecuted under the Hoarding and Profiteering Ordinance but was finally acquitted and claimed the amount spent in defending himself under section 10(2)(xv) in his assessment.
+It was held that the distinction between the legal expenses on a successful and unsuccessful defence was not sound and that the deductibility of such expenses under section 10(2)(xv) must depend on the nature and purpose of the legal proceedings in relation to the business whose profits are in computation and are unaffected by the final outcome of the proceedings.
+A review of these cases shows that expenses which (1) (3) (2) (4) (5) ; 663 are permitted as deductions are such as are made for the purpose of carrying on the business, i.e., to enable a person to carry on and earn profit in that business.
+It is not enough that the disbursements are made in the course of or arise out of or are concerned with or made out of the profits of the business but they must also be for the purpose of earning the profits of the business.
+As was pointed out in Von Glehn 's case (1) an expenditure is not deductible unless it is a commercial loss in trade and a penalty imposed for breach of the law during the course of trade cannot be described as such.
+If a sum is paid by an assessee conducting his business, because in conducting it he has acted in a manner, which has rendered him liable to penalty it cannot be claimed as a deductible expense.
+It must be a commercial loss and in its nature must be con templable as such.
+Such penalties which are incurred by an assessee in proceedings launched against him for an infraction of the law cannot be called commercial losses incurred by an assessee in carrying on his business.
+Infraction of the law is not a normal incident of business and therefore only such disbursements can be deducted as are really incidental to the business itself.
+They cannot be deducted if they fall on the assessee in some character other than that of a trader.
+Therefore where a penalty is incurred for the contravention of any specific statutory provision, it cannot be said to be a commercial loss falling on the assessee as a trader the test being that the expenses which are for the purpose of enabling a person to carry on trade for making profits in the business are permitted but not if they are merely connected with the business.
+It was argued that unless the penalty is of a nature which is personal to the assessee and if it is merely ordered against the goods imported it is an allowable deduction.
+That, in our opinion, is an erroneous distinction because disbursement is deductible only if it falls within section 10(2)(xv) of the Income tax Act and no such deduction can be made unless it falls within the test laid down in the cases discussed above and it can be said to be expenditure wholly and exclusively laid for the purpose of the business.
+Can it be said (1) 664 that a penalty paid for an infraction of the law, even though it may involve no personal liability in the sense of a fine imposed for an offence committed, is wholly and exclusively laid for the business in the sense as those words are used in the cases that have been discussed above.
+In our opinion, no expense which is paid by way of penalty for a breach of the law can be said to be an amount wholly and exclusively laid for the purpose of the business.
+The distinction sought to be drawn between a personal liability and a liability of the kind now before us is not sustainable because anything done which is an infraction of the law and is visited with a penalty cannot on grounds of public policy be said to be a commercial expense for the purpose of a business or a disbursement made for the purposes of earning the profits of such business.
+In our opinion the High Court rightly held that the amount claimed was not deductible and we therefore dismiss this appeal with costs.
+Appeal dismissed.

1014.txt

@@ -0,0 +1,126 @@
+Appeal No.110 of 1957.
+Appeal by special leave from the judgment and order dated February 25, 1955, of the former Bombay High Court in I.T.R. No. 57/X of 1954.
+N. A. Palkhivala and I. N. Shroff, for the Appellant.
+A. N. Kripal and D. Gupta, for the Respondent.
+November 24.
+The Judgment of the Court was delivered by KAPUR, J.
+This is an appeal by special leave against the judgment and order of the High Court of Bombay answering the question submitted to it.
+against the assessee firm who is the appellant before 653 us, the respondent being the Commissioner of Income tax.
+The appeal relates to the assessment year 1949 50, the accounting year ended on July 25, 1948.
+The appellant is a firm doing the business of importing dates from abroad and selling them in India.
+During the accounting year the appellant imported dates from Iraq.
+At the relevant time the import of dates by steamers was prohibited by two notifications dated December 12, 1946, and June 4, 1947, but they were permitted to be brought by country craft.
+Goods which had been ordered by the appellant were received partly by steamer and partly by country craft.
+Consignments, which were imported by steamer and were valued at Rs. 5 lacs were confiscated by the Customs Authorities under section 167, item 8 of the Sea Customs Act but under section 183 of that Act the, appellant was given an option to pay fines aggregating Rs. 1,63,950 which sum on appeal was reduced to Rs. 82,250.
+This sum was paid and the dates were released.
+On the sale of the goods certain profits accrued out of which it sought to deduct Rs. 82,250 paid as penalty on ordinary principles of commercial accounting.
+The Income tax Officer disallowed this claim which was also disallowed by the Appellate Assistant Commissioner.
+On appeal to the Income tax Appellate Tribunal this sum was held to be allowable by a majority of two to one.
+At the instance of the respondent the Tribunal referred the following question to the High Court for its opinion: "Whether on the facts and in the circumstances of the case, the payment of Rs. 82,250 is an allowable expenditure under Section 10(2) (xv) of the Indian Income tax Act?" The High Court held that the above amount of Rs. 82,250 could not be said to have been paid for salvaging the goods but was paid as a penalty incurred in consequence of an illegal, act on the part of the appellant and was therefore not an allowable item under section 10(2)(xv) of the Income tax Act.
+Against this judgment the appellant firm has come in appeal to this Court by special leave.
+83 654 any contract of hire purchase was contemplated, cannot be applied simpliciter, because such a contract has in it not only the element of bailment but also the element of sale.
+At common law the term 'hire purchase ' properly applies only to contracts of hire conferring an option to purchase, but it is often used to describe contracts which are in reality agreements to purchase chattels by instalments, subject to a condition that the property in them is not to pass until all instalments have been paid.
+The distinction between these two types of hire purchase contracts is, however, a most important one, because under the latter type of contract there is a binding obligation on the hirer to buy and the hirer can therefore pass a good title to a purchaser or pledgee dealing with him in good faith and without notice of the rights of the true owner, whereas in the case of a contract which merely confers an option to purchase there is no binding obligation on the hirer to buy, and a purchaser or pledgee can obtain no better title than the hirer had, except in the case of a sale in market overt, the contract not being an agreement to buy within the Factors Act, 1889, or the Sale of Goods Act, 1893." The observations quoted above are based mostly on two leading cases which have come to be regarded as the locus classicus upon the subject, namely Lee vs Butler (1) in which the transaction was described by Lord Esher, M.R., as "Hire and Purchase Agreements" and Helby vs Matthews (2) in which the House of Lords distinguished the former case on the ground that in that case there was a binding contract to buy and not merely an option to buy, without any obligation to buy.
+Both these cases were decided in terms of Factors Act of 1889 (52 & 53 Viet.
+c. 45, section 9).
+Both the kinds of agreements exemplified by the two leading cases aforesaid would now be included in the definition of 'hire purchase ' as contained in section 21 of the Hire Purchase Act, 1938 (1 & 2 Geo., 6, c. 53): " 'Hire purchase agreement ' means an agreement for the bailment of goods under which the bailee (1) (2) (1895] A.C. 471.
+655 may buy the goods or under which the property in the goods will or may pass to the bailee, and where, by virtue of two or more agreements, none of which by itself constitutes a hire purchase agreement, there is a bailment of goods and either the bailee may buy the goods, or the property therein will or may pass to the bailee, the agreements shall be treated for the purposes of this Act as a single agreement made at the time when the last of the agreements was made.
+" It is clear that under the Law, as it now stands, which has now been crystallised into the section of the Hire Purchase Act, quoted above, the transaction partakes of the nature of a contract or bailment with an element of sale, as aforesaid, added to it. 'in such an agreement, the hirer may not be bound to purchase the thing hired;.
+he may or may not be.
+But in either case, if there is an obligation to buy, or an option to buy, the goods delivered to the hirer by the owner on the terms that the hirer, on payment of a premium as also of a number of instalments, shall enjoy the use of the goods, which ultimately may become his property, the transaction amounts to one of hire purchase, even though the title to the goods has remained with the owner and shall not pass to the hirer until a certain event has happened, namely, that all the stipulated instalments have been paid, or that the hirer has exercised his option to finalise the purchase on payment of a sum, nominal or otherwise.
+But it has been contended on behalf of the petitioners that there is no binding agreement to purchase the goods and that title is retained by the owner not as a security for payment of the price but absolutely.
+According to third term of the agreement, on the hirer duly performing and observing the terms of the agreement, with particular reference to the payment of the monthly instalments, "the hiring shall come to an end and the vehicle shall, at the option of the hirer, become his absolute property; but until such payments as aforesaid have been made, the vehicle shall remain the property of the owners.
+The hirer shall also have the option of purchasing the vehicle at any 656 belonging to him may be, the name and residence of the said person and the amount of penalty or increased rate of duty unrecovered; and such Magistrate shall thereupon proceed to enforce payment of the said amount in like manner as if such penalty or increased rate had been a fine inflicted by himself.
+" These sections show the punishments provided for the breach of the prohibitions in regard to importation or exportation of goods under sections 18 and 19; the power of the Customs Authorities to give an option to pay in lieu of confiscation and how the penalties are to be imposed.
+Therefore when the appellants incurred the liability they did so as a penalty for an infraction of the law; but it cannot be said that the money which they had to pay was not paid as a penalty and in fact under section 167(8) it was a penalty.
+In support of his argument counsel for the appellant firm referred to Maqbool Hussain etc.
+vs The State of Bombay etc.
+(1) and to the following passage at p. 742 where Bhagwati, J., said: "Confiscation is no doubt one of the penalties which the Customs Authorities can impose but that is more in the nature of proceedings in rem than proceedings in personam, the object being to confiscate the offending goods which have been dealt with contrary to the provisions of the law and in respect of the confiscation also an option is given to the owner of the goods to pay in lieu of confiscation such fine as the officer thinks fit.
+All this is for the enforcement of the levy of and safeguarding the recovery of the sea customs duties.
+" Similar observations were made by section K. Das, J., in Shewpujanrai Indrasanrai Ltd. vs The Collector of Customs & Ors.
+(2) where it was said that a distinction must be drawn between an action in rem and proceeding in personam and that confiscation of the goods is a proceeding in rem and the penalties are enforced against the goods whether the offender is known or not.
+The view taken by this Court in the other two cases cited by counsel for the appellants, i.e., Leo Roy (1) ; (2) ; , 836.
+657 Frey vs The Superintendent, District Jail, Amritsar (1) and Thomas Dana vs The State of Punjab (2) is the same.
+In Dana case (2) Subba Rao, J., said at p. 298: "If the authority concerned makes an order of confiscation it is only a proceeding in rem and the penalty is enforced against the goods.
+On the other hand, if it imposes a penalty against the person concerned, it is a proceeding against the person and he is punished for committing the offence.
+It follows that in the case of confiscation there is no prosecution against the person or imposition of a penalty on him." In Maqbool Hussain 's case (3) the question for decision was whether after proceedings had been taken under the Sea Customs Act an accused person could be prosecuted and could or could not rely upon the plea of double jeopardy, it was held that he could not.
+In Shewpujanrai 's case (4) the contention raised was that after proceedings had been taken under the Foreign Exchange Regulation Act it was not open to the Customs Authorities to take any action under the Sea Customs Act.
+The other two cases were similar to Maqbool Hussain 's case (3).
+The contention now raised before us is quite different.
+What is to be decided in the present case is whether the penalty which was paid by the appellant firm was an allowable deduction within section 10(2)(xv) of the Income tax Act which provides: section 10(2)(xv) "any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation.
+" The words "for the purpose of such business" have been construed in Inland Revenue vs Anglo Brewing Co. Ltd. (5) to mean "for the purpose of keeping the trade going and of making it pay".
+The essential condition of allowance is that the expenditure should have been laid out or expended wholly and exclusively for the purpose of such business.
+(1) ; (2) [1959] Supp.
+I S.C.R. 274, 298.
+(3) ; (4) ; , 836.
+(5) , 813.
+658 In deciding this case, reference to decisions in some English cases will be fruitful.
+In Commissioners of Inland Revenue vs Warnes & Co. (1), the assessee who carried on the business of oil exporters were sued for a penalty on an information exhibited by the Attorney General under the Sea Customs Consolidation Act for breach of orders and proclamations.
+The matter was settled by consent on the assessee agreeing to pay a mitigated penalty of pound 2,000.
+All imputations on the moral culpability of the assessees were withdrawn.
+The provisions of the Act under which this information was lodged and penalty paid was similar to the provisions of the Indian Sea Customs Act.
+This amount was held not to be a proper deduction because in order to be within the provision similar to section 10(2) (xv) of the Indian Act the loss had to be something within commercial contemplation and in the nature of a commercial loss.
+Rowlatt, J., relying on the observation of Lord Loreburn, L. C., in Strong & Co. vs Woodifield (2) said at p. 452: "but it seems to me that a penal liability of this kind cannot be regarded as a loss connected with or arising out of a trade.
+I think that a loss connected with or arising out of a trade must, at any rate, amount to something in the nature of a loss which is contemplable and in the nature of a commercial loss.
+I do not intend that to be an exhaustive definition, but I do not think it is possible to say that when a fine which is what the penalty in the present case amounted to has been inflicted upon a trading body, it can be said that that is a "loss connected, with or arising out of" the trade within the meaning of this rule.
+" This statement of the law was approved in the Commissioners of Inland Revenue vs Alexander Von Glehn & Co. Ltd. (3) where also in similar circumstances by consent of the assessee penalty of pound 3,000 was paid and the penalty plus the costs were claimed as deduction in arriving at the profits.
+The Special Commissioners had found that the penalty and costs were incurred by the assessee in the course of carrying on (1) (2) ; (3) [1920] .2
+K.B. 553.
+659 their trade and so incidental thereto and were admissible deductions.
+Rowlatt, J., on a reference held it to be a non deductible item.
+This judgment was affirmed on appeal by the Court of Appeal.
+Lord Sterndale, M. R., was of the opinion that it was immaterial whether technically the proceedings were criminal or not.
+The money that was paid was paid as a penalty and it did not matter if in the information it was called a forfeiture.
+It was argued by the assessee in that case that no moral obliquity was attributed to them and that it did not matter whether the expense was incurred in consequence of an infraction of the law or whether it was a penalty for doing an illegal act.
+At p. 565 Lord Sterndale said: "Now what is the position here? This business could perfectly well be carried on without any infraction of the law.
+This penalty was imposed because of an infraction of the law, and that does not seem to me to be, any more than the expense which had to be paid in Strong & Co. vs Woodifield (1) appeared to Lord Davey to be, a disbursement or expense which was laid out or expended for the purpose of such trade. ." Warrington L.J. said at p.569: "It is a sum which the persons conducting the trade have had to pay because in conducting it they have so acted as to render themselves liable to this penalty.
+It is not a commercial loss, and I think when the Act speaks of a loss connected with or arising out of such trade it means a commercial loss, connected with or arising out of the trade.
+" In Strong & Co. vs Woodifield (1) a brewing company owned a licensed house in which they carried on the business of inn keepers.
+They incurred a liability to pay damages on account of injuries caused to a visitor, by the falling in of a chimney.
+This sum was held not to be allowable as a deduction in computing the profits ' Lord Loreburn, L. C., in his speech said no sum could be deducted unless it be money wholly and exclusively laid out or expended for the purpose of such (1) ; 660 trade and that only such losses could be deducted as were connected with it in the sense that they were really incidental to the trade itself and they could not be deducted if they were mainly incidental to some other vocation or fell on the trader in some character other than that of a trader.
+Lord Davey observed:"I think the disbursements permitted are such as are made for that purpose.
+It is not enough that the disbursement is made in the course of, or arise out of, or is connected with the trade or is made out of the profits of the trade.
+It must be made for the purpose of earning profits.
+" The following passage from Lord Sterndale 's judgment at p. 566 in Von Glehn 's case (1) from which we have already quoted shows the effect of incurring a penalty as a result of a breach of the law: "During the course of the trading this company committed a breach of the law.
+As I say, it has been agreed that they did not intend to do anything wrong in the sense that they were willingly and knowingly sending these goods to an enemy destination; but they committed a breach of the law, and for that breach of the law, they were fined.
+That, as it seems to me, was not a loss connected with the business, but was a fine imposed upon the company personally, so far as a company can be considered to be a person, for a breach of the law which it had committed.
+It is perhaps a little difficult to put the distinction into very exact language, but there seems to me to be a difference between a commercial loss in trading and a penalty imposed upon a person or a company for a breach of the law which they have committed in that trading.
+For that reason I think that both the decision of Rowlatt, J., in this case, and his former decision in Inland Revenue Commissioners vs Warnes & Co. (2) which he followed were right, and that this appeal should be dismissed with costs." In Spofforth and Prince vs Glider (3) the assessee was a firm of chartered accountants, who claimed a deduction for certain legal costs paid in connection with a (1) [1920) 2 K.B. 55.3.
+(2) (3) 661 successful defence of one of the partners in a Police Court.
+The assessee firm also sought legal advice in regard to matters connected with some proceedings.
+Summons were issued against the assessee firm but were eventually dismissed.
+The assessee contended that the whole of the costs incurred in connection with the proceedings were "wholly and exclusively" laid out or expended for the appellant 's profession and were therefore allowable deductions.
+The Special Commissioner had held against the assessee which was upheld by the Court.
+The test laid down by Lord Davey in Strong & Co. vs Woodifield (1) was applied and applying that test it was held that except the expenses for obtaining legal advice the other expenses were not admissible.
+In Farrie vs Hall (2) F, a sugar broker was sued in the High Court for libel and the Court held that F had acted maliciously and that the defence of privilege could not prevail and awarded damages against him.
+F sought to claim the amount of damages as an allowable deduction contending that it was an expenditure laid out wholly and exclusively for the purposes of his trade or was a loss connected with or arising out of the trade.
+Relying on the cases above mentioned this amount was disallowed because it fell on the assessee in his character of a calumniator of a rival sugar broker and it was only remotely connected with his trade as a sugar broker.
+Therefore it was not laid out exclusively and wholly for the purpose of his business.
+We were also referred to the observations of Danckwerts, J. in Newson vs Robertson (3) where it was said that if the expenditure is incurred by the tax payer for more than one purpose including the commercial purposes in the sense that it is incurred for the purposes of earning profits of the trade and also some outside purpose then the expenses cannot be claimed at all as not being wholly and exclusively laid out or expended for the purpose of the trade.
+In that case expenses claimed by a Barrister for (1) ; (2) (3) , 459.
+84 662 travelling between his house and his chambers were disallowed because his object and purpose in travelling was mixed and not wholly and exclusively for the purpose of the profession.
+Coming now to Indian cases; In Mask & Co. vs Commissioner of Income tax, Madras (1) the assessee in breach of his contract sold crackers at a lower rate and a decree was passed against him for damages for breach of contract which he claimed as an allowable deduction.
+It was held that as the assessee had disregarded the undertaking given and his conduct was palpably dishonest it did not constitute an allowable expenditure.
+Sir Lionel Leach, C. J., after referring to Warne 's case (2) and Von Glehn 's case (3) held that the amount did not constitute an expenditure falling within section 10(2)(xii).
+The Madras High Court in Senthikumara Nadar & Sons vs Commissioner of Income tax, Madras (4) held that payments of penalty for an in.
+fraction of the law fell outside the scope of permissible deductions under section 10(2)(xv).
+In that case the assessee had to pay liquidated damages which was akin to penalty incurred for an act opposed to public policy a policy underlying the Coffee Market Expansion Act, 1942, and which was left to the Coffee Board to enforce.
+Reference was also made during the course of arguments to Commissioner of Income tax vs Hirjee (1).
+In that case the assessee was prosecuted under the Hoarding and Profiteering Ordinance but was finally acquitted and claimed the amount spent in defending himself under section 10(2)(xv) in his assessment.
+It was held that the distinction between the legal expenses on a successful and unsuccessful defence was not sound and that the deductibility of such expenses under section 10(2)(xv) must depend on the nature and purpose of the legal proceedings in relation to the business whose profits are in computation and are unaffected by the final outcome of the proceedings.
+A review of these cases shows that expenses which (1) (3) (2) (4) (5) ; 663 are permitted as deductions are such as are made for the purpose of carrying on the business, i.e., to enable a person to carry on and earn profit in that business.
+It is not enough that the disbursements are made in the course of or arise out of or are concerned with or made out of the profits of the business but they must also be for the purpose of earning the profits of the business.
+As was pointed out in Von Glehn 's case (1) an expenditure is not deductible unless it is a commercial loss in trade and a penalty imposed for breach of the law during the course of trade cannot be described as such.
+If a sum is paid by an assessee conducting his business, because in conducting it he has acted in a manner, which has rendered him liable to penalty it cannot be claimed as a deductible expense.
+It must be a commercial loss and in its nature must be con templable as such.
+Such penalties which are incurred by an assessee in proceedings launched against him for an infraction of the law cannot be called commercial losses incurred by an assessee in carrying on his business.
+Infraction of the law is not a normal incident of business and therefore only such disbursements can be deducted as are really incidental to the business itself.
+They cannot be deducted if they fall on the assessee in some character other than that of a trader.
+Therefore where a penalty is incurred for the contravention of any specific statutory provision, it cannot be said to be a commercial loss falling on the assessee as a trader the test being that the expenses which are for the purpose of enabling a person to carry on trade for making profits in the business are permitted but not if they are merely connected with the business.
+It was argued that unless the penalty is of a nature which is personal to the assessee and if it is merely ordered against the goods imported it is an allowable deduction.
+That, in our opinion, is an erroneous distinction because disbursement is deductible only if it falls within section 10(2)(xv) of the Income tax Act and no such deduction can be made unless it falls within the test laid down in the cases discussed above and it can be said to be expenditure wholly and exclusively laid for the purpose of the business.
+Can it be said (1) 664 that a penalty paid for an infraction of the law, even though it may involve no personal liability in the sense of a fine imposed for an offence committed, is wholly and exclusively laid for the business in the sense as those words are used in the cases that have been discussed above.
+In our opinion, no expense which is paid by way of penalty for a breach of the law can be said to be an amount wholly and exclusively laid for the purpose of the business.
+The distinction sought to be drawn between a personal liability and a liability of the kind now before us is not sustainable because anything done which is an infraction of the law and is visited with a penalty cannot on grounds of public policy be said to be a commercial expense for the purpose of a business or a disbursement made for the purposes of earning the profits of such business.
+In our opinion the High Court rightly held that the amount claimed was not deductible and we therefore dismiss this appeal with costs.
+Appeal dismissed.

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+Appeal No. 358 of 1958.
+645 Appeal by special leave from the judgment and order dated 8th March, 1956, of the former Bombay High Court in I.T.R. No. 55 of 1955.
+A. N. Kripal and D. Gupta, for the appellant.
+N. A. Palkhivala and B. P. Maheshwari, for the respondents.
+November 24.
+The Judgment of the Court was delivered by KAPUR, J.
+This is an appeal by special leave against the judgment and order of the High Court of Bombay in Income tax Reference No. 55 of 1955, in which two questions of law were stated for opinion and both were answered in favour of the assessee and against the Commissioner of Income tax who is the appellant before us and the assessee is the respondent.
+The facts of this case are these: The respondent is a registered firm carrying on business as commission agents in Bombay.
+For purposes of its business it borrowed money from time to time from Banks on joint promissory notes executed by it and by others with joint and several liability.
+On September 26, 1949, the respondent borrowed Rs. 1,00,000 from the Bank of India on a pronote executed jointly with one Kishorilal.
+Out of this amount a sum of Rs. 50,000 was taken by the respondent for purposes of its business and the rest by Kishorilal.
+Kishorilal however failed to meet his liability and became a bankrupt.
+The respondent had therefore to pay the Bank the whole amount, i.e., Rs. 1,00,000 with interest.
+Out of the amount taken by Kishorilal the respondent received in the accounting year, from the Official Assignee, a sum of Rs. 18,805 and claimed the balance, i.e., Rs. 31,740 as deduction.
+The accounting year was from August 26, 1949 to July 17, 1950, the assessment year being 1951 52.
+This claim was disallowed both by the Income tax Officer as well as the Appellate Assistant Commissioner.
+On Appeal to the Income tax Appellate Tribunal this sum was allowed ,as an allowable deduction under section 10(2)(xv) of the Income tax Act and as business loss.
+82 646 At the instance of the Commissioner a case was stated to the High Court of Bombay by the Income tax Appellate Tribunal.
+In the statement of the case which was agreed to by both parties the Tribunal said: "For the purpose of his business, he borrows from time to time money on joint and several liability from banks.
+The Commercial practice is to borrow money from banks on joint and several liability.
+An illustration will explain what we mean.
+A and B require Rs. 50,000 each.
+They find that the Bank would not advance Rs. 50,000 to each on his individual security.
+They however, find that the Bank would be prepared to advance Rupees one lach on their joint and several liability.
+They take Rupees one lac on joint and several liability and then divide the money equally between themselves.
+" It also found that the Banks advanced monies to some constituents on their personal security also but they had to pay a higher rate of interest than when the money was borrowed on joint and several responsibility; that Rs. 1,00,000 borrowed from the Bank was in accordance with the commercial practice of Bombay.
+On these facts the following two questions of law were referred to the High Court: "(1) Whether the assessee 's claim is sustainable under section 10(2)(xv) of the Act? (2) Whether the assessee 's claim that the loss was a business loss and, therefore, allowable as a deduction in computing the profits of the assessee 's business is sustainable under law?" Both these questions were answered in favour of the respondent and against the appellant.
+Counsel for the Commissioner challenged the findings of the Tribunal in regard to the existence of commercial practice in Bombay but this ground of attack is not available to him because not only did the Tribunal give this finding in its Order, but in the agreed statement of the case also this finding was repeated as is shown by the passage quoted above.
+The High Court also has proceeded on the basis of this commercial practice.
+In the judgment under appeal the learned Chief Justice said: 647 "The finding of the Tribunal is clear and explicit that what the assessee was doing was not something out of the ordinary, but in borrowing this money on joint and several liability he was following a practice which was established as a commercial practice.
+Therefore, the transaction was clearly in the course of the business and incidental to the business and it is this transaction which resulted in a loss to the assesses, he having to pay the liability of the surety.
+" Therefore this appeal has to be decided on the basis that a commercial practice of financing business by borrowing money on joint and several liability was established.
+It was argued on behalf of the appellant that this court in Madan Gopal Bagla vs Commissioner of Income Tax, West Bengal (1) had decided against the allowability of such losses.
+But the facts of that case when carefully scrutinised are distinguishable and the decision does not support the contentions of the appellant.
+No doubt certain features of that case and the present one are similar but they differ in essential features.
+In that case the assessee was a timber merchant who obtained a loan of Rs. 1 lac from the Bank of India on the joint security of himself and one Mamraj, which the assessee paid off.
+Mamraj also obtained a loan of Rs.
+I lac on the joint security of himself and the assessee.
+Mamraj became an insolvent and the assessee had to pay the whole of the amount borrowed with interest thereon.
+The assessee there received a certain amount of money by way of dividends from the Receiver and the balance he wrote off as bad debt in the assessment year and claimed it as an allowable deduction under section 10.
+The High Court there held that the debt could not be said to be a debt in respect of the business of the assessee as he was not carrying on the business of standing surety for other persons nor was he a money lender, he being simply a timber merchant; that it had not been established nor was it alleged that he was in the habit of standing surety for other persons "along with them for purposes of securing loans for their use and benefit" and even if money (1) ; 648 had been so borrowed and there had been a loss the loss would have been a capital loss and not a business loss to the assessee.
+This statement of the law was approved by this Court but there mutuality, as an essential ingredient of the custom established, was found to be lacking as is shown by the following passage from the judgment of the court.
+"The custom stated before the Appellate Assistant Commissioner was that persons carrying on business in Bombay used to borrow monies on joint security from the Banks in order to facilitate getting financial assistance from the Banks and that too at lower rates of interest.
+A businessman could procure financial assistance from the Banks on his own, but he would in that case have to pay a higher rate of interest.
+He would have to pay a lower rate of interest if he could procure as surety another business man, who would be approved by the Bank.
+This, however, did not mean that mutual accommodation by businessmen was necessarily an ingredient part of that custom.
+A could procure B, C or D to join him as surety in order to achieve this objective, but it did not necessarily follow that if A wanted to procure B, C or D to thus join him as surety he could only do so if he in his own turn joined B, C or D as surety in the loans which B, C or D procured in their turns from the Banks for financing their respective businesses.
+Unless that factor was established, the mere procurement by A of B, C or D as surety would not be sufficient to establish the custom sought to be relied upon by the appellant so as to make the transaction of his having joined Mumraj Rambhagat as surety in the loan procured by Mumraj Rambhagat from Imperial Bank of India, a transaction in the course of carrying on his own timber business and to make the loss in the transaction a trading loss or a bad debt of the timber business of the appellant.
+" Continuing at page 558 it was observed: "There were thus elements of mutuality and the essential ingredient in the carrying on of the money lending business, which were elements of the custom 649 proved in that case, both of which are wanting in the present case before us." Mr. Palkhivala for the respondent rightly argued that Madan Gopal Bagla 's case (1) was decided against the assessee because the custom of persons standing surety for each other for borrowing money and the element of mutuality which was an essential ingredient in the case of Commissioner of Income Tax, Madras vs section A. section Ramaswamy Chettiar (2) was not proved.
+In the latter case it was established that there was a well recognised custom amongst Chettiars of raising funds for their business of money lenders by the execution of joint pronotes and that if a loss was sustained by one of the executants having to pay the whole on account of inability of the other it was a deductible loss.
+The appellant also relied on a judgment of the Madras High Court in Commissioner of Income Tax vs section R. Subramanya Pillai (3).
+In that case the assessee was a book seller who from time to time jointly with another person borrowed money out of which he employed a portion in his business.
+One of such amounts borrowed was Rs. 16,200 out of which the assessee took Rs. 10,450 for his business needs and the other debtor took the balance.
+The latter became insolvent and the assessee had to pay the whole of the money borrowed and claimed it as allowable deduction under section 10(2)(xi) or section 10(2)(xv) of the Act or as business loss and it was hold that he was not entitled, because the loss sustained by the assessee was too remote from the business of book selling carried on by him and was not sufficiently connected with the trade and therefore fell outside the range of those amounts which could properly be brought into profit and loss account of the business.
+The decision in Commissioner of Income Tax vs section A. section Ramaswamy Chettiar (2) was there distinguished on the ground that the decision must be confined to its own peculiar facts and did not apply to business as the one in Subramanya Pillai 's Case (3).
+The following passage from (1) ; , (2) (3) 650 the judgment of Viswanatha Sastri, J., in that case is relevant: "But there the business was one of money lending and the Court found that according to the wellknown and well recognised mercantile custom of Nattukottai bankers, they were in the habit of raising 'funds which formed the stock in trade of their money lending business by the execution of joint promissory notes in favour of bankers.
+That was apparently the usual technique of obtaining credit adopted by the Nattukottai Chetti community money lenders.
+In the context this Court held that where a Nattukottai Chetti money lender paid off in their entirety the debts jointly due by him and another as a result of the latter 's inability to pay, the loss sustained as a result of this transaction was a loss of the moneylending business itself and therefore a deductible item in computing profits.
+" In the instant case it has been found that there was a well recognised commercial practice in Bombay of carrying on business by borrowing money from Banks on joint and several liability.
+It was also found that by so doing the borrower could borrow money at a lower rate of interest than he otherwise would have paid; that the respondent had, in accordance with the commercial practice, borrowed the money, the whole of which he had to return because the joint promisor Kishori Lal had become bankrupt; mutuality was also held proved.
+It cannot be said that the essential feature of the case now before us is in principle different from that of the Commissioner of Income tax vs Ramaswamy Chettiar (1).
+In both cases the finding is that there is mutuality and custom of borrowing money on joint pronotes for the carrying on of business.
+In our opinion in the circumstances proved in the present case, and on the facts established and on the findings given, the respondent was rightly held to be entitled to deduct the loss which was suffered by him in the transaction in dispute.
+Counsel for the assessee drew our attention to a (1) 651 Privy Council judgment Montreal Coke and Manufacturing Co. vs Minister of National Revenue (1) but that, case can have no application to the facts of the present case because it was found there as a fact that the assessees 's financial arrangements were quite distinct from the activities by which they earned their income and expenditure incurred in relation to the financing ' of their business was not expenditure in the earning of their income within the statute.
+It was then contended that the loss of the respondent was a 0capital loss and for this again reliance was placed on the judgment of this Court in Madan Gopal Bagla 's case (2 ) and particularly on the observation at page 559 where Bhagwati, J., quoted with approval the observations of the High Court in the judgment but as we have pointed out the facts of that case are distinguishable and what was said there has no application to the facts and circumstances proved in the present case.
+In our view the judgment of the High Court is right and we therefore dismiss this appeal with costs.
+Appeal dismissed.

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+Appeal No. 285 of 1959.
+Appeal by Special Leave from the Judgment and Decree dated the 13th July, 1956, of the Patna High Court in M. J. C. No. 404 of 1954.
+M. C. Setalvad, Attorney General for India and section P. Varma, for the Appellants.
+A. V. Viswanatha Sastri, Suresh Aggarwala and D. P. Singh, for the Respondent. 1960.
+November 21.
+The Judgment of the Court was delivered by 524 SINHA, C.J.
+This appeal, by special leave, is directed against the judgment and order of the High Court of Patna dated July 13, 1956 disposing of a reference under section 25(1) of the Bihar Sales Tax Act, 1947, which hereinafter will be referred to as the Act, made by the Board of Revenue, Bihar.
+The facts of this case have never been in dispute and may shortly be stated as follows.
+The appellant is a Corporation incorporated under the Damodar Valley Corporation Act (XIV of 1948) and will hereinafter be referred to as the Corporation.
+It is a multipurpose Corporation, one of its objects being the construction of a number of dams in Bihar and Bengal with a view to controlling floods and utilising the stored water for purposes of generation of electricity.
+One of such dams is the Konar Dam in the district of Hazaribagh in Bihar.
+For the construction of the aforesaid Dam the Corporation entered into an agreement with Messrs Hind Construction Ltd. and Messrs Patel Engineering Co. Ltd. on May 24, 1950, and appointed them contractors for the aforesaid purpose.
+They will hereinafter be referred to as the Contractors.
+As a result of a change in the design of the Dam, it became necessary to enter into a supplementary agreement and on March 10, 1951, cl. 8 of Part II of the original agreement was amended and a fresh cl. 8 was substituted.
+Under the new cl. 8 of the agreement, as amended, the Corporation agreed to make available to the contractors such equipment as was necessary and suitable for the construction aforesaid.
+The Contractors are charged the actual price paid by the Corporation for the equipment and machinery thus made available, inclusive of freight and customs duty, if any, as also the cost of transport, but excluding sales tax.
+The equipment thus supplied by the Corporation to the Contractors was classified into two groups, Group A and Group B, as detailed in Schedule No. 2.
+The machinery in Group A was to be taken over from the Contractors by the Corporation, after the completion of the work at their "residual value" which was to be calculated in the manner set out in the agreement.
+The machinery in Group B was to become the 525 property of the Contractors after its full price had been paid by them.
+No more need be said about the machinery in Group B, because there is no dispute about that group, the Contractors having accepted the position that Group B machinery had been sold to them.
+The controversy now remaining between the parties relates to the machinery in Group A.
+On August 12, 1952, the Superintendent of Sales Tax, Hazaribagh, assessed the Corporation under section 13(5) of the Act for the period April, 1950 to March, 1952.
+It is not necessary to set out the details of the tax demand, because the amount is not in controversy.
+What was contended before the authorities below and in this Court was that the transaction in question did not amount to a "sale" within the meaning of the Act.
+The Superintendent rejected the contention raised on behalf of the Corporation that it was not liable to pay the tax in respect of the machinery sup plied to the Contractors.
+The Corporation went up in appeal to the Deputy Commissioner of Sales Tax against the said order of assessment.
+By his order dated May 5, 1953, the Deputy Commissioner rejected the contention of the appellant as to its liability under the Act, but made certain amendments in the assessment which are not material to the points in controversy before us.
+The Deputy Commissioner repelling the Corporation 's contentions based on the Act, held inter alia that the supply of equipment in Group A of the agreement aforesaid amounted to a sale and was not a hire ; that the condition in the agreement for the "taking over" of the equipment on conditions laid down in the agreement was in its essence a condition of repurchase and that the Corporation was a "dealer" within the meaning of the Act.
+The Corporation moved the Board of Revenue, Bihar, in its revisional jurisdiction under section 24 of the Act.
+The Board of Revenue by its resolution dated October 1, 1953, rejected the revisional application and upheld the order of the authorities below.
+Thereafter, the Corporation made an application to the Board of Revenue under section 25 of the Act for a reference to refer the following 67 526 questions to the High Court at Patna, namely, (a) whether the assessment under section 13(5) of the Act is maintainable, (b) whether, in the facts and circumstances of the case, it can be held that the property in the goods included in Schedule A did pass to the Contractors and the transaction amounted to a sale, and (c) whether the terms of the agreement amount to sale transactions with the Contractors and taking over by the Corporation amounts to repurchase.
+This application was made on December 22, 1953, but when the application for making a reference to the High Court came up for hearing before the Board of Revenue on May 20, 1954, and after the parties had been heard, counsel for the Corporation sought leave of the Board to withdraw questions (a) and (c) from the proposed reference and the Board passed the following order: "Leave is sought by the learned advocate for the petitioner to drop questions (a) and (c) from the reference.
+The leave is granted.
+There remains only question (b) for reference to the High Court. . " Thus only question (b) set out above was referred to the High Court for its decision.
+After hearing the parties, a Division Bench of the High Court, Ramaswami, C. J. and Raj Kishore Prasad, J., heard the reference and come to the conclusion by its judgment dated July 13, 1956, that the reference should be answered in the affirmative, namely, that the transaction in question amounted to a sale within the meaning of section 2(g) of the Act.
+Thereupon the Corporation made an application headed as under article 132(1) of the Constitution and prayed that the High Court "be pleased to grant leave to appeal to the Supreme Court of India and grant the necessary certificate that this case is otherwise a fit case for appeal to the Supreme Court. . " Apart from raising the ground of attack dealt with by the High Court on the reference as aforesaid, the Corporation at the time of the hearing of the applica tion appears to have raised other questions as would appear from the following extract from the judgment and order of the High Court dated January 31, 1957 : 527 "It was conceded by learned counsel for the petitioner that the case does not fulfill the requirements of Article 133(1) of the Constitution; but the argument is that leave may be granted under Article 132 of the Constitution as there is a substantial question of law with regard to the interpretation of the Constitution involved in this case.
+We are unable to accept this argument as correct.
+It is not possible for us to hold that there is any substantial question of law as to the interpretation of the Constitution involved in this case.
+The question at issue was purely a matter of construction of section 2(g) of the Bihar Sales Tax Act and that question was decided by this Court in favour of the State of Bihar and against the petitioner.
+It is argued now on behalf of the petitioner that the provisions of section 2(g) of the Bihar Sales Tax Act are ultra vires of the Constitution, but no such question was dealt with or decided by the High Court in the reference.
+We do not, therefore, consider that this case satisfies the requirements of article 132(1) of the Constitution and the petitioner is not entitled to grant of a certificate for leave to appeal to the Supreme Court under this Article.
+The application is accordingly dismissed.
+" Having failed to obtain the necessary certificate from the High Court, the Corporation moved this Court and obtained special leave to appeal under article 136 of the Constitution.
+The leave was granted on March 31, 1958.
+Though the scope of the decision of the High Court under section 25 of the Act on a reference made to it is limited, the Corporation has raised certain additional points of controversy, which did not form part of the decision of the High Court.
+Apart from the question whether the transaction in question amounted to a sale within the meaning of the Act, the statement of the case on behalf of the appellant raises the following additional grounds of attack, namely, (1) that the Corporation is not a dealer within the meaning of the Act, (2) that the proviso to section 2(g) of the Act is ultra vires the Bihar Legislature and (3) that the Act itself is ultra vires the Bihar Legislature by reason of the 528 legislation being beyond the scope of entry 48 in List II of Schedule 7 of the Government of India Act, 1935.
+Hence, a preliminary objection was raised on behalf of the respondent that the additional grounds of attack were not open to the Corporation in this Court.
+It is, therefore, necessary first to determine whether the additional grounds of attack set out above are open to the Corporation.
+In our opinion, those additional grounds are not open.
+They were never raised at any stage of the proceedings before the authorities below, or in the High Court.
+This Court is sitting in appeal over the decision of the High Court under section 25 of the Act.
+The High Court in coming to its conclusion was acting only in an advisory capacity.
+It is well settled that the High Court acting in its advisory capacity under the taxing statute cannot go beyond the questions referred to it, or on a reference called by it.
+The scope of the appeal to this Court, even by special leave, cannot be extended beyond the scope of the controversy that could have been legally raised before the High Court.
+It is manifest that the High Court could not have expressed its opinion on any matter other than the question actually before it as a result of the reference made by the Board of Revenue.
+The preliminary objection must, therefore, be allowed and the appeal limited to the question whether the transaction in question in this case amounted to a sale within the meaning of the Act.
+It is manifest that this controversy between the parties has to be resolved with reference to the terms of the contract itself.
+Clause 8 of the agreement as amended is a very complex one as will presently appear from the following extracts, being the relevant portions of that clause : "The Corporation may hire or make available such of its equipment as is suitable for construction for the use of the Contractor.
+The actual prices paid by the Corporation for the equipment thus made available, inclusive of freight, insurance and custom duties, if any, and the cost of its transport to site but excluding such tax as sales tax whether local, municipal, State or Central, shall be charged to the 529 Contractor and the equipment shall remain the property of the Corporation until the full prices thereof have been realised from the Contractor.
+Equipment lent for the Contractor 's use, if any, shall be charged to him on terms of hiring to be mutually agreed upon; such terms will cover interest on capital cost and the depreciation of the equipment.
+The Corporation will supply to the Contractor the machinery mentioned in Schedule No. 2, Group A and Group B below." Then follows a description seriatim of the many items of machinery in Group A with the number of such machinery and the approximate cost thereof.
+In this Group A, there are fourteen items of which it is only necessary to mention the first one, that is to say, four excavators with accessories approximately valued at Rs. 12,46,390; and No. 14, two excavators of another model, approximately costing Rs. 3,35,000.
+The total approximate cost of the machinery in Group A is estimated to be Rs. 42,63,305.
+Then follow the descriptions of machinery in Group B, the approximate cost of which is Rs. 21,84,148.
+Then follow certain conditions in respect of equipments included in Group A, in these words: "The Corporation will take over from the Contractor item 1 and 14 on the completion of the work at a residual value calculated on the basis of the actual number of hours worked assuming the total life to be 30,000 hours and assuming that the machinery will be properly looked after during the period of its operation.
+The remaining items of this group will be taken over by the Corporation at their residual value taking into account the actual number of hours worked and the standard life of such machinery for which Schedule F. as last relished, ? of the U. section Bureau of Industrial Revenue, on the probable useful life and depreciation rates allowable for Income Tax purpose (vide Engineering News Record dated March 17, 1949) will serve as a basis, provided that the machinery shall be properly looked after by the Contractor during the period of its operation.
+Provided further that such residual value of the machinery shall be assessed 530 jointly by representatives of the Corporation and of the Contractor and that in case of difference of opinion between the two parties the matter shall be settled through arbitration by a third party to be agreed to both by the Corporation and the Contractor.
+The items included in this group will be taken over by the Corporation from the Contractor either on the completion of the work or at an earlier date if the Contractor so wishes, provided that in the latter case the equipments will be taken over by the Corporation only when they are declared surplus at Konar and such declaration is duly certified by the Consulting Engineer, within a period of 15 days of such declaration being received by the Corporation.
+In respect of the machinery which shall have been delivered to the Contractor on or before the 31st of December 1950, their cost shall be recovered from the Contractor in eighteen equal instalments beginning with January 1951 and in respect of the remaining items included in this group of machinery, their cost will be recovered from the Contractor in eighteen equal instalments beginning with July 1951, provided that these remaining items shall have been delivered to the Contractor prior to the last specified date.
+Provided (a) that the total actual price for these equipments which has been provisionally estimated at Rs. 42,63,305 will be chargeable to the Contractor as per first para of clause 1 above.
+(b) that after approximately two thirds of total cost or an amount of Rs. 28,43,000 (Rupees twenty eight lakhs forty three thousand) approximately has been recovered from the Contractor on account of these equipments the Corporation will consider the date or dates when it could take over the equipments still under use by the Contractor, assess the, extent to which they have already been depreciated and thereby arrive at, their residual value; and (c) that the recovery or refund of the amount payable by or to the Contractor on account of these equipments will be decided only if the Corporation is fully satisfied that their residual life at the time of 531 their being finally handed over to the Corporation shall under no circumstances fall below one third of their respective standard life as agreed upon by the Corporation and the Contractor." Then follow terms and conditions in respect of Group 'B ' which are not relevant to our purpose.
+Thereafter, the following conditions appear: "In respect of equipments whether in Group A or B made available by the Corporation to the Contractor.
+The following conditions shall apply to all equipments, i.e., those included in Group A and B above and others, if any (a) The Contractor shall continuously maintain proper machine cards separately in respect of each item of equipment, clearly showing therein, day by day, the number of actual hours the machine has worked together with the dates and other relevant particulars.
+(b) The Contractor shall maintain all such equipments in good running condition and shall regularly and efficiently give service to all plant and machinery, as may be required by the Corporation 's Chief Engineer who shall have the right to inspect, either personally or through his authorised representatives all such plant and equipment and the machine cards maintained in respect thereof at mutually convenient hours.
+(c) No item of equipment made available by the Corporation on loan or hire shall at any time be removed from the work site under any circumstances until the full cost thereof has been recovered from the Contractor by the Corporation and thereafter only if in the opinion of the Consulting Engineer the removal of such item or items is not likely to impede the satisfactory prosecution of the work.
+Similarly no item of equipment or material belonging to the Contractor but towards the cost of which money has been advanced by the Corporation shall at any time be removed from the work site under any circumstances until the amount of money so advanced has been recovered from the Contractor by 532 the Corporation and thereafter if in the opinion of the Consulting Engineer the removal of such item or items is not likely to impede the satisfactory prosecution of the work.
+(d) The Corporation shall supply to the Contractor whatever spares have been procured or ordered for the equipment already supplied or to be supplied by the Corporation to the Contractor under the terms of this Agreement and that thereafter the replenishment of the stock of spares shall be entirely the responsibility of the Contractor who shall therefore take active steps in time to procure fresh spares so as to maintain a sufficient reserve.
+The spares to be supplied by the Corporation will be issued to the Contractor by the Executive Engineer, Konar as and when required by the Contractor against indent accompanied by a certificate that the spares previously issued to him have been actually used up on the machines for which they were intended.
+(e) Whenever spares are issued to the Contractor in accordance with this provision, their actual prices inclusive of freight, insurance and customs but excluding storage and handling charges shall be debited against him and recovered from his next fortnightly bill.
+(f) In order to enable the Contractor to take active steps for planning the procurement of additional spares in advance, the Corporation shall forthwith furnish to him a complete list of all the spares which it has procured or ordered for the equipment to be supplied to the Contractor.
+" The portions quoted above contain the relevant terms and conditions in respect of the transaction in question, so far as it is necessary to know them for the purpose of this case.
+It will be noticed that the Corporation made available to the Contractors different kinds of machinery and equipment detailed in Group A of the approximate value of Rs. 42,63,000 odd, for which the price paid by the Corporation inclusive of freight, insurance, customs duty etc.
+has to be charged to them.
+But the machinery and the equipment so 533 made available to the Contractors were to remain the property of the Corporation until the, full price thereof had been realised from the Contractors.
+It is also noteworthy that the agreement makes a distinction between the aforesaid part of the agreement and the equipment lent to the contractors in respect of which the contractors had to be charged in terms of hiring, including interest on capital cost and the depreciation of equipment.
+Thus clearly the agreement between the parties contemplated two kinds of dealings between them, namely (1) the supply of machinery and equipments by the Corporation to the Contractors and (2) loan on hire of other equipment on terms to be mutually agreed between them in respect of the machinery and equipment supplied by the Corporation to the Contractors.
+There is a further condition that the Corporation will take over from the contractors items 1 and 14, specifically referred to above, and the other items in Group A at their "residual value" calculated on the basis indicated in the paragraph following the description of the machinery and the equipments.
+But there is a condition added that the "taking over" is dependent upon the condition that the machinery will be properly looked after during the period of its operation.
+There is an additional condition to the taking over by the Corporation, namely, the work for which they were meant had been completed, or earlier, at the choice of the Contractors, provided that they are declared surplus for the purposes of the construction of the Konar Dam and so certified by the Consulting Engineer.
+Hence, it is not an unconditional agreement to take over the machinery and equipment as in Group B.
+The total approximate price of Rs. 42,63,305 is payable by the Contractors in 18 equal instalments.
+Out of the total cost thus made realisable from the Contractors two thirds, namely, Rs. 28,42,000 approximately, has to be realised in any case.
+After the two thirds amount aforesaid has been realised from the contractors on account of supply of the equipments by the Corporation, the Corporation had to consider the date or dates of the "taking over" of the equipment after assessing the extent to which it 534 had depreciated as a result of the working on the project in order to arrive at the "residual value" of the same.
+The refund of the one third of the price or such other sum as may be determined as the "residual value" would depend upon the further condition that the Corporation was fully satisfied that their "residual life" shall, under no circumstances, fall below one third of their respective standard life as agreed upon by the parties.
+It would, thus, appear that the "taking over" of such of the equipments as were available to be returned was not an unconditional term.
+The Corporation was bound to take them over only if it was satisfied that their "residual life" was not less than one third of the standard life fixed by the parties.
+It is clear from the terms and conditions quoted above that there was no right in the contractors to return any of the machinery and equipments at any time they liked, or found it convenient to do so.
+The conditions which apply to all equipments, whether in Group A or in Group B, are also relevant to determine the nature of the transaction.
+The contractors are required to "continuously maintain proper machine cards showing certain relevant particulars".
+It is their duty to maintain the equipments in good running condition and to regularly and effectively service them.
+No item of machinery and equipment could be removed by the contractors under any circumstances until the full cost thereof had been recovered from them and even then only if the removal of those items of machinery or equipment was not likely to impede the satisfactory progress of the work.
+Then follows the most important condition that the Contractors themselves shall have to replenish their stock of spare parts of the machinery made available to them by the Corporation.
+When spare parts are supplied to the Contractors by the Corporation, they shall be liable for the actual price of those parts inclusive of freight, insurance and customs duty.
+Those substantially are the terms of the contract between the parties and the sole question for determination in this appeal is whether, in respect of the machinery and equipments admittedly supplied by the Corporation to the Contractors, it was a mere 535 contract of hiring, as contended on behalf of the appellant Corporation, or a sale or a hire purchase, as contended on behalf of the respondent State.
+The law on the subject is not in doubt, but the difficulty arises in applying that law to the facts and circumstances of a particular case on a proper construction of the document evidencing the transaction between the parties.
+It is well settled that a mere contract of hiring, without more, is a species of the contract of bailment, which does not create a title in the bailee, but the law of hire purchase has undergone consider able development during the last half a century or more and has introduced a number of variations, thus leading to categories, and it becomes a question of some nicety as to which category a particular contract between the parties comes under.
+Ordinarily, a contract of hire purchase confers no title on the hirer, but a mere option to purchase on fulfillment of certain conditions.
+But a contract of hire purchase may also provide for the agreement to purchase the thing hired by deferred payments subject to the condition that title to the thing shall not pass until all the instalments have been paid.
+There may be other variations of a contract of hire purchase depending upon the terms agreed between the parties.
+When rights in third parties have been created by acts of parties or by operation of law, the question, which does not arise here, may arise as to what exactly were the rights and obligations of the parties to the original contract.
+It is equally well settled that for the purpose of determining as to which category a particular contract comes under, the court will look at the substance of the agreement and not at the mere words describing the category.
+One of the tests to determine the question whether a particular agreement is a contract of mere hiring or whether it is a contract of purchase on a system of deferred payments 'of the purchase price is whether there is any binding obligation on the hirer to purchase the goods.
+Another useful test to determine such a controversy is whether there is a right reserved to the hirer to return the goods at any time during the subsistence of the contract.
+If there is such a right reserved, then 536 clearly there is no contract of sale, vide Helby vs Matthews and others (1).
+Applying these two tests to the transaction in the present case, it becomes clear that it was a case of sale of goods with a condition of repurchase on certain conditions depending upon the satisfaction of the Corporation as to whether the "residual life" of the machinery or the equipment was not less than one third of the standard life in accordance with the terms agreed between the parties.
+It is clear on those terms that there is no right reserved to the contractors to return the goods at any time that they found it convenient or necessary.
+On the other hand, they were bound to pay two thirds of the total approximate price fixed by the parties in equal instalments.
+The Contractors were not bound under the terms to return any of the machinery or the equipments, nor was the Corporation bound to take them back unconditionally.
+The term in the agreement regarding the "taking over" of the machinery or equipments by the Corporation on payment of the "residual value" is wholly inconsistent with a contract of mere hiring and is more consistent with the property in the goods having passed to the Contractors, subject to the payment of all the instalments of the purchase pride.
+Furthermore, the stipulation that the Contractors themselves will have to supply the spare parts, as and when needed, for replacements of the worn out parts is also consistent with the case of the respondent that title had passed to the contractors and that they were responsible for the upkeep of the machinery and equipments and for depreciation.
+If it were a mere contract of hiring, the owner of the goods would have continued to be liable for replacements of worn out parts and for depreciation.
+Applying those tests to the terms of the agreement between the parties, it is clear that the transaction was a sale on deferred payments with an option to repurchase and not a mere contract of hiring, as contended on behalf of the appellant.
+It must, therefore, be held that the judgment of the High Court is entirely correct and the appeal must be dismissed with costs.
+Appeal dismissed.

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+No. 528, of 1959.
+Appeal from the judgment and order dated September 20, 1957, of the former Bombay High Court in I.T.R. No. 15 of 1957.
+Hardayal Hardy and D. Gupta, for the appellant.
+R. J. Kolah, section N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the respondent.
+635 1960.
+November 24.
+The Judgment of the Court was delivered by HIDAYATULLAH, J.
+The Commissioner of Income tax, Bombay City 11, has filed this appeal with a certificate under section 66A(2) of the Income tax Act, against the judgment and order of the High Court of Bombay dated September 20, 1957, in Income tax Reference No. 15 of 1957.
+The question referred to the High Court for its opinion by the Income tax Appellate Tribunal, Bombay was: "Whether the assessee is entitled to a deduction of Rs. 1,350 and Rs. 18,000 from his total income of the previous year relevant to the assessment years, 1953 54, 1954 55?" The assessee, Sitaldas Tirathdas of Bombay, has many sources of income, chief among them being property, stocks and shares, bank deposits and share in a firm known as Messrs. Sitaldas Tirathdas.
+He follows the financial year as his accounting year.
+For the assessment years 1953 54 and 1954 55, his total income was respectively computed at Rs. 50,375 and Rs. 55,160.
+This computation was not disputed by him, but he sought to deduct therefrom a sum of Rs. 1,350 in the first assessment year and a sum of Rs. 18,000 in the second assessment year on the ground that under a decree he was required to pay these sums as maintenance to his wife, Bai Deviben and his children.
+The suit was filed in the Bombay High Court (Suit No. 102 of 1951) for maintenance allowance, separate residence and marriage expenses for the daughters and for arrears of maintenance, etc.
+A decree by consent was passed on March 11, 1953, and maintenance allowance of Rs. 1,500 per month was decreed against him.
+For the account year ending March 31, 1953 only one payment was made, and deducting Rs. 150 per month as the rent for the flat occupied by his wife and children, the amount paid as maintenance under the decree came to Rs. 1,350.
+For the second year, the maintenance at Rs. 1,500 per month came to Rs. 18,000 which was claimed as a deduction.
+636 No charge on the property was created, and the matter does not fall to be considered under section 9(1)(iv) of the Income tax Act.
+The assessee, however, claimed this deduction on the strength of a ruling of the Privy Council in Bejoy Singh Dudhuria vs Commissioner of Income tax (1).
+This contention of the assesses was disallowed by the Income tax Officer, whose decision was affirmed on appeal by the Appellate Assistant Commissioner.
+On further appeal, the Tribunal observed: "This is a case, pure and simple, where an assessee is compelled to apply a portion of his income for the maintenance of persons whom he is under a personal and legal obligation to maintain.
+The Income tax Act does not permit of any deduction from the total income in such circumstances.
+" The Tribunal mentioned in the statement of the case that counsel for the assessee put his contention in the following words: "I claim a deduction of this amount from my total income because my real total income is whatever that is " computed, which I do not dispute, less the maintenance amount paid under the decree.
+" The assessee appears to have relied also upon a decision of the Lahore High Court in Diwan Kishen Kishore vs Commissioner of Income tax(2).
+The Tribunal, however, referred the above question for the opinion of the High Court.
+The High Court followed two earlier decisions of the same Court reported in Seth Motilal Manekchand vs Commissioner of Income tax (3) and Prince Khanderao Gaekwar vs Commissioner of Income tax (4), and held that, as observed in those two cases, the test was the same, even though there was no specific charge upon property so long as there was an obligation upon the assessee to pay, which could be enforeed in a Court of law.
+In Bejoy Singh Dudhuria 's case (1), there was a charge for maintenance created against the assessee, and the Privy Council had observed that the income must be deemed to have never reached that assessee, (1) (3) (2) (4) 637 having been diverted to the maintenance holders.
+In the judgment under appeal, it was held that the income to the extent of the decree must be taken to have been diverted to the wife and children, and never became income in the hands of the assessee.
+The Commissioner of Income tax questions the correctness of this decision and also of the two earlier decisions of the Bombay High Court.
+We are of opinion that the contention raised by the Department is correct.
+Before we state the principle on which this and similar cases are to be decided, we may refer to certain rulings, which illustrate the aspects the problem takes.
+The leading case on the subject is the decision of the Judicial Committee in Bejoy Singh Dudhuria 's case(1).
+There, the stepmother of the Raja had brought a suit for maintenance and a compromise decree was passed under which the stepmother was to be paid Rs. 1,100 per month, which amount was declared a charge upon the properties in the hands of the Raja, by the Court.
+The Raja sought to deduct this amount from his assessable income, which was disallowed by the High Court at Calcutta.
+On appeal to the Privy Council, Lord Macmillan observed as follows: "But their Lordships do not agree with the learned Chief Justice in his rejection of the view that the sums paid by the appellant to his step mother were not 'income ' of the appellant at all.
+This in their Lordships ' opinion is the true view of the matter.
+When the Act by Section 3 subjects to charge 'all income ' of an individual, it is what reaches the individual as income which it is intended to charge.
+In the present case the decree of the court by charging the appellant 's whole resources with a specific payment to his step mother has to that extent diverted his income from him and has directed it to his stepmother; to that extent what he receives for her is not his income.
+It is not a case of the application by the appellant of part of his income in a particular way, it is rather the allocation of a sum out of his revenue before it becomes income in his hands." (1) 81 638 Another case of the Privy Council may well be seen in this connection.
+That case is reported in P. C. Mullick vs Commissioner of Income tax, Bengal (1).
+There, a testator appointed the appellants as executors and directed them to pay Rs. 10,000 out of the income on the occasion of his addya sradh.
+The executors paid Rs. 5,537 for such expenses, and sought to deduct the amount from the assessable income.
+The Judicial Committee confirmed the decision of the Calcutta High Court disallowing the deduction, and observed that the payments were made out of the income of the estate coming to the hands of the executors and in pursuance of an obligation imposed upon them by the testator.
+It observed that it was not a case in which a portion of the income had been diverted by an over riding title from the person who would have received it otherwise, and distinguished the case in Bejoy Singh Dudhuria 's case (2).
+These cases have been diversely applied in India, but the facts of some of the cases bring out the distinction clearly.
+In Diwan Kishen Kishore vs Commissioner of Income tax (3), there was an impartible estate governed by the law of primogeniture, and under the custom applicable to the family, an allowance was payable to the junior member.
+Under an award given by the Deputy Commissioner acting as arbitrator and according to the will of the father of the holder of the estate and the junior member, a sum of Rs. 7,200 per year was payable to the junior member.
+This amount was sought to be deducted on the ground that it was a necessary and obligatory payment, and that the assessable income must, therefore, be taken to be pro tanto diminished.
+It was held that the income never became a part of the income of the family or of the eldest member but was a kind of a charge on the estate.
+The allowance given to the junior member, it was held, in the case of an impartible estate was the separate property of the younger member upon which he could be assessed and the rule that an allowance given by the head of a Hindu coparcenary to its members by way of maintenance was liable to be assessed (1) (2) (3) 639 as the income of the family, had no application.
+It was also observed that if the estate had been partible and partition could have taken place, the payment to the junior member out of the coparcenary funds would have stood on a different footing.
+In that case, the payment to the junior member was a kind of a charge which diverted a portion of the income from the assessee to the junior member in such a way that it could not be said that it became the income of the assessee.
+In Commissioner of Income tax, Bombay vs Makanji Lalji (1), it was stated that in computing the income of a Hindu undivided family monies paid to the widow of a deceased coparcener of the family as maintenance could not be deducted, even though the amount of maintenance had been decreed by the Court and had been made a charge on the properties belonging to the family.
+This case is open to serious doubt, because it falls within the rule stated in Bejoy Singh Dudhuria 's case (2); and though the High Court distinguished the case of the Judicial Committee, it appears that it was distinguished on a ground not truly relevant, namely, that in Bejoy Singh Dudhuria 's case (2) the AdvocateGeneral had abandoned the plea that the stepmother was still a member of the undivided Hindu family.
+It was also pointed out that this was a case of assessment as an individual and not an assessment of a Hindu undivided family.
+In Commissioner of Income tax, Bombay vs D. R. Naik (3), the assessee was the sole surviving member of a Hindu undivided family.
+There was a decree of Court by which the assessee was entitled to receive properties as a residuary legatee, subject, however, to certain payments of maintenance to widows.
+The widows continued to be members of the family.
+It was held that though section 9 of the Income tax Act did not apply, the assessee 's assessable income was only the balance left after payment of the maintenance charges.
+It appears from the facts of the case, however, that there was a charge for the maintenance (1) (2) (3) 640 upon the properties of the assessee.
+This case also brings out correctly the principles laid down by the Judicial Committee that if there be an overriding obligation which creates a charge and diverts the income to some one else, a deduction can be made of the amounts so paid.
+The last case may be contrasted with the case reported in P. C. Mullick and D. C. Aich, In re(1).
+There, under a will certain payments had to be made to the beneficiaries.
+These payments were to be made gradually together with certain other annuities.
+It was held that the payments could only be made out of the income received by the executors and trustees from the property, and the sum was assessable to income tax in the hands of the executors.
+It was pointed out that under the wilt it was stated that the amounts were to be paid "out of the income of my property", and thus, what had been charged was the income of the assessees, the executors.
+The case is in line with the decision of the Privy Council in P. C. Mullick vs Commissioner of Income tax, Bengal(2).
+In Hira Lal, In re,(3) there was a joint Hindu family, and under two awards made by arbitrators which were made into a rule of the Court, certain maintenance allowances were payable to the widows.
+These payments were also made a charge upon the property.
+It was held that inasmuch as the payments were obligatory and subject to an overriding charge they must be excluded.
+Here too, the amount payable to the widows was diverted from the family to them by an overriding obligation in the nature of a charge, and the income could not be said to accrue to the joint Hindu family at all.
+In Prince Khanderao Gaekwar vs Commissioner of Income tax (4), there was a family trust out of which two grandsons of the settlor had to be paid a portion of the income.
+It was provided that if their mother lived separately, then the trustees were to pay her Rs. 18,000 per year.
+The mother lived separately, and two deeds were executed by which the two grandsons agreed to pay Rs. 15,000 per year to the mother, (1) (3) (2) (4) 641 and created a charge on the property.
+The sons having paid Rs. 6,000 in excess of their obligations, sought to deduct the amount from their assessable income, and it was allowed by the Bombay High Court, observing that though the payment was a voluntary payment, it was subject to a valid and legal charge which could be enforced in a Court of law and the amount was thus deductible under section 9(1)(iv).
+There is Do distinction between a charge created by a decree of Court and one created by agreement of parties, provided that by that charge the income from property can be said to be diverted so as to bring the matter within section 9(1)(iv) of the Act.
+The case was one of application of the particular section of the Act and not one of an obligation created by a money decree, whether income accrued or not.
+The case is, therefore, distinguishable from the present, and we need not consider whether in the special circumstances of that case it was correctly decided.
+In V. M. Raghavalu Naidu & Sons vs Commissioner of Income tax (1), the assessees were the executors and trustees of a will, who were required to pay maintenance allowances to the mother and widow of the testator.
+The amount of these allowances was sought to be deducted, but the claim was disallowed.
+Satyanarayana Rao and Viswanatha Sastri, JJ. distinguished the case from that of the Privy Council in Bejoy Singh Dudhuria (2).
+Viswanatha Sastri, J. observed that the testator was under a personal obligation under the Hindu law to maintain his wife and mother, and if he had spent a portion of his income on such maintenance, he could not have deducted the amount from his assessable income, and that the position of the executor was no better.
+Satyanarayana Rao, J. added that the amount was not an allowance which was charged upon the estate by a decree of Court or otherwise and which the testator himself had no right or title to receive.
+The income which was received by the executors included the amount paid as maintenance, and a portion of it was thus applied in discharging the obligation.
+(1) (2) 642 The last cited case is again of the Bombay High Court, which seems to have influenced the decision in the instant case.
+That is reported in Seth Motilal Manekchand vs Commissioner of Income tax(1).
+In that case, there was a managing agency, which belonged to a Hindu joint family consisting of A, his son B and A 's wife.
+A partition took place, and it was agreed that the managing agency should be divided, A and B taking a moiety each of the managing agency remuneration but each of them paying A 's wife 2 as. 8 pies out of their respective 8 as.
+share in the managing agency remuneration.
+Chagla, C. J. and Tendolkar, J. held that under the deed of partition A and B had really intended that they were to receive only a portion of the managing agency commission and that the amount paid to A 's wife was diverted before it became the income of A and B and could be deducted.
+The learned Judge observed at p. 741 as follows: "We are inclined to accept the submission of Mr. Kolah that it does constitute a charge, but in our opinion, it is unnecessary to decide this question because this question can only have relevance and significance if we were considering a claim made for deduction under section 9(1)(iv) of the Income tax Act where a claim is made in respect of immovable property where the immovable property is charged or mortgaged to pay a certain amount.
+It is sufficient for the purpose of this reference if we come to the conclusion that Bhagirathibai had a legal enforceable right against the partner in respect of her 2 annas and 8 pies share and that the partner was under a legal obligation to pay that amount.
+" These are the cases which have considered the problem from various angles.
+Some of them appear to have applied the principle correctly and some, not.
+But we do Dot propose to examine the correctness of the decisions in the light of the facts in them.
+In our opinion, the true test is whether the amount sought to be deducted, in truth, never reaches the assessee as his income.
+Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the (1) 643 decisive fact.
+There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee.
+Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow.
+It is the first kind of payment which can truly be excused and not the second.
+The second payment is merely an obligation to pay another a portion of one 's own income, which has been received and is since applied.
+The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable.
+In our opinion, the present case is one in which the wife and children of the assessee who continued to be members of the family received a portion of the income of the assessee, after the assessee had received the income as his own.
+The case is one of application of a portion of the income to discharge an obligation and not a case in which by an overriding charge the assessee became only a collector of another 's income.
+The matter in the present case would have been different, if such an overriding charge had existed either upon the property or upon its income, which is not the case.
+In our opinion, the case falls outside the rule in Bejoy Singh Dudhuria 's case and rather falls within the rule stated by the Judicial Committee in P. C. Mullick 's case For these reasons, we hold that the question referred to the High Court ought to have been answered in the negative.
+We, accordingly, discharge the answer given by the High Court, and the question will be answered in the negative.
+The appeal is thus allowed with costs here and in the High Court.
+Appeal allowed.

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+Appeal No. 270 of 1959.
+Appeal by special leave from the judgment and order dated December 23, 1957, of the Allahabad High Court (Lucknow Bench) at Lucknow in Civil Miscellaneous Application (0.
+J.) No. 86 of 1954.
+C. B. Aggarwala, G. C. Mathur and C. P. Lal, for the appellants.
+Achhru Ram, section N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the respondent.
+November, 25.
+The Judgment of Sarkar, Subba Rao and Mudholkar, JJ., was delivered by Subba Rao, J., and that of Gajendragadkar and Wanchoo, JJ., was delivered by Wanchoo, J. SUBBA RAO, J. This is an appeal by special leave against the judgment and order of the High Court of Judicature at Allahabad, Lucknow Bench, allowing the petition filed by the respondent under article 226 of the Constitution.
+The facts are in a small compass and may be briefly stated.
+In the year 1933 the respondent was appointed a constable in U. P. Police Force; on December 1, 1945, he was promoted to the rank of head constable and in May, 1952 he was posted as officer incharge of Police Station, Intiathok, District Gonda.
+Complaints were received by the District Magistrate, Gonda, to the effect that the respondent was receiving bribes in the discharge of his duties.
+On September 16, 1952, the District Magistrate, Gonda, directed the Sub Divisional Magistrate to make an enquiry in respect of the 674 said complaints.
+On November 3,1952, the Sub Divisional Magistrate, after making the necessary enquiries, submitted a report to the District Magistrate recommending the transfer of the respondent to some other station.
+On November 17, 1952, the District Magistrate sent an endorsement to the Superintendent of Police to the effect that the Sub Divisional Magistrate had found substantial complaints against the integrity of the respondent, that he had also received such complaints and that his general reputation for integrity was not good, but that his transfer should, however, come after sometime and that in the meantime his work might be closely watched.
+On being called upon by the Superintendent of Police to submit an explanation for his conduct, the respondent submitted his explanation on November 29, 1952.
+On December 17, 1952, the respondent was forced to go on leave for two months.
+Before the expiry of his leave, he was reverted to his substantive post of head constable and transferred to Sitapur.
+On February 17, 1953, he was promoted to the rank of officiating Sub Inspector and posted as Station Officer at Sidholi.
+On February 27, 1953, the Superintendent of Police made the following endorsement in his character roll: "A strong officer with plenty of push in him and met with a strong opposition in this new charge.
+Crime control was very good but complaints of corruption were received which could not be substantiated.
+Integrity certified.
+" Meanwhile on further complaints, the C.I.D. probed the matter further and on July 26, 1953, the Superintendent of Police, Investigation Branch, C.I.D., reported that the respondent was a habitual bribetaker.
+On July 28, 1953, he was placed under suspension and on August 18, 1953, he was charged under section 7 of the Police Act with remissness in the discharge of his duty and unfitness for the same inasmuch as while posted as a Station Officer, Police Station, Intiathok, he had been guilty of dishonesty, corruption and misbehaviour in that he had on nine occasions, particulars of which were given in the charge, accepted bribes.
+it may be mentioned that the magisterial inquiry 675 related to seven of the nine charges alleged against the respondent.
+The trial was conducted by the, Superintendent of Police and the respondent submitted his explanation on September 12, 1953.
+The Superintendent of Police, who conducted the trial, examined many witnesses and found that seven out of the nine charges had been established.
+Thereafter he issued a notice to the respondent calling upon him to show cause why he should not be dismissed from the police force.
+On February 20, 1954, the respondent sub mitted his explanation and the Superintendent of Police, by his order dated February 22, 1954, dismissed the respondent from service with effect from the said date.
+The appeal preferred by the respondent to the Deputy Inspector General of Police was dismissed by his order dated June 2, 1954.
+Thereafter the respondent on August 5, 1954, filed a petition under article 226 of the Constitution before the High Court of Judicature at Allahabad, Lucknow Bench, for quashing the order of dismissal.
+Before the High Court three points were raised, namely, (1) as the petitioner was officiating.
+as Sub Inspector of Police at the time of the departmental trial the Suprintendent of Police had no power to dismiss him, since an order in such circumstances could only be made by a police officer senior in rank to a Superintendent; (2) the trial was vitiated by a number of serious irregularities; and (3) the specific acts with which the petitioner was charged were cognizable offences and, therefore, the Superintendent of Police had no jurisdiction to proceed with a departmental trial without complying with the provisions of subparagraph (1) of para.
+486 of the Police Regulations.
+The learned Judges of the High Court held that the respondent was charged with committing cognizable offences and therefore sub paragraph (1) of para.
+486 governed the situation and that, as no case, as required by the said sub paragraph, was registered against the respondent in the police station, the order of dismissal was invalid.
+They further held that the case was not covered by the first proviso to sub paragraph (1) of para.
+486, as, in their opinion, the information 676 about the commission of the offences was not in the first instance received by the Magistrate and forwarded to the police for inquiry.
+In view of that finding they found it unnecessary for them to express any opinion upon other arguments which had been advanced on behalf of the respondent.
+In the result they issued a writ in the nature of certiorari quashing the impugned orders.
+Hence the appeal.
+Mr. C. B. Agarwala, learned counsel appearing for the appellants, raised before us the following points: (1) The Governor exercised his pleasure through the Superintendent of Police, and, as the Police Regulations were only administrative directions, the non compliance therewith would not in any way affect the validity of the order of dismissal.
+(2) If the order of dismissal was held to have been made under the statutory power conferred upon the Superintendent of Police, the regulations providing for investigation in the first place under chapter XIV of the Criminal Procedure Code were only directory in nature, and inasmuch as no prejudice was caused to the respondent the non compliance with the said regulations would not affect the validity of the order of dismissal.
+(3) The Superintendent of Police was authorized to follow the alternative procedure prescribed by subparagraph (3) of para.
+486 and, therefore, the inquiry held without following the procedure prescribed by rule I was not bad.
+(4) As the magisterial inquiry was held in regard to practically all the charges, the subject matter of the departmental trial, the case is not covered by the provisions of para.
+486 of the Police Regulations.
+In the case of The State of U. P. vs Babu Ram Upadhya (1) in which we have just delivered the judgment, we have considered the first three point; and for the reasons mentioned therein we reject the first three contentions.
+The appellants must succeed on the fourth contention.
+From the facts already narrated, the conduct of the respondent, when he was officer incharge of the Police Station, Intiathok, was the subject matter of (1) Civil Appeal No. 119 of 1950; ; 677 magisterial inquiry.
+The Sub Divisional Magistrate made inquiry in respect of seven of the charges which were the subject matter of the departmental trial and.
+submitted a report to the District Magistrate.
+The District Magistrate, in his turn, made an endorsement on the report and communicated the same to the Superintendent of Police recommending the transfer of the respondent and suggesting that in the meanwhile the work of the respondent might be closely watched.
+Though the Superintendent of Police gave at first a good certificate to the respondent, in respect of the same a further probe was made through the C.I.D. Thereafter the Superintendent of Police conducted a departmental trial in respect of the aforesaid seven charges and two other new charges of the same nature.
+The inquiry ended in the dismissal of the respondent.
+In the circumstances it would be hypertechnical to hold that there was no magisterial inquiry in respect of the matter which was the subject matter of the departmental trial.
+On the said facts we hold that the departmental inquiry was only a further step in respect of the misconduct of the respondent in regard whereto the magisterial inquiry was held at an earlier stage.
+If so, the question is whether para.
+486 would govern the present inquiry or it would fall out side its scope.
+The relevant provisions of the Police Regulations read: Paragraph 486: "When the offence alleged against a police officer amounts to an offence only under s: 7 of the Police Act, there can be no magisterial inquiry under the Criminal Procedure Code.
+In such cases, and in other cases until and unless a magisterial inquiry is ordered, inquiry will be made under the direction of the Superintendent of Police in accordance with the following rules;" Paragraph 489: "A police officer may be departmentally tried under section 7 of the Police Act (1) after he has been tried judicially; (2) after a magisterial inquiry under the Criminal Procedure Code; 86 678 (3) after a police investigation under the Criminal Procedure Code or a departmental enquiry under paragraph 486 III above." A combined reading of these provisions indicates that para.
+86 does not apply to a case where a magisterial inquiry is ordered; and that a police officer can be departmentally tried under section 7 of the Police Act after such a magisterial inquiry.
+In this case the departmental trial was held subsequent to the completion of the magisterial inquiry and therefore it falls within the express terms of para.
+489(2).
+The fact that in the interregnum the police received further complaints or that the C.I.D. made further enquiries do not affect the question, if substantially the subject matter of the magisterial inquiry and the departmental trial is the same.
+In this case we have held that it was substantially the same and therefore the departmental trial was validly held.
+We, therefore, set aside the order made by the High Court.
+As we have pointed out earlier, the High Court, in the view taken by it, did not express its opinion on the other questions raised and argued before it.
+In the circumstances, we remand the matter to the High Court for disposal in accordance with law.
+The costs of this appeal will abide the result.
+WANCHOO, J.
+We have read the judgment just delivered by our learned brother Subba Rao J.
+We agree with the order proposed by him.
+Our reasons for coming to this conclusion are, however, the same which we have given in C.A. 119 of 1959, The State of Uttar Pradesh vs Babu Ram Upadhya.
+Appeal allowed.
+Case remanded.

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+No. 528, of 1959.
+Appeal from the judgment and order dated September 20, 1957, of the former Bombay High Court in I.T.R. No. 15 of 1957.
+Hardayal Hardy and D. Gupta, for the appellant.
+R. J. Kolah, section N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the respondent.
+635 1960.
+November 24.
+The Judgment of the Court was delivered by HIDAYATULLAH, J.
+The Commissioner of Income tax, Bombay City 11, has filed this appeal with a certificate under section 66A(2) of the Income tax Act, against the judgment and order of the High Court of Bombay dated September 20, 1957, in Income tax Reference No. 15 of 1957.
+The question referred to the High Court for its opinion by the Income tax Appellate Tribunal, Bombay was: "Whether the assessee is entitled to a deduction of Rs. 1,350 and Rs. 18,000 from his total income of the previous year relevant to the assessment years, 1953 54, 1954 55?" The assessee, Sitaldas Tirathdas of Bombay, has many sources of income, chief among them being property, stocks and shares, bank deposits and share in a firm known as Messrs. Sitaldas Tirathdas.
+He follows the financial year as his accounting year.
+For the assessment years 1953 54 and 1954 55, his total income was respectively computed at Rs. 50,375 and Rs. 55,160.
+This computation was not disputed by him, but he sought to deduct therefrom a sum of Rs. 1,350 in the first assessment year and a sum of Rs. 18,000 in the second assessment year on the ground that under a decree he was required to pay these sums as maintenance to his wife, Bai Deviben and his children.
+The suit was filed in the Bombay High Court (Suit No. 102 of 1951) for maintenance allowance, separate residence and marriage expenses for the daughters and for arrears of maintenance, etc.
+A decree by consent was passed on March 11, 1953, and maintenance allowance of Rs. 1,500 per month was decreed against him.
+For the account year ending March 31, 1953 only one payment was made, and deducting Rs. 150 per month as the rent for the flat occupied by his wife and children, the amount paid as maintenance under the decree came to Rs. 1,350.
+For the second year, the maintenance at Rs. 1,500 per month came to Rs. 18,000 which was claimed as a deduction.
+636 No charge on the property was created, and the matter does not fall to be considered under section 9(1)(iv) of the Income tax Act.
+The assessee, however, claimed this deduction on the strength of a ruling of the Privy Council in Bejoy Singh Dudhuria vs Commissioner of Income tax (1).
+This contention of the assesses was disallowed by the Income tax Officer, whose decision was affirmed on appeal by the Appellate Assistant Commissioner.
+On further appeal, the Tribunal observed: "This is a case, pure and simple, where an assessee is compelled to apply a portion of his income for the maintenance of persons whom he is under a personal and legal obligation to maintain.
+The Income tax Act does not permit of any deduction from the total income in such circumstances.
+" The Tribunal mentioned in the statement of the case that counsel for the assessee put his contention in the following words: "I claim a deduction of this amount from my total income because my real total income is whatever that is " computed, which I do not dispute, less the maintenance amount paid under the decree.
+" The assessee appears to have relied also upon a decision of the Lahore High Court in Diwan Kishen Kishore vs Commissioner of Income tax(2).
+The Tribunal, however, referred the above question for the opinion of the High Court.
+The High Court followed two earlier decisions of the same Court reported in Seth Motilal Manekchand vs Commissioner of Income tax (3) and Prince Khanderao Gaekwar vs Commissioner of Income tax (4), and held that, as observed in those two cases, the test was the same, even though there was no specific charge upon property so long as there was an obligation upon the assessee to pay, which could be enforeed in a Court of law.
+In Bejoy Singh Dudhuria 's case (1), there was a charge for maintenance created against the assessee, and the Privy Council had observed that the income must be deemed to have never reached that assessee, (1) (3) (2) (4) 637 having been diverted to the maintenance holders.
+In the judgment under appeal, it was held that the income to the extent of the decree must be taken to have been diverted to the wife and children, and never became income in the hands of the assessee.
+The Commissioner of Income tax questions the correctness of this decision and also of the two earlier decisions of the Bombay High Court.
+We are of opinion that the contention raised by the Department is correct.
+Before we state the principle on which this and similar cases are to be decided, we may refer to certain rulings, which illustrate the aspects the problem takes.
+The leading case on the subject is the decision of the Judicial Committee in Bejoy Singh Dudhuria 's case(1).
+There, the stepmother of the Raja had brought a suit for maintenance and a compromise decree was passed under which the stepmother was to be paid Rs. 1,100 per month, which amount was declared a charge upon the properties in the hands of the Raja, by the Court.
+The Raja sought to deduct this amount from his assessable income, which was disallowed by the High Court at Calcutta.
+On appeal to the Privy Council, Lord Macmillan observed as follows: "But their Lordships do not agree with the learned Chief Justice in his rejection of the view that the sums paid by the appellant to his step mother were not 'income ' of the appellant at all.
+This in their Lordships ' opinion is the true view of the matter.
+When the Act by Section 3 subjects to charge 'all income ' of an individual, it is what reaches the individual as income which it is intended to charge.
+In the present case the decree of the court by charging the appellant 's whole resources with a specific payment to his step mother has to that extent diverted his income from him and has directed it to his stepmother; to that extent what he receives for her is not his income.
+It is not a case of the application by the appellant of part of his income in a particular way, it is rather the allocation of a sum out of his revenue before it becomes income in his hands." (1) 81 638 Another case of the Privy Council may well be seen in this connection.
+That case is reported in P. C. Mullick vs Commissioner of Income tax, Bengal (1).
+There, a testator appointed the appellants as executors and directed them to pay Rs. 10,000 out of the income on the occasion of his addya sradh.
+The executors paid Rs. 5,537 for such expenses, and sought to deduct the amount from the assessable income.
+The Judicial Committee confirmed the decision of the Calcutta High Court disallowing the deduction, and observed that the payments were made out of the income of the estate coming to the hands of the executors and in pursuance of an obligation imposed upon them by the testator.
+It observed that it was not a case in which a portion of the income had been diverted by an over riding title from the person who would have received it otherwise, and distinguished the case in Bejoy Singh Dudhuria 's case (2).
+These cases have been diversely applied in India, but the facts of some of the cases bring out the distinction clearly.
+In Diwan Kishen Kishore vs Commissioner of Income tax (3), there was an impartible estate governed by the law of primogeniture, and under the custom applicable to the family, an allowance was payable to the junior member.
+Under an award given by the Deputy Commissioner acting as arbitrator and according to the will of the father of the holder of the estate and the junior member, a sum of Rs. 7,200 per year was payable to the junior member.
+This amount was sought to be deducted on the ground that it was a necessary and obligatory payment, and that the assessable income must, therefore, be taken to be pro tanto diminished.
+It was held that the income never became a part of the income of the family or of the eldest member but was a kind of a charge on the estate.
+The allowance given to the junior member, it was held, in the case of an impartible estate was the separate property of the younger member upon which he could be assessed and the rule that an allowance given by the head of a Hindu coparcenary to its members by way of maintenance was liable to be assessed (1) (2) (3) 639 as the income of the family, had no application.
+It was also observed that if the estate had been partible and partition could have taken place, the payment to the junior member out of the coparcenary funds would have stood on a different footing.
+In that case, the payment to the junior member was a kind of a charge which diverted a portion of the income from the assessee to the junior member in such a way that it could not be said that it became the income of the assessee.
+In Commissioner of Income tax, Bombay vs Makanji Lalji (1), it was stated that in computing the income of a Hindu undivided family monies paid to the widow of a deceased coparcener of the family as maintenance could not be deducted, even though the amount of maintenance had been decreed by the Court and had been made a charge on the properties belonging to the family.
+This case is open to serious doubt, because it falls within the rule stated in Bejoy Singh Dudhuria 's case (2); and though the High Court distinguished the case of the Judicial Committee, it appears that it was distinguished on a ground not truly relevant, namely, that in Bejoy Singh Dudhuria 's case (2) the AdvocateGeneral had abandoned the plea that the stepmother was still a member of the undivided Hindu family.
+It was also pointed out that this was a case of assessment as an individual and not an assessment of a Hindu undivided family.
+In Commissioner of Income tax, Bombay vs D. R. Naik (3), the assessee was the sole surviving member of a Hindu undivided family.
+There was a decree of Court by which the assessee was entitled to receive properties as a residuary legatee, subject, however, to certain payments of maintenance to widows.
+The widows continued to be members of the family.
+It was held that though section 9 of the Income tax Act did not apply, the assessee 's assessable income was only the balance left after payment of the maintenance charges.
+It appears from the facts of the case, however, that there was a charge for the maintenance (1) (2) (3) 640 upon the properties of the assessee.
+This case also brings out correctly the principles laid down by the Judicial Committee that if there be an overriding obligation which creates a charge and diverts the income to some one else, a deduction can be made of the amounts so paid.
+The last case may be contrasted with the case reported in P. C. Mullick and D. C. Aich, In re(1).
+There, under a will certain payments had to be made to the beneficiaries.
+These payments were to be made gradually together with certain other annuities.
+It was held that the payments could only be made out of the income received by the executors and trustees from the property, and the sum was assessable to income tax in the hands of the executors.
+It was pointed out that under the wilt it was stated that the amounts were to be paid "out of the income of my property", and thus, what had been charged was the income of the assessees, the executors.
+The case is in line with the decision of the Privy Council in P. C. Mullick vs Commissioner of Income tax, Bengal(2).
+In Hira Lal, In re,(3) there was a joint Hindu family, and under two awards made by arbitrators which were made into a rule of the Court, certain maintenance allowances were payable to the widows.
+These payments were also made a charge upon the property.
+It was held that inasmuch as the payments were obligatory and subject to an overriding charge they must be excluded.
+Here too, the amount payable to the widows was diverted from the family to them by an overriding obligation in the nature of a charge, and the income could not be said to accrue to the joint Hindu family at all.
+In Prince Khanderao Gaekwar vs Commissioner of Income tax (4), there was a family trust out of which two grandsons of the settlor had to be paid a portion of the income.
+It was provided that if their mother lived separately, then the trustees were to pay her Rs. 18,000 per year.
+The mother lived separately, and two deeds were executed by which the two grandsons agreed to pay Rs. 15,000 per year to the mother, (1) (3) (2) (4) 641 and created a charge on the property.
+The sons having paid Rs. 6,000 in excess of their obligations, sought to deduct the amount from their assessable income, and it was allowed by the Bombay High Court, observing that though the payment was a voluntary payment, it was subject to a valid and legal charge which could be enforced in a Court of law and the amount was thus deductible under section 9(1)(iv).
+There is Do distinction between a charge created by a decree of Court and one created by agreement of parties, provided that by that charge the income from property can be said to be diverted so as to bring the matter within section 9(1)(iv) of the Act.
+The case was one of application of the particular section of the Act and not one of an obligation created by a money decree, whether income accrued or not.
+The case is, therefore, distinguishable from the present, and we need not consider whether in the special circumstances of that case it was correctly decided.
+In V. M. Raghavalu Naidu & Sons vs Commissioner of Income tax (1), the assessees were the executors and trustees of a will, who were required to pay maintenance allowances to the mother and widow of the testator.
+The amount of these allowances was sought to be deducted, but the claim was disallowed.
+Satyanarayana Rao and Viswanatha Sastri, JJ. distinguished the case from that of the Privy Council in Bejoy Singh Dudhuria (2).
+Viswanatha Sastri, J. observed that the testator was under a personal obligation under the Hindu law to maintain his wife and mother, and if he had spent a portion of his income on such maintenance, he could not have deducted the amount from his assessable income, and that the position of the executor was no better.
+Satyanarayana Rao, J. added that the amount was not an allowance which was charged upon the estate by a decree of Court or otherwise and which the testator himself had no right or title to receive.
+The income which was received by the executors included the amount paid as maintenance, and a portion of it was thus applied in discharging the obligation.
+(1) (2) 642 The last cited case is again of the Bombay High Court, which seems to have influenced the decision in the instant case.
+That is reported in Seth Motilal Manekchand vs Commissioner of Income tax(1).
+In that case, there was a managing agency, which belonged to a Hindu joint family consisting of A, his son B and A 's wife.
+A partition took place, and it was agreed that the managing agency should be divided, A and B taking a moiety each of the managing agency remuneration but each of them paying A 's wife 2 as. 8 pies out of their respective 8 as.
+share in the managing agency remuneration.
+Chagla, C. J. and Tendolkar, J. held that under the deed of partition A and B had really intended that they were to receive only a portion of the managing agency commission and that the amount paid to A 's wife was diverted before it became the income of A and B and could be deducted.
+The learned Judge observed at p. 741 as follows: "We are inclined to accept the submission of Mr. Kolah that it does constitute a charge, but in our opinion, it is unnecessary to decide this question because this question can only have relevance and significance if we were considering a claim made for deduction under section 9(1)(iv) of the Income tax Act where a claim is made in respect of immovable property where the immovable property is charged or mortgaged to pay a certain amount.
+It is sufficient for the purpose of this reference if we come to the conclusion that Bhagirathibai had a legal enforceable right against the partner in respect of her 2 annas and 8 pies share and that the partner was under a legal obligation to pay that amount.
+" These are the cases which have considered the problem from various angles.
+Some of them appear to have applied the principle correctly and some, not.
+But we do Dot propose to examine the correctness of the decisions in the light of the facts in them.
+In our opinion, the true test is whether the amount sought to be deducted, in truth, never reaches the assessee as his income.
+Obligations, no doubt, there are in every case, but it is the nature of the obligation which is the (1) 643 decisive fact.
+There is a difference between an amount which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income of the assessee.
+Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow.
+It is the first kind of payment which can truly be excused and not the second.
+The second payment is merely an obligation to pay another a portion of one 's own income, which has been received and is since applied.
+The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable.
+In our opinion, the present case is one in which the wife and children of the assessee who continued to be members of the family received a portion of the income of the assessee, after the assessee had received the income as his own.
+The case is one of application of a portion of the income to discharge an obligation and not a case in which by an overriding charge the assessee became only a collector of another 's income.
+The matter in the present case would have been different, if such an overriding charge had existed either upon the property or upon its income, which is not the case.
+In our opinion, the case falls outside the rule in Bejoy Singh Dudhuria 's case and rather falls within the rule stated by the Judicial Committee in P. C. Mullick 's case For these reasons, we hold that the question referred to the High Court ought to have been answered in the negative.
+We, accordingly, discharge the answer given by the High Court, and the question will be answered in the negative.
+The appeal is thus allowed with costs here and in the High Court.
+Appeal allowed.

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+o. 273 of 1951.
+Appeal under articles 132 (1) and 134 (1)(c) of the Constitution of India from the Judgment and Order dated I3th October, 1950, of the High Court of Judicature at Patna (Shearer, Ramaswami and Sarjoo Prosad JJ.) in Miscellaneous Judicial Case No. 220 of 1949.
+S.K. Mitra (K. Dayal, with him), for the appellant.
+Basant Chandra Ghosh and Arun Chandra Mitra for the respondent.
+May 26.
+The Court delivered judgment as follows: MAHAJAN J.
+This appeal has been preferred by the State of Bihar against the judgment of a Special Bench of the High Court of Judicature at Patna allowing the application of the respondent under section 23 of the Indian Press (Emergency Powers)Act, XXIII of 1931.
+It appears that the petition was argued by both the sides as it was one made under article 926 of the Constitution.
+The respondent was the keeper at all relevant times of the Bharati Press at Purulia, A pamphlet under 85 656 the heading "Sangram" was printed at the said press and is alleged to have been circulated in the town of Purulia in the district of Manbhum.
+The Government of Bihar considered that the pamphlet contained objectionable matter of the nature described under section 4 (1) of the Indian Press (Emergency Powers) Act and required the press to furnish security in the sum of Rs. '2,000, under section 3(3) of the Act by the 19th September, 1949.
+On the 26th September, 1949, the respondent applied to the High Court under section 23 for setting aside the above order.
+This application was allowed by the majority of the Judges constituting the Bench.
+Shearer J. was of the view that the application should be dismissed.
+Several objections were raised to the validity of the order passed by the Bihar Government but it is unnecessary to mention all of them.
+The two points which were seriously pressed before the High Court were that the leaflet did not contain any words or signs or visible representation of the nature described in section 4 (1) of the Act, and that the provisions of section 4 (1) of the Act were inconsistent with article 19 (1) of the Constitution and as such void under article 13.
+The High Court reached the conclusion that the pamphlet did come within the mischief of the Act.
+Sarjoo Prosad J., with whom Ramaswami J. concurred, on a construction of the decisions of this Court in Romesh Thapar vs The State of Madras(1), and Brij Bhushan V.
+The State of Delhi(2), found, though with some reluctance, that section 4 (1) (a) of the Act was repugnant to the Constitution and therefore void.
+Mr. Justice Shearer, however, held that the pamphlet was a seditious libel and that there was nothing in the two decisions of the Supreme Court referred to above which compelled the court to hold the provisions of section 4 (1) (a) of the Act to be void.
+In my opinion, Shearer J. was right in the view that there is nothing in the two decisions of this Court which bears directly or indirectly on the point at issue in the present case and that both Sarjoo Prosad (1) [1950] S.C.R.594.
+(2) ; 657 and Ramaswami JJ.
+were in error in holding that these deci sions were conclusive on the question of the invalidity of clauses (a) and (b) of section 4 (1) of the Act.
+Towards the concluding part of his judgment Sarjoo Prosad J. ob served as follows: "I am compelled to observe that from the above discus sions of the Supreme Court judgments, it follows logically that if a person were to go on inciting murder or other cognisable offences either through the press or by word of mouth, he would be free to do so with impunity inasmuch as he would claim the privilege of exercising his fundamental right of freedom of speech and expression.
+Any legislation which seeks or would seek to curb this right of the person concerned would not be saved under article 19 (2) of the Constitution and would have to be declared void.
+This would be so, because such speech or expression on the part of the individual would fall neither under libel nor slander nor defamation nor contempt of court nor any matter which of fends against decency or morality or which undermines the security of or tends to overthrow the State.
+I cannot with equanimity contemplate such an anomalous situation but the conclusion appears to be unavoidable on the authority of the Supreme Court judgments with which we are bound.
+I, there fore, wish that my decision on the point would sooner than ever come to be tested by the Supreme Court itself and the position reexamined in the light of the anomalous situation pointed out above.
+It seems to me that the words used in the Constitution Act should be assigned a wide and liberal connotation even though they occur in a clause which pro vides an exception to the fundamental right vouchsafed under article 19 (1)(a) of the Constitution Act." These observations I speak with great respect disclose a complete lack of understanding of the precise scope of the two decisions of this Court referred to above.
+Section 3 (3) of the Act under which the notice was issued in the present case enacts as follows: "Whenever it appears to the Provincial Government that any printing press is used for the purpose 658 printing or publishing any newspaper, book or other document containing any words, signs or visible representation of the nature described in section 4,sub section (1), the Provin cial Government may, by notice in writing to the keeper of the press . .order the keeper to deposit with the Magis trate security . " Clause (a) of section 4 (1) deals with words or signs or visible representations which incite to or encourage, or tend to incite to or encourage the commission of any offence of murder or any cognizable of fence involving violence.
+It is plain that speeches or expressions on the part of an individual which incite to or encourage the commission of violent crimes, such as murder, cannot but be matters which would undermine the security of the State and come within the ambit of a law sanctioned by article.
+19(2) of the Constitution.
+I cannot help observing that the decisions of this Court in Romesh Thapar 's case(1), and in Brij Bhushan 's case(2) have been more than once misapplied and misunderstood and have been construed as laying down the wide proposition that restrictions of the nature imposed by section 4(1)(a) of the Indian Press (Emergency Powers) Act or of similar character are outside the scope of article 19(2) of the Constitution inasmuch as they are conceived generally in the interests of public order.
+Sarjoo Prosad J. also seems to have fallen into the same error.
+The question that arose in Romesh Thapar 's case(1) was whether the impugned Act (Madras Maintenance Public Order Act, XXIII of 1949) in so far as it purported by section 9 (1 A) to authorise the Provincial Government "for the purpose of securing the public safety and the mainte nance of public order, to prohibit or regulate the entry.into or the circulation, sale or distribution in the Province of Madras or any part thereof any document or class of documents" was a law relating to any matter which under mined the security of or tended to overthrow the State, and it was observed that whatever ends the impugned Act may have been intended to subserve and whatever (1)[1950] section
+C.R. 594.
+(2) [1950] S.C.R. 605.
+659 aims its framers may have had in view, its application and scope could not, in the absence of delimiting words in the statute itself, be restricted to those aggravated forms of prejudicial activity which are calculated to endanger the security of the State, nor was there any guarantee that those authorized to exercise the powers under the Act would in using them discriminate between those who act prejudical ly to the security of the State and those who do not.
+Sec tion 4(1)(a) of the impugned Act, however, is restricted to aggravated forms of prejudicial activity.
+It deals specifi cally with incitement to violent crimes and does not deal with acts that generally concern themselves with the mainte nance of public order.
+That being so, the decision in Romesh Thalbar 's case(1) given on the constitutionality of section 9(1 A) of the Madras Maintenance of Public Order Act has no relevancy for deciding the constitutionality of the provi sions of section 4(1)(a) of the Indian Press (Emergency Powers) Act.
+Towards the concluding portion in Romesh Tha par 's judgment(1) it was observed as follows : "We are therefore of opinion that unless a law restrict ing freedom of speech and expression is directed solely against the undermining of the security of the State or the overthrow of it, such law cannot fall within the reservation under clause (2) of article although the restrictions which it seeks to impose may have been conceived generally in the interests of public order.
+It follows that section 9(I A) which authorizes imposition of restrictions for the wider purpose of securing public safety or the maintenance of public order falls outside the scope of authorized restric tions under clause (2), and is therefore void and unconsti tutional.
+" The restrictions imposed by section 4(1)(a) of the Indian Press (Emergency Powers) Act on freedom of speech and expression are solely directed against the undermining of the security of the State or the overthrow of it and are within the ambit of article 19(2) (1) 94. 660 of the Constitution.
+The deduction that a person would be free to incite to murder or other cognizable offence through the press with impunity drawn from our decision in Romesh Thapar 's case(1) could easily have been avoided as it was avoided by Shearer J. who in very emphatic terms said as follows: " I have read and re read the judgments of the Supreme Court, and I can find nothing in them myself which bear directly on the point at issue, and leads me to think that, in their opinion, a restriction of this kind is no longer permissible.
+" Be that as it may, the matter is now concluded by the language of the amended article 19(2) made by the Constitu tion (First Amendment) Act which is retrospective in opera tion, and the decision of the High Court on this point cannot be sustained.
+Basant Chander Ghosh contended that the amendment made in article 19 (2) of the Constitution with retrospective operation was repugnant to article 20 of the Constitution inasmuch as it declared a certain act an offence which was not an offence at the time when the act was committed.
+This contention is untenable.
+The respondent is alleged to have violated the provisions of section 4(1)(a) of the Indian Press (Emergency Powers) Act which was a law in force in the year 1949 when the offending pamphlet was published.
+She has not been convicted of any offence so far and is not being again convicted for the same by reason of the amend ment in article 19(2).
+Article 20 has no application whatev er to the present case.
+Article 19(2) empowers a legislature to make laws imposing reasonable restrictions on the funda mental rights conferred under article 19(1) of the Constitu tion.
+It does not declare any acts which were not offences before as offences with retrospective effect.
+Moreover, in the year 1949 the respondent was not possessed of any funda mental right which could be said to have been contravened by the amendment.
+Though, as I have said above, the High Court is in error in the finding that the provisions of section ,4(1)(a) (1) [1950] S.C.R. 594, 661 of the Indian Press (Emergency Powers) Act are repugnant to the Constitution, its judgment has to be maintained as it is also in error in holding that the pamphlet in question fell within the mischief of section4 (1)(a) of the Indian Press (Emergency Powers) Act.
+The document is written in high flown Bengali language and contains a good deal of demagogic claptrap with some pretence to poetic flourish.
+It enunciates certain abstract propositions in somewhat involved language and it cannot be followed except with considerable effort.
+The High Court held that the document offended against the provisions of section 4(1)(a) inasmuch as certain parts of it contemplate a bloody and violent revolution and that the central theme that runs through the whole gamut of the offending pamphlet is that the author is anxious to bring about a bloody revo lution and change completely the present order of things by causing a total annihilation of the persons and the policies of those who according to him are in the opposite camp.
+Particular reference was made to the following passages in the writing which in the opinion of the learned Judges support that conclusion.
+The first of these passages is in these words : "Oh thou foolish oppressor, you want to cause abject terror in me with your red eyes and full throated voice do that, I am not afraid . .
+My pro test is against parochial national politics.
+"Another passage reads thus : `` Death is my secret love; poison is my drink the flames of fire are my sweet breeze; the wailing of a hundred be reaved childless mothers is just a tune in my flute; the weeping of widows at their widowhood is just a rhythm of my song.
+" The next passage referred to is in these terms : "I am the cremation ground.
+I am the bloodthirsty goddess Kali who lives and moves about in the cremation ground.
+Plague or famine is my great joy . .
+I am thirsty, I want blood, I want revolution,.
+662 I want faith in the struggle.
+Tear, tear the chain of wrongs; Break thou the proud head of the oppressor.
+" Reference was also made to a passage in which the writer desires that his cries should be heard by people far and near, that his call should be hearkened far far away across the hills, the jungles, across the rivers and rivulets and all those who hear should come forward to join the ranks in destroying the oppressor and in which he claims that he is the messenger of death, that his revolutionary song signals the door of each of the listeners and signals to them to come out if they have life, if they have health, if they have courage to come and dash to pieces those who commit oppression on the mother, and he says that with the blood of those followers let the revolution grow.
+It winds up with an invocation to the readers in these terms : "If you are true, if you are the gift of God, if you are not a bastard, then come forward with a fearless heart to struggle against the oppressors ' improper conduct, oppres sion and injustice.
+We should not tolerate wrongful oppres sion.
+Oh, thou the people with the burning pain of thine heart burn the heart of the oppressive, high handed oppres sor.
+Let all wrongs, all high handedness, all oppressions, all tyrannies be burnt in the flame.
+" It seems to me that the learned Judges of the High Court took this writing too seriously.
+It did not deserve that consideration.
+It is some kind of patch up work, with no consistency or cohesion between its different parts.
+Por tions of it are unmeaning nonsense and in other parts it talks of revolution in the abstract.
+There is no appeal to anybody in particular or for any known or specific cause.
+No mention is made of any specific kind of oppression or injus tice that is intended to be remedied.
+The desire is.
+to change the face of the earth by ending all oppression, tyranny and injustice.
+Their is no evidence whatsoever for connecting this pamphlet with any agitation or movement at the time it was written in that locality.
+I have read the writing several times and I think that Mr. Ghosh is 663 right when he says that the pamphlet contains merely empty slogans, carrying no particular meaning except some amount of figurative expression or language borrowed at random from various authors with a touch of poetic flourish about it.
+Writings of this characters at the present moment and in the present background of our country neither excite nor have the tendency to excite any person from among the class which is likely to read a pamphlet of this nature.
+They will necessarily be educated people.
+Such writings leave their readers cold and nobody takes them seriously.
+People laugh and scoff at such stuff as they have become too familiar with it and such writings have lost all sting.
+Any non descript person who promises to change the order of things by bloody revolution and assumes the role of a new Messiah is merely the laughing stock of his readers and creates an adverse impression against himself, rather than succeed in stirring up any excitement in the minds of the readers.
+Rhetoric of this kind might in conceivable circumstances inflame passions as, for example, if addressed to an excited mob, but if such exceptional circumstances exist it was for the State Government to establish the fact.
+In the absence of any such proof we must assume that the pamphlet would be read by educated persons in the quietness of their homes or in other places where the atmosphere is normal.
+I would therefore hold, in the words of my brother Bose in Bhagwati Charan Shukla vs Government of C.P. & Berar(1), that though the pamphlet in question uses extravagant language and there is in it the usual crude emotional appeal which is the stock in trade of the demagogue as well as a blundering and ineffective attempt to ape the poets, that is all, and there is nothing more in it.
+The time is long past when writings of this kind can in normal circumstances excite people to commit crimes of violence or murder or tend to excite any body to commit acts of violence.
+Again the language employed is full of mysticism and (I) I.L.R. 664 cannot be easily understood and it creates no impression of any kind on any person.
+In order to determine whether a particular document falls within the ambit section 4(1), the writing has to be considered as a whole and in a fair and free and liberal spirit, not dwelling too much upon isolated passages or upon a strong word here and there, and an endeavour should be made to gather the general effect which the whole composi tion would have on the mind of the public.
+Expressions which are the stock in trade of political demagogues and have no tendency to excite anybody, and exaggerations in language cannot lead to that result.
+The learned Government Advocate placed reliance on the decision of Harries C.J. in Badri Narain vs Chief Secretary, Bihar Govermnent(2).
+The learned Chief Justice therein held that in order to show that cer tain words fall under section 4 (1) (a) it is not necessary to show that the words tend to incite or to encourage the commission of a particular offence or offences and that it is sufficient if they tend to incite to or to encourage the commission of cognizable offences of violence in general.
+In that case, a poem entitled "Labourers, the mainstay 'of the world" began by emphasising that labourers are the mainstay of the present world and then proceeded to describe their unfortunate and pitiful lot.
+In a subsequent portion the author stated that though speechless today, when organized, the labourers will be as powerful as millions and this portion of the poem ended with these words: "Why are you helplessly tolerating the exploitation of your masters." The remaining lines were as follows: "Labourers, raise now the cry of revolution.
+The heavens will tremble, the Universe will shake and the flames of revolution will burst forth from land and water.
+You who have been the object of exploitation, now dance the fearful dance of destruction on this earth; truly, labourers, only total destruction will (2) A.I.R. 1941 Pat.132 665 create a new world order and that will bring happiness to the whole world.
+" It is quite clear that here an appeal was made to la bourers inciting and encouraging them to commit acts of violence.
+The words used certainly tended to achieve that result.
+They were no empty slogans or abstract propositions.
+It had one consistent and coherent purpose, i.e., to excite labourers and to bring them into action.
+Any observation made about this writing can have no apt application for the determination of the present case.
+The learned Chief Justice in the concluding part of the judgment very pertinently pointed out that a commonsense interpretation must be given to the document complained of, the question to be answered always being, what impression will the documents or words give to a man of ordinary commonsense.
+My answer to this query in the present case is that the document read at first sight is not intelligible unless it is explained to that man of ordinary commonsense by a learned person and hence it can by itself create no impression of any kind on such a person.
+After the writing is explained to such a man, he will merely laugh at it and throw it in the waste paper basket without taking it seriously.
+He will refuse to believe that a person of this kind can create a new world order by appealing to a bloody revolution.
+As I pointed out in my judgment in Harkrishan Singh vs Emperor(1), the use of such words as appear in this document creates no impression on the mind of any reasonable reader.
+That case dealt with clause (d) of section 4 (1), but the principle underlying it also applies to the construction of writings which are alleged to fall under section 4 (1) (a).
+I do not mean to suggest or to lay down as a general propo sition that some of the words used in the pamphlet in ques tion in the context of any other writing would not fall within the mischief of section 4 (1) (a).
+Certain parts of the pamphlet, if read as isolated passages, may have the tendency to excite people to commit (I) A,I.R, 666 crimes of violence but that is not the effect if the pam phlet is read in its entirety.
+The result is that I would dismiss the appeal but in the circumstances would make no order as to costs.
+The State Government has succeeded in its contention that sec tion 4 (1) (a) of the Act is constitutional and that was the real ground on which it came to this Court.
+PATANJALI SASTRI C.J.
+I agree with the judgment just delivered by my learned brother Mahajan J. and have nothing to add.
+MUKHERJEA J. I concur in the judgment delivered by my learned brother Mahajan J. and I would like to say a few words, regarding the publication itself which led to the demand of security by the Government under the provision of the Indian Press (Emergency) Act.
+The point that requires consideration is, whether the words contained in the impugned publication are of the nature described in section 4 (1) (a) of the Act; or in other words whether they incite to or encourage or tend to incite to or to encourage the commission of any offence of murder or any cognizable offence involving violence.
+It is well settled that to arrive at a decision on this point, the writing is to be looked at as a whole without laying stress on isolated passages or particular expressions used here and there, and that the court should take into consideration what effect the writing is likely to produce on the minds of the readers for whom the publication is intended.
+Account should also be taken of the place, circumstances and occa sion of the publication, as a clear appreciation of the background in which the words are used is of very great assistance in enabling the court to view them in their proper perspective.
+The leaflet in question is entitled "Sangram" or struggle.
+It is written in high flown Bengali prose with a large mixture of poetic expressions borrowed at random from the writings of some well known 667 poets of Bengal.
+The object of the writing as far as could be gathered from the document is to give a poetic or ideal istic picture of what is meant and connotated by "struggle"or revolution.
+The aim and end of "struggle ", as stated in the leaflet, is to wipe outs, "oppression, injus tice or wrong" which is "pervading all over the world from the past to the future"; and it is only after all wrongs, injustice and oppression have perished that a new world could be built up.
+This seems to be the main or central theme of the composition, clothed, though it is, under much incoherent talk and seemingly meaningless utterances.
+There is no indication throughout the writing as to what kind of oppression, injustice or wrong the author had in mind.
+Far from referring to grievances of any specific character, the writer does not even hint at such general causes of discon tent as political inequality, economic exploitation or class warfare which are the subject matter of agitation in many parts of the world.
+The leaflet does not give indication also of any unpopular measure or act of injustice affecting the minds of the people in the particular area where it was published and within which it was intended to be circu lated.
+In one part of the document the following words are found to occur: "If mother be true, let no disgrace spread in the name of the mother.
+If mother tongue be equal to mother, then the said language is your most revered goddess.
+Do not allow disgrace to spread in her name".
+It is not the case of the Government and there is no statement or affidavit to that effect, that the passages here have any reference to the language controversy which agitated and probably is still agitating this particular district.
+In another part of the document the expression "narrow parochial politics" has been used, but here again the Government has not made any attempt to explain, what this expression could, in the particular context, mean or refer to.
+As no acts of injustice or oppression are actually mentioned in the document, it is difficult to say who the "oppressors" are, whose "proud heads" the author asks his 668 readers to break.
+It is quite clear that the "oppressor" mentioned here is neither the Government nor the party in power, nor has it any relation to any particular class of persons or a sect or community which might be harassing others and trampling upon their rights.
+It may be, that to attract the operation of section 4 (1) (a) of the Indian Press Act, the incitement to murder or violence need not be specifically directed against particular individuals or class of persons; but when the whole talk is about injustice or oppression in the abstract, which is stated by the author to be in existence from the beginning of time and when in hyperbolic language a hope is expressed of establishing a better and a cleaner world through struggle, sweat and blood, the words used may not improperly be looked upon as an effusion of poetic fancy which, having no relation to actual facts can have very little potency for doing mis chief.
+I will now proceed to examine the contents of the pamphlet in detail.
+The writer begins in an affected poetic vein and de scribes, in language, to which it is difficult to attach any rational meaning, what "struggle" or revolution is.
+The "struggle" which is personified in the article introduces itself in the following manner: "I am not wealth, nor popular strength, not the people nor fame;.
+I am not joy nor a brag, nor the timid look of the beloved 's eyes .
+I am not mother 's affection, nor sister 's love".
+If these words convey any sense, they can only mean that the struggle or revolution which the writer wants to depict is something different from what we ordinarily associate with our social life and happiness; it is a negation of all natural human feelings and sentiments.
+The next paragraph says in equal enigmatical language what "Sangram" or "strug gle" actually is.
+"I am old antiquated history" thus the article proceeds; " I am time eternal, I am the future, the present and the past, in my heart is written the story of the past, the problems of the present and the voice of the 669 future".
+I do not know whether this is a poetic way of depicting the entire life process which is said to lie through struggle and guide our evolution in this planet.
+Struggle, according to the author, is coeval with time and eternity.
+In the next paragraph the writer passes on to say with many repetitions of the word "wrong" that "it is wrong which is pervading all over from the past to the future", and it is this wrong that is to be righted by the struggle.
+The struggle here is likened for reasons best known to the author to a piece of torn grass in the middle stream of a turbulent river, and to a grain of dust thrown in the face of a cyclone.
+"It is dishonour, Unhappiness, endless pain.
+" It is again likened successively to the frown of the be loved, to famine, storm and evil days.
+The call is sent to everybody to come on "where the sky is cracking and the endless rough and thorny path is shrouded in darkness" and assist in building up a new world.
+Many of the expressions used here are taken verbatim from the writings of some well known Bengalee authors, though they sound nothing but a rigmarole in the present context.
+The next paragraph begins with the word "revolution".
+Struggle is revolution and through struggle and revolution the world is to be built anew.
+It is then said that "death is my darling and death is the only truth in this world".
+If one has to die, there is no sense in dying of illness.
+Let a man choose an honourable death by standing against oppressors.
+Quite abruptly the author brings in the name of Sri Subhas Chandra Bose in the midst of this talk and asks his readers to listen "far far away across the hills, across the jungle, across the rivers and rivulets the call of Subhas Chandra Bose, the greatest revolutionary leader of the world".
+The people are asked not to stop until the objective is attained.
+Again it is said "I am struggle, I am revolution .
+I am a Hindu, I am a Mussalman, I am a Christian, I am a Jew, I am a Keduin, I am severed from all religions by the fruits of my action in previous births".
+Without the least attention to any sequence of thought, immediately 670 after this, the imaginary oppressor is addressed by the author as follows: "Oh you foolish oppressor you want to terrify with your red eyes, I fear not." The author, or rather the personified "struggle" which purports to speak, then repeats the well known words of poet Tagore and says that he does not seek salvation through renunciation; he wants that salvation which lies in joy amidst innumerable dangers and difficulties.
+The idea of finding joy in all that is hated, avoided and dreaded in this world is elaborated in the passages that follow. "Death" it is said "is my secret love, poison is my drink, the flames of fire are my sweet breeze, the cry of childless mothers a tune in my flute and the weeping of widows a rythm of my song".
+In this vein the author goes on conjuring up all the uncanny and weird things in the world and associat ing them with struggle.
+"I am not joy, I am the remnant of the dying cries .
+I am the bloodthirsty goddess Kali who lives and moves about in the cremation ground.
+I want blood . .
+Break the proud head of the oppressor.
+I bathe in flames . . .
+Thunder is my kiss of affection . .
+I do not understand myself.
+I do not know myself.
+I do not recognise myself still I want revo lution, still I want struggle".
+The learned Judges of the High Court laid very great stress on these passages which in their opinion constitute a direct incitement to bloody revolution; and that is also the line of argument adopted by Mr. Mitter who appeared before us on behalf of the State.
+It has been argued by Mr. Ghosh appearing for the respondent that the "struggle" which the author has depicted and which he aims at is a non violent struggle and the blood that is to be shed is the blood of those who are called upon to resist oppression and injustice.
+On the other hand, it is argued on behalf of the State that the passages quoted above can only mean that it is a bloody and violent revolution which could carry men to their desired end.
+In my opinion, neither of these contentions furnish to us the proper method of approach to the question which requires 671 decision in the present case.
+We would have to look at the article as a whole and focus our attention on what can be regarded to be its central theme or purpose.
+As has been said already, what the writer wants is to draw an ideal picture of "struggle" or revolution quite unconnected with any particular place, or any particular political or social environment.
+Injustice or oppression exists, according to the author, from the very dawn of time and so also does struggle or revolution.
+It is an integral part of the world process and is a sort of irrational or blind impulse.
+This is expressed by saying "I do not understand myself,I do not recognise myself, still I want revolution".
+In painting death or war, the artist would naturally choose some uncanny associations.
+The trappings of revolution, as the author paints it, are all the fearful and hideous things in this world.
+It is linked up with thunder and storm, fire and devastation, cataclysm, famine, danger, destruction and death.
+It is immaterial so far as this ideal picture is concerned whether the blood that is spoken of is the blood of the oppressor or of the oppressed, and whether the strug gle is violent or pacific.
+The goddess Kali in the Hindu mythology is the goddess of destruction and death, but she is the benign goddess also whose protecting hands ward off all oppressions, danger and calamity.
+That is the reason why revolution or struggle is assimilated to this goddess.
+It cannot be denied that in painting this picture of "strug gle" or revolution the author has used very strong words; but they would not be unnatural if it is only an ideal picture that the author really desired to paint.
+If howev er, it can be shown that under the cloud of these general enigmatical words something concrete and tangible lies hidden, that the "oppression" and "oppressor" are not imagi nary abstractions but are real things not unknown to the people to whom the article is addressed and there is in fact a grievance agitating the popular mind, no matter whether it is well or ill founded, against which the author desires to inflame public opinion;then even though he uses veiled or covert language, there 672 can be no doubt that the article would come within the purview of section 4 (1) (a) of the Indian Press Act.
+But the difficulty is that the Government has not made any attempt to establish any of these facts.
+Without knowing the attendant circumstances and the actual background of the publication, it is not possible for us to ascertain the real intention that lies behind the writing; and absolutely no materials have been placed before us by the Government which might enable us to find out what in reality was the sub stance behind this camouflage of words, if camouflage it actually is.
+The rest of the article proceeds in the same hyperbol ic and enigmatical style There is repetition ad nauseam of the same stock phrases and expressions.
+It goes on to say "I am the messenger of death.
+I am untouchable, I am vague, I am queer, 1 am nightmare, I am robber, I am enemy, I am un known.
+1 am not Falgoon with its sweet smelling flowers; I am eternal separation, I am restlessness".
+I am extremely doubtful whether expressions like these would not, to an ordinary reader, appear to be anything better than the ravings of a mad man.
+I will cull a few more expressions which occur subsequently and which loftily this impression.
+"I see struggle on my darling 's face, I see struggle in the honey of flowers.
+I am storm, I am the Deepak Ragini.
+I am misfortune.
+I am cry of distress, I am jealousy, I am evil days.
+" The concluding portion of the article reads as follows: `` Let me speak the last word: If you are true, if you are gift of God, if you are not a bastard. then come forward with a fearless heart, struggle against the oppressor 's improper conduct, oppression and injustice.
+We shall not tolerate wrongful oppression.
+Oh, the people, with the pain of your heart burn: the heart of the oppressive high handed oppressor, let all wrongs, all high handedness, all oppres sions, all tyrannies be burnt in the flame.
+" 673 There was a good deal of discussion before us as to whether these passages hint at a violent or a non. violent struggle.
+It may be capable of either interpretation.
+but as I have said already, that by itself would not afford a decisive solution of the question before us.
+It is also not much material to consider whether the author wants that "Jealousy and malice" which he has referred to at the end of the article, are to develop and spread or they are to be transformed into innocuous and sweet smelling flowers.
+This is certainly a matter upon which difference of opinion is possible.
+After all, we are to see what impres sion the article read as a whole would produce upon ordinary people.
+An ordinary reader is not expected to seek the assistance of an interpreter in trying to find out the true meaning of the words used.
+As has been said already, many of the expressions used here have been taken verbatim from the writings of certain noted Bengalee authors.
+They are stock phrases current in Bengal and amongst the Bengali speaking community elsewhere.
+If it strikes the reader that what the author wanted was to pass himself off as a noted writer by sheer plagiarism, then whatever else may be said about the article, it certainly does not come within the purview of section 4 (1) (a) of the Press Act.
+Taking the article as it is, it is nothing but a tissue of high sounding and meaningless words and whether the author wanted to imitate some of the welt known poets of Bengal in attempting to give a poetic description of "strug gle"or revolution or wanted to give himself the pose of a liberator of mankind, out to wipe out the last vestiges of oppression and injustice from the face of the earth, no rational person would take him seriously and would look upon this composition as the vapourings of a deranged brain.
+If, on the other hand, the whole thing is a clever ruse resorted to with the object of inflaming the popular mind against certain persons or authorities, and although only general and vague words are used, the words have their meaning and significance to those 674 who are acquainted with the actual situation, it was incum bent upon the Government to clear up these matters and present before us the background and the context without which no meaning could be attributed to this species of empty verbiage.
+As Government did not discharge the duty that lay upon them, I am clearly of opinion that no security order could be passed against the respondent under the provision of section 4 (1) (a) of the Press Emergency Act.
+DAS J.
+During the course of the arguments I enter tained some doubt as to the innocence of the meaning and implication of the pamphlet in question, but, in the light of the judgments of my learned brothers Mahajan J. and Mukherjea J., which I have had the advantage of perusing since, I do not feel that I would be justified in dissenting from the construction they have put upon the language used in the pamphlet.
+I accordingly concur in their conclusion.
+Bose J. I agree with my brothers Mahajan and Mukher jea.
+Appeal dismissed.

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@@ -0,0 +1,67 @@
+Appeal No. 358 of 1958.
+645 Appeal by special leave from the judgment and order dated 8th March, 1956, of the former Bombay High Court in I.T.R. No. 55 of 1955.
+A. N. Kripal and D. Gupta, for the appellant.
+N. A. Palkhivala and B. P. Maheshwari, for the respondents.
+November 24.
+The Judgment of the Court was delivered by KAPUR, J.
+This is an appeal by special leave against the judgment and order of the High Court of Bombay in Income tax Reference No. 55 of 1955, in which two questions of law were stated for opinion and both were answered in favour of the assessee and against the Commissioner of Income tax who is the appellant before us and the assessee is the respondent.
+The facts of this case are these: The respondent is a registered firm carrying on business as commission agents in Bombay.
+For purposes of its business it borrowed money from time to time from Banks on joint promissory notes executed by it and by others with joint and several liability.
+On September 26, 1949, the respondent borrowed Rs. 1,00,000 from the Bank of India on a pronote executed jointly with one Kishorilal.
+Out of this amount a sum of Rs. 50,000 was taken by the respondent for purposes of its business and the rest by Kishorilal.
+Kishorilal however failed to meet his liability and became a bankrupt.
+The respondent had therefore to pay the Bank the whole amount, i.e., Rs. 1,00,000 with interest.
+Out of the amount taken by Kishorilal the respondent received in the accounting year, from the Official Assignee, a sum of Rs. 18,805 and claimed the balance, i.e., Rs. 31,740 as deduction.
+The accounting year was from August 26, 1949 to July 17, 1950, the assessment year being 1951 52.
+This claim was disallowed both by the Income tax Officer as well as the Appellate Assistant Commissioner.
+On Appeal to the Income tax Appellate Tribunal this sum was allowed ,as an allowable deduction under section 10(2)(xv) of the Income tax Act and as business loss.
+82 646 At the instance of the Commissioner a case was stated to the High Court of Bombay by the Income tax Appellate Tribunal.
+In the statement of the case which was agreed to by both parties the Tribunal said: "For the purpose of his business, he borrows from time to time money on joint and several liability from banks.
+The Commercial practice is to borrow money from banks on joint and several liability.
+An illustration will explain what we mean.
+A and B require Rs. 50,000 each.
+They find that the Bank would not advance Rs. 50,000 to each on his individual security.
+They however, find that the Bank would be prepared to advance Rupees one lach on their joint and several liability.
+They take Rupees one lac on joint and several liability and then divide the money equally between themselves.
+" It also found that the Banks advanced monies to some constituents on their personal security also but they had to pay a higher rate of interest than when the money was borrowed on joint and several responsibility; that Rs. 1,00,000 borrowed from the Bank was in accordance with the commercial practice of Bombay.
+On these facts the following two questions of law were referred to the High Court: "(1) Whether the assessee 's claim is sustainable under section 10(2)(xv) of the Act? (2) Whether the assessee 's claim that the loss was a business loss and, therefore, allowable as a deduction in computing the profits of the assessee 's business is sustainable under law?" Both these questions were answered in favour of the respondent and against the appellant.
+Counsel for the Commissioner challenged the findings of the Tribunal in regard to the existence of commercial practice in Bombay but this ground of attack is not available to him because not only did the Tribunal give this finding in its Order, but in the agreed statement of the case also this finding was repeated as is shown by the passage quoted above.
+The High Court also has proceeded on the basis of this commercial practice.
+In the judgment under appeal the learned Chief Justice said: 647 "The finding of the Tribunal is clear and explicit that what the assessee was doing was not something out of the ordinary, but in borrowing this money on joint and several liability he was following a practice which was established as a commercial practice.
+Therefore, the transaction was clearly in the course of the business and incidental to the business and it is this transaction which resulted in a loss to the assesses, he having to pay the liability of the surety.
+" Therefore this appeal has to be decided on the basis that a commercial practice of financing business by borrowing money on joint and several liability was established.
+It was argued on behalf of the appellant that this court in Madan Gopal Bagla vs Commissioner of Income Tax, West Bengal (1) had decided against the allowability of such losses.
+But the facts of that case when carefully scrutinised are distinguishable and the decision does not support the contentions of the appellant.
+No doubt certain features of that case and the present one are similar but they differ in essential features.
+In that case the assessee was a timber merchant who obtained a loan of Rs. 1 lac from the Bank of India on the joint security of himself and one Mamraj, which the assessee paid off.
+Mamraj also obtained a loan of Rs.
+I lac on the joint security of himself and the assessee.
+Mamraj became an insolvent and the assessee had to pay the whole of the amount borrowed with interest thereon.
+The assessee there received a certain amount of money by way of dividends from the Receiver and the balance he wrote off as bad debt in the assessment year and claimed it as an allowable deduction under section 10.
+The High Court there held that the debt could not be said to be a debt in respect of the business of the assessee as he was not carrying on the business of standing surety for other persons nor was he a money lender, he being simply a timber merchant; that it had not been established nor was it alleged that he was in the habit of standing surety for other persons "along with them for purposes of securing loans for their use and benefit" and even if money (1) ; 648 had been so borrowed and there had been a loss the loss would have been a capital loss and not a business loss to the assessee.
+This statement of the law was approved by this Court but there mutuality, as an essential ingredient of the custom established, was found to be lacking as is shown by the following passage from the judgment of the court.
+"The custom stated before the Appellate Assistant Commissioner was that persons carrying on business in Bombay used to borrow monies on joint security from the Banks in order to facilitate getting financial assistance from the Banks and that too at lower rates of interest.
+A businessman could procure financial assistance from the Banks on his own, but he would in that case have to pay a higher rate of interest.
+He would have to pay a lower rate of interest if he could procure as surety another business man, who would be approved by the Bank.
+This, however, did not mean that mutual accommodation by businessmen was necessarily an ingredient part of that custom.
+A could procure B, C or D to join him as surety in order to achieve this objective, but it did not necessarily follow that if A wanted to procure B, C or D to thus join him as surety he could only do so if he in his own turn joined B, C or D as surety in the loans which B, C or D procured in their turns from the Banks for financing their respective businesses.
+Unless that factor was established, the mere procurement by A of B, C or D as surety would not be sufficient to establish the custom sought to be relied upon by the appellant so as to make the transaction of his having joined Mumraj Rambhagat as surety in the loan procured by Mumraj Rambhagat from Imperial Bank of India, a transaction in the course of carrying on his own timber business and to make the loss in the transaction a trading loss or a bad debt of the timber business of the appellant.
+" Continuing at page 558 it was observed: "There were thus elements of mutuality and the essential ingredient in the carrying on of the money lending business, which were elements of the custom 649 proved in that case, both of which are wanting in the present case before us." Mr. Palkhivala for the respondent rightly argued that Madan Gopal Bagla 's case (1) was decided against the assessee because the custom of persons standing surety for each other for borrowing money and the element of mutuality which was an essential ingredient in the case of Commissioner of Income Tax, Madras vs section A. section Ramaswamy Chettiar (2) was not proved.
+In the latter case it was established that there was a well recognised custom amongst Chettiars of raising funds for their business of money lenders by the execution of joint pronotes and that if a loss was sustained by one of the executants having to pay the whole on account of inability of the other it was a deductible loss.
+The appellant also relied on a judgment of the Madras High Court in Commissioner of Income Tax vs section R. Subramanya Pillai (3).
+In that case the assessee was a book seller who from time to time jointly with another person borrowed money out of which he employed a portion in his business.
+One of such amounts borrowed was Rs. 16,200 out of which the assessee took Rs. 10,450 for his business needs and the other debtor took the balance.
+The latter became insolvent and the assessee had to pay the whole of the money borrowed and claimed it as allowable deduction under section 10(2)(xi) or section 10(2)(xv) of the Act or as business loss and it was hold that he was not entitled, because the loss sustained by the assessee was too remote from the business of book selling carried on by him and was not sufficiently connected with the trade and therefore fell outside the range of those amounts which could properly be brought into profit and loss account of the business.
+The decision in Commissioner of Income Tax vs section A. section Ramaswamy Chettiar (2) was there distinguished on the ground that the decision must be confined to its own peculiar facts and did not apply to business as the one in Subramanya Pillai 's Case (3).
+The following passage from (1) ; , (2) (3) 650 the judgment of Viswanatha Sastri, J., in that case is relevant: "But there the business was one of money lending and the Court found that according to the wellknown and well recognised mercantile custom of Nattukottai bankers, they were in the habit of raising 'funds which formed the stock in trade of their money lending business by the execution of joint promissory notes in favour of bankers.
+That was apparently the usual technique of obtaining credit adopted by the Nattukottai Chetti community money lenders.
+In the context this Court held that where a Nattukottai Chetti money lender paid off in their entirety the debts jointly due by him and another as a result of the latter 's inability to pay, the loss sustained as a result of this transaction was a loss of the moneylending business itself and therefore a deductible item in computing profits.
+" In the instant case it has been found that there was a well recognised commercial practice in Bombay of carrying on business by borrowing money from Banks on joint and several liability.
+It was also found that by so doing the borrower could borrow money at a lower rate of interest than he otherwise would have paid; that the respondent had, in accordance with the commercial practice, borrowed the money, the whole of which he had to return because the joint promisor Kishori Lal had become bankrupt; mutuality was also held proved.
+It cannot be said that the essential feature of the case now before us is in principle different from that of the Commissioner of Income tax vs Ramaswamy Chettiar (1).
+In both cases the finding is that there is mutuality and custom of borrowing money on joint pronotes for the carrying on of business.
+In our opinion in the circumstances proved in the present case, and on the facts established and on the findings given, the respondent was rightly held to be entitled to deduct the loss which was suffered by him in the transaction in dispute.
+Counsel for the assessee drew our attention to a (1) 651 Privy Council judgment Montreal Coke and Manufacturing Co. vs Minister of National Revenue (1) but that, case can have no application to the facts of the present case because it was found there as a fact that the assessees 's financial arrangements were quite distinct from the activities by which they earned their income and expenditure incurred in relation to the financing ' of their business was not expenditure in the earning of their income within the statute.
+It was then contended that the loss of the respondent was a 0capital loss and for this again reliance was placed on the judgment of this Court in Madan Gopal Bagla 's case (2 ) and particularly on the observation at page 559 where Bhagwati, J., quoted with approval the observations of the High Court in the judgment but as we have pointed out the facts of that case are distinguishable and what was said there has no application to the facts and circumstances proved in the present case.
+In our view the judgment of the High Court is right and we therefore dismiss this appeal with costs.
+Appeal dismissed.

1021.txt

@@ -0,0 +1,74 @@
+Appeal No. 270 of 1959.
+Appeal by special leave from the judgment and order dated December 23, 1957, of the Allahabad High Court (Lucknow Bench) at Lucknow in Civil Miscellaneous Application (0.
+J.) No. 86 of 1954.
+C. B. Aggarwala, G. C. Mathur and C. P. Lal, for the appellants.
+Achhru Ram, section N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the respondent.
+November, 25.
+The Judgment of Sarkar, Subba Rao and Mudholkar, JJ., was delivered by Subba Rao, J., and that of Gajendragadkar and Wanchoo, JJ., was delivered by Wanchoo, J. SUBBA RAO, J. This is an appeal by special leave against the judgment and order of the High Court of Judicature at Allahabad, Lucknow Bench, allowing the petition filed by the respondent under article 226 of the Constitution.
+The facts are in a small compass and may be briefly stated.
+In the year 1933 the respondent was appointed a constable in U. P. Police Force; on December 1, 1945, he was promoted to the rank of head constable and in May, 1952 he was posted as officer incharge of Police Station, Intiathok, District Gonda.
+Complaints were received by the District Magistrate, Gonda, to the effect that the respondent was receiving bribes in the discharge of his duties.
+On September 16, 1952, the District Magistrate, Gonda, directed the Sub Divisional Magistrate to make an enquiry in respect of the 674 said complaints.
+On November 3,1952, the Sub Divisional Magistrate, after making the necessary enquiries, submitted a report to the District Magistrate recommending the transfer of the respondent to some other station.
+On November 17, 1952, the District Magistrate sent an endorsement to the Superintendent of Police to the effect that the Sub Divisional Magistrate had found substantial complaints against the integrity of the respondent, that he had also received such complaints and that his general reputation for integrity was not good, but that his transfer should, however, come after sometime and that in the meantime his work might be closely watched.
+On being called upon by the Superintendent of Police to submit an explanation for his conduct, the respondent submitted his explanation on November 29, 1952.
+On December 17, 1952, the respondent was forced to go on leave for two months.
+Before the expiry of his leave, he was reverted to his substantive post of head constable and transferred to Sitapur.
+On February 17, 1953, he was promoted to the rank of officiating Sub Inspector and posted as Station Officer at Sidholi.
+On February 27, 1953, the Superintendent of Police made the following endorsement in his character roll: "A strong officer with plenty of push in him and met with a strong opposition in this new charge.
+Crime control was very good but complaints of corruption were received which could not be substantiated.
+Integrity certified.
+" Meanwhile on further complaints, the C.I.D. probed the matter further and on July 26, 1953, the Superintendent of Police, Investigation Branch, C.I.D., reported that the respondent was a habitual bribetaker.
+On July 28, 1953, he was placed under suspension and on August 18, 1953, he was charged under section 7 of the Police Act with remissness in the discharge of his duty and unfitness for the same inasmuch as while posted as a Station Officer, Police Station, Intiathok, he had been guilty of dishonesty, corruption and misbehaviour in that he had on nine occasions, particulars of which were given in the charge, accepted bribes.
+it may be mentioned that the magisterial inquiry 675 related to seven of the nine charges alleged against the respondent.
+The trial was conducted by the, Superintendent of Police and the respondent submitted his explanation on September 12, 1953.
+The Superintendent of Police, who conducted the trial, examined many witnesses and found that seven out of the nine charges had been established.
+Thereafter he issued a notice to the respondent calling upon him to show cause why he should not be dismissed from the police force.
+On February 20, 1954, the respondent sub mitted his explanation and the Superintendent of Police, by his order dated February 22, 1954, dismissed the respondent from service with effect from the said date.
+The appeal preferred by the respondent to the Deputy Inspector General of Police was dismissed by his order dated June 2, 1954.
+Thereafter the respondent on August 5, 1954, filed a petition under article 226 of the Constitution before the High Court of Judicature at Allahabad, Lucknow Bench, for quashing the order of dismissal.
+Before the High Court three points were raised, namely, (1) as the petitioner was officiating.
+as Sub Inspector of Police at the time of the departmental trial the Suprintendent of Police had no power to dismiss him, since an order in such circumstances could only be made by a police officer senior in rank to a Superintendent; (2) the trial was vitiated by a number of serious irregularities; and (3) the specific acts with which the petitioner was charged were cognizable offences and, therefore, the Superintendent of Police had no jurisdiction to proceed with a departmental trial without complying with the provisions of subparagraph (1) of para.
+486 of the Police Regulations.
+The learned Judges of the High Court held that the respondent was charged with committing cognizable offences and therefore sub paragraph (1) of para.
+486 governed the situation and that, as no case, as required by the said sub paragraph, was registered against the respondent in the police station, the order of dismissal was invalid.
+They further held that the case was not covered by the first proviso to sub paragraph (1) of para.
+486, as, in their opinion, the information 676 about the commission of the offences was not in the first instance received by the Magistrate and forwarded to the police for inquiry.
+In view of that finding they found it unnecessary for them to express any opinion upon other arguments which had been advanced on behalf of the respondent.
+In the result they issued a writ in the nature of certiorari quashing the impugned orders.
+Hence the appeal.
+Mr. C. B. Agarwala, learned counsel appearing for the appellants, raised before us the following points: (1) The Governor exercised his pleasure through the Superintendent of Police, and, as the Police Regulations were only administrative directions, the non compliance therewith would not in any way affect the validity of the order of dismissal.
+(2) If the order of dismissal was held to have been made under the statutory power conferred upon the Superintendent of Police, the regulations providing for investigation in the first place under chapter XIV of the Criminal Procedure Code were only directory in nature, and inasmuch as no prejudice was caused to the respondent the non compliance with the said regulations would not affect the validity of the order of dismissal.
+(3) The Superintendent of Police was authorized to follow the alternative procedure prescribed by subparagraph (3) of para.
+486 and, therefore, the inquiry held without following the procedure prescribed by rule I was not bad.
+(4) As the magisterial inquiry was held in regard to practically all the charges, the subject matter of the departmental trial, the case is not covered by the provisions of para.
+486 of the Police Regulations.
+In the case of The State of U. P. vs Babu Ram Upadhya (1) in which we have just delivered the judgment, we have considered the first three point; and for the reasons mentioned therein we reject the first three contentions.
+The appellants must succeed on the fourth contention.
+From the facts already narrated, the conduct of the respondent, when he was officer incharge of the Police Station, Intiathok, was the subject matter of (1) Civil Appeal No. 119 of 1950; ; 677 magisterial inquiry.
+The Sub Divisional Magistrate made inquiry in respect of seven of the charges which were the subject matter of the departmental trial and.
+submitted a report to the District Magistrate.
+The District Magistrate, in his turn, made an endorsement on the report and communicated the same to the Superintendent of Police recommending the transfer of the respondent and suggesting that in the meanwhile the work of the respondent might be closely watched.
+Though the Superintendent of Police gave at first a good certificate to the respondent, in respect of the same a further probe was made through the C.I.D. Thereafter the Superintendent of Police conducted a departmental trial in respect of the aforesaid seven charges and two other new charges of the same nature.
+The inquiry ended in the dismissal of the respondent.
+In the circumstances it would be hypertechnical to hold that there was no magisterial inquiry in respect of the matter which was the subject matter of the departmental trial.
+On the said facts we hold that the departmental inquiry was only a further step in respect of the misconduct of the respondent in regard whereto the magisterial inquiry was held at an earlier stage.
+If so, the question is whether para.
+486 would govern the present inquiry or it would fall out side its scope.
+The relevant provisions of the Police Regulations read: Paragraph 486: "When the offence alleged against a police officer amounts to an offence only under s: 7 of the Police Act, there can be no magisterial inquiry under the Criminal Procedure Code.
+In such cases, and in other cases until and unless a magisterial inquiry is ordered, inquiry will be made under the direction of the Superintendent of Police in accordance with the following rules;" Paragraph 489: "A police officer may be departmentally tried under section 7 of the Police Act (1) after he has been tried judicially; (2) after a magisterial inquiry under the Criminal Procedure Code; 86 678 (3) after a police investigation under the Criminal Procedure Code or a departmental enquiry under paragraph 486 III above." A combined reading of these provisions indicates that para.
+86 does not apply to a case where a magisterial inquiry is ordered; and that a police officer can be departmentally tried under section 7 of the Police Act after such a magisterial inquiry.
+In this case the departmental trial was held subsequent to the completion of the magisterial inquiry and therefore it falls within the express terms of para.
+489(2).
+The fact that in the interregnum the police received further complaints or that the C.I.D. made further enquiries do not affect the question, if substantially the subject matter of the magisterial inquiry and the departmental trial is the same.
+In this case we have held that it was substantially the same and therefore the departmental trial was validly held.
+We, therefore, set aside the order made by the High Court.
+As we have pointed out earlier, the High Court, in the view taken by it, did not express its opinion on the other questions raised and argued before it.
+In the circumstances, we remand the matter to the High Court for disposal in accordance with law.
+The costs of this appeal will abide the result.
+WANCHOO, J.
+We have read the judgment just delivered by our learned brother Subba Rao J.
+We agree with the order proposed by him.
+Our reasons for coming to this conclusion are, however, the same which we have given in C.A. 119 of 1959, The State of Uttar Pradesh vs Babu Ram Upadhya.
+Appeal allowed.
+Case remanded.

1022.txt

@@ -0,0 +1,486 @@
+Appeal No. 119 of 1959.
+Appeal by special leave from the judgment and order dated January 9, 1958, of the Allahabad High Court (Lucknow Bench), Lucknow, in Civil Misc.
+Application No. 115 of 1955.
+683 C. B. Agarwala and C. P. Lal, for the appellants.
+G. section Pathak, Achru Ram, section N. Andley, Rameshwar Nath, J. B. Dadachanji and P. L. Vohra for the respondent.
+November, 25.
+The Judgment of Sarkar, Subba Rao and Mudholkar, JJ., was delivered by Subba Rao, J., and that of Gajendragadkar and Wanchoo, JJ., was delivered by Wanchoo, J. SUBBA RAO, J. This is an appeal by special leave against the judgment of the High Court of Judicature at Allahabad, Lucknow Bench, allowing the petition filed by the respondent under article 226 of the Constitution.
+The respondent was appointed a Sub Inspector of Police in December, 1948, and was posted at Sitapur in June, 1953.
+On September 6, 1953, the respondent went to village Madhwapur in connection with an investigation of a case of theft.
+On the evening of the said date when he was returning, accompanied by one Lalji, an ex patwari of Mohiuddinpur, he saw one Tika Ram coming from the side of a canal and going hurriedly towards a field.
+As the movements of Tika Ram appeared to be suspicious and as he was carrying something in the folds of his dhoti, the respondent searched him and found a bundle containing currency notes.
+The respondent counted the currency notes and handed them over to Lalji for being returned to Tika Ram, who subsequently got them and went his way.
+Subsequently when Tika Ram counted the currency notes at his house, he found that they were short by Rs. 250.
+Tika Ram 's case is that the bundle when taken by the respondent contained notes of the value of Rs. 650, but when he counted them in his house they were only of the value of Rs. 400.
+On September 9, 1953 Tika Ram filed a complaint to the Superintendent of Police, Sitapur, to the effect that the respondent and one Lalji had misappropriated a sum of its.
+There is dispute in regard to the interpretation of the complaint.
+On receipt of the said complaint, the Superintendent of Police made enquiries 684 and issued a notice to the respondent to show cause why his integrity certificate should not be withheld, upon which the respondent submitted his explanation on October 3, 1953.
+Thereafter the Superintendent of Police forwarded the file of the case to the Deputy Inspector General of Police, Central Range, U. P., who directed the Superintendent of Police to take proceedings under section 7 of the Police Act against the respondent.
+The departmental proceedings were started against the respondent; on November 2, 1953, a charge sheet was served upon the respondent under section 7 of the Police Act stating that there were strong reasons to suspect that the respondent misappropriated a sum of Rs. 250 from the purse of Tika Ram; the respondent filed his explanation to the charge made against him; and ultimately the Superintendent of Police held an enquiry and found on the evidence that the respondent was guilty of the offence with which he was charged.
+On January 2, 1954, the Superin tendent of Police issued another notice to the respondent to show cause why he should not be reduced to the lowest grade of Sub Inspector for a period of three years.
+In due course the respondent showed cause against the action proposed to be taken against him on a consideration of which the Superintendent of Police, Sitapur, by his order dated January 16, 1954 reduced the respondent to the lowest grade of Sub Inspector for a period of three years.
+When this order came to the notice of the D. 1.
+G., U. P., on a consideration of the entire record, he came to the con clusion that the respondent should be dismissed from service and on October 19, 1954 he made an order to that effect.
+On February 28, 1955 the Inspector General of Police confirmed that order; and the revision filed by the respondent against that order to the State Government was also dismissed in August 1955.
+Thereafter the respondent filed a petition under article 226 of the Constitution before the High Court of Judicature at Allahabad, Lucknow Bench, for quashing the said orders and the same was heard by a division bench consisting of Randhir Singh and Bhargava, JJ.
+The learned judges held that the provisions of para.
+685 486 of the Police Regulations had not been observed and, therefore, the proceedings taken under section 7 of the Police Act were invalid and illegal.
+On that finding, they quashed the impugned orders; with the result that the order dismissing the respondent from service was set aside.
+The State Government, the Deputy Inspector General of Police, Lucknow, and the Inspector General of Police, Uttar Pradesh, Lucknow, have preferred the present appeal against the said order of the High Court.
+We shall now proceed to consider the various contentions raised by learned counsel in the order they were raised and argued before us.
+At the outset Mr. C. B. Agarwala, learned counsel for the appellants, contended that there was no breach of the provisions of para.
+486 of the Police Regulations.
+If this contention be accepted, no other question arises 'in this case; therefore, we shall deal with the same.
+The material part of para.
+486 of the Police Regulations reads thus: "When the offence alleged against a police officer amounts to an offence only under section 7 of the Police Act, there can be no magisterial inquiry under the Criminal Procedure Code.
+In such cases, and in other cases until and unless a magisterial inquiry is ordered, inquiry will be made under the direction of the Superintendent of Police in accordance with the following rules: I.Every information received by the police relating to the commission of a cognizable offence by a police officer shall be dealt with in the first place under Chapter XIV, Criminal Procedure Code, according to law, a case under the appropriate section being registered in the police station concerned. . . .
+This provision expressly lays down that every information received by the police relating to the commission of a cognizable offence by a police officer shall be dealt with in the first place under Ch.
+XIV of the Criminal Procedure Code.
+This provision will not apply if the information received by the police does not 87 686 relate to the commission of a cognizable offence.
+Learned counsel contends that the information received in the present case does not relate to any offence committed by the respondent, much less to a cognizable offence.
+This is a point raised before us for the first time.
+This does not find a place even in the statement of case filed by the appellants.
+In the High Court it was not contended that the information did not disclose any offence committed by the respondent.
+Indeed, it was common case that the information disclosed an offence committed by the respondent, but it had been contended by the appellants that the misappropriation of the part of the money amounted to an offence under section 403 of the Indian Penal Code, which is not a cognizable offence; and it was argued on behalf of the respondent that it amounted to an offence under section 409 of the Indian Penal Code.
+The learned judges accepted the contention of the respondent.
+Even so, it is said that whatever might been the contentions of the parties, the information given by Tika Ram to the Superintendent of Police clearly disclosed that no offence was alleged to have been committed by the respondent and that this Court would, therefore, be justified, even at this very late stage, to accept the contention of the appellants.
+But the contents of the said information do not in any way support the assertion.
+Paragraph 3 of the application given by Tika Ram to the Superintendent of Police, Sitapur, reads thus: "That on Sunday last dated 6th September, 1953 the applicant had with him the currency notes of Rs. 650.
+The opposite party as well as Shri Babu Ram met the applicant on the west of Rampur near the Canal.
+The opposite party said to the Sub Inspector "This man appears to be clad in rags but is possessed of considerable money." After saying this the person of the applicant was searched.
+The Sub Inspector, having opened the bundle of notes, handed over the (notes) one by one to the opposite party.
+" This statement clearly indicates that either the Sub .
+Inspector or both the Sub Inspector and Lalji searched the person of Tika Ram, that the Sub Inspector took 687 the bundle of notes and handed the same over, one by one, to Lalji for being returned to the applicant, and that out of Rs. 650 a sum of Rs. 250 was not returned to him.
+The facts alleged make out an offence against both the Sub Inspector as well as Lalji.
+The mere fact that the respondent is not shown as one of the opposite parties in the application does not affect the question, for the information given in the application imputed the commission of an offence to both the respondent and Lalji.
+The notice issued by the Supe rintendent of Police on November 2, 1953 to the respondent also charges him with an offence of misappropriation.
+It is stated that the said notice only says that the Superintendent of Police had good reasons to suspect that the respondent misappropriated the sum of money and that it does not aver that he committed the offence of misappropriation.
+But what matters is 'that the Superintendent of Police also understood from the information given and the enquiry conducted by him that the respondent had committed the offence.
+Reliance is placed upon paragraph 3 of the writ petition wherein the respondent herein stated that Tika Ram filed a complaint against Lalji and not against the respondent.
+As a fact that is correct in the sense that the respondent was not shown in that application as the opposite party though in the body of that application definite allegations were made against the respondent.
+In the counter affidavit filed by the Superintendent of Police on behalf of the State it was clearly averred that on September 9, 1953 Tika Ram appeared before him and filed a petition to the effect fiat one Lalji and the respondent had misappropriated a sum of Rs. 250.
+Whatever ambiguity there might have been in the information we do not find any this allegation dispels it and it is not open to the appellants at this stage to contend that the petition did not disclose any offence against the respondent.
+In the circumstances, we must hold that the information received by the police related to the commission of an offence by the respondent.
+Even so, it is contended that the said offence is not a cognizable offence.
+It is said that there was no 688 entrustment made by Tika Ram to the respondent and that, therefore, the offence did not fall under section 409 of the Indian Penal Code, which is a cognizable offence, but only under section 403 of the Indian Penal Code, which is not a cognizable offence.
+Section 405 of the Indian Penal Code defines "criminal breach of trust" and section 409 thereof prescribes the punishment for the criminal breach of trust by a public servant.
+Under section 405 of the Indian Penal Code, "Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any person so to do, commits "criminal breach of trust".
+To constitute an offence under this section, there must be an entrustment of property and dishonest misappropriation of it.
+The person entrusted may misappropriate it himself, or he may wilfully suffer another person to do so.
+In the instant case the respondent, being a police officer, was legally entitled to search a person found under suspicious circumstances; and Tika Ram in handing over the bundle of notes to the police officer must have done so in the confidence that he would get back the notes from him when the suspicion was cleared.
+In these circumstances, there cannot be any difficulty in holding that the currency notes were alleged to have been handed over by Tika Ram to the respondent for a specific purpose, but were dishonestly misappropriated by the respondent or at, any rate he wilfully suffered Lalji to misappropriate the same.
+We, therefore, hold that if the currency notes were taken by the respondent in discharge of his duty for inspection and return, he was certainly entrusted with the notes within the meaning of section 405 of the Indian Penal Code.
+If so, the information discloses a cognizable offence.
+We reject the first contention.
+The second objection of learned counsel for the appellants is that sub para.
+(3) of para.
+486 of the 689 Police Regulations enables the appropriate police authority to initiate the departmental proceeding without complying with the provisions of sub para.
+(1) of para.
+The relevant portion of para.
+486 of the Police Regulations reads: "When the offence amounts to an offence only under section 7 of the Police Act, there can be no magisterial inquiry under the Criminal Procedure Code.
+In such cases, and in other cases until and unless a magisterial inquiry is ordered, inquiry will be made under the direction of the Superintendent of Police in accordance with the following rules:. . " Rule I relates to a cognizable offence, r. II to a non cognizable.
+offence, including an offence under section 29 of the Police Act, and r. III to an offence under section 7 of the Police Act or a non cognizable offence, including an offence under section 29 of the Police Act.
+Rule III says: "When a Superintendent of Police sees reason to take action on information given to him, or on his own knowledge or suspicion, that a police officer subordinate to him has committed an offence under section 7 of the Police Act or a non cognizable offence (including an offence under section 29 of the Police Act) of which he considers it unnecessary at that stage to forward a report in writing to the District Magistrate under rule II above, he will make or cause to be made by an officer senior in rank to the officer charged, a departmental inquiry sufficient to test the truth of the charge.
+On the conclusion of this inquiry he will decide whether further action is necessary, and if so, whether the officer charged should be departmentally tried, or whether the District Magistrate should be moved to take cognizance of the case under the Criminal Procedure Code. " The argument is that the words "an offence under section 7 of the Police Act" take in a cognizable offence and that, therefore, this rule provides for a procedure alternative to that prescribed under r. I.
+We do not think that this contention is sound.
+Section 7 of the Police Act empowers certain officers to dismiss, suspend 690 or reduce any police officer of the subordinate rank whom they shall think remiss or negligent in the discharge of his duty, or unfit for the same.
+The grounds for punishment are comprehensive: they may take in offences under the Indian Penal Code or other penal statutes.
+The commission of such offences may also be a ground to hold that an officer is unfit to hold his office.
+Action under this section can, therefore, be taken in respect of, (i) offences only under section 7 of the Police Act without involving any cognizable or noncognizable offences, that is, simple remissness or negli gence in the discharge of duty, (ii) cognizable offences, and (iii) non cognizable offences.
+Paragraph 486 of the Police Regulations makes this clear.
+It says that when the offence alleged against a police officer amounts to an offence only under section 7 of the Police Act, there can be no magisterial inquiry under the Criminal Procedure Code.
+This part of the rule applies to an offence only under section 7 of the Police Act i. e., the first category mentioned above.
+Rule I refers to a cognizable offence i. e., the second category, rule 11 to a non cognizable offence i. e., the third category, and rule III applies to an offence under section 7 of the Police Act and to a noncognizable offence.
+Though the word "only" is not mentioned in rule 111, the offence under section 7 of the Police Act can, in the context, mean an offence only under section 7 of the said Act i.e., an offence falling under the first category.
+So understood, the three rules can be reconciled.
+We, therefore, hold that, as the offence complained of in the present case is a cognizable offence, it falls under rule I and not under rule 111.
+We, therefore, reject this contention.
+The third contention advanced by learned counsel for the appellants raises a constitutional point of considerable importance.
+The gist of the argument may be stated thus: In England, the service under the Crown is held at the Crown 's pleasure, unless the employment is for good behaviour or for a cause.
+But if there is a statute prescribing the terms of service and the mode of dismissal of the servant of the Crown, the statute would control the pleasure of the Crown.
+In India, the Constitution as well as the 691 earlier Constitution Acts of 1915, as amended in 1919, and 1935 embodied the incidents of "tenure at pleasure" of His Majesty, or the President or the Governor, as the case may be, but did not empower the Legislatures under the earlier Acts and the Parliament and the Legislatures under the Constitution to make a law abrogating or modifying the said tenure; therefore, any law made by appropriate authorities conferring a power on any subordinate officer to dismiss a servant must be construed not to limit the power of His Majesty, the President or the Governor, as the case may be, but only to indicate that they would express their pleasure only through the said officers.
+The rules made in exercise of a power conferred on a Government under a statute so delegating the power to a subordinate officer can only be administrative directions to enable the exercise of the pleasure by the concerned authorities in a reasonable manner and that any breach of those regulations cannot possibly confer any right on, or give a cause of action to, the aggrieved Government servant to go to a court of law and vindicate his rights.
+Mr. Pathak, learned counsel for the respondent, in countering this argument contends that the constitution Acts in India embodied the incidents of the tenure of the Crown 's pleasure in the relevant provisions and what the Parliament can do in England, the appropriate Legislatures in India also can do, that is, "the tenure at pleasure" created by the Constitution Acts can be abrogated, limited or modified by law enacted by the appropriate legislative bodies.
+Alternatively he contends that even if the Police Act does not curtail the tenure at pleasure, the Legislature validly made that law and the Government validly made statutory rules in exercise of the powers confered under that Act and that, therefore, the appropriate authorities can only dismiss the respondent in strict compliance with the provisions of the Act and the Rules made thereunder.
+To appreciate the problem presented and to afford a satisfactory answer it would be convenient to consider the relevant provisions.
+The Act we are concerned with in this case is the (Act V 692 of 1861).
+Its constitutional validity at the time it was ,made was not questioned.
+Under section 7 of the , as it originally stood, "the appointment of all police officers other than those mentioned in B. 4 of this Act shall, under such rules as the local Government shall from time to time sanction, rest with the Inspector General, Deputy Inspectors General, Assistant Inspectors General and District Superintendents of Police, who may, under such rules as aforesaid, at any time, dismiss, suspend or reduce any police officer.
+" That section was substituted by the present section in 1937 and later on some appropriate amend ments were made to bring it in conformity with the Constitution.
+Under the amended section, "Subject to such rules as the State Government may from time to time make under this Act, the Inspector General, Deputy Inspectors General, Assistant Inspectors General and District Superintendent of Police may at any time dismiss, suspend or reduce any police officer of the subordinate ranks whom they shall think remiss or negligent in the discharge of his duty, or unfit for the same".
+In exercise of the powers conferred on the Government by section 46 of the Act, the Government made the U. P. Police Regulations prescribing the procedure for investigation and inquiry.
+We shall ' deal with the Regulations at a later stage.
+In the Government of India Act, 1915, as amended by the Act of 1919, for the first time, the doctrine of "tenure at pleasure" was introduced by section 96 B.
+In exercise of the power conferred under sub section
+(2) certain classification rules were framed by the local Government.
+This Act was repealed by the Government of India Act, 1935, and the section corresponding to section 96 B was section 240(1) in the latter Act.
+Section 241(2) empowered, except as expressly provided by the Act, the Governor General and the Governor to prescribe the conditions of service of the servants they were empowered to appoint.
+The main difference between the Act of 1919 and that of 1935 was that in the former Act there was only one limitation on the Crown 's pleasure, namely, that no person in the service might be dismissed by 693 an authority subordinate to that by which he was appointed, whereas in the latter Act a second limitation was imposed, namely, that no such person should ' be dismissed or reduced in rank until he had been given a reasonable opportunity of showing cause against the action proposed to be taken in regard to him: see section 240, sub sections
+(2) and (3).
+Another difference between the said two Acts was that while under the former Act all the services were placed in the same position, under the latter Act special provision was made for the police force prescribing that the conditions of service of the subordinate ranks of the various police forces should be such as might be determined by or under the Acts relating to those forces respectively vide section 243.
+By the Constitution, the Act of 1935 was repealed, and, with certain changes in phraseology, cls.
+(1) and (2) of article 310 took the place of sub sections
+(1) and (4) of section 240 respectively, and article 309 took the place of section 241(2).
+Under article 313, "Until other provision is made in this behalf under this Constitution, all the laws in force immediately before the commencement of this Constitution and applicable to any public service or any post which continues to exist after the commencement of this Constitution, as an all India service or as service or post under the Union or a State shall continue in force so far as consistent with the provisions of this Constitution".
+The result is that the and the Police Regulations, made in exercise of the powers conferred on the Government under that Act, which .were preserved under section 243 of the Government of India Act, 1935, continue to be in force after the Con stitution so far as they are consistent with the provisions of the Constitution.
+It is common case, as the contentions of learned counsel disclose, that the Act and the Regulations framed thereunder were constitutionally valid at the inception and that they are also consistent with the provisions of the Constitution.
+The difference between the two contentions lies in the fact that according to one His Majesty 's pleasure cannot be modified 88 694 by a statute, according to the other it is subject to statutory provisions.
+The relevant provisions of the Constitution read thus: Article 309: "Subject to the provisions of this Constitution, Acts of the appropriate Legislature may regulate the recruitment, and conditions of service of persons appointed, to public services and posts in connection with the affairs of the Union or of any State: Provided that it shall be competent for the President or such person as he may direct in the case of services and posts in connection with the affairs of the Union, and for the Governor of a State or such person as he may direct in the case of services and posts in connection with the affairs of the State, to make rules regulating the recruitment, and the conditions of service of persons appointed, to such services and posts until provision in that behalf is made by or under an Act of the appropriate Legislature under this article, and any rules so made shall have effect subject to the provisions of any such Act.
+" Article 310: "Except as expressly provided by this Constitution, every person who is a member of a defence service or of a civil service or holds any post connected with defence or any Civil Post under the Union holds office during the pleasure of the President, and every person who is a member of a civil service of a State or holds any civil post under a State holds office during the pleasure of the Governor of the State." Under article 309 the appropriate Legislature may regulate the recruitment and conditions of service of persons appointed to public services.
+Under article 310 every person who is EC member of a public service described therein holds office during the pleasure of the President or the Governor, as the case may be.
+The words "conditions of service" in article 309 in their comprehensive sense take in the tenure of a civil servant: see N. W. F. Province vs Suraj Narain (1).
+Therefore, "the tenure at pleasure" is also one of the conditions of service.
+But article 309 opens out with a (i) A.I.R. (1949) P.C. 112.
+695 restrictive clause, namely, "Subject to the provisions of this Constitution", and if there is no restrictive, clause in article 310, there cannot be any difficulty in holding that article 309 is subject to the provisions of ' Art 310; with the result that the power of the Legislature to lay down the conditions of service of persons appointed to public services would be subject to "the tenure at pleasure" under article 310.
+In that event, any law made by the Legislature could not affect the over riding power of the President or the Governor, as the case may be, in putting an end to the tenure at their pleasure.
+Would the opening words of the clause in article 310, namely, "Except as expressly provided by this Constitution", make any difference in the matter of interpretation? It should be noticed that the phraseology of the said clause in article 310 is different from that in article 309.
+If there is a specific provision in some part of the Constitution giving to a Government servant a tenure different from that provided for in article 310, that Government servant is excluded from the operation of article 310.
+The said words refer, inter alia, to articles 124, 148, 218 and 324 which provide that the Judges of the Supreme Court, the Auditor General, the Judges of the High Courts and the Chief Election Commissioner shall not be removed from their offices except in the manner laid down in those Articles.
+If the provisions of the Constitution specifically prescribing different tenures were excluded from article 310, the purpose of that clause would be exhausted and thereafter the Article would be free from any other restrictive operation.
+In that event, articles 309 and 310 should be read together, excluding the opening words in the latter Article, namely, "Except as expressly provided by this Constitution".
+Learne counsel seeks to confine the operation of the opening words in article 309 to the provisions of the Constitution which empower other authorities to make rules relating to the conditions of service of certain classes of public servants, namely, articles 146(2), 148(5) and 229(2).
+That may be so, but there is no reason why article 310 should be excluded therefrom.
+It follows that while article 310 provides for a tenure at pleasure 696 of the President or the Governor, article 309 enables the Legislature or the executive, as the case maybe, to make any law or rule in regard, inter alia, to conditions of service without impinging upon the overriding power recognized under article 310.
+Learned counsel for the respondent contends that this construction is inconsistent with that prevailing in the English law and that the intention of the framers of the Constitution could not have been to make a radical departure from the law of England.
+The law of England on the doctrine of "tenure at pleasure" has now become fairly crystallized.
+In England, all servants of the Crown hold office during the pleasure of the Crown; the right to dismiss at pleasure is an implied term in every contract of employment of the Crown, this doctrine is not based upon any prerogative of the Crown, but on public policy; if the terms of appointment definitely prescribe a tenure for good behaviour or expressly provide for a power, to determine for a cause, such an implication of a power to dismiss at pleasure is excluded, and an Act of Parliament can abrogate or amend the said doctrine of public policy in the same way as it can do in respect of any other part of common law.
+The said propositions are illustrated in the following decisions: Shenton vs Smith (1), Gould vs Stuart (2), Reilly vs The King(3), Terrell vs Secretary of State (4).
+This English doctrine was not incorporated in its entirety in the Indian enactments vide State of Bihar vs Abdul Majid (5), Parshotam Lal Dhingra vs Union of India (6).
+Section 96 B of the Government of India Act, 1915, for the first time in 1919, by amendment, statutorily recognized this doctrine, but it was made subject to a condition or s qualification, namely, that no person in that service might be dismissed by any authority subordinate to that by which he was appointed.
+Section 240 of the Act of 1935 imposed another limitation, namely, that a reasonable opportunity of showing cause against the action proposed to be taken in (i) (3) (5) ; (2) (4) (6) ; 697 regard to a person must be given to him.
+But neither of the two Acts empowered the appropriate Legislature to make a law abolishing or amending the said doctrine.
+The Constitution of India practically incorporated the provisions of sections 240 and 241 of the Act of 1935 in articles 309 and 310.
+But the Constitution has not made "the tenure at pleasure" subject to any law made by the appropriate Legislature.
+On the other hand, as we have pointed out, article 309 is expressly made subject to "the tenure at pleasure" in article 310.
+Nor the attempt of learned counsel for the respondent to discover such a power in the Legislature in the Entries of the appropriate Lists of the Seventh Schedule to the Constitution can be legally sustained.
+He referred, inter alia, to Entry 70 of List I and Entry 41 of List II.
+It is not disputed that Parliament can make law for the organization of the police and for the prevention and detection of crime.
+But under article 245 of the Constitution such a power is subject to the provisions of the Constitution and, therefore, is subject to the provisions of article 310.
+Nor can we imply such a power in Parliament or the Legislatures from article 154(2)(b) of the Constitution.
+Under article 154, "the executive power of the State shall be vested in the Governor and shall be exercised by him either directly or through officers subordinate to him in accordance with this Constitution", and under el.
+2(b) thereof, "nothing in this Article shall prevent Parliament or the Legislature of the State from conferring by law functions on any authority subordinate to the Governor.
+" The argument is that a power to terminate the service at pleasure under article 310 is a part of the executive power of the State, that power under article 154 can be exercised by the Governor directly or through officers subordinate to him, and that under article 154(2)(b) the Parliament or the Legislature of the State can confer the same power on any authority subordinate to the Governor or, at any rate, can make a law prescribing that the Governor shall exercise the said pleasure through a particular officer.
+698 We cannot agree either with the premises or the conclusion sought to be based on it.
+The first question is whether the power of the Governor under article 310 to terminate the services of a Government servant at pleasure is part of the executive power of the State under article 154 of the Constitution.
+Article 154 speaks of the executive power of the State vesting in the Governor; it does not deal with the constitutional powers of the Governor which do not form part of the executive power of the State.
+Article 162 says that, subject to the provisions of the Constitution, the executive power of the State shall extend to matters with respect to which the Legislature of the State has power to make laws.
+If the Legislature of the State has no power to make a law affecting the tenure at pleasure of the Governor, the said power must necessarily fall outside the scope of the executive power of the State.
+As we will presently show, the Legislature has no such power and, therefore, it cannot be a part of the executive power of the State.
+That apart, if the said power is part of the executive power in its general sense, article 162 imposes another limitation on that power, namely, that the said executive power is subject to the provisions of the Constitution and therefore, subject to article 310 of the Constitution.
+In either view, article 310 falls outside the scope of article 154 of the Constitution.
+That power may be analogous to that conferred on the Governor under articles 174, 175 and 176.
+Doubtless the Governor may have to exercise the said power whenever an occasion arises, in the manner prescribed by the Constitution, but that in itself does not make it a part of the executive power of the State or enable him to delegate his power.
+Even on the assumption that the power under article 310 is executive power within the meaning of article 154, it does not make any difference in the legal position so far as the present case is concerned.
+Article 310 of the Constitution says that unless expresssly provided by the Constitution to the contrary, every civil servant holds office during the pleasure of the Governor subject to the limitations prescribed under 699 article 311.
+Can it be said that article 154(2)(b) expressly provides for a different tenure? Can it be said that the said Article confers on the Parliament or the Legislature a power higher than that conferred on them under article 245 of the Constitution ? It only preserves the power of the Legislature, which it has under the Constitution, to make a law conferring functions on an authority subordinate to the Governor.
+That power under article 245 is not unlimited, but is subject to the provisions of the Constitution and there fore subject to article 310 thereof.
+It is then said that if the appellants ' contention were not accepted, it would lead to conflict of jurisdiction: while the Governor has the power under article 310 to dismiss a public servant at his pleasure, a statute may confer a power on a subordinate officer to dismiss a servant only subject to conditions; a subordinate officer functioning under an Act may not be able to dismiss a servant, but the Governor may be able to do so under similar circumstances; a subordi nate officer may dismiss a servant, but the Governor may order his continuance in office.
+This argument is based upon the misapprehension of the scope of article 309 of the Constitution.
+A law made by the appropriate Legislature or the rules made by the President or the Governor, as the case may be, under the said Article may confer a power upon a particular authority to remove a public servant from service; but the conferment of such a power does not amount to a delegation of the Governor 's pleasure.
+Whatever the said authority does is by virtue of express power conferred on it by a statute or rules made by competent authorities and not by virtue of any delegation by the Governor of his power.
+There cannot be conflict between the exercise of the Governor 's pleasure under article 310 and that of an authority under a statute, for the statutory power would be always subject to the overriding pleasure of the Governor.
+This conclusion, the argument proceeds, would throw a public servant in India to the mercy of the executive Government while their compeers in England 700 can be protected by legislation against arbitrary actions of the State.
+This apprehension has no real .basis, for, unlike in England, a member of the public service in India is constitutionally protected at least in two directions: (i) he cannot be dismissed by an authority subordinate to that by which he was appointed; (ii) he cannot be dismissed, removed or reduced in rank until he has been given a reasonable opportunity of showing cause against the action proposed to be taken in regard to him.
+A condition similar to the first condition in article 311 found in section 96 B of the Government of India Act, 1919, was hold by the Judicial Committee in R. T. Bangachari vs Secretary of State for India (1) to have a statutory force, and the second condition, which is only a reproduction of that found in sub section (2) of section 240 of the Government of India Act, 1935, was held in High Commissioner for India and High Commissioner for Pakistan vs I. M. Lall (2) as mandatory qualifying the right of the employer recognized in sub section (1) thereof.
+These two statutory protections to the Government servant are now incorporated in article 311 of the Constitution.
+This Article imposes two qualifications on the exercise of the pleasure of the President or the Governor and they quite clearly restrict the operation of the rule embodied in article 310(1) vide the observations of Das, C.J., in Dhingra 's case (3).
+The most important of these two limitations is the provision prescribing that a civil servant shall be given a reasonable opportunity of showing cause against the action proposed to be taken in regard to him.
+As this condition is a limitation on the "tenure at pleasure", a law can certainly be made by Parliament defining the content of "reasonable opportunity" and prescribing the procedure for giving the said opportunity.
+The appropriate High Court and the Supreme Court can test the validity of such a law on the basis whe ther the provisions prescribed provide for such an opportunity, and, if it is valid, to ascertain whether the reasonable opportunity so prescribed is really given to a particular officer.
+It may be that the (1) (1936) L.R. 64 I.A. 40.
+(2) (1948) L.R. 75 1.A. 225.
+(3) ; , 839.
+701 framers of the Constitution, having incorporated in our Constitution the "tenure at pleasure" unhampered by legislative interference, thought that the said limitations and qualifications would reasonably protect the interests of the civil servants against arbitrary actions.
+The discussion yields the following results: (1) In India every person who is a member of a public service described in article 310 of the Constitution holds office during the pleasure of the President or the Governor, as the case may be, subject to the express provisions therein.
+(2) The power to dismiss a public servant at pleasure is outside the scope of article 154 and, therefore, cannot be delegated by the Governor to a subordinate officer, and can be exercised by him only in the manner prescribed by the Constitution.
+(3) This tenure is subject to the limitations or qualifications mentioned in article 311 of the, Constitution.
+(4) The Parliament or the Legislatures of States cannot make a law abrogating or modifying this tenure so as to impinge upon the overriding power conferred upon the President or the Governor under article 310, as qualified by article 311.
+(5) The Parliament or the Legislatures of States can make a law regulating the conditions of service of such a member which includes proceedings by way of disciplinary action, without affecting the powers of the President or the Governor under article 310 of the Constitution read with article 311 thereof.
+(6) The Parliament and the Legislatures also can make a law laying down and regulating the scope and content of the doctrine of "reasonable opportunity" embodied in article 311 of the Constitution; but the said law would be subject to judicial review.
+(7) If a statute could be made by Legislatures within the foregoing permissible limits, the rules made by an authority in exercise of the power conferred thereunder would likewise be efficacious within the said limits.
+What then is the effect of the said propositions in their application to the provisions of the and the rules made thereunder? The of 89 702 1861 continues to be good law under the Constitution.
+Paragraph 477 of the Police Regulations shows that the rules in Chapter XXXII thereof have been framed under section 7 of the .
+Presumably, they were also made by the Government in exercise of its power under section 46(2) of the .
+Under para.
+479(a) the Governor 's power of punishment with reference to all officers is preserved; that is to say, this provision expressly saves the power of the Governor under article 310 of the Constitution.
+"Rules made under a statute must be treated for all purposes of construction or obligation exactly as if they were in the Act and are to be of the same effect as if contained in the Act, and are to be judicially noticed for all purposes of construction or obligation": see Maxwell "On the Interpretation of Statutes", 10th edn., pp. 5051.
+The statutory rules cannot be described as, or equated with, administrative directions.
+If so, the and the rules made thereunder constitute a self contained code providing for ' the appointment.
+of police officers and prescribing the procedure for their removal.
+It follows that where the appropriate authority takes disciplinary action under the or the rules made thereunder, it must conform to the provisions of the statute or the rules which have conferred upon it the power to take the said action.
+If there is any violation of the said provisions, subject to the question which we will presently consider whether the rules are directory or mandatory, the public servant would have a right to challenge the decision of that authority.
+Learned counsel for the appellants relied upon the following decisions of the Privy Council and this Court in support of his contention that the said rules are administrative directions: R. T. Rangachari vs Secretary of State for India (1), R. Venkata Rao vs Secretary of State for India (2), High Commissioner for India and High Commissioner for Pakistan vs I. M. Lall (3), section A. Venkataraman vs The Union of India(4), and Khem Chand vs The Union of India(5).
+In Venkata Rao 's (1) (1936) L.R. 64 I.A. 40.
+(3) (1948) L.R. 75 I.A. 225.
+(2) (1936) L.R. 64 I.A. 55.
+(4) ; (5) ; 703 case (1) a reader of the Government Press was dismissed and in the suit filed by him against the Secretary, of State for India he complained, inter alia, that the dismissal was contrary to the statute inasmuch as it was not preceded by any such inquiry as was prescribed by rule XIV of the Civil Services Classification Rules made under section 96B(2) of the Government of India Act.
+Under section 96B of the said Act, every person in civil service holds office during the pleasure of His Majesty.
+Sub section (2) of that section empowers the Secretary of State for India to make rules laying down, among others, the conditions of service, and sub section
+(5) declares that no rules so made shall be construed to limit or abridge the power of the Secretary of State in Council to deal with the case of any person in the civil service of the Crown in India in such manner as may appear to him to be just and equitable.
+On a construction of these provisions the Judicial Committee held that His Majesty 's pleasure was paramount and could not legally be controlled or limited by the rules.
+Two reasons were given for the conclusion, namely, (i) section 96B in express terms stated that the office was held during the pleasure and there was no room for the implication of a contractual term that the rules were to be observed; and (ii) sub section
+(2) of section 96B and the rules made careful provisions for redress of grievances by administrative process and that sub section
+(5) reaffirmed the superior authority of the Secretary of State in Council over the civil service.
+It may be noticed that the rules framed in exercise of the power conferred by the Act was to regulate the exercise of His Majesty 's pleasure.
+The observations were presumably coloured by the doctrine of "tenure at pleasure" obtaining in England, namely, that it could only be modified by statute, influenced by the princi ple that the rules made under a statute shall be consistent with its provisions and, what is more, based upon a construction of the express provisions of the Act.
+These observations cannot, in our opinion, be taken out of their context and applied to the provisions of our Constitution and the Acts of our Legislatures in derogation of the well settled principles of (1) (1936) L. R. 64 I. A. 55.
+704 statutory construction.
+In Bangachari 's case (1) a police officer was dismissed by an authority subordinate to that by which he had been appointed.
+The appeal was heard along with that in Venkata Rao 's case (2) and the judgments in both the appeals were delivered on the same day.
+The Judicial Committee distinguished Venkata Rao 's case (2) with the following observations at p. 53: "It is manifest that the stipulation or proviso as to dismissal is itself of statutory force and stands on a footing quite other than any matters of rule which are of infinite variety and can be changed from time to time.
+" These observations do not carry the matter further an our remarks made in connection with Venkata Rao 's case (2) would equally apply to this case.
+I.M. Lall 's case (3) turns upon sub section
+(3) of section 240 of the Government of India Act, 1935.
+Again the Judicial Committee made a distinction between the rules and the provisions of the Act and ruled that sub sections
+(2) and (3) of section 240 indicated a qualification or exception to the antecedent provisions in sub section
+(1) of section 240.
+This decision only adopted the reasoning in the earlier decision.
+The remarks made by us in connection with Venkata Rao 's case (2) would equally apply to this decision.
+This Court in section A. Venkataraman 's case (4) incidentally noticed the observations of the Judicial Committee in Venkata Rao 's case (2) and observed that the rules, which were not incorporated in a statute, did not impose any legal restriction upon the right of the Crown to dismiss its servants at pleasure.
+This Court was not laying down any general proposition, but was only stating the gist of the reasoning in Venkata Rao 's case (2).
+Das, C.J., if we may say so, correctly stated the scope of the rule in Venkata Rao 's case (2) in the decision in Khem Chand 's case (5), when he stated at p. 1091 "The position of the Government servant was, therefore, rather insecure, for his office being held during the pleasure of the Crown under the Government of India Act, 1915, the rules could not override (1) (1936) L.R. 64 I.A. 40.
+(3) (1948) L.R. 75 I.A. 225.
+(2) (1936) L.R. 64 I.A. 55.
+(4) ; (5) ; 705 or derogate from the statute and the protection of the rules could not be enforced by action so as to nullify the statute itself." To state it differently, the Government of India Act, 1915, as amended in 1919, and that of 1935 expressly and clearly laid down that the tenure was at pleasure and therefore the rules framed under that Act must be consistent with the Act and not in derogation of it.
+These decisions and the observations made therein could not be understood to mark a radical departure from the fundamental principle of construction that rules made under a statute must be treated as exactly as if they were in the Act and are of the same effect as if contained in the Act.
+There is another principle equally fundamental to the rules of construction, namely, that the rules shall be consistent with the provisions of the Act.
+The decisions of the Judicial Committee on the provisions of the earlier Constitution Acts can be sustained on the ground that the rules made in exercise of power conferred under the Acts cannot override or modify the tenure at pleasure provided by section 96B or section 240 of the said Acts, as the case may be.
+Therefore, when the paramountcy of the doctrine was conceded or declared by the statute, there might have been justification for sustaining the rules made under that statute in derogation thereof on the ground that they were only administrative directions, for otherwise the rules would have to be struck down as inconsistent with the Act.
+In such a situation, if the statute was valid it would be valid in so far as it did not derogate from the provisions of article 310, read with article 311 the rules made thereunder would be as efficacious as the Act itself.
+So long as the statute and the rules made thereunder do not affect the power of the Governor in the present case the Governor 's pleasure is expressly preserved they should be legally enforceable.
+In this context the decisions of the different High Courts in India are cited at the Bar.
+It would not serve any purpose to consider every one of them in detail.
+It would suffice if their general trend be noticed.
+They express two divergent views: one line relies upon the observations 706 of the Privy Council in Venkata Rao 's case (1) and lays down that all statutory rules vis a vis the disciplinary proceedings taken against a Government servant are administrative directions, and the other applies the well settled rules of construction and holds that the appropriate authority is bound to comply with the mandatory provisions of the rules in making an inquiry under a particular statute.
+A close scrutiny of some of the decisions discloses a distinction implied, though not expressed, between statutory rules defining the scope of reasonable opportunity and those governing other procedural steps in the disciplinary process.
+In our view, subject to the overriding power of the President or the Governor under article 310, as qualified by the provisions of article 311, the rules governing disciplinary proceedings cannot be treated as administrative directions, but shall have the same effect as the provisions of the statute whereunder they are made, in so far a, , they are not inconsistent with the provisions thereof We have already negatived the contention of learned counsel that the Governor exercises his pleasure through the officers specified in section 7 of the , and therefore, it is not possible to equate the Governor 's pleasure with that of the specified officers ' statutory power.
+If so, it follows that the inquiry under the Act shall be made in accordance with its provisions and the rules made thereunder.
+Then learned counsel contends that even if the said rules have statutory force, they are only directory and the non compliance with the rules will not invalidate the order of dismissal made by the appropriate authority.
+Before we consider the principles governing the question whether the rules are mandatory or directory, it would be convenient at this stage to notice broadly the scope and the purpose of the inquiry contemplated by the rules.
+Section 2 of the constitutes the police establishment; section 7 empowers specified officers to (1) [1936] L.R. 64 I.A. 55.
+707 punish specified subordinate officers who are remiss or negligent in discharge of their duties or unfit for the same; section 46 enables the Government to make rules.
+to regulate the procedure to be followed by the magistrate and police officers in discharge of any duty imposed on them by or under the Act; under section 7, read with section 46 of the , the Police Regulations embodied in chapter XXXII were framed.
+Paragraph 477 of the Regulations says that the rules in that chapter have been made under section 7 of the and apply only to officers appointed under section 2 of the and that no officer appointed under that section shall be punished by executive order otherwise than in the manner provided in that chapter.
+Paragraph 478 prescribes the nature of the punishment that can be imposed on the delinquent officers.
+Paragraph 479 empowers specified officers to punish specified subordinate officers.
+Paragraph 483 gives the procedure to be followed in the matter of the inquiry against a police officer.
+It reads: "Subject to the special provision contained in paragraph 500 and to any special orders which may be passed by the Governor in particular cases a proceeding against a police officer will consist of A A magisterial or police inquiry, followed, if this inquiry shows the need for further action, by B A judicial trial, or C A departmental trial, or both, consecutively." Paragraph 484 declares that the nature of the inquiry in any particular case will vary according to the nature of the offence.
+If the offence is cognizable or non cognizable, the inquiry will be according to Schedule II of the Criminal Procedure Code.
+If the information is received by the District Magistrate, he may in exercise of his powers under the Criminal Procedure Code either, (1) make or order a magisterial inquiry; or (2) order an investigation by the Police.
+Paragraph 485 reads: "When a magisterial inquiry is ordered it will be made in accordance with the Criminal Procedure Code and the Superintendent of Police will have no direct 708 concern with it until the conclusion of judicial proceedings or until and unless the case is referred to him for further disposal, but he must give any assistance to the inquiring magistrate that he may legally be called upon to give and he must suspend the accused should this become necessary under paragraph 496." Paragraph 486 says that there can be no magisterial inquiry under the Criminal Procedure Code when the offence alleged against a police officer amounts to an offence only under section 7 of the , and it provides further that in such cases, and in, other cases until and unless a magisterial inquiry is ordered, inquiry will be made under the direction of the Superintendent of Police in accordance with the rules given thereunder.
+Under rule I thereof, "Every information received by the police relating to the commission of a cognizable offence by a police officer shall be dealt with in the first place under Chapter XIV, Criminal Procedure Code, according to law, a case under the appropriate section being registered in the police station concerned".
+There are six provisos to that rule.
+Rule II provides for the inquiry of a non cognizable offence; and rule III prescribes the procedure in regard to an offence only under section 7 of the or a non cognizable offence of which the Superintendent of Police considers unnecessary at that stage to forward a report in writing to the District Magistrate.
+Paragraph 488 deals with a judicial trial and para.
+489 with a departmental trial.
+Paragraph 489 says: "A police officer may be departmentally tried under section 7 of the (1) after he has been tried judicially; (2) after a magisterial inquiry under the Criminal Procedure Code; (3) after a police investigation under the Criminal Procedure Code or a departmental enquiry under paragraph 486,III above.
+" There are other provisions dealing with the manner of conducting the inquiries and other connected matters.
+The rules provide for the magisterial and police inquiry followed, if the inquiry showed the need for further action, by a judicial trial or a departmental 709 trial, or both, consecutively.
+In the case of cognizable offences the Superintendent of Police is directed to investigate under chapter XIV of the Criminal Pro p, cedure Code and in the case of non cognizable offences in the manner provided in rule II of para.
+486, and in the case of an offence only under section 7 of the or a non cognizable offence in the manner provided under rule III of para.
+After one or other of the relevant procedure is followed, the Superintendent of Police is empowered to try a police officer departmentally.
+The question is whether rule I of para.
+486 is directory.
+The relevant rule says that the police officer shall be tried in the first place under chapter XIV of the Criminal Procedure Code.
+The word "shall" in its ordinary import is "obligatory"; but there are many decisions wherein the courts under different situations construed the word to mean "may".
+This Court in Hari Vishnu Kamath vs Syed Ahmad Ishaque (1) dealt with this problem at p. 1125 thus: "It is well established that an enactment in form mandatory might in substance be directory and that the use of the word "shall" does not conclude the matter.
+" It is then observed: "They (the rules) are well known, and there is no need to repeat them.
+But they are all of them only aids for ascertaining the true intention of the legislature which is the determining factor, and that must ultimately depend on the context.
+" The following quotation from Crawford "On the Construction of Statutes", at p. 516, is also helpful in this connection: "The question as to whether a statute is mandatory or directory depends upon the intent of the legislature and not upon the language in which the intent is clothed.
+The meaning and intention of the legislature must govern, and these are to be ascertained, not only from the phraseology of the provision, but also by considering its nature, its design, and the (1) ; 90 710 consequences which would follow from construing it the one way or the other. " This passage was approved by this Court in State of U. P. vs Manbodhan Lal Srivastava (1).
+In Craies on Statute Law, 5th edition, the following passage appears at p. 242: "No universal rule can be laid down as to whether mandatory enactments shall be considered directory only or obligatory with an implied nullification for disobedience.
+It is the duty of Courts of Justice to try to get at the real intention of the Legislature by carefully attending to the whole scope of the statute to be construed.
+" A valuable guide for ascertaining the intention of the Legislature is found in Maxwell on "The Interpretation of Statutes", 10th edition, at p. 381 and it is: "On the other hand, where the prescriptions of a statute relate to the performance of a public duty and where the invalidation of acts done in neglect of them would work serious general inconvenience or injustice to persons who have no control over those entrusted with the duty without promoting the essential aims of the legislature, such prescriptions seem to be generally understood as mere instructions for the guidance and government of those on whom the duty is imposed, or, in other words, as directory only.
+The neglect of them may be penal, indeed, but it does not affect the validity of the act done in disregard of them.
+" This passage was accepted by the Judicial Committee of the Privy Council in the case of Montreal Street Railway Company vs Normandin (2 ) and by this Court in State of U. P. vs Manbodhan Lal Srivastava (1).
+The relevant rules of interpretation may be briefly stated thus: When a statute uses the word "shall", prima facie, it is mandatory, but the Court may ascertain the real intention of the legislature by carefully attending to the whole scope of the statute.
+For ascertaining the real intention of the Legislature the Court may consider, inter alia, the nature and the design of the statute, and the consequences which (1) ; , 545.
+(2) L.R. [1917] A.C.770.
+711 would follow from construing it the one way or the other, the impact of other provisions whereby the necessity of complying with the provisions in question is avoided, the circumstance, namely, that the statute provides for a contingency of the non compliance with the provisions, the fact that the non compliance with the provisions is or is not visited by some penalty, the serious or trivial consequences that flow therefrom, and, above all, whether the object of the legislation will be defeated or furthered.
+Now what is the object of rule I of para.
+486 of the Police Regulations? In our opinion, it is conceived not only to enable the Superintendent of Police to gather information but also to protect the interests of subordinate officers against whom departmental trial is sought to be held.
+After making the necessary investigation under chapter XIV of the Criminal Procedure Code, the Superintendent of Police may as well come to the conclusion that the officer concerned is innocent, and on that basis drop the entire proceedings.
+He may also hold that it is a fit case for criminal prosecution, which, under certain circumstances, an honest officer against whom false charges are framed may prefer to face than to submit himself to a departmental trial.
+Therefore,the rules are conceived in the interest of the department as well as the officer.
+From the stand point of the department as well as the officer against whom departmental inquiry is sought to be intiated, the preliminary inquiry is very important and it serves a real purpose.
+Here the setting aside of the order of dismissal will not affect the public in general and the only consequence will be that the officer will have to be proceeded against in the manner prescribed by the rules.
+What is more, para. 487 and para.
+489 make it abundantly clear that the police investigation under the Criminal Procedure Code is a condition precedent for the departmental trial.
+Paragraph 477 emphasizes that no officer appointed under section 2 of the shall be punished by executive order otherwise than in the manner provided under chapter XXXII of the Police Regulations.
+This is an imperative injunction prohibiting 712 inquiry in non compliance with the rules.
+Paragraph 489 only empowers the holding of a departmental trial in regard to a police officer only after a police investigation under the Criminal Procedure Code.
+When a rule says that a departmental trial can be held only after a police investigation, it is not permissible to hold that it can be held without such investigation.
+For all the foregoing reasons, we hold that para.
+486 is mandatory and that, as the investigation has not been held under chapter XIV of the Criminal Procedure Code, the subsequent inquiry and the order of dismissal are illegal.
+For the foregoing reasons we hold that, as the respondent was dismissed without complying with the provisions of para.
+486(1), the order of dismissal is illegal and that the High Court is right in setting aside the order of dismissal.
+In the result, the appeal fails and is dismissed with costs.
+WANCHOO, J.
+We regret we are unable to agree that the appeal be dismissed.
+Babu Ram Upadhya (respondent) was a sub inspector of police who was appointed in December, 1948.
+In 1953, he was posted at Sitapur.
+On September 6, 1953, he was returning from a village called Madhwapur, when he saw a man who was subsequently found to be Tika Ram coming from the side of a canal and going hurriedly into a field.
+The movements of Tika Ram roused his suspicion.
+One Lalji, an ex patwari, was also with the sub inspector.
+Tika Ram was called and searched, and a bundle containing currencynotes was found on him.
+The sub inspector took the bundle and counted the notes and handed them over to Lalji.
+Lalji in his turn handed over the notes to Tika Ram.
+Thereafter Tika Ram, who is an old man, almost blind, went away.
+When he reached his house, he found that there was a shortage of Rs. 250.
+He then made a complaint to the Superintendent of Police on September 9, 1953, in which he gave the above facts.
+An inquiry was made by the Superintendent of Police and ultimately, departmental proceedings under section 7 of the were taken 713 against the respondent.
+These proceedings resulted in his dismissal and thereupon the respondent applied to the High Court under article 226 of the Constitution.
+The main contention of the respondent was that r. 486 of the Police Regulations framed under section 7 of the was not observed and therefore the departmental proceedings taken against him were illegal.
+The reply of the appellant was two fold: in the first place, it was urged that r. 486 did not apply as there was no report of a cognizable offence against the sub inspector; and in the next place, it was urged that the rules contained in the Police Regulations were only administrative rules and even if there was non compliance with any of them, it would not affect the departmental proceedings taken against the respondent, provided there was no breach of the guarantees contained in article 311 of the Constitution.
+The High Court held that there was a report of a cognizable offence under section 409 of the Indian Penal Code against the respondent and therefore the procedure provided by r. 486 ought to have been followed.
+It further held that r. 486 had been framed under section 7 of the and was a statutory provision, which had the force of law.
+As such, following the earlier view taken by the High Court in two other cases it held that a dismissal as a result of departmental proceedings which took place without complying with r. 486 would be illegal.
+In consequence, the writ petition was allowed.
+The appellant then applied for a certificate to enable it to appeal to this Court, which was refused.
+Thereupon special leave was prayed for from this Court, which was granted; and that is how the matter has come up before us.
+Mr. C. B. Aggarwala on behalf of the appellant urges the same two points before us.
+So far as the first point is concerned, we are of opinion that there is no force in it.
+There is no doubt that in the complaint made by Tika Ram, the name of the respondent was not shown in the heading; but from the facts disclosed in the body of the complaint it is clear that the sub inspector searched the person of Tika Ram and recovered a bundle containing currency notes.
+He 714 did so obviously under the authority vested in him as a police officer.
+When therefore he was satisfied that there was no reason to take any further action against Tika Ram, it was his duty to see that the entire amount taken by him from Tika Ram on search was returned to him (Tika Ram).
+The High Court was right in the view that where property is taken away with the intention that it will continue to be the property of the person from whose possession it has been taken away, there will be an entrustment of the property to the person taking it away, and if.
+subsequently the person taking it away converts it to his own use or suffers some other person to do so, there will be criminal breach of trust and not merely criminal misappropriation.
+Thus an offence under section 409 of the Indian Penal Code appears to have been committed prima facie on the facts of this case.
+As an offence under section 409 is a cognizable offence, r. 486 of the Police Regulations would apply.
+This brings us to the main point in the present appeal.
+Sec. 7 of the under which r. 486 has been framed is in these terms: "Subject to such rules as the State Government may from time to time make under this Act, the Inspector General, Deputy Inspectors General, Assistant Inspectors General and District Superintendents of Police may at any time dismiss, suspend or reduce any police officer of the subordinate ranks whom they shall think remiss or negligent in the discharge of his duty or unfit for the same; or may award any one or more, of the following punishments to any police officer of the subordinate ranks, who shall discharge his duty in a careless or negligent manner, or who, by any act of his own shall render himself unfit for the discharge thereof, name (a) fine to any amount not exceeding one month 's pay; (b) confinement to quarters for a term not exceeding fifteen days, with or without punishment, drill, extra guard, fatigue or other duty; (c) deprivation of good conduct pay; 715 (d) removal from any office of distinction or special emolument;".
+It gives power to four grades of police officers to dismiss, suspend or reduce any police officer of the subordinate ranks whom they think remiss or negligent in the discharge of his duty or unfit for the same.
+It also provides for infliction of four other kinds of punishment by these four grades of officers on any police officer of the subordinate ranks who discharges his duty in a careless or negligent manner or who by any act of his own renders himself unfit for the discharge thereof.
+In the present case we are concerned with dismissal and what we shall say hereafter should be taken to be confined to a case of dismissal.
+Sec tion 7 shows that the power of dismissal conferred by it on the four grades of police officers is to be exercised subject to such rules as the State Government may from time to time make under the .
+The contention on behalf of the respondent is that the power of dismissal has to be exercised subject to rules and therefore, when r. 486 of the Police Regulations (framed under section 7) provided a certain procedure to be followed with respect to cases in which a cognizable offence was involved it was not open to the authority concerned to disregard that procedure.
+In effect, it is urged that r. 486 is a mandatory provision and non compliance with it would invalidate the departmental proceedings.
+It is not in dispute in this case that the procedure provided by r. 486 was not followed.
+That procedural provision is that where a report of a cognizable crime is made against a police officer belonging to the subordinate ranks, it has to be registered as provided in Chapter XIV of the Code of Criminal Procedure and investigated as provided thereunder.
+Thereafter the authority concerned has to decide whether to send the case for trial before a court of law or to take departmental proceedings.
+In this case no report was registered as provided under Chapter XIV of the Code of Criminal Procedure and no investigation was made as provided in that Chapter.
+All that happened was that the Superintendent of Police to whom Tika Ram had complained inquired into the 716 complaint of Tika Ram and thereafter decided to hold a departmental inquiry under section 7 of the against the respondent.
+The main contention on behalf of the appellant is that the Rules framed under section 7 of the are administrative rules and in any case they are only directory and non compliance with them would not vitiate the subsequent proceedings unless there is a breach of the guarantee contained in article 311 of the Constitution, as all public servants hold their office at the pleasure of the President or the Governor, as the case may be, other than those expressly excepted under the Constitution.
+Reliance in this connection is placed on the case of R. Venkata Rao vs Secretary of State for India in Council (1).
+This brings us to a consideration of the tenure on which public servants hold office.
+The position in England is that all public servants hold office at the pleasure of His Majesty, that is to say, their service was terminable at any time without amuse: (see Shenton vs Smith (2 )).
+By law, however, it is open to Parliament to prescribe a different tenure and the King being a party to every Act of Parliament is understood to have accepted the change in the tenure when he gives assent to such law: (see Gould vs Stuart (3)).
+This principle applied in India also before the Government of India Act, 1915, was amended by the addition of section 96 B therein.
+Section 96 B for the first time provided by statute that every person in the civil service of the Crown held office during His Majesty 's pleasure, subject to the provisions of the Government of India Act and the rules made thereunder and the only protection to a public servant against the exercise of pleasure was that he could not be dismissed by any authority subordinate to that by which he was appointed.
+It was this section, which came for consideration before the Privy Council in Venkata Rao 's case (1) and the Privy Council held that in spite of the words ".subject to the rules made under the Government of India Act," Venkata Rao 's employment was not of a (1) (1936) L.R. 64 I.A. 55 (2) (3) 717 limited and special kind during pleasure with an added contractual term that the procedure prescribed, by the Rules must be observed; it was by the express terms of section 96 B held "during His Majesty 's pleasure" and no right of action as claimed by Venkata Rao existed.
+The Privy Council further held that the terms of section 96 B assured that the tenure of office, though at pleasure, would not be subject to capricious or arbitrary action but would be regulated by the rules which were manifold in number, most minute in particularity and all capable of change; but there was no right in the public servant enforceable by action to hold his office in accordance with those rules and he could therefore be dismissed notwithstanding the failure to observe the procedure prescribed by them.
+The main point which was urged in Venkata Rao 's case (1) was that under r. XIV of the Civil Services Classification Rules no public servant could be dismissed, removed or reduced in rank except after a properly recorded departmental inquiry.
+In Venkata Rao 's case (1) the departmental inquiry prescribed by the rules was found not to have been held.
+Even so, the Privy Council held that the words used in section 96 B could not and did not cut down the pleasure of His Majesty by rules though it was observed that the terms of the section contained a statutory and solemn assurance, that the tenure of office, though at pleasure., would not be subject to capricious or arbitrary, action, but would be regulated by rule.
+It was further added that supreme care should be taken that this assurance is carried out in the letter and in the spirit.
+The Privy Council further held that in ' the case before it, there had been a serious and complete failure to adhere to important and indeed fundamental rules, and mistakes of a serious kind had been made and wrongs had been done which called for redress; even so; they were of the view that as a matter of law that redress was not obtainable from courts by action. ,.
+This was the position under the Government of India Act 1915.
+There was however a material change in the Government of India Act, 1935.
+So far, there (1) (1936) L.R. 64 I. A. 55.
+91 718 was one protection to a public servant, namely, that he could not be dismissed by an authority subordinate to that by which he was appointed.
+In the Government of India Act, 1935, section 240(1) laid down that " except as expressly provided by this Act, every person who is a member of a civil service of the Crown in India. holds office during His Majesty 's pleasure.
+" The words of this section are different from those of section 96 B and the tenure of all public servants other than those expressly provided for was to be during His Majesty 's pleasure.
+There were, however, two safeguards provided by sub sections
+(2) and (3) of section 240.
+The first was the same (namely, that no public servant will be dismissed by an officer subordinate to that who appointed him); but a further exception was added to the pleasure tenure, namely, no public servant shall be dismissed until he has been given a reasonable opportunity of showing cause against the action proposed to be taken in regard to him.
+This protection came to be considered by the Privy Council in High Commissioner for India and High Commissioner for Pakistan vs 1.
+M. Lall (1) and it was held that it was a mandatory provision and qualified the pleasure tenure and provided a condition precedent to the exercise of power by His Majesty provided by sub section
+(1) of section 240.
+Thus by the Government of India Act, 1935, there were two statutory guarantees to public servants against the exercise of the pleasure of his Majesty; but it is clear from section 240 of the Government of India Act, 1935, that the pleasure of His Majesty to dismiss was not otherwise subject to rules framed under the subsequent provisions of the Government of India Act appearing in Chapter 11 of Part X dealing with public services.
+This position continued till we come to the Constitution.
+Article 310(1) of the Constitution provides for what was contained in section 240(1) of the Government of India Act, 1935, and is in these terms: "(1) Except as expressly provided by this Constitution, every person who is a member of a defence (1) (1948) L.R. 75 I.A. 225. 719 service or of a civil service of the Union or of an all India service or holds any post connected with defence, or any civil post under the Union, holds office during the pleasure of the President, and every person who is a member of a civil service of a State or holds any civil post under a State holds office during the pleasure of the Governor of the State.
+" It will be clear therefore that all public servants except as expressly provided by the Constitution hold their office during the pleasure of the President or the Governor, as the case may be.
+Article 311 then provides for two guarantees and is similar in terms to section 240(2) and (3) of the Government of India Act, 1935 and the two guarantees are the same, (namely, (i) that no person shall be dismissed or removed by an authority subordinate to that by which he was appointed, and (ii) no such person shall be dismissed or removed or reduced in rank until he has been given a reason able opportunity of showing cause against the action proposed to be taken in regard to him).
+In Parshotam Lal Dhingra vs Union of India (1), this Court held that article 311 was in the nature of a proviso to article 310, that it provides two constitutional guarantees cutting down the pleasure of the President or the Governor, as the case may be, and that it was a mandatory provision which had to be complied with before the pleasure provided in article 310 can be exercised.
+Mr. Pathak for the respondent urges that in view of the words of article 310 statute or statutory rules can also cut down the nature of the pleasure tenure provided by article 310 in the same way as in England an Act of Parliament cuts down the ambit of His Majesty 's pleasure in the matter of dismissal.
+He relies on the words "as expressly provided by this Constitution" and urges that it is open to the legisla ture to cut down the pleasure tenure by law or to provide for its being affected by statutory rules.
+In this connection he relies on article 309 as well as article 154 of the Constitution.
+Now, article 309 begins with the words "subject to the provisions of this Constitution" land lays down that "Acts of the appropriate Legislature may regulate the recruitment, and conditions of (1) ; 720 service of person appointed, to public services and posts in connection with the affairs of the Union or of any State".
+The proviso to article 309 lays down that "it shall be competent for the President or the Governor as the case may be to make rules relating to recruitment and conditions of service until provision in that behalf is made by or under an Act of the appropriate Legislature".
+It will be clear immediately that article 309 is subject to the provisions of the Constitution and therefore subject to article 310 and therefore, any law passed or rules framed under article 309 must be subject to article 310 and cannot in any way affect the pleasure tenure laid down in article 310.
+The words "except as expressly provided by this Constitution" appearing in article 310 clearly show that the only exceptions to the pleasure tenure are those expressly contained in the Constitution and no more.
+These exceptions, for example, are contained inter alia in articles 124. 148, 280 and 324 and also in article 310 (2).
+Therefore, unless there is an express provision in the Constitution cutting down the pleasure tenure, every public servant holds office during the pleasure of the President or the Governor, as the case may be.
+We cannot accept the argument that a law passed under article 309 prescribing conditions of service would become an express provision of the Constitution and would thus cut down the pleasure tenure contained in article 310.
+As the Privy Council pointed in Venkata Rao 's case (1), the rules framed under article 309 or the laws passed thereunder amount to a statutory and solemn assurance that the tenure of office though at pleasure will not be subject to capricious or arbitrary action but will be regulated by rule.
+But if the rules or the law define the content of the guarantee contained in article 311 (2) they may to that extent be mandatory but only because they carry out the guarantee contained in article 311 (2).
+Excepting this, any law or rule framed under article 309 cannot cut down the pleasure tenure as provided in article 310.
+The same in our opinion applies to a law passed under article 154 (2)(b) which authorises Parliament or the legislature of a State to confer functions on any (1) (1936) L.R. 64 I.A. 55.
+721 authority subordinate to the Governor.
+If any law is passed conferring on any authority the power to dismiss or remove or reduce in rank, that law cannot cut down the content of the pleasure tenure as contained in article 310; that law would be passed under article 245 and that article also begins with the words "subject to the provisions of this Constitution".
+Therefore, the law passed under article 154 (2) (b) would also in the same way as the law under article 309 be subject to the pleasure tenure contained in article 310 and cannot cut down the content of that tenure or impose any further fetters on it except those contained in article 311.
+The position therefore that emerges from the examination of the relevant Articles of the Constitution is that all public servants other than those who are excepted expressly by the provisions of the Constitution hold office during the pleasure of the President or the Governor, as the case may be, and that no law or rule passed or framed under article 309 or article 154 (2) (b) can cut down the content of the pleasure tenure as contained in article 310 subject to article 311.
+With this basic position in our Constitution, let us turn to the with which we are concerned.
+Section 7 thereof lays down that four grades of officers will have power to dismiss, suspend or reduce any police officer of the subordinate ranks subject to such rules as the State Government may from time to time make under the .
+Though the is a pre constitutional law which has continued under article 372 of the Constitution, it cannot in our opinion stand higher than a law passed under article 309 or article 154 (2) (b) and out down the content of the pleasure tenure as contained in article 310.
+The police officers of the subordinate ranks are not expressly excluded from the operation of the pleasure tenure by any provision of the Constitution; they, therefore, hold office during the pleasure of the Governor and the only protection that they can claim are the two guarantees contained in article 311.
+It is true that section 7 lays down that the four grades of officers empowered to dismiss will act according to rules framed by the State Government; but that does not in our opinion mean that 722 these rules could introduce any further fetter on the pleasure tenure under which the police officers of the subordinate ranks are in service.
+It was necessary to provide for the framing of rules because the section envisages conferment of, powers of punishment of various kinds on four grades of officers relating to various cadres of police officers in the subordinate ranks.
+It was left to the rules to provide which four grades of officers would dismiss police officers of which subordinate rank or would give which punishment to a police officer of which subordinate rank.
+Such rules would in our opinion be mandatory as they go to the root of the jurisdiction of the four grades of police officers empowered to act under section 7.
+But further rules may be framed under section 7 to guide these police officers how to act when they proceed to dismiss or inflict any other punishment on police officers of the subordinate ranks.
+These rules of procedure, however, cannot all be mandatory, for if they were so they would be putting further fetters than those provided in article 311 on the pleasure of the Governor to dismiss a public servant.
+of course, if any of the rules framed under section 7 carry out the purposes of article 311(2), to that extent they will be mandatory and in that sense their contravention would in substance amount to contravention of article 311 itself.
+If this were not so, it would be possible to forge further fetters on the pleasure of the Governor to dismiss a public servant and this in the light of what we have said above is clearly not possible in view of the provisions of the Constitution.
+On the other hand, it will not be possible by means of rules framed under section 7 to take away the guarantee provided by article 311(1), which lays down that no public servant shall be dismissed by an authority subordinate to that by which he was appointed.
+If any rule under section 7, for example, lays down otherwise it will clearly be ultra vires in view of article 311(1).
+The rules therefore that are framed under section 7 would thus be of two kinds, namely (1) those which define the jurisdiction of four grades of officers to inflict a particular kind of punishment on a particular police officer of the subordinate rank they will be mandatory 723 for they go to the root of the jurisdiction of the officer exercising the power, but even these rules cannot go against the provisions of article 31 1 (1); and (2) procedural rules, which again may be of two kinds.
+Some of them may prescribe the manner in which the guarantee contained in article 311 (2) may be carried out and if there are any such rules they will be mandatory.
+The rest will be merely procedural and can only be directory as otherwise if they are also mandatory further fetters on the power of the Governor to dismiss at his pleasure contained in article 310 would be forged and this is not permissible under the Constitution.
+It is from this angle that we shall have to consider 486.
+Before, however, we come to r. 486 itself, we may dispose of another argument, namely, that the four grades of officers who have the power to dismiss under section 7 are exercising the statutory authority vested in them and are not exercising the Governor 's pleasure of dismissal under article 310 and therefore their action in dismissing an officer is subject to all the rules framed for their guidance.
+We are of opinion that this argument is fallacious.
+Article 310 defines the pleasure tenure and by necessary implication gives power to the Governor to dismiss at pleasure any public servant subject to the exceptions contained in article 310 and also subject to the guarantees contained in article 311.
+This power of the Governor to dismiss is executive power of the State and can be exercised under article 154(1) by the Governor himself directly or indirectly through officers subordinate to him.
+Thus it is open to the Governor to delegate his power of dismissal to officers subordinate to him; but even when those officers exercise the power of dismissal, the Governor is indirectly exercising it through those to whom he has delegated it and it is still the pleasure of the Governor to dismiss, which is being exercised by the subordinate officers to whom it may be delegated.
+Further though the Governor may delegate his executive power of dismissal at pleasure to subordinate officers he still retains in himself the power to dismiss at pleasure if he thinks fit in a particular case in spite 724 of the delegation.
+There can be no question that where a delegation is made, the authority making the delegation retains in itself what has been delegated.
+Therefore, even where a subordinate officer is exercising the power to dismiss he is indirectly exercising the power of the Governor to dismiss at pleasure and so his power of dismissal can only be subject to the same limitations to which the power of the Governor would be subject if he exercised it directly.
+But it is said that in the present case the power has not been delegated by the Governor under article 154(1) and that it had been conferred on those police officers by law.
+In our opinion, that makes no difference to the nature of the power, which is being exercised by these four grades of officers under the .
+As we have already said article 154(2)(b) gives power to Parliament or the legislature of a State by law to confer functions on any authority subordinate to the Governor.
+When the function of dismissal is conferred by law on any authority subordinate to the Governor it is nothing more than delegation of the Governor 's executive power to dismiss at pleasure by means of law and stands in no better position than a delegation by the Governor himself under article 154(1).
+Whether it is delegation by the Governor himself or whether it is delegation by law under article 154(2)(b) or by an existing law, which must be treated as analogous to a law under article 154(2)(b), the officer exercising the power of dismissal is only indirectly exercising, the Governor 's power to dismiss at pleasure and his order of dismissal has the same effect as the order of the Governor to dismiss at pleasure.
+Therefore, his order also is only subject to the two fetters provided in article 311 of the Constitution and cannot be subjected to any more fetters by procedural rules other than those framed for carrying out the object of article 311(2).
+Therefore, when the four grades of officers proceed to dismiss any police officer of the subordinate rank under section 7 of the , they are merely exercising.
+the power of the Governor to dismiss at pleasure indirectly; and the only fetters that can be placed on that power are those contained in the Constitution, namely, article 311.
+725 We may in this connection refer once again to the case of Venkata Rao (1) where the dismissal was by an, officer subordinate to the Governor of Madras; but ' that dismissal was also held to be an indirect exercise I of His Majesty 's pleasure to dismiss, and that is why it was held that if r. XIV of the Classification Rules was not complied with, a public servant had no right of action against an order dismissing him at His Majesty 's pleasure.
+Therefore, whenever a subordinate officer exercises the power to dismiss, whether that power is delegated by the Governor, or is delegated under a law made under article 154(2)(b) or under an existing law analogous to that, he is merely exercising indirectly the power of the Governor to dismiss at pleasure and his action is subject only to the two guarantees contained in article 311.
+The fact therefore that the police officer in this case made the order of dismissal by virtue of section 7 will make no difference and he will be deemed to be exercising the power of the Governor to dismiss at pleasure by delegation to him by law of that power.
+We may add that even where there is delegation by law of the power of the Governor to dismiss at pleasure, the power of the Governor himself to act directly and dismiss at pleasure cannot be taken away by that law, for that power he derives from article 310 of the Constitution.
+The present case therefore must be judged on the same basis as any case of dismissal directly by the Governor and would only be subject to the two limitations contained in article 311.
+We now come to r. 486.
+This rule, as we have already indicated, provides that if there is any complaint of the commission of any cognizable crime by a police officer, it must be registered in the relevant police station, under Chapter XIV of the Code of Criminal Procedure and investigated in the manner provided by that Chapter.
+After the investigation is complete, it is open to the authority concerned, be it the Superintendent of Police or the District Magistrate, to decide whether to proceed in a court of law (1) (1936) L.R. 64 I.A. 55.
+92 726 or to hold a departmental inquiry or do both, though in the last case the departmental inquiry must take place only after the judicial trial is over.
+The first question then that arises is whether r. 486 is meant to carry out the purpose of article 311(2).
+As we read r. 486, we cannot see that it is meant for that purpose; it only provides for a police investigation under Chapter XIV of the Code of Criminal Procedure.
+The police officer making an investigation under Chapter XIV is not bound to examine the person against whom he is investigating, though there is nothing to prevent him from doing so.
+Nor is the person against whom an investigation is going on under Chapter XIV bound to make a statement to the police officer.
+In these circumstances, the purpose of an investigation under Chapter XIV is not relevant under article 311(2) which says that a public servant shall not be dismissed without giving him a reasonable opportunity of showing cause against the action proposed to be taken in regard to him.
+Therefore, r. 486 not being meant for the purpose of carrying out the object of article 311 (2) cannot be mandatory and cannot add a further fetter on the exercise of the power to dismiss or remove at the pleasure of the Governor over and above the guarantees contained in article 311.
+It appears to us that the object of r. 486 is that the authority concerned should first make a preliminary inquiry to find out if there is a case against the officer complained against either to proceed in a court or to take departmental action.
+The investigation prescribed by r. 486 is only for this purpose.
+Incidentally it may be that after such an investigation, the authority concerned may come to the conclusion that there in no case either ' to send the case to court or to hold a departmental inquiry.
+But that in our opinion is what would happen in any case of complaint against a public servant in any department of Government.
+No authority entitled to take action against a public servant would straightaway proceed to put the case in court or to hold a departmental inquiry.
+It seems to us axiomatic if a complaint is received against any public servant of any department, that the authority 727 concerned would first always make some kind of a preliminary inquiry to satisfy itself whether there is any case for taking action at all; but that is in our opinion for the satisfaction of the authority and has nothing to do with the protection afforded to a public servant under article 311.
+Rule 486 of the Police Regulations also in our opinion is meant for this purpose only and not meant to carry out the object contained in article 311(2).
+The opportunity envisaged by article 311(2) will be given to the public servant after the the authority has satisfied itself by preliminary inquiry that there is a case for taking action.
+Therefore, r. 486 which is only meant to gather materials for the satisfaction of the authority concerned, whether to take action or not, even though a statutory rule cannot be considered to be mandatory as that would be forging a further fetter than those contained in article 311 on the power of the Governor to dismiss at pleasure.
+We are therefore of opinion that r. 486 is only directory and failure to comply with it strictly or otherwise will not vitiate the subsequent proceedings.
+We may incidentally indicate two further aspects of the matter.
+In the first place, if the argument is that the Governor must exercise the pleasure himself so that only the two limitations provided in article 311 may come into play; it appears that the Governor has exercised his pleasure in this case inasmuch as he dismissed the revisional application made to him by the respondent.
+There appears no reason to hold that the Governor exercises his pleasure only when he passes the original order of dismissal but not otherwise.
+Secondly the fact that r. 486 contains the word "shall" is not decisive on the point that it is mandatory: (see Crawford on Statutory Construction, p. 519, para. 262).
+In view of what we have said already, the context shows that r. 486 can only be directory.
+If so, failure to observe it strictly or otherwise will not invalidate the subsequent departmental proceedings.
+This brings us to the last point which has been urged in this case; and that is whether there was substantial compliance with r. 486.
+We have already 728 pointed out that there was no strict compliance with r. 486 as no case wag registered on the complaint of Tika Ram and no investigation was made under Chapter XIV of the Code of Criminal Procedure.
+But there is no doubt in this case that before the Superintendent of Police gave the charge sheet to the respondent in November, 1953, which was the beginning of the departmental proceedings against the respondent, he made a preliminary inquiry into the complaint of Tika Ram and was satisfied that there was a case for proceeding against the respondent departmentally.
+In these circumstances it appears to us that the spirit of r. 486 was substantially complied with and action was only taken against the respondent when on a preliminary inquiry the Superintendent of Police was satisfied that departmental action was necessary.
+Even if r. 486 had been strictly complied with, this is all that could have happened.
+In these circumstances we are of opinion that r. 486 which in our opinion is directory was substantially complied with in spirit and therefore the subsequent departmental proceedings cannot be held to be illegal, simply because there was no strict compliance with r. 486.
+The High Court therefore in our opinion was wrong in holding that the subsequent departmental inquiry was illegal and its order quashing the order of dismissal on this ground alone cannot be sustained.
+We would therefore allow the appeal.
+BY COURT In accordance with the opinion of the majority, this appeal is dismissed with costs.

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+Appeal No. 353 of 1959.
+Appeal from the judgment and order dated April 22, 1958, of the Punjab High Court (Circuit Bench) at Delhi in Civil Writ No. 257 D of 1957.
+M. C. Setalvad, Attorney General of India, section N. Andley, J. B. Dadachanji Rameshwar Nath and P. L. Vohra, for the Appellant.
+G. section Pathak, R. L. Anand and Janardan Sharma, for the respondent No. 2. 591 1960.
+November 22.
+The Judgment of the Court was delivered by WANCHOO, J.
+This is an appeal on a certificate granted by the Punjab High Court.
+Sharda Singh (hereinafter called the respondent) was in the service of the appellant mills.
+On August 28, 1956, the respondent was transferred from the night shift to the day shift in accordance with para 9 of the Standing Orders governing the workmen in the appellant mills.
+At that time an industrial dispute was pending bet ween the appellant mills and their workmen.
+The transfer was to take effect from August 30, 1956; but the respondent failed to report for work in the day shift and was marked absent.
+On September 1, 1956, he submitted an application to the General Manager to the effect that he had reported for duty on August 30, at 10 30 p.m. and had worked during the whole night, but had not been marked present.
+He had again gone to the mills on the night of August 31, but was not allowed to work on the ground that he had been transferred to the day shift.
+He complained that he had been dealt with arbitrarily in order to harass him.
+Though he said that he had no objection to carrying out the orders, he requested the manager to intervene and save him from the high handed action taken against him, adding that the mills would be responsible for his wages for the days he was not allowed to work.
+On September 4, 1956, he made an application to the industrial tribunal, where the previous dispute was pending, under section 33 A of the , No. XIV of 1947, (hereinafter called the Act) and complained that he had been transferred without any rhyme or reason from one shift to another and that this amounted to alteration in the conditions of his service, which was prejudicial and detrimental to his interest.
+As this alteration was made against the provisions of section 33 of the Act, he prayed for necessary relief from the tribunal under section 33 A.
+On September 5, 1956, the General Manager replied to the letter of September 1, and told the respondent that his transfer from.
+one shift to the other had been ordered on 592 August 28, and he had been told to report for work in the day shift from August 30; but instead of obeying the order which was made in the normal course and report for work as directed he had deliberately disobeyed the order and reported for work on August 30 in the night shift.
+He was then ordered to leave and report for work in the day shift.
+He however did not even then report for work in the day shift and absented himself intentionally and thus disobeyed the order of transfer.
+The General Manager therefore called upon the respondent to show cause why disciplinary action should not be taken against him for wailfully refusing to obey the lawful orders of the departmental officers and he was asked to submit his explanation within 48 hours.
+The respondent submitted his explanation on September 7, 1956.
+Soon after it appears the appellant mills received notice of the application under section 33 A and they submitted a reply of it on October 5, 1956.
+Their case was that transfer from one shift to another was within the power of the management and could not be said to be an alteration in the terms and conditions of service to the prejudice of the workman and therefore the complaint under section 33 A was not maintainable.
+The appellant mills also pointed out that a domestic inquiry was being held into the subsequent conduct of the respondent and prayed that proceedings in the application under section 33 A should be stayed till the domestic inquiry was concluded.
+No action seems to have been taken on this complaint under section 33 A, for which the appellant mills might as they had prayed for stay However, the domestic inquiry continued and on February 25, be partly responsible of those proceedings.
+against the respondent 1957, the inquiry officer reported that t e charge of misconduct was proved.
+Thereupon the General Manager passed an order on March 5, 1957, that in view of the serious misconduct of the respondent and looking into his past records, he should be dismissed; but as an industrial dispute was pending then, the General Manager ordered that the permission of the industrial tribunal should be taken before the order of dismissal was 593 passed and an application should be made for seeking such permission under section 33 of the Act.
+In the meantime, a notification was issued on March 1, 1957, by which 10th March, 1957, was fixed for the coming into force of certain provisions of the Central Act, No. XXXVI of 1956, by which sections 33 and 33 A were amended.
+The amendment made a substantial change in section 33 and this change came into effect from March 10, 1957.
+The change was that the total ban on the employer against altering any condition of ser vice to the prejudice of workmen and against any action for misconduct was modified.
+The amended section provided that where an employer intended to take action in regard to any matter connected with the dispute or in regard to any misconduct connected with the dispute, he could only do so with the express permission in writing of the authority before which the dispute was pending; but where the matter in regard to which the employer wanted to take action in accordance with the Standing Orders applicable to a workman was not connected with the dispute or the misconduct for which action was proposed to be taken was not connected with the dispute, the employer could take such action as he thought proper, subject only to this that in case of discharge or dismissal one month 's wages should be paid and an application should be made to the tribunal before which the dispute was pending for approval of the action taken against the employee by the employer.
+In view of this change in the law, the appellant mills thought that as the misconduct of the respondent in the present case was not connected with the dispute then pending adjudication, they were entitled to dismiss him after paying him one month 's wages and applying for approval of the action taken by them.
+Consequently, no application was made to the tribunal for permission in accordance with the order of the General Manager of March 5, 1957, already referred to.
+Later, on April 2, 19579 an order of dismissal was passed by the General Manager after tendering one month 's wages to the respondent and an application was made to the authority concerned for approval of the action taken against the respondent.
+594 Thereupon the respondent filed another application under section 33 A of the Act on April 9, 1957, in which he complained that the appellant mills had terminated his services without the express permission of the tribunal and that this was a contravention of the provisions of section 33 of the Act; he therefore prayed for necessary relief.
+On April 18, 1957, an interim order was passed by the tribunal on this application by which as a measure of interim relief, the appellant mills were ordered to permit the respondent to work with effect from April 19 and the respondent was directed to report for duty.
+It was also ordered that if the management failed to take the respondent back, the respondent would be paid his full wages with effect from April 19 after he had reported for duty.
+On May 6, 1957, however, the application dated April 9, 1957, was dismissed as defective and therefore the interim order of April 18 also came to an end.
+On the same day (namely, May 6, 1957), the respondent made another application under section 33 A in which he removed the defects and again complained that his dismissal on April 2, 1957, without the express previous permission of the tribunal was against section 33 and prayed for proper relief.
+It is this application which is pending at present and has not been disposed of, though more than three years have gone by.
+It is also not clear what has happened to the first application of September 4,1956, in which the respondent complained that his conditions of service had been altered to his prejudice by his transfer from one shift to another.
+Applications under section 33 and section 33 A of the Act should be disposed of quickly and it is a matter of regret that this matter is pending for over three years, though the appellant mills must also share the blame for this state of affairs ' However, the appellant mills gave a reply on May 14,1957, to the last application under section 33 A and objected that there was no breach of section 33 of the Act, their case being that the amended section 33 applied to the order of dismissal passed on April 2, 1957.
+Further, on the merits, the appellant mills ' case was that the dismissal was in the circumstances justified.
+595 The matter came up before the tribunal on May 16, 1957.
+On this date, the tribunal again passed an interim order, which was to the effect that as a measure of interim relief, the respondent should be permitted to work from May 17 and the respondent was directed to report for duty.
+It was further ordered that in case the management failed to take him back, they would pay him his full wages with effect from the date he reported for duty.
+Thereupon the appellant mills filed a writ petition before the High Court.
+Their main contention before the High Court was two fold.
+In the first place it was urged that the tribunal had no jurisdiction to entertain an application under section 33 A of the Act in the circumstances of this case after the amended sections 33 and 33 A came into force from March 10, 1957.
+In the alternative it was contended that the tribunal had no jurisdiction to pass an interim order of reinstatement or in lieu thereof payment of full wages to the respondent even before considering the questions raised in the application under section 33 A on the merits.
+The High Court held on the first point that in view of section 30 of the Industrial Disputes (Amendment and Miscellaneous Provisions) Act, No. XXXVI of 1956, the present case would be governed by section 33 as it was before the amendment and therefore the tribunal would have jurisdiction to entertain the complaint dated May 6, 1957, under section 33 A of the Act.
+On the second point, the High Court held that the order of the tribunal granting interim relief was within its jurisdiction and was justified.
+In consequence, the writ petition was dismissed.
+Thereupon the appellant mills applied and was granted a certificate by the High Court to appeal to this Court; and that is how the matter has come up before us.
+The same two points which were raised in the High Court have been urged before us.
+We are of opinion that it is not necessary in the present case to decide the first point because we have come to the conclusion that the interim order of May 16, 1957, is manifestly erroneous in law and cannot be supported.
+Apart from the question whether the tribunal had jurisdiction 596 to pass an interim order like this without making an interim award, (a point which was considered and left open by this Court in The Management of Hotel Imperial vs Hotel Workers ' Union (1)), we are of opinion that where the tribunal is dealing with an application under section 33 A of the Act and the question before it is whether an order of dismissal is against the provisions of section 33 it would be wrong in law for the tribunal to grant reinstatement or full wages in case the employer did not take the workman back in its service as an interim measure.
+It is clear that in case of a complaint under section 33 A based on dismissal against the provisions of section 33, the final order which the tribunal can pass in case it is in favour of the workman, would be for reinstatement.
+That final order would be passed only if the employer fails to justify the dismissal before the tribunal, either by showing that proper domestic inquiry was held which established the misconduct or in case no domestic inquiry was held by producing evidence before the tribunal to justify the dismissal: See Punjab National Bank Ltd. vs All India Punjab National Bank Employees ' Federation (2), where it was held that in an inquiry under section 33 A, the employee would not succeed in obtaining an order of reinstatement merely by proving contravention of section 33 by the employer.
+After such contravention is proved it would still be open to the employer to justify the impugned dismissal on the merits.
+That is a part of the dispute which the tribunal has to consider because the complaint made by the employee is to be treated as an industrial dispute and all the relevant aspects of the said dispute fall to be considered under section 33 A.
+Therefore, when a tribunal is considering a complaint under section 33 A and it has finally to decide whether an employee should be reinstated or not, it is not open to the tribunal to order reinstatement as an interim relief, for that would be giving the workman the very relief which he could get only if on a trial of the complaint the employer failed to justify the order of dismissal.
+The interim relief ordered in this case was that the work (1) ; (2) ; 597 man should be permitted to work: in other words he was ordered to be reinstated; in the alternative it was ordered that if the management did not take him back they should pay him his full wages.
+We are of opinion that such an order cannot be passed in law as an interim relief, for that would amount to giving the, respondent at the outset the relief to which he would be entitled only if the employer failed in the proceedings under section 33 A. As was pointed out in Hotel Imperial 's case (1),ordinarily, interim relief should not be the whole relief that the workmen would get if they succeeded finally.
+The order therefore of the tribunal in this case allowing reinstatement as an interim relief or in lieu thereof payment of full wages is manifestly erroneous and must therefore be set aside.
+We therefore allow the appeal, set aside the order of the High Court as well as of the tribunal dated May 16, 1957, granting interim relief.
+Learned counsel for the respondent submitted to us that we should grant some interim relief in case we came to the conclusion that the order of the tribunal should be set aside.
+In the circumstances of this case we do not think that interim relief to the respondent is justified hereafter.
+As we have pointed above, applications under sections 33 and 33 A should be dealt with expeditiously.
+We trust that the applications dated September 4, 1956, which appears to have been overlooked and of May 6, 1957, will now be dealt with expeditiously and finally disposed of by the tribunal, as all applications under section 33 A should be.
+In the circumstances we pass no order as to costs.
+Appeal allowed.

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@@ -0,0 +1,486 @@
+Appeal No. 119 of 1959.
+Appeal by special leave from the judgment and order dated January 9, 1958, of the Allahabad High Court (Lucknow Bench), Lucknow, in Civil Misc.
+Application No. 115 of 1955.
+683 C. B. Agarwala and C. P. Lal, for the appellants.
+G. section Pathak, Achru Ram, section N. Andley, Rameshwar Nath, J. B. Dadachanji and P. L. Vohra for the respondent.
+November, 25.
+The Judgment of Sarkar, Subba Rao and Mudholkar, JJ., was delivered by Subba Rao, J., and that of Gajendragadkar and Wanchoo, JJ., was delivered by Wanchoo, J. SUBBA RAO, J. This is an appeal by special leave against the judgment of the High Court of Judicature at Allahabad, Lucknow Bench, allowing the petition filed by the respondent under article 226 of the Constitution.
+The respondent was appointed a Sub Inspector of Police in December, 1948, and was posted at Sitapur in June, 1953.
+On September 6, 1953, the respondent went to village Madhwapur in connection with an investigation of a case of theft.
+On the evening of the said date when he was returning, accompanied by one Lalji, an ex patwari of Mohiuddinpur, he saw one Tika Ram coming from the side of a canal and going hurriedly towards a field.
+As the movements of Tika Ram appeared to be suspicious and as he was carrying something in the folds of his dhoti, the respondent searched him and found a bundle containing currency notes.
+The respondent counted the currency notes and handed them over to Lalji for being returned to Tika Ram, who subsequently got them and went his way.
+Subsequently when Tika Ram counted the currency notes at his house, he found that they were short by Rs. 250.
+Tika Ram 's case is that the bundle when taken by the respondent contained notes of the value of Rs. 650, but when he counted them in his house they were only of the value of Rs. 400.
+On September 9, 1953 Tika Ram filed a complaint to the Superintendent of Police, Sitapur, to the effect that the respondent and one Lalji had misappropriated a sum of its.
+There is dispute in regard to the interpretation of the complaint.
+On receipt of the said complaint, the Superintendent of Police made enquiries 684 and issued a notice to the respondent to show cause why his integrity certificate should not be withheld, upon which the respondent submitted his explanation on October 3, 1953.
+Thereafter the Superintendent of Police forwarded the file of the case to the Deputy Inspector General of Police, Central Range, U. P., who directed the Superintendent of Police to take proceedings under section 7 of the Police Act against the respondent.
+The departmental proceedings were started against the respondent; on November 2, 1953, a charge sheet was served upon the respondent under section 7 of the Police Act stating that there were strong reasons to suspect that the respondent misappropriated a sum of Rs. 250 from the purse of Tika Ram; the respondent filed his explanation to the charge made against him; and ultimately the Superintendent of Police held an enquiry and found on the evidence that the respondent was guilty of the offence with which he was charged.
+On January 2, 1954, the Superin tendent of Police issued another notice to the respondent to show cause why he should not be reduced to the lowest grade of Sub Inspector for a period of three years.
+In due course the respondent showed cause against the action proposed to be taken against him on a consideration of which the Superintendent of Police, Sitapur, by his order dated January 16, 1954 reduced the respondent to the lowest grade of Sub Inspector for a period of three years.
+When this order came to the notice of the D. 1.
+G., U. P., on a consideration of the entire record, he came to the con clusion that the respondent should be dismissed from service and on October 19, 1954 he made an order to that effect.
+On February 28, 1955 the Inspector General of Police confirmed that order; and the revision filed by the respondent against that order to the State Government was also dismissed in August 1955.
+Thereafter the respondent filed a petition under article 226 of the Constitution before the High Court of Judicature at Allahabad, Lucknow Bench, for quashing the said orders and the same was heard by a division bench consisting of Randhir Singh and Bhargava, JJ.
+The learned judges held that the provisions of para.
+685 486 of the Police Regulations had not been observed and, therefore, the proceedings taken under section 7 of the Police Act were invalid and illegal.
+On that finding, they quashed the impugned orders; with the result that the order dismissing the respondent from service was set aside.
+The State Government, the Deputy Inspector General of Police, Lucknow, and the Inspector General of Police, Uttar Pradesh, Lucknow, have preferred the present appeal against the said order of the High Court.
+We shall now proceed to consider the various contentions raised by learned counsel in the order they were raised and argued before us.
+At the outset Mr. C. B. Agarwala, learned counsel for the appellants, contended that there was no breach of the provisions of para.
+486 of the Police Regulations.
+If this contention be accepted, no other question arises 'in this case; therefore, we shall deal with the same.
+The material part of para.
+486 of the Police Regulations reads thus: "When the offence alleged against a police officer amounts to an offence only under section 7 of the Police Act, there can be no magisterial inquiry under the Criminal Procedure Code.
+In such cases, and in other cases until and unless a magisterial inquiry is ordered, inquiry will be made under the direction of the Superintendent of Police in accordance with the following rules: I.Every information received by the police relating to the commission of a cognizable offence by a police officer shall be dealt with in the first place under Chapter XIV, Criminal Procedure Code, according to law, a case under the appropriate section being registered in the police station concerned. . . .
+This provision expressly lays down that every information received by the police relating to the commission of a cognizable offence by a police officer shall be dealt with in the first place under Ch.
+XIV of the Criminal Procedure Code.
+This provision will not apply if the information received by the police does not 87 686 relate to the commission of a cognizable offence.
+Learned counsel contends that the information received in the present case does not relate to any offence committed by the respondent, much less to a cognizable offence.
+This is a point raised before us for the first time.
+This does not find a place even in the statement of case filed by the appellants.
+In the High Court it was not contended that the information did not disclose any offence committed by the respondent.
+Indeed, it was common case that the information disclosed an offence committed by the respondent, but it had been contended by the appellants that the misappropriation of the part of the money amounted to an offence under section 403 of the Indian Penal Code, which is not a cognizable offence; and it was argued on behalf of the respondent that it amounted to an offence under section 409 of the Indian Penal Code.
+The learned judges accepted the contention of the respondent.
+Even so, it is said that whatever might been the contentions of the parties, the information given by Tika Ram to the Superintendent of Police clearly disclosed that no offence was alleged to have been committed by the respondent and that this Court would, therefore, be justified, even at this very late stage, to accept the contention of the appellants.
+But the contents of the said information do not in any way support the assertion.
+Paragraph 3 of the application given by Tika Ram to the Superintendent of Police, Sitapur, reads thus: "That on Sunday last dated 6th September, 1953 the applicant had with him the currency notes of Rs. 650.
+The opposite party as well as Shri Babu Ram met the applicant on the west of Rampur near the Canal.
+The opposite party said to the Sub Inspector "This man appears to be clad in rags but is possessed of considerable money." After saying this the person of the applicant was searched.
+The Sub Inspector, having opened the bundle of notes, handed over the (notes) one by one to the opposite party.
+" This statement clearly indicates that either the Sub .
+Inspector or both the Sub Inspector and Lalji searched the person of Tika Ram, that the Sub Inspector took 687 the bundle of notes and handed the same over, one by one, to Lalji for being returned to the applicant, and that out of Rs. 650 a sum of Rs. 250 was not returned to him.
+The facts alleged make out an offence against both the Sub Inspector as well as Lalji.
+The mere fact that the respondent is not shown as one of the opposite parties in the application does not affect the question, for the information given in the application imputed the commission of an offence to both the respondent and Lalji.
+The notice issued by the Supe rintendent of Police on November 2, 1953 to the respondent also charges him with an offence of misappropriation.
+It is stated that the said notice only says that the Superintendent of Police had good reasons to suspect that the respondent misappropriated the sum of money and that it does not aver that he committed the offence of misappropriation.
+But what matters is 'that the Superintendent of Police also understood from the information given and the enquiry conducted by him that the respondent had committed the offence.
+Reliance is placed upon paragraph 3 of the writ petition wherein the respondent herein stated that Tika Ram filed a complaint against Lalji and not against the respondent.
+As a fact that is correct in the sense that the respondent was not shown in that application as the opposite party though in the body of that application definite allegations were made against the respondent.
+In the counter affidavit filed by the Superintendent of Police on behalf of the State it was clearly averred that on September 9, 1953 Tika Ram appeared before him and filed a petition to the effect fiat one Lalji and the respondent had misappropriated a sum of Rs. 250.
+Whatever ambiguity there might have been in the information we do not find any this allegation dispels it and it is not open to the appellants at this stage to contend that the petition did not disclose any offence against the respondent.
+In the circumstances, we must hold that the information received by the police related to the commission of an offence by the respondent.
+Even so, it is contended that the said offence is not a cognizable offence.
+It is said that there was no 688 entrustment made by Tika Ram to the respondent and that, therefore, the offence did not fall under section 409 of the Indian Penal Code, which is a cognizable offence, but only under section 403 of the Indian Penal Code, which is not a cognizable offence.
+Section 405 of the Indian Penal Code defines "criminal breach of trust" and section 409 thereof prescribes the punishment for the criminal breach of trust by a public servant.
+Under section 405 of the Indian Penal Code, "Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any person so to do, commits "criminal breach of trust".
+To constitute an offence under this section, there must be an entrustment of property and dishonest misappropriation of it.
+The person entrusted may misappropriate it himself, or he may wilfully suffer another person to do so.
+In the instant case the respondent, being a police officer, was legally entitled to search a person found under suspicious circumstances; and Tika Ram in handing over the bundle of notes to the police officer must have done so in the confidence that he would get back the notes from him when the suspicion was cleared.
+In these circumstances, there cannot be any difficulty in holding that the currency notes were alleged to have been handed over by Tika Ram to the respondent for a specific purpose, but were dishonestly misappropriated by the respondent or at, any rate he wilfully suffered Lalji to misappropriate the same.
+We, therefore, hold that if the currency notes were taken by the respondent in discharge of his duty for inspection and return, he was certainly entrusted with the notes within the meaning of section 405 of the Indian Penal Code.
+If so, the information discloses a cognizable offence.
+We reject the first contention.
+The second objection of learned counsel for the appellants is that sub para.
+(3) of para.
+486 of the 689 Police Regulations enables the appropriate police authority to initiate the departmental proceeding without complying with the provisions of sub para.
+(1) of para.
+The relevant portion of para.
+486 of the Police Regulations reads: "When the offence amounts to an offence only under section 7 of the Police Act, there can be no magisterial inquiry under the Criminal Procedure Code.
+In such cases, and in other cases until and unless a magisterial inquiry is ordered, inquiry will be made under the direction of the Superintendent of Police in accordance with the following rules:. . " Rule I relates to a cognizable offence, r. II to a non cognizable.
+offence, including an offence under section 29 of the Police Act, and r. III to an offence under section 7 of the Police Act or a non cognizable offence, including an offence under section 29 of the Police Act.
+Rule III says: "When a Superintendent of Police sees reason to take action on information given to him, or on his own knowledge or suspicion, that a police officer subordinate to him has committed an offence under section 7 of the Police Act or a non cognizable offence (including an offence under section 29 of the Police Act) of which he considers it unnecessary at that stage to forward a report in writing to the District Magistrate under rule II above, he will make or cause to be made by an officer senior in rank to the officer charged, a departmental inquiry sufficient to test the truth of the charge.
+On the conclusion of this inquiry he will decide whether further action is necessary, and if so, whether the officer charged should be departmentally tried, or whether the District Magistrate should be moved to take cognizance of the case under the Criminal Procedure Code. " The argument is that the words "an offence under section 7 of the Police Act" take in a cognizable offence and that, therefore, this rule provides for a procedure alternative to that prescribed under r. I.
+We do not think that this contention is sound.
+Section 7 of the Police Act empowers certain officers to dismiss, suspend 690 or reduce any police officer of the subordinate rank whom they shall think remiss or negligent in the discharge of his duty, or unfit for the same.
+The grounds for punishment are comprehensive: they may take in offences under the Indian Penal Code or other penal statutes.
+The commission of such offences may also be a ground to hold that an officer is unfit to hold his office.
+Action under this section can, therefore, be taken in respect of, (i) offences only under section 7 of the Police Act without involving any cognizable or noncognizable offences, that is, simple remissness or negli gence in the discharge of duty, (ii) cognizable offences, and (iii) non cognizable offences.
+Paragraph 486 of the Police Regulations makes this clear.
+It says that when the offence alleged against a police officer amounts to an offence only under section 7 of the Police Act, there can be no magisterial inquiry under the Criminal Procedure Code.
+This part of the rule applies to an offence only under section 7 of the Police Act i. e., the first category mentioned above.
+Rule I refers to a cognizable offence i. e., the second category, rule 11 to a non cognizable offence i. e., the third category, and rule III applies to an offence under section 7 of the Police Act and to a noncognizable offence.
+Though the word "only" is not mentioned in rule 111, the offence under section 7 of the Police Act can, in the context, mean an offence only under section 7 of the said Act i.e., an offence falling under the first category.
+So understood, the three rules can be reconciled.
+We, therefore, hold that, as the offence complained of in the present case is a cognizable offence, it falls under rule I and not under rule 111.
+We, therefore, reject this contention.
+The third contention advanced by learned counsel for the appellants raises a constitutional point of considerable importance.
+The gist of the argument may be stated thus: In England, the service under the Crown is held at the Crown 's pleasure, unless the employment is for good behaviour or for a cause.
+But if there is a statute prescribing the terms of service and the mode of dismissal of the servant of the Crown, the statute would control the pleasure of the Crown.
+In India, the Constitution as well as the 691 earlier Constitution Acts of 1915, as amended in 1919, and 1935 embodied the incidents of "tenure at pleasure" of His Majesty, or the President or the Governor, as the case may be, but did not empower the Legislatures under the earlier Acts and the Parliament and the Legislatures under the Constitution to make a law abrogating or modifying the said tenure; therefore, any law made by appropriate authorities conferring a power on any subordinate officer to dismiss a servant must be construed not to limit the power of His Majesty, the President or the Governor, as the case may be, but only to indicate that they would express their pleasure only through the said officers.
+The rules made in exercise of a power conferred on a Government under a statute so delegating the power to a subordinate officer can only be administrative directions to enable the exercise of the pleasure by the concerned authorities in a reasonable manner and that any breach of those regulations cannot possibly confer any right on, or give a cause of action to, the aggrieved Government servant to go to a court of law and vindicate his rights.
+Mr. Pathak, learned counsel for the respondent, in countering this argument contends that the constitution Acts in India embodied the incidents of the tenure of the Crown 's pleasure in the relevant provisions and what the Parliament can do in England, the appropriate Legislatures in India also can do, that is, "the tenure at pleasure" created by the Constitution Acts can be abrogated, limited or modified by law enacted by the appropriate legislative bodies.
+Alternatively he contends that even if the Police Act does not curtail the tenure at pleasure, the Legislature validly made that law and the Government validly made statutory rules in exercise of the powers confered under that Act and that, therefore, the appropriate authorities can only dismiss the respondent in strict compliance with the provisions of the Act and the Rules made thereunder.
+To appreciate the problem presented and to afford a satisfactory answer it would be convenient to consider the relevant provisions.
+The Act we are concerned with in this case is the (Act V 692 of 1861).
+Its constitutional validity at the time it was ,made was not questioned.
+Under section 7 of the , as it originally stood, "the appointment of all police officers other than those mentioned in B. 4 of this Act shall, under such rules as the local Government shall from time to time sanction, rest with the Inspector General, Deputy Inspectors General, Assistant Inspectors General and District Superintendents of Police, who may, under such rules as aforesaid, at any time, dismiss, suspend or reduce any police officer.
+" That section was substituted by the present section in 1937 and later on some appropriate amend ments were made to bring it in conformity with the Constitution.
+Under the amended section, "Subject to such rules as the State Government may from time to time make under this Act, the Inspector General, Deputy Inspectors General, Assistant Inspectors General and District Superintendent of Police may at any time dismiss, suspend or reduce any police officer of the subordinate ranks whom they shall think remiss or negligent in the discharge of his duty, or unfit for the same".
+In exercise of the powers conferred on the Government by section 46 of the Act, the Government made the U. P. Police Regulations prescribing the procedure for investigation and inquiry.
+We shall ' deal with the Regulations at a later stage.
+In the Government of India Act, 1915, as amended by the Act of 1919, for the first time, the doctrine of "tenure at pleasure" was introduced by section 96 B.
+In exercise of the power conferred under sub section
+(2) certain classification rules were framed by the local Government.
+This Act was repealed by the Government of India Act, 1935, and the section corresponding to section 96 B was section 240(1) in the latter Act.
+Section 241(2) empowered, except as expressly provided by the Act, the Governor General and the Governor to prescribe the conditions of service of the servants they were empowered to appoint.
+The main difference between the Act of 1919 and that of 1935 was that in the former Act there was only one limitation on the Crown 's pleasure, namely, that no person in the service might be dismissed by 693 an authority subordinate to that by which he was appointed, whereas in the latter Act a second limitation was imposed, namely, that no such person should ' be dismissed or reduced in rank until he had been given a reasonable opportunity of showing cause against the action proposed to be taken in regard to him: see section 240, sub sections
+(2) and (3).
+Another difference between the said two Acts was that while under the former Act all the services were placed in the same position, under the latter Act special provision was made for the police force prescribing that the conditions of service of the subordinate ranks of the various police forces should be such as might be determined by or under the Acts relating to those forces respectively vide section 243.
+By the Constitution, the Act of 1935 was repealed, and, with certain changes in phraseology, cls.
+(1) and (2) of article 310 took the place of sub sections
+(1) and (4) of section 240 respectively, and article 309 took the place of section 241(2).
+Under article 313, "Until other provision is made in this behalf under this Constitution, all the laws in force immediately before the commencement of this Constitution and applicable to any public service or any post which continues to exist after the commencement of this Constitution, as an all India service or as service or post under the Union or a State shall continue in force so far as consistent with the provisions of this Constitution".
+The result is that the and the Police Regulations, made in exercise of the powers conferred on the Government under that Act, which .were preserved under section 243 of the Government of India Act, 1935, continue to be in force after the Con stitution so far as they are consistent with the provisions of the Constitution.
+It is common case, as the contentions of learned counsel disclose, that the Act and the Regulations framed thereunder were constitutionally valid at the inception and that they are also consistent with the provisions of the Constitution.
+The difference between the two contentions lies in the fact that according to one His Majesty 's pleasure cannot be modified 88 694 by a statute, according to the other it is subject to statutory provisions.
+The relevant provisions of the Constitution read thus: Article 309: "Subject to the provisions of this Constitution, Acts of the appropriate Legislature may regulate the recruitment, and conditions of service of persons appointed, to public services and posts in connection with the affairs of the Union or of any State: Provided that it shall be competent for the President or such person as he may direct in the case of services and posts in connection with the affairs of the Union, and for the Governor of a State or such person as he may direct in the case of services and posts in connection with the affairs of the State, to make rules regulating the recruitment, and the conditions of service of persons appointed, to such services and posts until provision in that behalf is made by or under an Act of the appropriate Legislature under this article, and any rules so made shall have effect subject to the provisions of any such Act.
+" Article 310: "Except as expressly provided by this Constitution, every person who is a member of a defence service or of a civil service or holds any post connected with defence or any Civil Post under the Union holds office during the pleasure of the President, and every person who is a member of a civil service of a State or holds any civil post under a State holds office during the pleasure of the Governor of the State." Under article 309 the appropriate Legislature may regulate the recruitment and conditions of service of persons appointed to public services.
+Under article 310 every person who is EC member of a public service described therein holds office during the pleasure of the President or the Governor, as the case may be.
+The words "conditions of service" in article 309 in their comprehensive sense take in the tenure of a civil servant: see N. W. F. Province vs Suraj Narain (1).
+Therefore, "the tenure at pleasure" is also one of the conditions of service.
+But article 309 opens out with a (i) A.I.R. (1949) P.C. 112.
+695 restrictive clause, namely, "Subject to the provisions of this Constitution", and if there is no restrictive, clause in article 310, there cannot be any difficulty in holding that article 309 is subject to the provisions of ' Art 310; with the result that the power of the Legislature to lay down the conditions of service of persons appointed to public services would be subject to "the tenure at pleasure" under article 310.
+In that event, any law made by the Legislature could not affect the over riding power of the President or the Governor, as the case may be, in putting an end to the tenure at their pleasure.
+Would the opening words of the clause in article 310, namely, "Except as expressly provided by this Constitution", make any difference in the matter of interpretation? It should be noticed that the phraseology of the said clause in article 310 is different from that in article 309.
+If there is a specific provision in some part of the Constitution giving to a Government servant a tenure different from that provided for in article 310, that Government servant is excluded from the operation of article 310.
+The said words refer, inter alia, to articles 124, 148, 218 and 324 which provide that the Judges of the Supreme Court, the Auditor General, the Judges of the High Courts and the Chief Election Commissioner shall not be removed from their offices except in the manner laid down in those Articles.
+If the provisions of the Constitution specifically prescribing different tenures were excluded from article 310, the purpose of that clause would be exhausted and thereafter the Article would be free from any other restrictive operation.
+In that event, articles 309 and 310 should be read together, excluding the opening words in the latter Article, namely, "Except as expressly provided by this Constitution".
+Learne counsel seeks to confine the operation of the opening words in article 309 to the provisions of the Constitution which empower other authorities to make rules relating to the conditions of service of certain classes of public servants, namely, articles 146(2), 148(5) and 229(2).
+That may be so, but there is no reason why article 310 should be excluded therefrom.
+It follows that while article 310 provides for a tenure at pleasure 696 of the President or the Governor, article 309 enables the Legislature or the executive, as the case maybe, to make any law or rule in regard, inter alia, to conditions of service without impinging upon the overriding power recognized under article 310.
+Learned counsel for the respondent contends that this construction is inconsistent with that prevailing in the English law and that the intention of the framers of the Constitution could not have been to make a radical departure from the law of England.
+The law of England on the doctrine of "tenure at pleasure" has now become fairly crystallized.
+In England, all servants of the Crown hold office during the pleasure of the Crown; the right to dismiss at pleasure is an implied term in every contract of employment of the Crown, this doctrine is not based upon any prerogative of the Crown, but on public policy; if the terms of appointment definitely prescribe a tenure for good behaviour or expressly provide for a power, to determine for a cause, such an implication of a power to dismiss at pleasure is excluded, and an Act of Parliament can abrogate or amend the said doctrine of public policy in the same way as it can do in respect of any other part of common law.
+The said propositions are illustrated in the following decisions: Shenton vs Smith (1), Gould vs Stuart (2), Reilly vs The King(3), Terrell vs Secretary of State (4).
+This English doctrine was not incorporated in its entirety in the Indian enactments vide State of Bihar vs Abdul Majid (5), Parshotam Lal Dhingra vs Union of India (6).
+Section 96 B of the Government of India Act, 1915, for the first time in 1919, by amendment, statutorily recognized this doctrine, but it was made subject to a condition or s qualification, namely, that no person in that service might be dismissed by any authority subordinate to that by which he was appointed.
+Section 240 of the Act of 1935 imposed another limitation, namely, that a reasonable opportunity of showing cause against the action proposed to be taken in (i) (3) (5) ; (2) (4) (6) ; 697 regard to a person must be given to him.
+But neither of the two Acts empowered the appropriate Legislature to make a law abolishing or amending the said doctrine.
+The Constitution of India practically incorporated the provisions of sections 240 and 241 of the Act of 1935 in articles 309 and 310.
+But the Constitution has not made "the tenure at pleasure" subject to any law made by the appropriate Legislature.
+On the other hand, as we have pointed out, article 309 is expressly made subject to "the tenure at pleasure" in article 310.
+Nor the attempt of learned counsel for the respondent to discover such a power in the Legislature in the Entries of the appropriate Lists of the Seventh Schedule to the Constitution can be legally sustained.
+He referred, inter alia, to Entry 70 of List I and Entry 41 of List II.
+It is not disputed that Parliament can make law for the organization of the police and for the prevention and detection of crime.
+But under article 245 of the Constitution such a power is subject to the provisions of the Constitution and, therefore, is subject to the provisions of article 310.
+Nor can we imply such a power in Parliament or the Legislatures from article 154(2)(b) of the Constitution.
+Under article 154, "the executive power of the State shall be vested in the Governor and shall be exercised by him either directly or through officers subordinate to him in accordance with this Constitution", and under el.
+2(b) thereof, "nothing in this Article shall prevent Parliament or the Legislature of the State from conferring by law functions on any authority subordinate to the Governor.
+" The argument is that a power to terminate the service at pleasure under article 310 is a part of the executive power of the State, that power under article 154 can be exercised by the Governor directly or through officers subordinate to him, and that under article 154(2)(b) the Parliament or the Legislature of the State can confer the same power on any authority subordinate to the Governor or, at any rate, can make a law prescribing that the Governor shall exercise the said pleasure through a particular officer.
+698 We cannot agree either with the premises or the conclusion sought to be based on it.
+The first question is whether the power of the Governor under article 310 to terminate the services of a Government servant at pleasure is part of the executive power of the State under article 154 of the Constitution.
+Article 154 speaks of the executive power of the State vesting in the Governor; it does not deal with the constitutional powers of the Governor which do not form part of the executive power of the State.
+Article 162 says that, subject to the provisions of the Constitution, the executive power of the State shall extend to matters with respect to which the Legislature of the State has power to make laws.
+If the Legislature of the State has no power to make a law affecting the tenure at pleasure of the Governor, the said power must necessarily fall outside the scope of the executive power of the State.
+As we will presently show, the Legislature has no such power and, therefore, it cannot be a part of the executive power of the State.
+That apart, if the said power is part of the executive power in its general sense, article 162 imposes another limitation on that power, namely, that the said executive power is subject to the provisions of the Constitution and therefore, subject to article 310 of the Constitution.
+In either view, article 310 falls outside the scope of article 154 of the Constitution.
+That power may be analogous to that conferred on the Governor under articles 174, 175 and 176.
+Doubtless the Governor may have to exercise the said power whenever an occasion arises, in the manner prescribed by the Constitution, but that in itself does not make it a part of the executive power of the State or enable him to delegate his power.
+Even on the assumption that the power under article 310 is executive power within the meaning of article 154, it does not make any difference in the legal position so far as the present case is concerned.
+Article 310 of the Constitution says that unless expresssly provided by the Constitution to the contrary, every civil servant holds office during the pleasure of the Governor subject to the limitations prescribed under 699 article 311.
+Can it be said that article 154(2)(b) expressly provides for a different tenure? Can it be said that the said Article confers on the Parliament or the Legislature a power higher than that conferred on them under article 245 of the Constitution ? It only preserves the power of the Legislature, which it has under the Constitution, to make a law conferring functions on an authority subordinate to the Governor.
+That power under article 245 is not unlimited, but is subject to the provisions of the Constitution and there fore subject to article 310 thereof.
+It is then said that if the appellants ' contention were not accepted, it would lead to conflict of jurisdiction: while the Governor has the power under article 310 to dismiss a public servant at his pleasure, a statute may confer a power on a subordinate officer to dismiss a servant only subject to conditions; a subordinate officer functioning under an Act may not be able to dismiss a servant, but the Governor may be able to do so under similar circumstances; a subordi nate officer may dismiss a servant, but the Governor may order his continuance in office.
+This argument is based upon the misapprehension of the scope of article 309 of the Constitution.
+A law made by the appropriate Legislature or the rules made by the President or the Governor, as the case may be, under the said Article may confer a power upon a particular authority to remove a public servant from service; but the conferment of such a power does not amount to a delegation of the Governor 's pleasure.
+Whatever the said authority does is by virtue of express power conferred on it by a statute or rules made by competent authorities and not by virtue of any delegation by the Governor of his power.
+There cannot be conflict between the exercise of the Governor 's pleasure under article 310 and that of an authority under a statute, for the statutory power would be always subject to the overriding pleasure of the Governor.
+This conclusion, the argument proceeds, would throw a public servant in India to the mercy of the executive Government while their compeers in England 700 can be protected by legislation against arbitrary actions of the State.
+This apprehension has no real .basis, for, unlike in England, a member of the public service in India is constitutionally protected at least in two directions: (i) he cannot be dismissed by an authority subordinate to that by which he was appointed; (ii) he cannot be dismissed, removed or reduced in rank until he has been given a reasonable opportunity of showing cause against the action proposed to be taken in regard to him.
+A condition similar to the first condition in article 311 found in section 96 B of the Government of India Act, 1919, was hold by the Judicial Committee in R. T. Bangachari vs Secretary of State for India (1) to have a statutory force, and the second condition, which is only a reproduction of that found in sub section (2) of section 240 of the Government of India Act, 1935, was held in High Commissioner for India and High Commissioner for Pakistan vs I. M. Lall (2) as mandatory qualifying the right of the employer recognized in sub section (1) thereof.
+These two statutory protections to the Government servant are now incorporated in article 311 of the Constitution.
+This Article imposes two qualifications on the exercise of the pleasure of the President or the Governor and they quite clearly restrict the operation of the rule embodied in article 310(1) vide the observations of Das, C.J., in Dhingra 's case (3).
+The most important of these two limitations is the provision prescribing that a civil servant shall be given a reasonable opportunity of showing cause against the action proposed to be taken in regard to him.
+As this condition is a limitation on the "tenure at pleasure", a law can certainly be made by Parliament defining the content of "reasonable opportunity" and prescribing the procedure for giving the said opportunity.
+The appropriate High Court and the Supreme Court can test the validity of such a law on the basis whe ther the provisions prescribed provide for such an opportunity, and, if it is valid, to ascertain whether the reasonable opportunity so prescribed is really given to a particular officer.
+It may be that the (1) (1936) L.R. 64 I.A. 40.
+(2) (1948) L.R. 75 1.A. 225.
+(3) ; , 839.
+701 framers of the Constitution, having incorporated in our Constitution the "tenure at pleasure" unhampered by legislative interference, thought that the said limitations and qualifications would reasonably protect the interests of the civil servants against arbitrary actions.
+The discussion yields the following results: (1) In India every person who is a member of a public service described in article 310 of the Constitution holds office during the pleasure of the President or the Governor, as the case may be, subject to the express provisions therein.
+(2) The power to dismiss a public servant at pleasure is outside the scope of article 154 and, therefore, cannot be delegated by the Governor to a subordinate officer, and can be exercised by him only in the manner prescribed by the Constitution.
+(3) This tenure is subject to the limitations or qualifications mentioned in article 311 of the, Constitution.
+(4) The Parliament or the Legislatures of States cannot make a law abrogating or modifying this tenure so as to impinge upon the overriding power conferred upon the President or the Governor under article 310, as qualified by article 311.
+(5) The Parliament or the Legislatures of States can make a law regulating the conditions of service of such a member which includes proceedings by way of disciplinary action, without affecting the powers of the President or the Governor under article 310 of the Constitution read with article 311 thereof.
+(6) The Parliament and the Legislatures also can make a law laying down and regulating the scope and content of the doctrine of "reasonable opportunity" embodied in article 311 of the Constitution; but the said law would be subject to judicial review.
+(7) If a statute could be made by Legislatures within the foregoing permissible limits, the rules made by an authority in exercise of the power conferred thereunder would likewise be efficacious within the said limits.
+What then is the effect of the said propositions in their application to the provisions of the and the rules made thereunder? The of 89 702 1861 continues to be good law under the Constitution.
+Paragraph 477 of the Police Regulations shows that the rules in Chapter XXXII thereof have been framed under section 7 of the .
+Presumably, they were also made by the Government in exercise of its power under section 46(2) of the .
+Under para.
+479(a) the Governor 's power of punishment with reference to all officers is preserved; that is to say, this provision expressly saves the power of the Governor under article 310 of the Constitution.
+"Rules made under a statute must be treated for all purposes of construction or obligation exactly as if they were in the Act and are to be of the same effect as if contained in the Act, and are to be judicially noticed for all purposes of construction or obligation": see Maxwell "On the Interpretation of Statutes", 10th edn., pp. 5051.
+The statutory rules cannot be described as, or equated with, administrative directions.
+If so, the and the rules made thereunder constitute a self contained code providing for ' the appointment.
+of police officers and prescribing the procedure for their removal.
+It follows that where the appropriate authority takes disciplinary action under the or the rules made thereunder, it must conform to the provisions of the statute or the rules which have conferred upon it the power to take the said action.
+If there is any violation of the said provisions, subject to the question which we will presently consider whether the rules are directory or mandatory, the public servant would have a right to challenge the decision of that authority.
+Learned counsel for the appellants relied upon the following decisions of the Privy Council and this Court in support of his contention that the said rules are administrative directions: R. T. Rangachari vs Secretary of State for India (1), R. Venkata Rao vs Secretary of State for India (2), High Commissioner for India and High Commissioner for Pakistan vs I. M. Lall (3), section A. Venkataraman vs The Union of India(4), and Khem Chand vs The Union of India(5).
+In Venkata Rao 's (1) (1936) L.R. 64 I.A. 40.
+(3) (1948) L.R. 75 I.A. 225.
+(2) (1936) L.R. 64 I.A. 55.
+(4) ; (5) ; 703 case (1) a reader of the Government Press was dismissed and in the suit filed by him against the Secretary, of State for India he complained, inter alia, that the dismissal was contrary to the statute inasmuch as it was not preceded by any such inquiry as was prescribed by rule XIV of the Civil Services Classification Rules made under section 96B(2) of the Government of India Act.
+Under section 96B of the said Act, every person in civil service holds office during the pleasure of His Majesty.
+Sub section (2) of that section empowers the Secretary of State for India to make rules laying down, among others, the conditions of service, and sub section
+(5) declares that no rules so made shall be construed to limit or abridge the power of the Secretary of State in Council to deal with the case of any person in the civil service of the Crown in India in such manner as may appear to him to be just and equitable.
+On a construction of these provisions the Judicial Committee held that His Majesty 's pleasure was paramount and could not legally be controlled or limited by the rules.
+Two reasons were given for the conclusion, namely, (i) section 96B in express terms stated that the office was held during the pleasure and there was no room for the implication of a contractual term that the rules were to be observed; and (ii) sub section
+(2) of section 96B and the rules made careful provisions for redress of grievances by administrative process and that sub section
+(5) reaffirmed the superior authority of the Secretary of State in Council over the civil service.
+It may be noticed that the rules framed in exercise of the power conferred by the Act was to regulate the exercise of His Majesty 's pleasure.
+The observations were presumably coloured by the doctrine of "tenure at pleasure" obtaining in England, namely, that it could only be modified by statute, influenced by the princi ple that the rules made under a statute shall be consistent with its provisions and, what is more, based upon a construction of the express provisions of the Act.
+These observations cannot, in our opinion, be taken out of their context and applied to the provisions of our Constitution and the Acts of our Legislatures in derogation of the well settled principles of (1) (1936) L. R. 64 I. A. 55.
+704 statutory construction.
+In Bangachari 's case (1) a police officer was dismissed by an authority subordinate to that by which he had been appointed.
+The appeal was heard along with that in Venkata Rao 's case (2) and the judgments in both the appeals were delivered on the same day.
+The Judicial Committee distinguished Venkata Rao 's case (2) with the following observations at p. 53: "It is manifest that the stipulation or proviso as to dismissal is itself of statutory force and stands on a footing quite other than any matters of rule which are of infinite variety and can be changed from time to time.
+" These observations do not carry the matter further an our remarks made in connection with Venkata Rao 's case (2) would equally apply to this case.
+I.M. Lall 's case (3) turns upon sub section
+(3) of section 240 of the Government of India Act, 1935.
+Again the Judicial Committee made a distinction between the rules and the provisions of the Act and ruled that sub sections
+(2) and (3) of section 240 indicated a qualification or exception to the antecedent provisions in sub section
+(1) of section 240.
+This decision only adopted the reasoning in the earlier decision.
+The remarks made by us in connection with Venkata Rao 's case (2) would equally apply to this decision.
+This Court in section A. Venkataraman 's case (4) incidentally noticed the observations of the Judicial Committee in Venkata Rao 's case (2) and observed that the rules, which were not incorporated in a statute, did not impose any legal restriction upon the right of the Crown to dismiss its servants at pleasure.
+This Court was not laying down any general proposition, but was only stating the gist of the reasoning in Venkata Rao 's case (2).
+Das, C.J., if we may say so, correctly stated the scope of the rule in Venkata Rao 's case (2) in the decision in Khem Chand 's case (5), when he stated at p. 1091 "The position of the Government servant was, therefore, rather insecure, for his office being held during the pleasure of the Crown under the Government of India Act, 1915, the rules could not override (1) (1936) L.R. 64 I.A. 40.
+(3) (1948) L.R. 75 I.A. 225.
+(2) (1936) L.R. 64 I.A. 55.
+(4) ; (5) ; 705 or derogate from the statute and the protection of the rules could not be enforced by action so as to nullify the statute itself." To state it differently, the Government of India Act, 1915, as amended in 1919, and that of 1935 expressly and clearly laid down that the tenure was at pleasure and therefore the rules framed under that Act must be consistent with the Act and not in derogation of it.
+These decisions and the observations made therein could not be understood to mark a radical departure from the fundamental principle of construction that rules made under a statute must be treated as exactly as if they were in the Act and are of the same effect as if contained in the Act.
+There is another principle equally fundamental to the rules of construction, namely, that the rules shall be consistent with the provisions of the Act.
+The decisions of the Judicial Committee on the provisions of the earlier Constitution Acts can be sustained on the ground that the rules made in exercise of power conferred under the Acts cannot override or modify the tenure at pleasure provided by section 96B or section 240 of the said Acts, as the case may be.
+Therefore, when the paramountcy of the doctrine was conceded or declared by the statute, there might have been justification for sustaining the rules made under that statute in derogation thereof on the ground that they were only administrative directions, for otherwise the rules would have to be struck down as inconsistent with the Act.
+In such a situation, if the statute was valid it would be valid in so far as it did not derogate from the provisions of article 310, read with article 311 the rules made thereunder would be as efficacious as the Act itself.
+So long as the statute and the rules made thereunder do not affect the power of the Governor in the present case the Governor 's pleasure is expressly preserved they should be legally enforceable.
+In this context the decisions of the different High Courts in India are cited at the Bar.
+It would not serve any purpose to consider every one of them in detail.
+It would suffice if their general trend be noticed.
+They express two divergent views: one line relies upon the observations 706 of the Privy Council in Venkata Rao 's case (1) and lays down that all statutory rules vis a vis the disciplinary proceedings taken against a Government servant are administrative directions, and the other applies the well settled rules of construction and holds that the appropriate authority is bound to comply with the mandatory provisions of the rules in making an inquiry under a particular statute.
+A close scrutiny of some of the decisions discloses a distinction implied, though not expressed, between statutory rules defining the scope of reasonable opportunity and those governing other procedural steps in the disciplinary process.
+In our view, subject to the overriding power of the President or the Governor under article 310, as qualified by the provisions of article 311, the rules governing disciplinary proceedings cannot be treated as administrative directions, but shall have the same effect as the provisions of the statute whereunder they are made, in so far a, , they are not inconsistent with the provisions thereof We have already negatived the contention of learned counsel that the Governor exercises his pleasure through the officers specified in section 7 of the , and therefore, it is not possible to equate the Governor 's pleasure with that of the specified officers ' statutory power.
+If so, it follows that the inquiry under the Act shall be made in accordance with its provisions and the rules made thereunder.
+Then learned counsel contends that even if the said rules have statutory force, they are only directory and the non compliance with the rules will not invalidate the order of dismissal made by the appropriate authority.
+Before we consider the principles governing the question whether the rules are mandatory or directory, it would be convenient at this stage to notice broadly the scope and the purpose of the inquiry contemplated by the rules.
+Section 2 of the constitutes the police establishment; section 7 empowers specified officers to (1) [1936] L.R. 64 I.A. 55.
+707 punish specified subordinate officers who are remiss or negligent in discharge of their duties or unfit for the same; section 46 enables the Government to make rules.
+to regulate the procedure to be followed by the magistrate and police officers in discharge of any duty imposed on them by or under the Act; under section 7, read with section 46 of the , the Police Regulations embodied in chapter XXXII were framed.
+Paragraph 477 of the Regulations says that the rules in that chapter have been made under section 7 of the and apply only to officers appointed under section 2 of the and that no officer appointed under that section shall be punished by executive order otherwise than in the manner provided in that chapter.
+Paragraph 478 prescribes the nature of the punishment that can be imposed on the delinquent officers.
+Paragraph 479 empowers specified officers to punish specified subordinate officers.
+Paragraph 483 gives the procedure to be followed in the matter of the inquiry against a police officer.
+It reads: "Subject to the special provision contained in paragraph 500 and to any special orders which may be passed by the Governor in particular cases a proceeding against a police officer will consist of A A magisterial or police inquiry, followed, if this inquiry shows the need for further action, by B A judicial trial, or C A departmental trial, or both, consecutively." Paragraph 484 declares that the nature of the inquiry in any particular case will vary according to the nature of the offence.
+If the offence is cognizable or non cognizable, the inquiry will be according to Schedule II of the Criminal Procedure Code.
+If the information is received by the District Magistrate, he may in exercise of his powers under the Criminal Procedure Code either, (1) make or order a magisterial inquiry; or (2) order an investigation by the Police.
+Paragraph 485 reads: "When a magisterial inquiry is ordered it will be made in accordance with the Criminal Procedure Code and the Superintendent of Police will have no direct 708 concern with it until the conclusion of judicial proceedings or until and unless the case is referred to him for further disposal, but he must give any assistance to the inquiring magistrate that he may legally be called upon to give and he must suspend the accused should this become necessary under paragraph 496." Paragraph 486 says that there can be no magisterial inquiry under the Criminal Procedure Code when the offence alleged against a police officer amounts to an offence only under section 7 of the , and it provides further that in such cases, and in, other cases until and unless a magisterial inquiry is ordered, inquiry will be made under the direction of the Superintendent of Police in accordance with the rules given thereunder.
+Under rule I thereof, "Every information received by the police relating to the commission of a cognizable offence by a police officer shall be dealt with in the first place under Chapter XIV, Criminal Procedure Code, according to law, a case under the appropriate section being registered in the police station concerned".
+There are six provisos to that rule.
+Rule II provides for the inquiry of a non cognizable offence; and rule III prescribes the procedure in regard to an offence only under section 7 of the or a non cognizable offence of which the Superintendent of Police considers unnecessary at that stage to forward a report in writing to the District Magistrate.
+Paragraph 488 deals with a judicial trial and para.
+489 with a departmental trial.
+Paragraph 489 says: "A police officer may be departmentally tried under section 7 of the (1) after he has been tried judicially; (2) after a magisterial inquiry under the Criminal Procedure Code; (3) after a police investigation under the Criminal Procedure Code or a departmental enquiry under paragraph 486,III above.
+" There are other provisions dealing with the manner of conducting the inquiries and other connected matters.
+The rules provide for the magisterial and police inquiry followed, if the inquiry showed the need for further action, by a judicial trial or a departmental 709 trial, or both, consecutively.
+In the case of cognizable offences the Superintendent of Police is directed to investigate under chapter XIV of the Criminal Pro p, cedure Code and in the case of non cognizable offences in the manner provided in rule II of para.
+486, and in the case of an offence only under section 7 of the or a non cognizable offence in the manner provided under rule III of para.
+After one or other of the relevant procedure is followed, the Superintendent of Police is empowered to try a police officer departmentally.
+The question is whether rule I of para.
+486 is directory.
+The relevant rule says that the police officer shall be tried in the first place under chapter XIV of the Criminal Procedure Code.
+The word "shall" in its ordinary import is "obligatory"; but there are many decisions wherein the courts under different situations construed the word to mean "may".
+This Court in Hari Vishnu Kamath vs Syed Ahmad Ishaque (1) dealt with this problem at p. 1125 thus: "It is well established that an enactment in form mandatory might in substance be directory and that the use of the word "shall" does not conclude the matter.
+" It is then observed: "They (the rules) are well known, and there is no need to repeat them.
+But they are all of them only aids for ascertaining the true intention of the legislature which is the determining factor, and that must ultimately depend on the context.
+" The following quotation from Crawford "On the Construction of Statutes", at p. 516, is also helpful in this connection: "The question as to whether a statute is mandatory or directory depends upon the intent of the legislature and not upon the language in which the intent is clothed.
+The meaning and intention of the legislature must govern, and these are to be ascertained, not only from the phraseology of the provision, but also by considering its nature, its design, and the (1) ; 90 710 consequences which would follow from construing it the one way or the other. " This passage was approved by this Court in State of U. P. vs Manbodhan Lal Srivastava (1).
+In Craies on Statute Law, 5th edition, the following passage appears at p. 242: "No universal rule can be laid down as to whether mandatory enactments shall be considered directory only or obligatory with an implied nullification for disobedience.
+It is the duty of Courts of Justice to try to get at the real intention of the Legislature by carefully attending to the whole scope of the statute to be construed.
+" A valuable guide for ascertaining the intention of the Legislature is found in Maxwell on "The Interpretation of Statutes", 10th edition, at p. 381 and it is: "On the other hand, where the prescriptions of a statute relate to the performance of a public duty and where the invalidation of acts done in neglect of them would work serious general inconvenience or injustice to persons who have no control over those entrusted with the duty without promoting the essential aims of the legislature, such prescriptions seem to be generally understood as mere instructions for the guidance and government of those on whom the duty is imposed, or, in other words, as directory only.
+The neglect of them may be penal, indeed, but it does not affect the validity of the act done in disregard of them.
+" This passage was accepted by the Judicial Committee of the Privy Council in the case of Montreal Street Railway Company vs Normandin (2 ) and by this Court in State of U. P. vs Manbodhan Lal Srivastava (1).
+The relevant rules of interpretation may be briefly stated thus: When a statute uses the word "shall", prima facie, it is mandatory, but the Court may ascertain the real intention of the legislature by carefully attending to the whole scope of the statute.
+For ascertaining the real intention of the Legislature the Court may consider, inter alia, the nature and the design of the statute, and the consequences which (1) ; , 545.
+(2) L.R. [1917] A.C.770.
+711 would follow from construing it the one way or the other, the impact of other provisions whereby the necessity of complying with the provisions in question is avoided, the circumstance, namely, that the statute provides for a contingency of the non compliance with the provisions, the fact that the non compliance with the provisions is or is not visited by some penalty, the serious or trivial consequences that flow therefrom, and, above all, whether the object of the legislation will be defeated or furthered.
+Now what is the object of rule I of para.
+486 of the Police Regulations? In our opinion, it is conceived not only to enable the Superintendent of Police to gather information but also to protect the interests of subordinate officers against whom departmental trial is sought to be held.
+After making the necessary investigation under chapter XIV of the Criminal Procedure Code, the Superintendent of Police may as well come to the conclusion that the officer concerned is innocent, and on that basis drop the entire proceedings.
+He may also hold that it is a fit case for criminal prosecution, which, under certain circumstances, an honest officer against whom false charges are framed may prefer to face than to submit himself to a departmental trial.
+Therefore,the rules are conceived in the interest of the department as well as the officer.
+From the stand point of the department as well as the officer against whom departmental inquiry is sought to be intiated, the preliminary inquiry is very important and it serves a real purpose.
+Here the setting aside of the order of dismissal will not affect the public in general and the only consequence will be that the officer will have to be proceeded against in the manner prescribed by the rules.
+What is more, para. 487 and para.
+489 make it abundantly clear that the police investigation under the Criminal Procedure Code is a condition precedent for the departmental trial.
+Paragraph 477 emphasizes that no officer appointed under section 2 of the shall be punished by executive order otherwise than in the manner provided under chapter XXXII of the Police Regulations.
+This is an imperative injunction prohibiting 712 inquiry in non compliance with the rules.
+Paragraph 489 only empowers the holding of a departmental trial in regard to a police officer only after a police investigation under the Criminal Procedure Code.
+When a rule says that a departmental trial can be held only after a police investigation, it is not permissible to hold that it can be held without such investigation.
+For all the foregoing reasons, we hold that para.
+486 is mandatory and that, as the investigation has not been held under chapter XIV of the Criminal Procedure Code, the subsequent inquiry and the order of dismissal are illegal.
+For the foregoing reasons we hold that, as the respondent was dismissed without complying with the provisions of para.
+486(1), the order of dismissal is illegal and that the High Court is right in setting aside the order of dismissal.
+In the result, the appeal fails and is dismissed with costs.
+WANCHOO, J.
+We regret we are unable to agree that the appeal be dismissed.
+Babu Ram Upadhya (respondent) was a sub inspector of police who was appointed in December, 1948.
+In 1953, he was posted at Sitapur.
+On September 6, 1953, he was returning from a village called Madhwapur, when he saw a man who was subsequently found to be Tika Ram coming from the side of a canal and going hurriedly into a field.
+The movements of Tika Ram roused his suspicion.
+One Lalji, an ex patwari, was also with the sub inspector.
+Tika Ram was called and searched, and a bundle containing currencynotes was found on him.
+The sub inspector took the bundle and counted the notes and handed them over to Lalji.
+Lalji in his turn handed over the notes to Tika Ram.
+Thereafter Tika Ram, who is an old man, almost blind, went away.
+When he reached his house, he found that there was a shortage of Rs. 250.
+He then made a complaint to the Superintendent of Police on September 9, 1953, in which he gave the above facts.
+An inquiry was made by the Superintendent of Police and ultimately, departmental proceedings under section 7 of the were taken 713 against the respondent.
+These proceedings resulted in his dismissal and thereupon the respondent applied to the High Court under article 226 of the Constitution.
+The main contention of the respondent was that r. 486 of the Police Regulations framed under section 7 of the was not observed and therefore the departmental proceedings taken against him were illegal.
+The reply of the appellant was two fold: in the first place, it was urged that r. 486 did not apply as there was no report of a cognizable offence against the sub inspector; and in the next place, it was urged that the rules contained in the Police Regulations were only administrative rules and even if there was non compliance with any of them, it would not affect the departmental proceedings taken against the respondent, provided there was no breach of the guarantees contained in article 311 of the Constitution.
+The High Court held that there was a report of a cognizable offence under section 409 of the Indian Penal Code against the respondent and therefore the procedure provided by r. 486 ought to have been followed.
+It further held that r. 486 had been framed under section 7 of the and was a statutory provision, which had the force of law.
+As such, following the earlier view taken by the High Court in two other cases it held that a dismissal as a result of departmental proceedings which took place without complying with r. 486 would be illegal.
+In consequence, the writ petition was allowed.
+The appellant then applied for a certificate to enable it to appeal to this Court, which was refused.
+Thereupon special leave was prayed for from this Court, which was granted; and that is how the matter has come up before us.
+Mr. C. B. Aggarwala on behalf of the appellant urges the same two points before us.
+So far as the first point is concerned, we are of opinion that there is no force in it.
+There is no doubt that in the complaint made by Tika Ram, the name of the respondent was not shown in the heading; but from the facts disclosed in the body of the complaint it is clear that the sub inspector searched the person of Tika Ram and recovered a bundle containing currency notes.
+He 714 did so obviously under the authority vested in him as a police officer.
+When therefore he was satisfied that there was no reason to take any further action against Tika Ram, it was his duty to see that the entire amount taken by him from Tika Ram on search was returned to him (Tika Ram).
+The High Court was right in the view that where property is taken away with the intention that it will continue to be the property of the person from whose possession it has been taken away, there will be an entrustment of the property to the person taking it away, and if.
+subsequently the person taking it away converts it to his own use or suffers some other person to do so, there will be criminal breach of trust and not merely criminal misappropriation.
+Thus an offence under section 409 of the Indian Penal Code appears to have been committed prima facie on the facts of this case.
+As an offence under section 409 is a cognizable offence, r. 486 of the Police Regulations would apply.
+This brings us to the main point in the present appeal.
+Sec. 7 of the under which r. 486 has been framed is in these terms: "Subject to such rules as the State Government may from time to time make under this Act, the Inspector General, Deputy Inspectors General, Assistant Inspectors General and District Superintendents of Police may at any time dismiss, suspend or reduce any police officer of the subordinate ranks whom they shall think remiss or negligent in the discharge of his duty or unfit for the same; or may award any one or more, of the following punishments to any police officer of the subordinate ranks, who shall discharge his duty in a careless or negligent manner, or who, by any act of his own shall render himself unfit for the discharge thereof, name (a) fine to any amount not exceeding one month 's pay; (b) confinement to quarters for a term not exceeding fifteen days, with or without punishment, drill, extra guard, fatigue or other duty; (c) deprivation of good conduct pay; 715 (d) removal from any office of distinction or special emolument;".
+It gives power to four grades of police officers to dismiss, suspend or reduce any police officer of the subordinate ranks whom they think remiss or negligent in the discharge of his duty or unfit for the same.
+It also provides for infliction of four other kinds of punishment by these four grades of officers on any police officer of the subordinate ranks who discharges his duty in a careless or negligent manner or who by any act of his own renders himself unfit for the discharge thereof.
+In the present case we are concerned with dismissal and what we shall say hereafter should be taken to be confined to a case of dismissal.
+Sec tion 7 shows that the power of dismissal conferred by it on the four grades of police officers is to be exercised subject to such rules as the State Government may from time to time make under the .
+The contention on behalf of the respondent is that the power of dismissal has to be exercised subject to rules and therefore, when r. 486 of the Police Regulations (framed under section 7) provided a certain procedure to be followed with respect to cases in which a cognizable offence was involved it was not open to the authority concerned to disregard that procedure.
+In effect, it is urged that r. 486 is a mandatory provision and non compliance with it would invalidate the departmental proceedings.
+It is not in dispute in this case that the procedure provided by r. 486 was not followed.
+That procedural provision is that where a report of a cognizable crime is made against a police officer belonging to the subordinate ranks, it has to be registered as provided in Chapter XIV of the Code of Criminal Procedure and investigated as provided thereunder.
+Thereafter the authority concerned has to decide whether to send the case for trial before a court of law or to take departmental proceedings.
+In this case no report was registered as provided under Chapter XIV of the Code of Criminal Procedure and no investigation was made as provided in that Chapter.
+All that happened was that the Superintendent of Police to whom Tika Ram had complained inquired into the 716 complaint of Tika Ram and thereafter decided to hold a departmental inquiry under section 7 of the against the respondent.
+The main contention on behalf of the appellant is that the Rules framed under section 7 of the are administrative rules and in any case they are only directory and non compliance with them would not vitiate the subsequent proceedings unless there is a breach of the guarantee contained in article 311 of the Constitution, as all public servants hold their office at the pleasure of the President or the Governor, as the case may be, other than those expressly excepted under the Constitution.
+Reliance in this connection is placed on the case of R. Venkata Rao vs Secretary of State for India in Council (1).
+This brings us to a consideration of the tenure on which public servants hold office.
+The position in England is that all public servants hold office at the pleasure of His Majesty, that is to say, their service was terminable at any time without amuse: (see Shenton vs Smith (2 )).
+By law, however, it is open to Parliament to prescribe a different tenure and the King being a party to every Act of Parliament is understood to have accepted the change in the tenure when he gives assent to such law: (see Gould vs Stuart (3)).
+This principle applied in India also before the Government of India Act, 1915, was amended by the addition of section 96 B therein.
+Section 96 B for the first time provided by statute that every person in the civil service of the Crown held office during His Majesty 's pleasure, subject to the provisions of the Government of India Act and the rules made thereunder and the only protection to a public servant against the exercise of pleasure was that he could not be dismissed by any authority subordinate to that by which he was appointed.
+It was this section, which came for consideration before the Privy Council in Venkata Rao 's case (1) and the Privy Council held that in spite of the words ".subject to the rules made under the Government of India Act," Venkata Rao 's employment was not of a (1) (1936) L.R. 64 I.A. 55 (2) (3) 717 limited and special kind during pleasure with an added contractual term that the procedure prescribed, by the Rules must be observed; it was by the express terms of section 96 B held "during His Majesty 's pleasure" and no right of action as claimed by Venkata Rao existed.
+The Privy Council further held that the terms of section 96 B assured that the tenure of office, though at pleasure, would not be subject to capricious or arbitrary action but would be regulated by the rules which were manifold in number, most minute in particularity and all capable of change; but there was no right in the public servant enforceable by action to hold his office in accordance with those rules and he could therefore be dismissed notwithstanding the failure to observe the procedure prescribed by them.
+The main point which was urged in Venkata Rao 's case (1) was that under r. XIV of the Civil Services Classification Rules no public servant could be dismissed, removed or reduced in rank except after a properly recorded departmental inquiry.
+In Venkata Rao 's case (1) the departmental inquiry prescribed by the rules was found not to have been held.
+Even so, the Privy Council held that the words used in section 96 B could not and did not cut down the pleasure of His Majesty by rules though it was observed that the terms of the section contained a statutory and solemn assurance, that the tenure of office, though at pleasure., would not be subject to capricious or arbitrary, action, but would be regulated by rule.
+It was further added that supreme care should be taken that this assurance is carried out in the letter and in the spirit.
+The Privy Council further held that in ' the case before it, there had been a serious and complete failure to adhere to important and indeed fundamental rules, and mistakes of a serious kind had been made and wrongs had been done which called for redress; even so; they were of the view that as a matter of law that redress was not obtainable from courts by action. ,.
+This was the position under the Government of India Act 1915.
+There was however a material change in the Government of India Act, 1935.
+So far, there (1) (1936) L.R. 64 I. A. 55.
+91 718 was one protection to a public servant, namely, that he could not be dismissed by an authority subordinate to that by which he was appointed.
+In the Government of India Act, 1935, section 240(1) laid down that " except as expressly provided by this Act, every person who is a member of a civil service of the Crown in India. holds office during His Majesty 's pleasure.
+" The words of this section are different from those of section 96 B and the tenure of all public servants other than those expressly provided for was to be during His Majesty 's pleasure.
+There were, however, two safeguards provided by sub sections
+(2) and (3) of section 240.
+The first was the same (namely, that no public servant will be dismissed by an officer subordinate to that who appointed him); but a further exception was added to the pleasure tenure, namely, no public servant shall be dismissed until he has been given a reasonable opportunity of showing cause against the action proposed to be taken in regard to him.
+This protection came to be considered by the Privy Council in High Commissioner for India and High Commissioner for Pakistan vs 1.
+M. Lall (1) and it was held that it was a mandatory provision and qualified the pleasure tenure and provided a condition precedent to the exercise of power by His Majesty provided by sub section
+(1) of section 240.
+Thus by the Government of India Act, 1935, there were two statutory guarantees to public servants against the exercise of the pleasure of his Majesty; but it is clear from section 240 of the Government of India Act, 1935, that the pleasure of His Majesty to dismiss was not otherwise subject to rules framed under the subsequent provisions of the Government of India Act appearing in Chapter 11 of Part X dealing with public services.
+This position continued till we come to the Constitution.
+Article 310(1) of the Constitution provides for what was contained in section 240(1) of the Government of India Act, 1935, and is in these terms: "(1) Except as expressly provided by this Constitution, every person who is a member of a defence (1) (1948) L.R. 75 I.A. 225. 719 service or of a civil service of the Union or of an all India service or holds any post connected with defence, or any civil post under the Union, holds office during the pleasure of the President, and every person who is a member of a civil service of a State or holds any civil post under a State holds office during the pleasure of the Governor of the State.
+" It will be clear therefore that all public servants except as expressly provided by the Constitution hold their office during the pleasure of the President or the Governor, as the case may be.
+Article 311 then provides for two guarantees and is similar in terms to section 240(2) and (3) of the Government of India Act, 1935 and the two guarantees are the same, (namely, (i) that no person shall be dismissed or removed by an authority subordinate to that by which he was appointed, and (ii) no such person shall be dismissed or removed or reduced in rank until he has been given a reason able opportunity of showing cause against the action proposed to be taken in regard to him).
+In Parshotam Lal Dhingra vs Union of India (1), this Court held that article 311 was in the nature of a proviso to article 310, that it provides two constitutional guarantees cutting down the pleasure of the President or the Governor, as the case may be, and that it was a mandatory provision which had to be complied with before the pleasure provided in article 310 can be exercised.
+Mr. Pathak for the respondent urges that in view of the words of article 310 statute or statutory rules can also cut down the nature of the pleasure tenure provided by article 310 in the same way as in England an Act of Parliament cuts down the ambit of His Majesty 's pleasure in the matter of dismissal.
+He relies on the words "as expressly provided by this Constitution" and urges that it is open to the legisla ture to cut down the pleasure tenure by law or to provide for its being affected by statutory rules.
+In this connection he relies on article 309 as well as article 154 of the Constitution.
+Now, article 309 begins with the words "subject to the provisions of this Constitution" land lays down that "Acts of the appropriate Legislature may regulate the recruitment, and conditions of (1) ; 720 service of person appointed, to public services and posts in connection with the affairs of the Union or of any State".
+The proviso to article 309 lays down that "it shall be competent for the President or the Governor as the case may be to make rules relating to recruitment and conditions of service until provision in that behalf is made by or under an Act of the appropriate Legislature".
+It will be clear immediately that article 309 is subject to the provisions of the Constitution and therefore subject to article 310 and therefore, any law passed or rules framed under article 309 must be subject to article 310 and cannot in any way affect the pleasure tenure laid down in article 310.
+The words "except as expressly provided by this Constitution" appearing in article 310 clearly show that the only exceptions to the pleasure tenure are those expressly contained in the Constitution and no more.
+These exceptions, for example, are contained inter alia in articles 124. 148, 280 and 324 and also in article 310 (2).
+Therefore, unless there is an express provision in the Constitution cutting down the pleasure tenure, every public servant holds office during the pleasure of the President or the Governor, as the case may be.
+We cannot accept the argument that a law passed under article 309 prescribing conditions of service would become an express provision of the Constitution and would thus cut down the pleasure tenure contained in article 310.
+As the Privy Council pointed in Venkata Rao 's case (1), the rules framed under article 309 or the laws passed thereunder amount to a statutory and solemn assurance that the tenure of office though at pleasure will not be subject to capricious or arbitrary action but will be regulated by rule.
+But if the rules or the law define the content of the guarantee contained in article 311 (2) they may to that extent be mandatory but only because they carry out the guarantee contained in article 311 (2).
+Excepting this, any law or rule framed under article 309 cannot cut down the pleasure tenure as provided in article 310.
+The same in our opinion applies to a law passed under article 154 (2)(b) which authorises Parliament or the legislature of a State to confer functions on any (1) (1936) L.R. 64 I.A. 55.
+721 authority subordinate to the Governor.
+If any law is passed conferring on any authority the power to dismiss or remove or reduce in rank, that law cannot cut down the content of the pleasure tenure as contained in article 310; that law would be passed under article 245 and that article also begins with the words "subject to the provisions of this Constitution".
+Therefore, the law passed under article 154 (2) (b) would also in the same way as the law under article 309 be subject to the pleasure tenure contained in article 310 and cannot cut down the content of that tenure or impose any further fetters on it except those contained in article 311.
+The position therefore that emerges from the examination of the relevant Articles of the Constitution is that all public servants other than those who are excepted expressly by the provisions of the Constitution hold office during the pleasure of the President or the Governor, as the case may be, and that no law or rule passed or framed under article 309 or article 154 (2) (b) can cut down the content of the pleasure tenure as contained in article 310 subject to article 311.
+With this basic position in our Constitution, let us turn to the with which we are concerned.
+Section 7 thereof lays down that four grades of officers will have power to dismiss, suspend or reduce any police officer of the subordinate ranks subject to such rules as the State Government may from time to time make under the .
+Though the is a pre constitutional law which has continued under article 372 of the Constitution, it cannot in our opinion stand higher than a law passed under article 309 or article 154 (2) (b) and out down the content of the pleasure tenure as contained in article 310.
+The police officers of the subordinate ranks are not expressly excluded from the operation of the pleasure tenure by any provision of the Constitution; they, therefore, hold office during the pleasure of the Governor and the only protection that they can claim are the two guarantees contained in article 311.
+It is true that section 7 lays down that the four grades of officers empowered to dismiss will act according to rules framed by the State Government; but that does not in our opinion mean that 722 these rules could introduce any further fetter on the pleasure tenure under which the police officers of the subordinate ranks are in service.
+It was necessary to provide for the framing of rules because the section envisages conferment of, powers of punishment of various kinds on four grades of officers relating to various cadres of police officers in the subordinate ranks.
+It was left to the rules to provide which four grades of officers would dismiss police officers of which subordinate rank or would give which punishment to a police officer of which subordinate rank.
+Such rules would in our opinion be mandatory as they go to the root of the jurisdiction of the four grades of police officers empowered to act under section 7.
+But further rules may be framed under section 7 to guide these police officers how to act when they proceed to dismiss or inflict any other punishment on police officers of the subordinate ranks.
+These rules of procedure, however, cannot all be mandatory, for if they were so they would be putting further fetters than those provided in article 311 on the pleasure of the Governor to dismiss a public servant.
+of course, if any of the rules framed under section 7 carry out the purposes of article 311(2), to that extent they will be mandatory and in that sense their contravention would in substance amount to contravention of article 311 itself.
+If this were not so, it would be possible to forge further fetters on the pleasure of the Governor to dismiss a public servant and this in the light of what we have said above is clearly not possible in view of the provisions of the Constitution.
+On the other hand, it will not be possible by means of rules framed under section 7 to take away the guarantee provided by article 311(1), which lays down that no public servant shall be dismissed by an authority subordinate to that by which he was appointed.
+If any rule under section 7, for example, lays down otherwise it will clearly be ultra vires in view of article 311(1).
+The rules therefore that are framed under section 7 would thus be of two kinds, namely (1) those which define the jurisdiction of four grades of officers to inflict a particular kind of punishment on a particular police officer of the subordinate rank they will be mandatory 723 for they go to the root of the jurisdiction of the officer exercising the power, but even these rules cannot go against the provisions of article 31 1 (1); and (2) procedural rules, which again may be of two kinds.
+Some of them may prescribe the manner in which the guarantee contained in article 311 (2) may be carried out and if there are any such rules they will be mandatory.
+The rest will be merely procedural and can only be directory as otherwise if they are also mandatory further fetters on the power of the Governor to dismiss at his pleasure contained in article 310 would be forged and this is not permissible under the Constitution.
+It is from this angle that we shall have to consider 486.
+Before, however, we come to r. 486 itself, we may dispose of another argument, namely, that the four grades of officers who have the power to dismiss under section 7 are exercising the statutory authority vested in them and are not exercising the Governor 's pleasure of dismissal under article 310 and therefore their action in dismissing an officer is subject to all the rules framed for their guidance.
+We are of opinion that this argument is fallacious.
+Article 310 defines the pleasure tenure and by necessary implication gives power to the Governor to dismiss at pleasure any public servant subject to the exceptions contained in article 310 and also subject to the guarantees contained in article 311.
+This power of the Governor to dismiss is executive power of the State and can be exercised under article 154(1) by the Governor himself directly or indirectly through officers subordinate to him.
+Thus it is open to the Governor to delegate his power of dismissal to officers subordinate to him; but even when those officers exercise the power of dismissal, the Governor is indirectly exercising it through those to whom he has delegated it and it is still the pleasure of the Governor to dismiss, which is being exercised by the subordinate officers to whom it may be delegated.
+Further though the Governor may delegate his executive power of dismissal at pleasure to subordinate officers he still retains in himself the power to dismiss at pleasure if he thinks fit in a particular case in spite 724 of the delegation.
+There can be no question that where a delegation is made, the authority making the delegation retains in itself what has been delegated.
+Therefore, even where a subordinate officer is exercising the power to dismiss he is indirectly exercising the power of the Governor to dismiss at pleasure and so his power of dismissal can only be subject to the same limitations to which the power of the Governor would be subject if he exercised it directly.
+But it is said that in the present case the power has not been delegated by the Governor under article 154(1) and that it had been conferred on those police officers by law.
+In our opinion, that makes no difference to the nature of the power, which is being exercised by these four grades of officers under the .
+As we have already said article 154(2)(b) gives power to Parliament or the legislature of a State by law to confer functions on any authority subordinate to the Governor.
+When the function of dismissal is conferred by law on any authority subordinate to the Governor it is nothing more than delegation of the Governor 's executive power to dismiss at pleasure by means of law and stands in no better position than a delegation by the Governor himself under article 154(1).
+Whether it is delegation by the Governor himself or whether it is delegation by law under article 154(2)(b) or by an existing law, which must be treated as analogous to a law under article 154(2)(b), the officer exercising the power of dismissal is only indirectly exercising, the Governor 's power to dismiss at pleasure and his order of dismissal has the same effect as the order of the Governor to dismiss at pleasure.
+Therefore, his order also is only subject to the two fetters provided in article 311 of the Constitution and cannot be subjected to any more fetters by procedural rules other than those framed for carrying out the object of article 311(2).
+Therefore, when the four grades of officers proceed to dismiss any police officer of the subordinate rank under section 7 of the , they are merely exercising.
+the power of the Governor to dismiss at pleasure indirectly; and the only fetters that can be placed on that power are those contained in the Constitution, namely, article 311.
+725 We may in this connection refer once again to the case of Venkata Rao (1) where the dismissal was by an, officer subordinate to the Governor of Madras; but ' that dismissal was also held to be an indirect exercise I of His Majesty 's pleasure to dismiss, and that is why it was held that if r. XIV of the Classification Rules was not complied with, a public servant had no right of action against an order dismissing him at His Majesty 's pleasure.
+Therefore, whenever a subordinate officer exercises the power to dismiss, whether that power is delegated by the Governor, or is delegated under a law made under article 154(2)(b) or under an existing law analogous to that, he is merely exercising indirectly the power of the Governor to dismiss at pleasure and his action is subject only to the two guarantees contained in article 311.
+The fact therefore that the police officer in this case made the order of dismissal by virtue of section 7 will make no difference and he will be deemed to be exercising the power of the Governor to dismiss at pleasure by delegation to him by law of that power.
+We may add that even where there is delegation by law of the power of the Governor to dismiss at pleasure, the power of the Governor himself to act directly and dismiss at pleasure cannot be taken away by that law, for that power he derives from article 310 of the Constitution.
+The present case therefore must be judged on the same basis as any case of dismissal directly by the Governor and would only be subject to the two limitations contained in article 311.
+We now come to r. 486.
+This rule, as we have already indicated, provides that if there is any complaint of the commission of any cognizable crime by a police officer, it must be registered in the relevant police station, under Chapter XIV of the Code of Criminal Procedure and investigated in the manner provided by that Chapter.
+After the investigation is complete, it is open to the authority concerned, be it the Superintendent of Police or the District Magistrate, to decide whether to proceed in a court of law (1) (1936) L.R. 64 I.A. 55.
+92 726 or to hold a departmental inquiry or do both, though in the last case the departmental inquiry must take place only after the judicial trial is over.
+The first question then that arises is whether r. 486 is meant to carry out the purpose of article 311(2).
+As we read r. 486, we cannot see that it is meant for that purpose; it only provides for a police investigation under Chapter XIV of the Code of Criminal Procedure.
+The police officer making an investigation under Chapter XIV is not bound to examine the person against whom he is investigating, though there is nothing to prevent him from doing so.
+Nor is the person against whom an investigation is going on under Chapter XIV bound to make a statement to the police officer.
+In these circumstances, the purpose of an investigation under Chapter XIV is not relevant under article 311(2) which says that a public servant shall not be dismissed without giving him a reasonable opportunity of showing cause against the action proposed to be taken in regard to him.
+Therefore, r. 486 not being meant for the purpose of carrying out the object of article 311 (2) cannot be mandatory and cannot add a further fetter on the exercise of the power to dismiss or remove at the pleasure of the Governor over and above the guarantees contained in article 311.
+It appears to us that the object of r. 486 is that the authority concerned should first make a preliminary inquiry to find out if there is a case against the officer complained against either to proceed in a court or to take departmental action.
+The investigation prescribed by r. 486 is only for this purpose.
+Incidentally it may be that after such an investigation, the authority concerned may come to the conclusion that there in no case either ' to send the case to court or to hold a departmental inquiry.
+But that in our opinion is what would happen in any case of complaint against a public servant in any department of Government.
+No authority entitled to take action against a public servant would straightaway proceed to put the case in court or to hold a departmental inquiry.
+It seems to us axiomatic if a complaint is received against any public servant of any department, that the authority 727 concerned would first always make some kind of a preliminary inquiry to satisfy itself whether there is any case for taking action at all; but that is in our opinion for the satisfaction of the authority and has nothing to do with the protection afforded to a public servant under article 311.
+Rule 486 of the Police Regulations also in our opinion is meant for this purpose only and not meant to carry out the object contained in article 311(2).
+The opportunity envisaged by article 311(2) will be given to the public servant after the the authority has satisfied itself by preliminary inquiry that there is a case for taking action.
+Therefore, r. 486 which is only meant to gather materials for the satisfaction of the authority concerned, whether to take action or not, even though a statutory rule cannot be considered to be mandatory as that would be forging a further fetter than those contained in article 311 on the power of the Governor to dismiss at pleasure.
+We are therefore of opinion that r. 486 is only directory and failure to comply with it strictly or otherwise will not vitiate the subsequent proceedings.
+We may incidentally indicate two further aspects of the matter.
+In the first place, if the argument is that the Governor must exercise the pleasure himself so that only the two limitations provided in article 311 may come into play; it appears that the Governor has exercised his pleasure in this case inasmuch as he dismissed the revisional application made to him by the respondent.
+There appears no reason to hold that the Governor exercises his pleasure only when he passes the original order of dismissal but not otherwise.
+Secondly the fact that r. 486 contains the word "shall" is not decisive on the point that it is mandatory: (see Crawford on Statutory Construction, p. 519, para. 262).
+In view of what we have said already, the context shows that r. 486 can only be directory.
+If so, failure to observe it strictly or otherwise will not invalidate the subsequent departmental proceedings.
+This brings us to the last point which has been urged in this case; and that is whether there was substantial compliance with r. 486.
+We have already 728 pointed out that there was no strict compliance with r. 486 as no case wag registered on the complaint of Tika Ram and no investigation was made under Chapter XIV of the Code of Criminal Procedure.
+But there is no doubt in this case that before the Superintendent of Police gave the charge sheet to the respondent in November, 1953, which was the beginning of the departmental proceedings against the respondent, he made a preliminary inquiry into the complaint of Tika Ram and was satisfied that there was a case for proceeding against the respondent departmentally.
+In these circumstances it appears to us that the spirit of r. 486 was substantially complied with and action was only taken against the respondent when on a preliminary inquiry the Superintendent of Police was satisfied that departmental action was necessary.
+Even if r. 486 had been strictly complied with, this is all that could have happened.
+In these circumstances we are of opinion that r. 486 which in our opinion is directory was substantially complied with in spirit and therefore the subsequent departmental proceedings cannot be held to be illegal, simply because there was no strict compliance with r. 486.
+The High Court therefore in our opinion was wrong in holding that the subsequent departmental inquiry was illegal and its order quashing the order of dismissal on this ground alone cannot be sustained.
+We would therefore allow the appeal.
+BY COURT In accordance with the opinion of the majority, this appeal is dismissed with costs.

1025.txt

@@ -0,0 +1,73 @@
+Appeal No. 419 of 1958.
+Appeal by special leave from the judgment and order dated August 20, 1957, of the Calcutta High a Court in Income tax Reference No. 1 of 1956.
+Hardyal Hardy and D. Gupta, for the appellant.
+N. C. Chatterjee, Dipak Choudhri and B. N. Ghosh, for the respondent.
+November 28.
+The Judgment of the Court was delivered by KAPUR, J.
+This is an appeal by special leave against the judgment and order of the High Court of Judicature at Calcutta in a reference made by the Income tax Appellate Tribunal under section 66(1) of the Income tax Act.
+The following question was referred: "Whether in the facts and circumstances of this case, the Appellate Tribunal was right in holding that Rs. 61,818 spent by the assessee to train Indian boys as jockeys, did not constitute expenses of the business of the assessee allowable under section 10(2)(xv)?" which was answered in favour of the respondent.
+The Commissioner is the appellant before us and the assessee is the respondent.
+The respondent is an association of persons whose business is to hold race meetings in Calcutta on a commercial basis.
+It holds two series of race meetings during the two seasons of the year.
+The respondent does not own any horses and therefore does not employ jockeys but they are employed by owners and trainers of horses which are run in the races.
+It is a matter of some importance to the respondent that there should be jockeys available to the owners with sufficient skill and experience because the success of races to a considerable extent depends upon the experience and skill of a jockey who rides a horse in a race.
+Because it was of the opinion that there was a risk of the jockeys becoming unavailable and that such unavailability would seriously affect its business which might result in its closing 731 down the business, the respondent considered it expedient to remedy that defect.
+Therefore in 1948, it, established a school for the training of Indian boys as jockeys so that after their training they might be available for purposes of race meetings held under its auspices.
+The school, however, did not prove a success and after having been in existence for three years it was closed down.
+During the year ending March 31, 1949, the respondent spent a sum of Rs. 62,818 on the running of its school and claimed that amount as a deduction under section 10(2)(xv) of the Income tax Act and also in the assessment under the Business Profits Tax for the chargeable accounting period ending March 31, 1949.
+This claim was disallowed by the Income Tax Officer and on appeal by Appellate Assistant Commissioner and also by the Income tax Appellate Tribunal.
+At the instancc of the respondent the question already quoted was referred to the High Court and was answered in favour of the respondent.
+This appeal is brought by special leave against that judgment.
+The decision under the Business Profits Tax Act will be consequential upon the decision of the deduction under the Income tax Act.
+The Tribunal found that it was not the business of the respondent to provide jockeys to owners and trainers, that the jockeys trained in the respondent 's school were not bound to ride only in the races run by the respondent and that the benefit, if any, which accrued was of an enduring nature.
+It also found that the respondent had been conducting race meetings since long, that it was not the case of the assessee that if it did not train jockeys they would become unavailable and that the mere policy of producing efficient Indian jockeys was not a sufficient consideration for treating the expenditure as one incurred for the business of the respondent.
+For these reasons the expenditure was disallowed.
+Before the Appellate Assistant Commissioner, it was contended by the respondent, that the reason for incurring the expenditure was "to promote efficient Indian jockeys" and it was in the interest of the respondent to see that the races are not abandoned on 732 account of the scarcity of jockeys.
+In the order of the Tribunal it is stated that this was not the case of the respondent, and therefore when the respondent wanted paragraph 5 of the statement to be substituted by the following: "It was the case of the assessee that unless it trained Indian Jockeys, time may come when there may not be sufficient number of trained jockeys to ride horses in the races conducted by the assessee.
+" the Tribunal did not agree to do so.
+Counsel for the appellant raised three points before us; (1) The question as to whether an item of expenditure is wholly and exclusively laid out for the purposes of business or not is a question of fact; (2) the connection between an expenditure and profit earning of the assessee should be direct and substantial and not remote and (3) to be admissible as revenue expenditure it should not be in the nature of a capital expense, i.e., it should not bring into existence an asset of an enduring nature.
+As to the first question this court has held in Eastern Investments Ltd. vs Commissioner of Income tax, West Bengal (1) that "though the question must be decided on the facts of each case, the final conclusion is one of law".
+In Commissioner of Income Tax vs Chandulal Keshavlal & Co. (2), this Court said: "Another test is whether the transaction is properly entered into as a part of the assessee 's legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby.
+(Eastern Investment Ltd. vs Commissioner of Income Tax, (1951) 20 I.T.R. 1).
+But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee.
+In the present case the finding is that it was laid out for the purpose of the assessee 's business and there is evidence to support this finding." But those observations must be read in the context.
+In that case the assessee firm was the Managing Agent of a Company and at the request of the Directors of (1) ; , 598.
+(2) , 610. 733 the latter agreed to accept a lesser commission for the year of account than it was entitled to.
+It was found, by the Appellate Tribunal there that the amount was expended for reasons of commercial expediency and was not given as a bounty but to strengthen the managed company so that if its financial position became strong the assessee would benefit thereby, and an the evidence the Tribunal came to the conclusion that the amount was wholly and exclusively for the purpose of such business.
+It was on this evidence that the expense was held to be wholly and exclusively laid out for the purpose of the assessee 's business and this was the finding referred to.
+In that case the Tribunal had not misdirected itself as to the true scope and meaning of the words "wholly and exclusively laid out for the purpose of the assessee 's business".
+In the present case the Income tax Appellate Tribunal had misdirected itself as to the true scope and meaning of these words.
+In our opinion, in the circumstances of this case, it cannot be said that the finding of the Tribunal was one of fact.
+The question as to whether the expenses of running the school for jockeys is deductible has to be decided taking into consideration the circumstances of this case.
+The business of the respondent was to run race meetings on a commercial scale for which it is necessary to have races of as high an order as possible.
+For the popularity of the races run by the respondent and to make its business profitable it was necessary that there were jockeys of requisite skill and experience in sufficient numbers who would be available to the owners and trainers because without such efficient jockeys the running of race meetings would not be commercially profitable.
+It was for this purpose that the respondent started the school for training Indian jockeys.
+, If there were not sufficient number of efficient Indian jockeys to ride horses its interest would have suffered, and it might have had to abandon its business if it did not take steps to make jockeys of the necessary calibre available.
+Therefore any expenditure which was incurred for preventing the extinction 93 734 of the respondent 's business would, in our opinion, be expenditure wholly and exclusively laid out for the purpose of the business of the assessee and would be an allowable deduction.
+This finds support from decided cases.
+In Commissioner of Income tax vs Chandulal Keshavlal & Co. (1), this Court held that in order to justify a deduction the disbursement must be for reasons of commercial expediency; it may be voluntary but incurred for the assessee 's business; and if the expense is incurred for the purpose of the business of the assessee it does not matter that the payment also enures to the benefit of a third party.
+Another test laid down was that if the transaction is properly entered into as a part of the assessee 's legitimate commercial undertaking in order to facilitate the carrying on of its business it is immaterial that a third party also benefits thereby.
+In British Insulated and Helsby Cables vs Atherton (2), Viscount Cave L. C. held that a Bum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the carrving on of the business may yet be expended wholly and exclusively for the purpose of the trade.
+In a case more recently decided Morgan vs Tate & Lyle Ltd. (3) the assessee company was engaged in sugar refining business and it incurred expenses in a propaganda campaign to oppose the threatened nationalisation of the industry.
+It was held by the House of Lords by a majority that the object of the expenditure being to preserve the assets of the company from seizure and so to enable it to carry on its business and earning profits, the expense was an admissible deduction being wholly and exclusively laid out for the purpose of the company 's trade.
+Lord Morton of Henryton said: "Looking simply at the words of the rule I would ask:"If money so spent is not spent for the purpose of the company 's trade, for what purpose is it spent?" If the assets are seized, the company can no longer (1) , 610.
+(2) (3) 735 carry on the trade which has been carried on by the use of these assets.
+Thus the money is spent to preserve the very existence of the company 's trade".
+See also Strong & Co. vs Woodifield(1), the observations of Lord Davey; and Smith vs Incorporated Council of Law Reporting (2).
+Counsel for the appellant relied upon the judgment of the Privy Council in Ward & Co. Ltd. vs Commissioner of Taxes (3 ), but that decision proceeds on a different statute where the words were of a very restrictive character, the words being: ". . . .
+Expenditure or loss of any kind not exclusively incurred in the production of the assessable income derived from that source. . .
+This case was distinguished in Morgan vs Tate & Lyle(4) on the ground that the language of the Now Zealand statute was much narrower than the language of r. 3A in England.
+Reference was also made by the appellant to Boarland vs Kramat Pulai Ltd. (5).
+In that case Directors of three Companies engaged in tin mining in Malaya incurred expenditure on printing.
+and circulating to shareholders a pamphlet containing remarks of the Chairman of the Company.
+The pamphlet was an attack on the policy and acts of the Socialist Government and it was held that the question whether the money was wholly and exclusively laid out or expended for the purpose of trade within the meaning of rules applicable to the question was one of law but on a consideration of the question it was held that the expenditure was not solely incurred with that object.
+It is not necessary to discuss that case at any length because what was held in that case was that the pamphlet was not wholly and exclusively for the purpose of the company 's trade.
+Applying the law, as laid down in those cases, to the present case the conclusion is that the amount in dispute was laid out wholly and exclusively for the purpose of the respondent 's business because if the (1) ; (2) [19I4] 3 K.B. 674.
+(3) [1923] A.C 145.
+(4) (5) 736 supply of jockeys of efficiency and skill failed the business of the respondent would no longer be possible.
+Thus the money was spent for the preservation of the respondent 's business.
+As to the third point there is no substance in the submission that the expenditure was in the nature of a capital expense because no asset of enduring nature was being created by this expense.
+In our opinion the High Court has rightly held that the expenditure claimed was one which was wholly and exclusively laid out for the purpose of the respondent 's business.
+It was to prevent the threatened extinction of the business of the respondent.
+In the result this appeal is dismissed with costs.
+Appeal dismissed.

1026.txt

@@ -0,0 +1,75 @@
+Appeal No. 517 of 1958.
+Appeal from the judgment and order dated October 31, 1957, of the Kerala High Court in O. P. No. 215 of 1957.
+G. B. Pai and Sardar Bahadur, for the appellant.
+Hardyal Hardy and D. Gupta, for the respondents.
+November 29.
+The Judgment of the Court was delivered by SHAH, J.
+C. A. Abraham hereinafter referred to as the appellant and one M. P. Thomas carried on business in food grains in partnership in the name and style of M. P. Thomas & Company at Kottayam.
+M. P. Thomas died on October 11, 1949.
+For the account years 1123, 1124 and 1125 M.E. corresponding to August 1947 July 1948, August 1948 July 1949 and August 1949 July 1950, the appellant submitted as a partner returns of the income of the firm as an unregistered firm.
+In the course of the assessment proceedings, it was discovered that the firm had carried on transactions in different commodities in fictitious names and had failed to disclose substantial income earned therein.
+By order dated November 29, 1954, the Income Tax Officer assessed the suppressed income of the firm in respect of the assessment year 1124 M.E. under the Travancore Income Tax Act and in respect of assessment years 1949 50 and 1950 51 under the Indian Income Tax Act and on the same day issued notices under section 28 of the Indian Income Tax Act in respect of the years 1949 50 and 1950 51 and 767 under section 41 of the Travancore Income Tax Act for the year 1124 M.E., requiring the firm to show cause why penalty should not be imposed.
+These notices were served upon the appellant.
+The Income Tax Officer after considering the explanation of the appellant imposed penalty upon the firm, of Rs. 5,000 in respect of the year 1124 M. E., Rs. 2,O00 in respect of the year 1950 51 and Rs. 22,000 in respect of the year 1951 52.
+Appeals against the orders passed by the Income Tax Officer were dismissed by the Appellate Assistant Commissioner.
+The appellant then applied to the High Court of Judicature of Kerala praying for a writ of certiorari quashing the orders of assessment and imposition of penalty.
+It was claimed by the appellant inter alia that after the dissolution of the firm by the death of M. P. Thomas in October, 1949, no order imposing a penalty could be passed against the firm.
+The High Court rejected the application following the judgment of the Andhra Pradesh High Court in Mareddi Krishna Reddy vs Income Tax Officer, Tenali (1).
+Against the order dismissing the petition, this appeal is preferred with certificate of the High Court.
+In our view the petition filed by the appellant should not have been entertained.
+The Income Tax Act provides a complete machinery for assessment of tax and imposition of penalty and for obtaining relief in respect of any improper orders passed 'by the Income Tax authorities, and the appellant could not be permitted to abandon resort to that machinery and to invoke the jurisdiction of the High Court under article 226 of the Constitution when he had adequate remedy open to him by an appeal to the Tribunal.
+But the High Court did entertain the petition and has also granted leave to the appellant to appeal to this court.
+The petition having been entertained and leave having been granted, we do not think that we will be justified at this stage in dismissing the appeal in limine.
+On the merits, the appellant is not entitled to relief.
+The Income Tax Officer found that the appellant had, with a view to evade payment of tax, (1) 768 deliberately concealed material particulars of his income.
+Even though the firm was carrying on transactions in food grains in diverse names, no entries in respect of those transactions in the books of account were posted and false credit entries of loans alleged to have been borrowed from several persons were made.
+The conditions prescribed by section 28(1)(c) for imposing penalty were therefore fulfilled.
+But says the appellant, the assessee firm had ceased to exist on the death of M. P. Thomas, and in the absence of a provision in the Indian Income Tax Act whereby liability to pay penalty may be imposed after dissolution against the firm under section 28(1)(c) of the Act, the order was illegal.
+Section 44 of the Act at the material time stood as follows: "Where any business,. carried on by a firm. has been discontinued . every person who was at the time of such discontinuance . a partner of such firm,. shall in respect of the income, profits and gain of the firm be jointly and severally liable to assessment under Chapter IV for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment.
+" That the business of the firm was discontinued because of the dissolution of the partnership is not disputed.
+It is urged however that a proceeding for imposition of penalty and a proceeding for assessment of income tax are matters distinct, and section 44 may be resorted to for assessing tax due and payable by a firm business whereof has been discontinued, but an order imposing penalty under section 28 of the Act cannot by virtue of section 44 be passed.
+Section 44 sets up machinery for assessing the tax liability of firms which have discontinued their business and provides for three consequences, (1) that on the discontinuance of the business of a firm, every person who was at the time of its discontinuance a partner is liable in respect of income, profits and gains of the firm to be assessed jointly and severally, (2) each partner is liable to pay the amount of tax payable by the firm, and (3) that the provisions of Chapter, so far as may be, apply to such assessment.
+The liability declared by section 44 is 769 undoubtedly to assessment under Chapter IV, but the expression "assessment" used therein does not merely mean computation of income.
+The expression "assessment" as has often been said is used in the Income Tax Act with different connotations.
+In Commissioner of Income Tax, Bombay Presidency & Aden vs Khemchand Ramdas (1), the Judicial Committee of the Privy Council observed: "One of the peculiarities of most Income tax Acts is that the word "assessment" is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the tax payer.
+The Indian Income tax Act is no exception in this respect. . ".
+A review of the provisions of Chapter IV of the Act sufficiently discloses that the word "assessment" has been used in its widest connotation in that chapter.
+The title of the chapter is "Deductions and Assessment".
+The section which deals with assessment merely as computation of income is section 23; but several sections deal not with computation of income, but determination of liability, machinery for imposing liability and the procedure in that behalf.
+Section 18A deals with advance payment of tax and imposition of penalties for failure to carry out the provisions there in.
+Section 23A deals with power to assess individual members of certain companies on the income deemed to have been distributed as dividend, section 23B deals with assessment in case of departure from taxable territories, section 24B deals with collection of tax out of the estate of deceased persons; section 25 deals with assessment in case of discontinued business, section 25A with assessment after partition of Hindu Undivided families and sections 29, 31, 33 and 35 deal with the issue of demand notices and the filing of appeals and for reviewing assessment and section 34 deals with assessment of incomes which have escaped assessment.
+The expression "assessment" used in these sections is not used merely in the sense of computation of income and there is in our judgment no ground for holding (1) 770 that when by section 44, it is declared that the partners or members of the association shall be jointly and severally liable to assessment, it is only intended to declare the liability to computation of income under section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof.
+Nor has the expression, "all the provisions of Chapter IV shall so far as may be apply to such assessment" a restricted content: in terms it says that all the provisions of Chapter IV shall apply so far as may be to assessment of firms which have discontinued their business.
+By section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest contumacious conduct of the assessee.
+It is true that this liability arises only if the Income tax Officer is satisfied about the existence of the conditions which give him jurisdiction and the quantum thereof depends upon the circumstances of the case.
+The penalty is not uniform and its imposition depends upon the exercise of discretion by the Taxing authorities; but it is imposed as a part of the machinery for assessment of tax liability.
+The use of the expression "so far as may be" in the last clause of section 44 also does not restrict the application of the provisions of Chapter IV only to those which provide for computation of income.
+By the use of the expression "so far as may be" it is merely intended to enact that the provisions in Ch.
+IV which from their nature have no application to firms will not apply thereto by virtue of section 44.
+In effect, the Legislature has enacted by section 44 that the assessment proceedings may be commenced and continued against a firm of which business is discontinued as if discontinuance has not taken place.
+It is enacted manifestly with a view to ensure continuity in the application of the machinery provided for assessment and imposition of tax liability notwithstanding discontinuance of the business of firms.
+By a fiction, the firm is deemed to continue after discontinuance for the purpose of assesment under Chapter IV.
+The Legislature has expressly enacted that the provisions of Chapter IV shall apply to the assessment of 771 a business carried on by a firm even after discontinuance of its business, and if the process of assessment includes taking steps for imposing penalties, the plea that the Legislature has inadvertently left a lacuna in the Act stands refuted.
+It is implicit in the contention of the appellant that it is open to the partners of a firm guilty of conduct exposing them to penalty under section 28 to evade penalty by the simple expedient of discontinuing the firm.
+This plea may be accepted only if the court is compelled, in view of unambiguous language, to hold that such was the intention of the Legislature.
+Here the language used does not even tend to such an interpretation.
+In interpreting a fiscal statute, the court cannot proceed to make good deficiencies if there be any: the court must interpret the statute as it stands and in case of doubt in a manner favourable to the tax payer.
+But where as in the present case, by the use of words capable of comprehensive import, provision is made for imposing liability for penalty upon tax payers guilty of fraud, gross negligence or contumacious conduct, an assumption that the words were used in a restricted sense so as to defeat the avowed object of the Legislature qua a certain class will not be lightly made.
+Counsel for the appellant relying upon Mahankali Subbarao vs Commissioner of Income Tax (1), in which it was held that an order imposing penalty under section 28(1)(c) of the Indian Income Tax Act upon a Hindu Joint Family after it had disrupted, and the disruption was accepted under section 25A(1) is invalid, because there is a lacuna in the Act, submitted that a similar lacuna exists in the Act in relation to dissolved firms.
+But whether on the dissolution of a Hindu Joint Family the liability for penalty under section 28 which may be incurred during the subsistence of the family cannot be imposed does not fall for decision in this case: it may be sufficient to observe that the provisions of section 25A and section 44 are not in pari materia.
+In the absence of any such phraseology in section 25A as is used in section 44, no real analogy between the content of that section and section 44 may be assumed.
+Undoubtedly, (1) 772 by section 44, the joint and several liability which is declared is liability to assessment in respect of income, profits or gains of a firm which has discontinued its business, but if in the process of assessment of income, profits or gains, any other liability such as payment of penalty or liability to pay penal interest as is provided under section 25, sub section
+(2) or under section 18A sub sections
+(4), (6), (7), (8) and (9) is incurred, it may also be imposed, discontinuation of the business notwithstanding.
+In our view, Chief Justice Subba Rao has correctly stated in Mareddi Krishna Reddy 's case (supra) that: "Section 28 is one of the sections in Chapter IV.
+It imposes a penalty for the concealment of income or the improper distribution of profits.
+The defaults made in furnishing a return of the total income, in complying with a notice under sub section
+(4) of section 22 or sub section
+(2) of section 23 and in concealing the particulars of income or deliberately furnishing inadequate particulars of such income are penalised under that section.
+The defaults enumerated therein relate to the process of assessment.
+Section 28, therefore, is a provision enacted for facilitating the proper assessment of taxable income and can properly be said to apply to an assessment made under Chapter IV.
+We cannot say that there is a lacuna in section 44 such as that found in section 25A of the Act.
+We are unable to agree with the view expressed by the Andhra Pradesh High Court in the later Full Bench decision in Commissioner of Income Tax vs Rayalaseema Oil Mills (1), which purported to overrule the judgment in Mareddi Krishna Reddy 's case (supra).
+We are also unable to agree with the view expressed by the Madras High Court in section V. Veerappan Chettiar vs Commissioner of Income Tax, Madras (2).
+In the view taken by us, the appeal fails and is dismissed with costs.
+(1) Appeal dismissed.

1027.txt

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+Appeal No. 419 of 1958.
+Appeal by special leave from the judgment and order dated August 20, 1957, of the Calcutta High a Court in Income tax Reference No. 1 of 1956.
+Hardyal Hardy and D. Gupta, for the appellant.
+N. C. Chatterjee, Dipak Choudhri and B. N. Ghosh, for the respondent.
+November 28.
+The Judgment of the Court was delivered by KAPUR, J.
+This is an appeal by special leave against the judgment and order of the High Court of Judicature at Calcutta in a reference made by the Income tax Appellate Tribunal under section 66(1) of the Income tax Act.
+The following question was referred: "Whether in the facts and circumstances of this case, the Appellate Tribunal was right in holding that Rs. 61,818 spent by the assessee to train Indian boys as jockeys, did not constitute expenses of the business of the assessee allowable under section 10(2)(xv)?" which was answered in favour of the respondent.
+The Commissioner is the appellant before us and the assessee is the respondent.
+The respondent is an association of persons whose business is to hold race meetings in Calcutta on a commercial basis.
+It holds two series of race meetings during the two seasons of the year.
+The respondent does not own any horses and therefore does not employ jockeys but they are employed by owners and trainers of horses which are run in the races.
+It is a matter of some importance to the respondent that there should be jockeys available to the owners with sufficient skill and experience because the success of races to a considerable extent depends upon the experience and skill of a jockey who rides a horse in a race.
+Because it was of the opinion that there was a risk of the jockeys becoming unavailable and that such unavailability would seriously affect its business which might result in its closing 731 down the business, the respondent considered it expedient to remedy that defect.
+Therefore in 1948, it, established a school for the training of Indian boys as jockeys so that after their training they might be available for purposes of race meetings held under its auspices.
+The school, however, did not prove a success and after having been in existence for three years it was closed down.
+During the year ending March 31, 1949, the respondent spent a sum of Rs. 62,818 on the running of its school and claimed that amount as a deduction under section 10(2)(xv) of the Income tax Act and also in the assessment under the Business Profits Tax for the chargeable accounting period ending March 31, 1949.
+This claim was disallowed by the Income Tax Officer and on appeal by Appellate Assistant Commissioner and also by the Income tax Appellate Tribunal.
+At the instancc of the respondent the question already quoted was referred to the High Court and was answered in favour of the respondent.
+This appeal is brought by special leave against that judgment.
+The decision under the Business Profits Tax Act will be consequential upon the decision of the deduction under the Income tax Act.
+The Tribunal found that it was not the business of the respondent to provide jockeys to owners and trainers, that the jockeys trained in the respondent 's school were not bound to ride only in the races run by the respondent and that the benefit, if any, which accrued was of an enduring nature.
+It also found that the respondent had been conducting race meetings since long, that it was not the case of the assessee that if it did not train jockeys they would become unavailable and that the mere policy of producing efficient Indian jockeys was not a sufficient consideration for treating the expenditure as one incurred for the business of the respondent.
+For these reasons the expenditure was disallowed.
+Before the Appellate Assistant Commissioner, it was contended by the respondent, that the reason for incurring the expenditure was "to promote efficient Indian jockeys" and it was in the interest of the respondent to see that the races are not abandoned on 732 account of the scarcity of jockeys.
+In the order of the Tribunal it is stated that this was not the case of the respondent, and therefore when the respondent wanted paragraph 5 of the statement to be substituted by the following: "It was the case of the assessee that unless it trained Indian Jockeys, time may come when there may not be sufficient number of trained jockeys to ride horses in the races conducted by the assessee.
+" the Tribunal did not agree to do so.
+Counsel for the appellant raised three points before us; (1) The question as to whether an item of expenditure is wholly and exclusively laid out for the purposes of business or not is a question of fact; (2) the connection between an expenditure and profit earning of the assessee should be direct and substantial and not remote and (3) to be admissible as revenue expenditure it should not be in the nature of a capital expense, i.e., it should not bring into existence an asset of an enduring nature.
+As to the first question this court has held in Eastern Investments Ltd. vs Commissioner of Income tax, West Bengal (1) that "though the question must be decided on the facts of each case, the final conclusion is one of law".
+In Commissioner of Income Tax vs Chandulal Keshavlal & Co. (2), this Court said: "Another test is whether the transaction is properly entered into as a part of the assessee 's legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby.
+(Eastern Investment Ltd. vs Commissioner of Income Tax, (1951) 20 I.T.R. 1).
+But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee.
+In the present case the finding is that it was laid out for the purpose of the assessee 's business and there is evidence to support this finding." But those observations must be read in the context.
+In that case the assessee firm was the Managing Agent of a Company and at the request of the Directors of (1) ; , 598.
+(2) , 610. 733 the latter agreed to accept a lesser commission for the year of account than it was entitled to.
+It was found, by the Appellate Tribunal there that the amount was expended for reasons of commercial expediency and was not given as a bounty but to strengthen the managed company so that if its financial position became strong the assessee would benefit thereby, and an the evidence the Tribunal came to the conclusion that the amount was wholly and exclusively for the purpose of such business.
+It was on this evidence that the expense was held to be wholly and exclusively laid out for the purpose of the assessee 's business and this was the finding referred to.
+In that case the Tribunal had not misdirected itself as to the true scope and meaning of the words "wholly and exclusively laid out for the purpose of the assessee 's business".
+In the present case the Income tax Appellate Tribunal had misdirected itself as to the true scope and meaning of these words.
+In our opinion, in the circumstances of this case, it cannot be said that the finding of the Tribunal was one of fact.
+The question as to whether the expenses of running the school for jockeys is deductible has to be decided taking into consideration the circumstances of this case.
+The business of the respondent was to run race meetings on a commercial scale for which it is necessary to have races of as high an order as possible.
+For the popularity of the races run by the respondent and to make its business profitable it was necessary that there were jockeys of requisite skill and experience in sufficient numbers who would be available to the owners and trainers because without such efficient jockeys the running of race meetings would not be commercially profitable.
+It was for this purpose that the respondent started the school for training Indian jockeys.
+, If there were not sufficient number of efficient Indian jockeys to ride horses its interest would have suffered, and it might have had to abandon its business if it did not take steps to make jockeys of the necessary calibre available.
+Therefore any expenditure which was incurred for preventing the extinction 93 734 of the respondent 's business would, in our opinion, be expenditure wholly and exclusively laid out for the purpose of the business of the assessee and would be an allowable deduction.
+This finds support from decided cases.
+In Commissioner of Income tax vs Chandulal Keshavlal & Co. (1), this Court held that in order to justify a deduction the disbursement must be for reasons of commercial expediency; it may be voluntary but incurred for the assessee 's business; and if the expense is incurred for the purpose of the business of the assessee it does not matter that the payment also enures to the benefit of a third party.
+Another test laid down was that if the transaction is properly entered into as a part of the assessee 's legitimate commercial undertaking in order to facilitate the carrying on of its business it is immaterial that a third party also benefits thereby.
+In British Insulated and Helsby Cables vs Atherton (2), Viscount Cave L. C. held that a Bum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the carrving on of the business may yet be expended wholly and exclusively for the purpose of the trade.
+In a case more recently decided Morgan vs Tate & Lyle Ltd. (3) the assessee company was engaged in sugar refining business and it incurred expenses in a propaganda campaign to oppose the threatened nationalisation of the industry.
+It was held by the House of Lords by a majority that the object of the expenditure being to preserve the assets of the company from seizure and so to enable it to carry on its business and earning profits, the expense was an admissible deduction being wholly and exclusively laid out for the purpose of the company 's trade.
+Lord Morton of Henryton said: "Looking simply at the words of the rule I would ask:"If money so spent is not spent for the purpose of the company 's trade, for what purpose is it spent?" If the assets are seized, the company can no longer (1) , 610.
+(2) (3) 735 carry on the trade which has been carried on by the use of these assets.
+Thus the money is spent to preserve the very existence of the company 's trade".
+See also Strong & Co. vs Woodifield(1), the observations of Lord Davey; and Smith vs Incorporated Council of Law Reporting (2).
+Counsel for the appellant relied upon the judgment of the Privy Council in Ward & Co. Ltd. vs Commissioner of Taxes (3 ), but that decision proceeds on a different statute where the words were of a very restrictive character, the words being: ". . . .
+Expenditure or loss of any kind not exclusively incurred in the production of the assessable income derived from that source. . .
+This case was distinguished in Morgan vs Tate & Lyle(4) on the ground that the language of the Now Zealand statute was much narrower than the language of r. 3A in England.
+Reference was also made by the appellant to Boarland vs Kramat Pulai Ltd. (5).
+In that case Directors of three Companies engaged in tin mining in Malaya incurred expenditure on printing.
+and circulating to shareholders a pamphlet containing remarks of the Chairman of the Company.
+The pamphlet was an attack on the policy and acts of the Socialist Government and it was held that the question whether the money was wholly and exclusively laid out or expended for the purpose of trade within the meaning of rules applicable to the question was one of law but on a consideration of the question it was held that the expenditure was not solely incurred with that object.
+It is not necessary to discuss that case at any length because what was held in that case was that the pamphlet was not wholly and exclusively for the purpose of the company 's trade.
+Applying the law, as laid down in those cases, to the present case the conclusion is that the amount in dispute was laid out wholly and exclusively for the purpose of the respondent 's business because if the (1) ; (2) [19I4] 3 K.B. 674.
+(3) [1923] A.C 145.
+(4) (5) 736 supply of jockeys of efficiency and skill failed the business of the respondent would no longer be possible.
+Thus the money was spent for the preservation of the respondent 's business.
+As to the third point there is no substance in the submission that the expenditure was in the nature of a capital expense because no asset of enduring nature was being created by this expense.
+In our opinion the High Court has rightly held that the expenditure claimed was one which was wholly and exclusively laid out for the purpose of the respondent 's business.
+It was to prevent the threatened extinction of the business of the respondent.
+In the result this appeal is dismissed with costs.
+Appeal dismissed.

1028.txt

@@ -0,0 +1,74 @@
+Appeal No. 327 of 1959.
+Appeal from the order dated June 28, 1956, of the Bombay High Court at Nagpur in Misc.
+First Appeal No. 15 of 1954.
+98 774 A. V. Viswanatha Sastri, Shankar Anand and A. G. Batnaparkhi, for the appellant.
+K. N. Rajagopal Sastri, as amicus curiae.
+November 29.
+The Judgment of the Court was delivered by SHAH, J.
+Ramachandra Dhondo Datar hereinafter referred to as the respondent was employed by the appellant company in its publications branch.
+By agreement dated March 23, 1943, the appellant company agreed to pay to the respondent as from April 1, 1943, remuneration per annum equal to 3 1/2% of the gross sales or Rs. 12,000 whichever was greater.
+The agreement was to remain in operation for ten years from April 1, 1943, in the first instance and was renewable at the option of the respondent for such period as he desired.
+By notice dated April 19, 1948, served on the respondent on April 22, 1948, the appellant company terminated the employment of the respondent.
+The respondent then filed a civil suit in the court of the Fifth Additional District Judge, Nagpur, for a decree for Rs. 1,30,000 being the amount of compensation for wrongful termination of employment, arrears of salary and interest.
+On July 17, 1953, the court after giving credit for the amount received by the respondent passed a decree for Rs. 42,359 (which was inclusive of Rs. 36,000 as compensation for termination of employment and Rs. 6,000 as salary in lieu of six months notice and interest) and costs and interest on judgment.
+The respondent then applied for execution of the decree and claimed Rs. 54,893 12 0 less Rs. 18,501 10 0 decreed against him in a cross suit filed by the appellant company.
+The Income Tax Officer, Nagpur, served a notice under section 46 of the Indian Income Tax Act upon the respondent and also gave intimation to the District Judge, Nagpur, that the appellant company be permitted to deduct at source and to pay into the Government Treasury Rs. 15,95613 0 as income tax, surcharge and super tax due on the sum of Rs. 50,972 2 0 awarded to the respondent.
+The appellant company also applied that the 775 executing Court do declare that the appellant company was entitled and in law bound to deduct the tax due on the amount.
+The learned Judge directed the appellant company to pay to the Income Tax Department Rs. 15,956 13 0 on account of income tax and super tax on the amount due to the respondent and directed it to pay the balance in court after filing a receipt for payment of tax from the Income Tax department.
+In appeal to the High Court of Judicature at Nagpur, the order passed by the District Judge was reversed and execution as claimed by the respondent was directed.
+The appellant company contends that under section 18(2) of the Income Tax Act, it was bound to deduct the tax computed at the appropriate rate on the salary payable to the respondent as the amount due under the decree represented salary.
+Section 18 sub section
+(2) of the Income Tax Act in so far as it is material provides that any person paying any amount chargeable under the head "salaries" shall at the time of payment deduct income tax and super tax at the rate representing the average of the rates applicable to the estimated total income of the assessee under the head "salary".
+Sub section
+(7) declares that a person failing to deduct the taxes required by the section shall be deemed to be an assessee in default in respect of such tax.
+The Legislature has, it is manifest, imposed upon the employer the duty to deduct tax at the appropriate rate on salary payable to the employee and if he fails to do so, the tax not deducted may be recovered from him.
+But the liability to deduct arises in law, if the amount is due and payable as salary.
+In this case, there has been no assessment of tax due by the Income Tax Officer on the amount payable to the respondent.
+Under section 46(5), any person paying salary to an assessee may be required by the Income Tax Officer to deduct arrears of tax due from the latter and the employer is bound to comply with such a requisition and to pay the amount deducted to the credit of the Government.
+But this order can only be passed if income tax has been assessed and has remained unpaid.
+It is undisputed that at the, material 776 time, no tax was assessed against the respondent; the Income Tax Officer had accordingly no authority to issue a notice under section 46(5).
+Nor could the Income Tax Officer claim to recover tax due by a proceeding in the nature of a garnishee proceeding by applying to the civil court to attach the Judgment debt payable by the company.
+The application submitted by the Income Tax Officer must therefore be ignored.
+Undoubtedly, the employer is by section 18 of the Act liable to deduct from the salary payable by him to his employee the amount of tax at the average rate appli cable to the estimated total income; but can it be said that as between the appellant company and the respondent the decretal amount represented salary? The respondent had filed a suit for a decree for arrears of salary, compensation for wrongful termination of employment and interest.
+The court having passed a decree on that claim, it became a judgment debt.
+It may have been open to the appellant company in the suit to apply to the court for making a provision in the decree for payment of income tax due by the respondent, but no such provision was made.
+We are not concerned to decide in this appeal whether in the hands of the respondent the amount due to him under the decree, when paid, will be liable to tax; that question does not fall to be determined in this appeal.
+The question to be determined is whether as between the appellant company and the respondent the amount decreed is due as salary payment of which attracts the statutory liability imposed by section 18.
+The claim decreed by the civil court was for compen sation, for wrongful termination of employment, arrears of salary, salary due for the period of notice and interest and costs, less withdrawals on salary account.
+The amount for which execution was sought to be levied was the amount decreed against which was set off the claim under the cross decree.
+A substantial part of the claim decreed represented compensation fir wrongful termination of employment and it would be difficult to predicate of the claim sought to be enforced what part thereof if any represented salary due.
+Granting that compensation payable to an 777 employee by an employer for wrongful termination of employment be regarded as in the nature of salary, when the claim is merged in the decree of the court, ' the claim assumes the character of a judgment debt and to judgment debts section 18 has not been made applicable.
+The decree passed by the civil court must be executed subject to the deductions and adjustments permissible under the Code of Civil Procedure.
+The judgment debtor may, if he has a cross decree for money, claim to set off the amount due thereunder.
+If there be any adjustment of the decree, the decree may be executed for the amount due as a result of the adjustment.
+A third person who has obtained a decree against the judgment creditor may apply for attachment of the decree and such decree may be executed subject to the claim of the third person: but the judgment debtor cannot claim to satisfy, in the absence of a direction in the decree to that effect the claim of a third person against the judgment creditor, and pay only the balance.
+The rule that the decree must be executed according to its tenor may be modified by a statutory provision.
+But there is nothing in the Income Tax Act which supports the plea that in respect of the amount payable under a judgment debt of the nature sought to be enforced, the debtor is entitled to deduct income tax which may become due and payable by the judgment creditor on the plea that the cause of action on which the decree was passed was the contract of employment and a part of the claim decreed represented amount due to the employee as salary or damages in lieu of salary.
+Counsel for the appellant company strongly relied upon the decision of the House of Lords in Westminster Bank Ltd. vs Riches (1).
+That was a case in which in an action brought by one R against the Westminster Bank trustee of the estate of one X R was awarded a decree for pound 36,255 principal and pound 10,028 as interest.
+The Bank thereafter brought an action for a declaration that it had satisfied the judg ment in the action by R by paying him the amount (1) 18 Tax Cases 159.
+778 due less pound 5,014, the latter sum representing income tax on the interest awarded by the judgment.
+It was held by the House of Lords that pound 10,028 was "interest of money" within Schedule D and General Rule 21 of the Income Tax Act, 1918, and that income tax was deductible therefrom.
+In that case, the only argument advanced on behalf of the Bank is set out in the speech of Viscount Simon, L. C. at p. 187: "The appellant contends that the additional sum of pound 10,028 though awarded under a power to add interest to the amount of the debt, and though called interest in the judgment, is not really interest such as attracts Income Tax, but is damages.
+The short answer to this is that there is no essential incompatibility between the two conceptions.
+The real question, for the purposes of deciding whether the Income Tax Acts apply, is whether the added sum is capital or income, not whether the sum is damages or interest." The House of Lords in that case by a majority held that pound 10,028 awarded under the judgment represented not capital but interest and was liable to tax.
+In our view, ' this case has no application to the facts of the present case.
+In the case before us, there is a decree passed in favour of the respondent: under the scheme of the Civil Procedure Code, that decree has to be executed as it stands, subject to such deductions or adjustments as are permissible under the Code.
+There was no tax liability which the respondent was assessed to pay in respect of this amount till the date on which the appellant company sought to satisfy the alleged tax liability of the respondent.
+As between the appellant company and the respondent, the amount did not represent salary; it represented a judgment debt and for payment of income tax thereon, no provision was made in the decree.
+The Civil Procedure Code bars an action of the nature which was filed in Westminster Bank 's case (supra).
+The defence to the execution if any must be raised in the execution proceeding and not by a separate action.
+The amount payable by the appellant company to the respondent was not salary but a judgment debt, and before paying that debt the appellant company could not claim 779 to deduct at source tax payable by the respondent.
+Nor could the appellant company seek to justify its plea on the ground that the judgment creditor was indebted to a third person.
+The principle of the case in Manickam Chettiar vs Income Tax Officer, Madura (1), on which reliance was also sought to be placed by the appellant company has no application to this case.
+In Manickam Chettiar 's case (1), in execution of a money decree certain properties belonging to a judgment debtor were attached and sold and the sale proceeds were received by the court.
+The Income Tax Officer who had assessed the decree holder to tax payable by him on his other income applied to the court for an order directing payment to him out of the sale proceeds the amount of income tax due by the decree holder.
+It was held that the claim for income tax was entitled to priority in payment and the court had inherent power to make an order on the application for payment of money due as income tax.
+Tax had admittedly been assessed, and proceedings substantially for recovery of the tax so assessed were adopted by the Income Tax Officer.
+It was held in the circumstances that the court had jurisdiction to direct recovery of tax out of the amount standing to the credit of the decree holder.
+The principle of that case can have no application to the facts of the present case.
+The respondent had not appeared before us, but we have been assisted by Mr. Rajagopala Sastri and we are indebted to him for placing the evidence and the various aspects of the case on a true appreciation of which the question in issue fell to be determined.
+The appeal fails and is dismissed.
+As there was no appearance for the respondent, there will be no order for costs.
+Appeal dismissed.
+(1) VI I.T. R. 180.

1029.txt

@@ -0,0 +1,42 @@
+Appeal No. 650 of 1957.
+Appeal from the judgment dated July 13, 1956, of the Patna High Court in Miscellaneous Judicial Case No. 665 of 1954.
+R. Ganapathy Iyer and R. H. Dhebar, for the appellant.
+A. V. Viswanatha Sastri and R. C. Prasad, for the respondent.
+November 29.
+The Judgment of the Court was delivered by HIDAYATULLAH, J.
+This is an appeal by the Commissioner of Income tax with a certificate against the judgment and order of the High Court at Patna answering two questions of law referred to it under section 66(1) of the Income tax Act by the Tribunal, in the negative.
+Those questions were: "(1) Whether in the circumstances of the case assessment proceedings were validly initiated under section 34 of the Indian Income tax Act? (2) If so, whether in the circumstances of the case the amount received from interest on arrears of agricultural rent was rightly included in the income of the assessee ?" The assessee, the Maharaja Pratapsingh Bahadur of Gidhaur, had agricultural income from his zamindari for the four assessment years 1944 45 to 1947 48.
+In assessing his income to income tax, the authorities did not include in his assessable income interest received by him on arrears of rent.
+This was presumably so in view of the decision of the Patna High Court.
+When the Privy Council reversed the view of law taken by the Patna High Court in Commissioner of Income tax vs Kamakhya Narayan Singh (1), the Income tax Officer issued notices under section 34 of the (1) 762 Indian Income tax Act for assessing the escaped income.
+These notices were issued on August 8, 1948.
+The assessments after the returns were filed, were completed on August 26, 1948.
+Before the notices were issued, the Income tax Officer had not put the matter before the Commissioner for his approval, as the section then did not require it, and the assessments were completed on those notices.
+Section 34 was amended by the Income tax and Business Profits Tax (Amendment) Act, 1948 (No. 48 of 1948), which received the assent of the Governor General on Sep tember 8, 1948.
+The appeals filed by the assessee were disposed of on September 14 and 15, 1951, by the Appellate Assistant Commissioner, before whom no question as regards the validity of the notices under section 34 was raised.
+The question of the validity of the notices without the approval of the Commissioner appears to have been raised before the Tribunal for the first time.
+In that appeal, the Accountant Member and the Judicial Member differed, one holding that the notices were invalid and the other, to the contrary.
+The President agreed with the Accountant 'Member that the notices were invalid, and the assessments were ordered to be set aside.
+The Tribunal then stated a case and raised and referred the two questions, which have been quoted above.
+The High Court agreed with the conclusions of the majority, and the present appeal has been filed on a certificate granted by the High Court.
+Section 34, as it stood prior to the amendment Act No. 48 of 1948, did not lay any duty upon the Income tax Officer to seek the approval of the Commissioner before issuing a notice under section 34.
+The amending Act by its first section made sections 3 to 12 of the amending Act retrospective by providing "sections 3 to 12 shall be deemed to have come into force on the 30th day of March, 1948. .
+Section 8 of the amending Act substituted a new section in place of section 34, and in addition to textual changes with which we are not concerned, also added a proviso to the following effect : "Provided that 763 (1) the Income tax Officer shall not issue a notice under this sub section unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons that it is a fit case for the issue of such notice.
+" The question is whether the notices which were issued were rendered void by the operation of this proviso. ' The Commissioner contends that section 6 of the , particularly cls.
+(b) and (c) saved the assessments as well as the notices.
+He relies upon a decision of the Privy Council in Lemm vs Mitchell (1), Eyre vs Wynn Mackenzie (2) and Butcher vs Henderson (3) in support of his proposition.
+The last two cases have no bearing upon this matter; but strong reliance is placed upon the Privy Council case.
+In that case, the earlier, action which had been commenced when the Ordinance had abrogated the right of action for criminal conversation, had already ended in favour of the defendant and no appeal therefrom was pending, and it was held that the revival of the right of action for criminal conversation did not invest the plaintiff with a right to begin an action again and thus expose the defendant to a double jeopardy for the same act, unless the statute expressly and by definite words gave him that right.
+The Privy Council case is thus entirely different.
+No doubt, under section 6 of the it is provided that where any Act repeals any enactment, then unless a different intention appears, the repeal shall not affect the previous operation of any enactment so repealed or anything duly done thereunder or affect any right, obligation or liability acquired, accrued or incurred under any enactment so repealed.
+It further provides that any legal proceedings may be continued or enforced as if the repealing Act had not been passed.
+Now, if the amending Act had repealed the original section 34, and merely enacted a new section in its place, the repeal might not have affected the operation of the original section by virtue of section 6.
+But the amending Act goes further than this.
+It (1) ; (2) (3) 764 repeals the original section 34, not from the day on which the Act received the assent of the Governor General but from a stated day, viz., March 30, 1948, and substitutes in its place another section containing the proviso above mentioned.
+The amending Act provides that the amending section shall be deemed to have come into force on March 30, 1948, and thus by this retrospectivity, indicates a different intention which excludes the application of section 6.
+It is to be noticed that the notices were all issued on August 8, 1948, when on the statute book must be deemed to be existing an enactment enjoining a duty upon the Income tax Officer to obtain prior approval of the Commissioner, and unless that approval was obstained, the notices could not be issued The notice were thus invalid.
+, The principle which was applied by this Court in Venkatachalam vs Bombay Dyeing & Mfg. Co. Ltd. (1) is equally applicable here.
+No question of law was raised before us, as it could not be in view of the decision of this Court in Narayana Chetty vs Income tax Officer (2), that the proviso was not mandatory in character.
+Indeed, there was time enough for fresh notices to have been issued, and we fail to see why the old notices were not recalled and fresh ones issued.
+For these reasons, we are in agreement with the High, Court in the answers given, and dismiss this appeal with costs.
+A appeal dismissed.

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+Appeal No. 55 of 1950.
+Appeal by special leave from the Judgment and Order dated March 18.
+1949, of the High Court of Judicature at Bombay (Chagla C. J. 178 and Ten dolkar J.) in Income tax Reference No. 5 of.
+1948, arising out of order dated September 27, 1947, of the Income tax Appellate Tribunal, Bombay Bench 'A ', in I.T.A. No. 2205 of 1946 47.
+C. K. Daphtary, Solicitor General for India, (K. T. Desai and A.M. Mehta, with him) for the appellant.
+M. C. Setalvad, Attorney General for India, (G. N. Joshi, with him) for the respondent.
+November 3.
+The Judgment of the Court ,Was delivered by Bose, J. This is an appeal from the High Court at Bombay in an Income tax Reference under section 66 (1) of the Indian Income tax Act of 1922.
+The reference was made to the Bombay High Court by the Bombay Bench of the Income tax Appellate Tribunal in the following circumstances.
+The appellant assessee is a company known its the Raghuvanshi Mills Ltd., of Bombay.
+The assessment year with which we are concerned is 1945 46. 'The assessee had insured its buildings, plant and machinery with various insurance companies and also took out, besides those policies, four policies of a type known as a "Consequential Loss Policy.
+" This kind of policy insures against loss of profit, standing charges and agency commission.
+The total insured against under, the latter heads was Rs. 37,75,000 account of loss.of profits and standing charges, and Rs. 2,26,000 account of agency commission, making a total of Rs. 40,00,000.
+On the 18th of January, 1944, a fire.
+broke out and the mill were completely destroyed.
+The various insurance companies therefore paid the assessee company an aggregate of Rs. 14,00,000 account in the year with which we are concerned under these policies.
+This was paid in two sums as follows: Rs. 8,25,0.00 8th September, 1944, and Rs. 5,75,000 22nd December, 1944.
+These payments have been treated as part of the assessee 's 'income and the 179 company has been taxed accordingly.
+The question is whether these sums are or are not liable to tax.
+Before we set out the question referred, it will be necessary to state that the whole of this Rs. 14,00, 000 has been treated as paid account of loss of profits.
+The learned Solicitor General, who appeared for the ) appellant assessee, contended that that was wrong because the portion of it assignable to standing charges and agency commission could not any construction be liable to tax.
+This contention is new and involves questions of fact and travels beyond the scope ' of the question referred.
+We are consequently not, able to entertain it.
+It has been assumed throughout the proceedings, tight up to this Court, that the whole of the Rs. 14,00,000 was assignable to loss of profits.
+There is nothing the record to show that it was ever split up among the other heads or that it was ever treated &a having been split up,either by the insurance com panies or by the assessee, nor is there any material which we would be able to apportion it.
+Our decision therefore proceeds the assumption that the whole sum is assignable to loss of profits and we make it clear that we 'decide nothing about other moneys which may be distributable among other heads.
+The question has been referred in these terms: "Whether in the circumstances of the case, the sum of Rs. 14,00,000 was the assessee company 's income within the meaning of Section 2(6C) of the Indian Income tax Act and liable to pay income tax under the Indian Income tax Act.
+" We are concerned in this case with four policies of insurance with four different insurance companies.
+The clauses relevant to the present matter are the same in all four cases though the sum insured against by.
+each insurance company differs.
+They are as follows "POLICY NO.
+C.L. 110018. . . 180 Rupees X Lacs only Loss of Profits, Standing Charges and Agency Commission of the above Co. 's Mills, situate at Haines o Road, Mahaluxmi; Bombay, following . .
+The total amount declared for insurance is Rs. 40,00,000 and for 18 months ' benefits only as under: Rs. 37,75,000 Loss of Profits and Standing Charges.
+Rs. 2,25,000 Agency Commission.
+Rs. 40,00,000 Out, of which this policy covers Rs. X lacs only.
+Schedule attached to and forming part of Po licy No. C. L. 10018.
+The company will pay to the assured: The loss of Gross Profit due to (a) Reduction in Output and (b@) increase in Cost of Working and the, amount payable as indemnity hereunder shall. .
+Definitions of those two terms follow.
+We need not reproduce talent.
+Then come the following definitions: "Gross profit.
+The sum produced by adding to the Net Profit the amount of the Insured Standing Charges, or if there be no Net Profit the amount of the Insured Standing Charges, less such a proportion of any net trading loss as the amount of the Insured Standing Charges bears to all the Standing Charges of the business.
+Net profit.
+The net trading profit (exclusive of all capital receipts and accretions and all outlay properly chargeable to capital) resulting from the business of the Insured at the premises after due provision has been made for all Standing 'and other charges including depreciation.
+Insured standing charges.
+Interest Loans and Bank Overdrafts, Rent Rates and Taxes, Salaries to Permanent Staff and Wages to Skilled Employees, 181 Directors ' Fees, Auditor 's Fees, Travelling Expenses, Insurance Premiums, Advertising and Agency Commission.
+Period of indemnity.
+The period beginning with the occurrence of the fire and ending not later than eighteen consecutive calendar months thereafter during which the results of the business shall be affected in consequence of the fire.
+Rate of Gross Profit.
+The rate of gross profit per unit earned the output during the financial year immediately before the date of the fire. . to which such adjustments shall be made as may be necessary to provide for the trend of the business and for variations in or special circumstances affecting the business either before or after the fire or which would have affected the business had the fire not occurred so that the figures thus adjusted shall represent as nearly as may be reasonably practicable the result which, but for the fire, would have been obtained during the relative period after the fire. " The underlined words show that the insurance in respect of profits was to represent as 'nearly as possible the profits which would have been made, had the mills been working in its normal way.
+We turn next to the Income tax Act.
+Under section 3 the "total income of the previous year" is liable to tax subject to the provisions of the Act.
+Section 4 defines the total income to include "all income, profits and gains from whatever source derived.
+" There are certain qualifications but they do not concern us here.
+It will be seen that the taxable commodity, "total income", embraces three elements, "income", "profits" and "gains".
+Now though these may overlap in many cases, they are nevertheless separate and severable, and the simple question is whether the Rs. 14 lacs Here italicised.
+24 182 fall under any one or more of those heads.
+In our opinion, it is "income" and so is taxable.
+It was argued behalf of the assessee that it can not be called profits because the money is only pay able if and when there is a loss or partial loss and that something received from an outside source in circumstances like these is not money which is earned in the business and if there are no earnings and no profits there cannot be any income.
+But that only concentrates the word " ' profits".
+This may not be a "profit" but it is something which represents the profits and was intended to take the place of them and is therefore just as much income as profits or gains received in the ordinary way.
+Section 4 is so widely worded that everything which is received by a man and goes to swell the credit side of his total account is either an income or a profit or a gain.
+No attempt has been made in the Act to define "income" except to say in section 2 (6C) that it includes certain things which would possibly not have been regarded as income but for the special definition.
+That however does not limit the generality of its natural meaning except as qualifided in the section itself.
+The words which follow, namely, "from a whatever source derived", show how wide the net is spread.
+So also in section 6.
+After setting out the various heads of taxable income it brings in the all embracing phrase "income from other sources.
+" There is however a distinction between "income" and "taxable income".
+The Act does not purport to subject all sources of income to tax, for the liability is expressly made subject to the provisions of the Act and among the provisions are a series of exceptions and limitations.
+Most of them are set out in section 4 itself but none of them apply here.
+The nearest approach for present purposes is section 4 (3) (vii): "Any receipts. . not being receipts arising from business. . which are of a casual and non recurring nature.
+" 183 But the sting, so far as the assessee is concerned, lies in the words "not being receipts arising from business.
+" The assessee is a business company.
+Its aim is to make profits and to insure against loss.
+In the ordinary way it does this by buying raw material, manufacturing goods out of them and selling them so that balance there is a profit or gain to itself.
+But it also has other ways of acquiring gain, as do all prudent businesses, namely by insuring against loss of profits.
+It is indubitable that the money paid in such circumstances is a receipt and in so far as it represents loss of profits, as opposed to loss of capital and so forth, it is an item of income in any normal sense of the term.
+It is equally clear that the receipt is in separably connected with the ownership and conduct of the business and arises.
+from it.
+Accordingly, it is not exempt.
+This question was considered by the Supreme Court of Canada which decided that a receipt of this nature is not a "profit" and so is not taxable [B. C. Fir and Cedar Lumber Co. vs The King(1)].
+But the Court did not examine the wider position whether it is "income" and in any event the decision was reversed appeal to the Privy Council(1).
+Their Lordships held it is "income".
+This was followed later by the Court of Appeal in England and endorsed by the House of Lords in Commissioners of inland Revenue vs William 's Executors(1) In so far as these decisions do not turn the special wording of the Acts with which they are respectively concerned and deal with the more general meaning of the word "income", we prefer the view taken in England.
+It is true the Judicial Committee attempted a narrower definition in Commissioner of income tax vs Shaw Wallace & Co.(1), by limiting income to "a periodical monetary return 'coming in ' with some sort of regularity, or expected regularity, from definite sources" but, in our opinion, those remarks must be (I) [1931] Canada L.R. 435.
+(2) [I932] A. C. 441 at 448.
+(3) (I944) (4) (1932) 59 I.A. 206.
+184 read with reference to the particular facts of that case.
+The non recurring aspect of this kind of receipt was considered by the Privy Council in The King vs B. C. Fir and Cedar Lumber Co.(1), and we do not think $their Lordships had in mind a case of this nature when they decided Shaw Wallace & Company 's case (2).
+The learned Solicitor General relies strongly a clause which appears in three of the four policies with which we are concerned.
+That is a clause which states that the insured must do all he can to minimise the loss in profits and until he makes an endeavour to re start the business the moneys will not be paid.
+This, he argued, shows that the money was paid as an indemnity against the loss of profits and was niether income nor profits, nor was it a gain within the meaning of the section.
+We are unable to see how these receipts cease to be income simply because certain things must be done before the moneys can be claimed.
+In our opinion, the High Court was right in holding that the Rs. 14,00,000 is assessable to tax.
+The appeal fails and is dismissed with costs.
+Appeal dismissed.
+(1) [1032] A.C. 441, at 448.
+(2) [1932] 59 I.A. 206.

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+Appeal No. 93 of 1959.
+Appeal by special leave from the Award dated May 13, 1957, of the Industrial Tribunal, Bombay, in Reference (I.T.) No. 166 of 1955.
+R. J. Kolah, section N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the appellants.
+K. B. Chaudhury and Janardan Sharma, for the respondents Nos. 1 and 2. 379 1960.
+March 24.
+The Judgment of the Court was delivered by WANCHOO, J.
+This appeal by special leave raises two questions, namely, (i) bonus for the year 1952 and (ii) retrospective operation of the order of the Industrial Tribunal relating to increase in wages.
+The appellant is a company manufacturing barrels and drums at Bombay.
+There was a dispute between the appellant and its workmen about a number of matters, which was referred to the tribunal by the Government of Bombay on November 17, 1955.
+In respect of the two matters which are now raised in appeal the workmen claimed (i) four months wages including dearness allowance as bonus for the year 1952 and (ii) retrospective operation of the wage scale to be fixed by the tribunal from March 1, 1952.
+So far as the increase in wages, is concerned, the appellant agreed to the scale suggested by the tribunal but it opposed the grant of the increased scale retrospectively and also wanted that the increased wages should be linked to some guaranteed production.
+The reason for this was that the appellant felt that there had been deliberate slowing down of production by the workmen in the previous years.
+The tribunal was of opinion that there was some justification in the appellant 's contention that there had been considerable go slow which had affected production.
+Taking that into account it ordered that retrospective effect should be given to its order which was passed on May 13, 1957 from June 1, 1956.
+As to the linking of the increased wages to a certain guaranteed production it found it difficult to lay down any norm itself; but it made it clear that the increase in wages was made by it on the basis that the workers would give a certain reasonable production and noted that the workers were agreeable to do that.
+It, however, recommended that immediately after the.
+award had been given, an expert should be appointed by agreement, if possible, to go into this question.
+It also said that in case it was not possible to appoint an expert by agreement it would be open to the appellant to appoint one.
+380 The appellant 's contention before us is that the tribunal having found some justification in its contention that there had been considerable go slow should not have given retrospective effect at all to the order relating to the increase in wages.
+This matter has been considered fully by the tribunal and it came to the conclusion that increase in wages should be granted from June 1, 1956.
+This could hardly be called retrospective considering that the reference was made in November 1955 ; in any case the tribunal rejected the claim of the workmen for retrospective operation for the period of over four years from March 1952 to May 1956 and a good deal of go slow was practised during this period.
+In the circumstances we see no reason for interference with the order of the tribunal fixing the date as June 1, 1956, from which the increased wages should come into force.
+This brings us to the next question relating to bonus.
+The tribunal has awarded five months ' basic wages by way of bonus.
+The first contention in this connection is that the workmen had only claimed four months ' basic wages and the tribunal could not have awarded anything more than what the workmen claimed.
+This in our opinion is incorrect.
+The workmen had claimed four months ' wages including dearness allowance as bonus.
+Five months ' basic wages which the tribunal has allowed are admittedly less than the claim put forward (namely, four months ' wages including dearness allowance).
+In the circumstances the tribunal certainly had jurisdiction to award what it has awarded to the workmen.
+The next question is whether the tribunal was justified in awarding as much as five months ' basic wages on the basis of the Full Bench formula, which is generally applied to these matters.
+The gross profit found by the tribunal is not challenged, namely, Rs. 5.05 lacs.
+The tribunal has then allowed Rs. 1.36 lacs as depreciation, leaving a balance of Rs. 3.69, lacs.
+Deducting income tax from this at seven annas in a rupee (i.e. Rs. 1.61 lacs), we are left with a balance of Rs. 2.08 lacs.
+Six per cent.
+per annum interest on the paid up capital along with four per cent.
+interest on the working capital comes to Rs. 16,000, leaving an available 381 surplus of Rs. 1.92 lacs.
+Out of this, the tribunal has allowed five months ' basic wages as bonus which according to its calculations comes to Rs. 91,000, leaving Rs. 1.01 lacs.
+There will be a rebate of Rs. 40,000 on this sum, leaving a total of Rs. 1.41 lacs with the appellant.
+On these figures, the bonus awarded by the tribunal cannot be interfered with.
+The appellant, however, draws our attention to two circumstances in this connection.
+In the first place it urges that the tribunal has not taken into account anything for rehabilitation.
+But it may be mentioned that the appellant had proved no rehabilitation amount as such.
+What it had done was to appropriate Rs. 3.16 lacs towards depreciation, which of course was not the proper amount of notional normal depreciation, which is allowable under the formula.
+Our attention is drawn, however, to the figures filed by the workmen in exhibit U 4 in which Rs. 40,000 has been allowed towards rehabilitation.
+Even accepting this concession by the workmen and deducting it from the figures given by us above, the appellant would still be left with Rs. 1.01 lacs after paying five months ' basic wages as bonus.
+There is thus no reason to interfere with the award of bonus on this ground.
+Lastly it is urged that according to the income tax assessment which was actually made in this case sometime after the order of the tribunal, the appellant has been assessed to income tax amounting to Rs. 2.35 lacs.
+The appellant claims that it should be allowed this entire amount and not the notional figure calculated by us, namely, Rs. 1.61 lacs as income tax.
+We are of opinion that for the purpose of the Full Bench formula, the income tax payable has to be deducted on the figures worked out according to the formula and it is immaterial what the actual income tax paid is whether more or less.
+In this particular case, the income tax appears to be more because certain items which were challenged by the workmen but were allowed as proper expense by the tribunal have apparently not been allowed as proper expense by the income tax department.
+The industrial tribunal, however, is not concerned directly with what the income 49 382 tax authorities assess as actual income tax in a particular year; it is concerned with working out the Full Bench formula in accordance with its notional calculations and this is what has been done in this case.
+There is no ground therefore for interference with the award of bonus for this reason either.
+We therefore dismiss the appeal, but in the circumstances pass no order as to costs.
+Appeal dismissed.

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+Appeal No. 650 of 1957.
+Appeal from the judgment dated July 13, 1956, of the Patna High Court in Miscellaneous Judicial Case No. 665 of 1954.
+R. Ganapathy Iyer and R. H. Dhebar, for the appellant.
+A. V. Viswanatha Sastri and R. C. Prasad, for the respondent.
+November 29.
+The Judgment of the Court was delivered by HIDAYATULLAH, J.
+This is an appeal by the Commissioner of Income tax with a certificate against the judgment and order of the High Court at Patna answering two questions of law referred to it under section 66(1) of the Income tax Act by the Tribunal, in the negative.
+Those questions were: "(1) Whether in the circumstances of the case assessment proceedings were validly initiated under section 34 of the Indian Income tax Act? (2) If so, whether in the circumstances of the case the amount received from interest on arrears of agricultural rent was rightly included in the income of the assessee ?" The assessee, the Maharaja Pratapsingh Bahadur of Gidhaur, had agricultural income from his zamindari for the four assessment years 1944 45 to 1947 48.
+In assessing his income to income tax, the authorities did not include in his assessable income interest received by him on arrears of rent.
+This was presumably so in view of the decision of the Patna High Court.
+When the Privy Council reversed the view of law taken by the Patna High Court in Commissioner of Income tax vs Kamakhya Narayan Singh (1), the Income tax Officer issued notices under section 34 of the (1) 762 Indian Income tax Act for assessing the escaped income.
+These notices were issued on August 8, 1948.
+The assessments after the returns were filed, were completed on August 26, 1948.
+Before the notices were issued, the Income tax Officer had not put the matter before the Commissioner for his approval, as the section then did not require it, and the assessments were completed on those notices.
+Section 34 was amended by the Income tax and Business Profits Tax (Amendment) Act, 1948 (No. 48 of 1948), which received the assent of the Governor General on Sep tember 8, 1948.
+The appeals filed by the assessee were disposed of on September 14 and 15, 1951, by the Appellate Assistant Commissioner, before whom no question as regards the validity of the notices under section 34 was raised.
+The question of the validity of the notices without the approval of the Commissioner appears to have been raised before the Tribunal for the first time.
+In that appeal, the Accountant Member and the Judicial Member differed, one holding that the notices were invalid and the other, to the contrary.
+The President agreed with the Accountant 'Member that the notices were invalid, and the assessments were ordered to be set aside.
+The Tribunal then stated a case and raised and referred the two questions, which have been quoted above.
+The High Court agreed with the conclusions of the majority, and the present appeal has been filed on a certificate granted by the High Court.
+Section 34, as it stood prior to the amendment Act No. 48 of 1948, did not lay any duty upon the Income tax Officer to seek the approval of the Commissioner before issuing a notice under section 34.
+The amending Act by its first section made sections 3 to 12 of the amending Act retrospective by providing "sections 3 to 12 shall be deemed to have come into force on the 30th day of March, 1948. .
+Section 8 of the amending Act substituted a new section in place of section 34, and in addition to textual changes with which we are not concerned, also added a proviso to the following effect : "Provided that 763 (1) the Income tax Officer shall not issue a notice under this sub section unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons that it is a fit case for the issue of such notice.
+" The question is whether the notices which were issued were rendered void by the operation of this proviso. ' The Commissioner contends that section 6 of the , particularly cls.
+(b) and (c) saved the assessments as well as the notices.
+He relies upon a decision of the Privy Council in Lemm vs Mitchell (1), Eyre vs Wynn Mackenzie (2) and Butcher vs Henderson (3) in support of his proposition.
+The last two cases have no bearing upon this matter; but strong reliance is placed upon the Privy Council case.
+In that case, the earlier, action which had been commenced when the Ordinance had abrogated the right of action for criminal conversation, had already ended in favour of the defendant and no appeal therefrom was pending, and it was held that the revival of the right of action for criminal conversation did not invest the plaintiff with a right to begin an action again and thus expose the defendant to a double jeopardy for the same act, unless the statute expressly and by definite words gave him that right.
+The Privy Council case is thus entirely different.
+No doubt, under section 6 of the it is provided that where any Act repeals any enactment, then unless a different intention appears, the repeal shall not affect the previous operation of any enactment so repealed or anything duly done thereunder or affect any right, obligation or liability acquired, accrued or incurred under any enactment so repealed.
+It further provides that any legal proceedings may be continued or enforced as if the repealing Act had not been passed.
+Now, if the amending Act had repealed the original section 34, and merely enacted a new section in its place, the repeal might not have affected the operation of the original section by virtue of section 6.
+But the amending Act goes further than this.
+It (1) ; (2) (3) 764 repeals the original section 34, not from the day on which the Act received the assent of the Governor General but from a stated day, viz., March 30, 1948, and substitutes in its place another section containing the proviso above mentioned.
+The amending Act provides that the amending section shall be deemed to have come into force on March 30, 1948, and thus by this retrospectivity, indicates a different intention which excludes the application of section 6.
+It is to be noticed that the notices were all issued on August 8, 1948, when on the statute book must be deemed to be existing an enactment enjoining a duty upon the Income tax Officer to obtain prior approval of the Commissioner, and unless that approval was obstained, the notices could not be issued The notice were thus invalid.
+, The principle which was applied by this Court in Venkatachalam vs Bombay Dyeing & Mfg. Co. Ltd. (1) is equally applicable here.
+No question of law was raised before us, as it could not be in view of the decision of this Court in Narayana Chetty vs Income tax Officer (2), that the proviso was not mandatory in character.
+Indeed, there was time enough for fresh notices to have been issued, and we fail to see why the old notices were not recalled and fresh ones issued.
+For these reasons, we are in agreement with the High, Court in the answers given, and dismiss this appeal with costs.
+A appeal dismissed.

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+Appeals Nos. 490 and 491 of 1958.
+Appeals from the judgment and decree dated February 18, 1955, of the Madras High Court in Second Appeals Nos.
+2038 and 2039 of 1950.
+N. R. Raghavachariar, M. R. Krishnaswami and T. V. R. Tatachari, for the appellant.
+R. Ganapathi Iyer and D. Gupta, for the respondent.
+November 29.
+The Judgment of the Court was delivered by KAPUR, J.
+Two suits were brought by the appellants for a declaration against the levy of sales tax by the State of Madras and an injunction was also prayed for.
+Both the suits were decreed by the Subordinate Judge of Salem and the decrees were confirmed on appeal by the District Judge of Salem.
+Two appeals were taken to the High Court by the State of Madras against those decrees and by a judgment dated February 18, 1955, the decrees were set aside by a common judgment.
+Against these decrees the appellants have brought these appeals by a certificate of that Court.
+The appellants are merchants dealing in cotton yarn.
+They obtained a license under section 5 of the Madras General Sales Tax Act (Act IX of 1939), hereinafter referred to as the 'Act '.
+This license exempted 738 them from assessment to sales tax under section 3 of the Act on the sale of cotton yarn and on handloom cloth "subject to such restrictions and conditions as may be prescribed including conditions as to license and license fees".
+The license was issued on March 31,1941, and was renewed for the following years.
+On September 20, 1944, the Commercial Tax Authorities made a surprise inspection of the premises of the appellants and discovered that they were maintaining two separate sets of account on the basis of one of which the appellants submitted their returns to the Department.
+Because the other set of account books showed black market activities of the firm Balakrishna Chetty was prosecuted and sentenced to six months ' imprisonment for an offence connected with the breach of Cot.
+ton Yarn Control Order.
+During the pendency of those proceedings the Deputy Commercial Tax Officer made assessments for the years.
+1943 44 and 1944 45, the tax for the former was Rs. 37,039 and for the latter Rs. 3,140.
+The appellants unsuccessfully appealed against these assessments and their revisions also failed.
+On August 24, 1945, the appellants brought a suit for a declaration and injunction in regard to the first assessment alleging that the assessment was against the Act.
+On September 2, 1946, a similar suit was brought in regard to the second assessment.
+It is out of these suits that the present appeal has arisen.
+The controversy between the parties centres round the interpretation of the words "subject to" in section 5 of the Act.
+The High Court has held that on a true interpretation of the provisions of the Act and the rules made thereunder, the observance of conditions of the license was necessary for the availability of exemption under section 5; that as the appellants had contravened those conditions they were liable to pay tax for both the years notwithstanding the license which had been issued to them under section 5 of the Act.
+it will be convenient at this stage to refer to the provisions of the Act which are relevant for the purpose of this appeal.
+section 2(b) " dealer" means any person who carries on the business of buying or selling goods;" 739 section 2(f) " "prescribed" means prescribed by rules made under this Act;".
+section 3(1) "Subject to the provisions of this Act, every dealer shall pay in each year a tax in accordance with the scale specified below: (a). . . . . . (b) if his turnover ex One half of I per ceeds twenty cent of such turn thousand rupees.
+over".
+section 5 "Subject to such restrictions and conditions as may be prescribed, including the conditions as to licenses and license fees, the sale of bullion and specie, of cotton, of cotton yarn and of any cloth woven on handlooms and sold by persons dealing exclusively in such cloth shall be exempt from taxation under Section 3".
+section 13 "Every dealer and every person licensed under section 8 shall keep and maintain a true and correct account showing the value of the goods sold and paid by them; and in case the accounts maintained in the ordinary course, do not show the same in an intelligible form, he shall maintain a true and correct account in such form as may be prescribed in this behalf.".
+The following rules are relevant for the purpose of this appeal and we quote the relevant portions: R. 5 "(1) Every person who (a). . . . . (b) deals with cotton and/or cotton yarn, (c). . . . . . (d). . . . . . (e) shall if he desires to avail himself of the exemption provided in sections 5 and 8 or of the concession of single point taxation provided in section 6, submit an application in Form I for a licence and the relevant portion of Form III is as follows: "Form III Cotton Licence to a dealer in Cotton yarn cloth woven on handlooms 740 See rule 6(5).
+Licence No. dated having paid a licence fee of Rs. (in words) hereby licensed as a dealer in Cotton/Cotton yarn Cotton woven on handlooms for the year ending at (place of business) subject to the provisions of the Madras General Sales Tax Act, 1939, and the rules made thereunder and to the following conditions:".
+R. 8 "Every licence granted or renewed under these rules shall be liable to cancellation by the Deputy Commercial Tax Officer in the event of a breach of any of the provisions of the Act, or of the Rules made thereunder or of the conditions of the licence.
+" The contention raised on behalf of the appellants was that as long as they held the licence it was immaterial if they were guilty of any infraction of the law and that they were not liable to any assessment of sales tax under the provisions of the Act and the only penalty they incurred was to have their licence cancelled and/or be liable to the penalty which under the criminal law they had already suffered.
+The contention comes to this that in spite of the breaches of the terms and conditions of the licence, having a licence was sufficient for the purpose of exemption under the Act.
+This contention, in our opinion, is wholly untenable.
+Section 3 is the charging section and section 5 gives exemption from taxation but that section clearly makes the holding of a licence subject to restrictions and conditions prescribed under the provisions of the Act and the rules made thereunder because the opening words of that section are "subject to such restrictions and conditions as may be prescribed." Under B. 13 an important condition imposed under the Act is the keeping by the dealer and every person licensed of true and correct accounts showing the value of the goods sold and paid by him.
+Next there is r. 5 of the General Sales Tax Rules which provided 741 that if any person desired to avail himself of the exemption provided in section 5, he had to submit an application in Form I for a licence and the Form of the licence shows that the licence was subject to the provisions of the Act and the rules made thereunder which required the licensee to submit returns as required and also to keep true accounts under section 13.
+This shows that the giving of the licence was subject to certain conditions being observed by the licensee and the licence itself was issued subject to the Act and the rules.
+But it was contended that the words "subject to" do not mean "conditional upon" but "liable to the rules and the provisions" of the Act.
+So construed section 5 will become not only inelegant but wholly meaningless.
+On a proper interpretation of the section it only means that the exemption under the licence is conditional upon the observance of the conditions prescribed and upon the restrictions which are imposed by and under the Act whether in the rules or in the licence itself ; that is, a licensee is exempt from assessment as long as he conforms to the conditions of the licence and not that he is entitled to exemption whether the conditions upon which the licence is given are fulfilled or not.
+The use of the words "subject to" has reference to effectuating the intention of the law and the correct meaning, in our opinion, is "conditional upon".
+The appellants have been found to have contravened the provisions of the Act as well as the rules and therefore it cannot be said that they have observed the conditions upon which the exemption under the licence is available.
+In that view of the matter, it was rightly held that they were not exempt from assessment under the Act.
+The appeals are therefore dismissed with costs.
+Appeals dismissed.

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+Appeal No.232 of 1960.
+Appeal from the Judgment and Order dated October 6, 1958, of the Bombay High Court in Income Tax Reference No. 10 of 1958.
+R. J. Kolah, Dwaraka Das, section N. Andley, Rameshwar Nath, J. B. Dadachanji and P. L. Vohra for the Appellants.
+Hardyal Hardy and D. Gupta for the Respondent.
+November 29.
+The Judgment of J. L. Kapur and J. C. Shah, JJ., was delivered by Kapur, J. M. Hidayatullah, J., delivered a separate Judgment.
+KAPUR, J. This is an appeal pursuant to a certificate of the High Court of Bombay against the judgment and order of that Court in Income tax Reference No. 10 of 1958, answering the question referred to it against the assesses whose legal representatives are 744 the appellants before, us, the respondent being the Commissioner of Income tax.
+The facts which have given rise to the appeal are that the late Mr. Annantrai P. Pattani, hereinafter called the assessee was, by Hazur Order dated December 10, 1937, appointed the Chief Dewan of Bhavnagar State.
+On January 15, 1948, the Maharaja of Bhavnagar introduced responsible Government in his State and appointed the assessee as the Chairman of the Bhavnagar Durbar Bank but he received no salary for that post.
+On the same date by another Hazur Order the Maharaja granted a monthly pension of Rs. 2,000 to the assessee.
+The order was in the following terms: "He looked after us well in our childhood and rendered valuable services sincerely and with single minded loyalty to us and our State during extremely difficult period of the last war and thereafter, which has enhanced the prestige and prosperity of the State and given the State and the people a place of pride in India.
+In appreciation of this, it is (hereby) decided to grant him a monthly pension of Rs. 2,000 two thousand which is the monthly salary he is drawing at present.
+Date 22 1 1948.
+" On May 31, 1950, the Maharaja directed Messrs. Premchand Roychand & Sons, Bombay, with whom he had an account "to pay by cheque to Mr. A.P. Pattani Rs. 5 lacs out of the amount lying to the credit of my account with you." This sum was paid to the assessee on June 12, 1950.
+It is stated that the accountant of the Maharaja asked for instructions as to how that amount of Rs. 5 lacs was to be adjusted in the accounts and on December 27, 1950, the Maharaja made the following order: "In consideration of Shri Annantrai P. Pattani the Ex Diwan of our Bhavnagar State having rendered loyal and meritorious services Rs. 5,00,000 (Rupees Five Lacs) are given to him as gift.
+Therefore, it is ordered that the said amount should be debited to our Personal Expense Account." On March 1, 1948, Bhavnagar State was merged in the United States of Saurashtra and the Maharaja ceased to be the ruler of the said State as from that 745 date.
+The assessability of this sum of Rs. 5 lacs was raised in the course of the assessment proceedings for the assessment year 1951 52 and at the request of the ' assessee which is stated to be oral the Maharaja wrote on March 10, 1953, the following: "I confirm that in June 1950, 1 gave you a sum of rupees five lacs (Rs. 5,00,000) which wag a gift as a token of my affection and regard for you and your family.
+This amount was paid to you by Premchand Roychand & Sons according to my letter of 31st May, 1950, from moneys in my account with them.
+" On these facts the Income tax Officer held that Rs. 5,00,000 received on June 12, 1950, was liable to income tax under section 7(1) read with explanation (2) of that section as it stood before the amendment by the Finance Act, 1955.
+The assessee took an appeal to the Appellate Assistant Commissioner which was dismissed.
+Against that order an appeal was taken to the Income tax Appellate Tribunal but the Tribunal also dismissed the appeal.
+The Tribunal held that looking to the circumstances they would attach more importance to the "contemporaneous document, i.e., the order of the 27th December, 1950"; which clearly mentioned why the sum of Rs. 5,00,000 was paid to the assessee.
+The Tribunal was not inclined to "believe in the contents of that letter and would leave the matter at that.
+" The reference is to the letter of the Maharaja dated March 10, 1953.
+The Tribunal further held that there was no distinction between the Maha raja and the State and "assuming for a moment that this view of ours is not found to be correct, still it is clear from the Huzur Order No. 13 dated 22 1 1948 (vide para 2 above) that the assessee rendered services not only to the State, if it is distinct from.
+the Maharaja but to the Maharaja as well; for that Huzur Order clearly refers to assessee rendering "valuable services sincerely and conscientiously to us and our State".
+We would, therefore, hold that the amount of Rs. 5 lacs is a taxable receipt falling under Section 7(1) read with Explanation 2.
+" At the instance of the assessee the following question of law was referred to the High Court: 746 "Whether the sum of Rs. 5 lacs has been properly ,brought to tax in the hands of the assessee for the assessment year 1951 52?" and a further question as to the applicability of section 4(3) (vii) of the Income tax Act was not referred on the ground that it did not arise out of the order of the Tribunal.
+The High Court, on the findings given by the Tribunal came to the conclusion that section 7(1) explanation (2) of the Income tax Act applied.
+It held that it was not possible to regard the receipt of this sum of money by the assessee as a windfall nor as a personal gift of the nature of a testimonial; that the gift was not made in appreciation of the personality or character of the assessee nor was it symbolical of its appreciation of his personal qualities; that the consideration for the gift was in terms stated to be past services and therefore it could not be treated as a mere gift by an employer to an employee when the Court did not know what motivated the making of that gift.
+On the facts of the case the High Court reached the conclusion, though with some reluctance, that the case fell within the ambit of section 7(1), Explanation (2).
+The High Court also held that this sum could not be exempted from tax on the ground that it was merely a casual or nonrecurring receipt because once connection with the employment was established there was no question of considering the recurring or the casual nature of the receipt.
+During the pendency of the proceedings in the High Court the assessee died and his heirs and legal representatives were brought on the record and hence they are the appellants.
+It was argued on behalf of the appellants that the facts showed that the sum paid cannot fall within section 7(1), Explanation (2), of the Income tax Act.
+By Hazur Order dated January 22, 1948, the Maharaja had compensated the assessee for valuable services rendered and single minded loyalty to the Maharaja and to his State during the difficult period of the war and thereafter, which had added to the prestige and prosperity of the State and in appreciation of that the 747 Maharaja had granted to the assessee a monthly pension of Rs. 2,000, which was paid to the assessee even after the merger and of the establishment of the.
+United States of Saurashtra from out of the public revenue.
+At the time when Rs. 5,00,000 were paid, the State of Bhavnagar as such had ceased to exist.
+The Maharaja was no longer a Ruling Chief but was the Governor of the State of Madras.
+The order by which Messrs. Premchand Roychand & Sons, Bombay, were directed to pay the sum of Rs. 5,00,000 out of the account of the Maharaja does not mention any reason for payment.
+When as is alleged an accountant of the Maharaja asked as to how that amount of Rs. 5,00,000 was to be adjusted in the accounts, the Maharaja wrote on December 27, 1950, what is described as an order and directed that the sum should be debited to his Personal Expense Account.
+It also stated, why it is not clear, that that sum was to be given to the assessee in consideration of the assessee 's loyal and meritorious services as a gift.
+When asked later to clarify the reasons for making this gift the Maharaja made it clear that the gift was as a token of affection and regard for the assessee and his family and that the amount was paid by Messrs. Premchand Roychand & Sons from out of the private monies of the Maharaja with that firm.
+The Income tax Appellate Tribunal took into account the two documents the first of which has been described as an order of December 27, 1950, which was treated as a "contemporaneous document" and the other the letter of March 10, 1953, which was about two years later.
+The Tribunal did not accept the correctness of what was stated in the letter but attached a great deal of importance to the document of December 27, 1950, which the Tribunal thought was a con temporaneous document.
+It appears to us that the Tribunal was in error in treating the document of December 27, 1950, as a contemporaneous document and because of this erroneous approach the finding that it has given cannot be treated as a finding of fact which should bind the court in its decision.
+It is obvious that the reason why the 748 Tribunal attached all this importance to the document of December 27, 1950, was that it was contemporaneous.
+It would be difficult to accept that a document written six months after the fact of payment could be termed as contemporaneous document particularly when the object of that document was only to instruct an accountant as to how he should make a particular entry.
+The letter which was written by the Maharaja on March 10, 1953, was rejected because of the circumstances of the case one of which was the contemporaneous document.
+It does not appear to us that the Tribunal gave sufficient or any consideration to the fact that the Maharaja had already passed an order of a liberal and almost generous grant of a pension of Rs. 2,000 per mensem which was in lieu of the services rendered by the assessee both to the State as well as to the Maharaja and his family and that pension was ordered before the merger of the State and when the employment of the assessee as the Dewan terminated.
+According to what was stated in the letter of the Maharaja dated March 10, 1953, the sum of Rs. 5,00,000 was given as a gift in token of Maharaja 's affection and regard for the assessee and the assessee 's family.
+There is no reason shown why the Maharaja should have aided and abetted the assessee in escaping income tax.
+The only reason stated by the Tribunal is based on a wrong assumption as.
+to the nature of the document of December 27, 1950.
+The payment of Rs. 5,00,000 was sought to be brought within the purview of section 7(1) of the Act read with explanation (2).
+This section at the relevant time provided: section 7(1) "The tax shall be payable by an assessee under the head "Salaries" in respect of any salary or wages, any annuity, pension or gratuity and any fees, commissions, perquisites or profits in lieu of, or in addition to, any salary or wages, which are due to him from; whether paid or not or are paid by or on behalf of. . . any private employer. . . . .
+Explanation 2: A payment due to or received by 749 an assessee from an employer or former employer or from a provident or other fund, is to the extent to, which it does not consist of contributions by the ', assessee or interest on such contributions a profit received in lieu of salary for the purpose of this subsection, unless the payment is made solely as compensation for loss of employment and not by way of remuneration for past services;. . . .
+Counsel for the appellants contended that the payment did not fall within this section because it was a gift made on account of personal qualifications and was a testimonial unconnected with any service rendered.
+The submission was that the assessee had already been compensated for his services to the Maharaja personally and the State and this sum of Rs. 5 lacs was a gift in token of affection and regard and not as a payment in consideration of the services already rendered to the State or the Maharaja or both.
+It will not be inappropriate to mention that in the document dated December 27, 1950, it is stated that Rs. 5,00,000 was paid to the assessee as ex Dewan of Bhavnagar State in consideration of his having rendered loyal and meritorious services to Bhavnagar State.
+There is no mention in the document of December, 1950, of any services rendered to the Maharaja and it does not seem to have been considered by the Tribunal as to why the Maharaja should make out of his personal account the gift of such a large amount for something which was not done for the Maharaja specifically, particularly when the services to the State and to the Maharaja and his family had already been well compensated.
+This lends support to the submission of the appellants that the amount was paid merely as a gift in token of Maharaja 's affection and regard for the assessee.
+Mr. Kolah for the appellants relied on several cases in support of his contention that the amount was not liable to tax under section 7.
+In Beynon vs Thorpe (1) the assessee resigned his position as a Managing Director of the Company; did no work for the company; did (1) 95 750 not attend any Board meetings and received no remuneration as a Director of the Company.
+It was, however, a custom of the company to give to its retiring employees voluntary pension or allowance and the company voted a pension of pound 5,000 a year to the assessee but this resolution was rescinded and by another resolution pound 5,000 was voted to the assessee" not as or because he is a Director but as a personal gift".
+The assessee was assessed under Schedule 'E ' in respect of both the pension and the final payment but these assessments were discharged on appeal by the Special Commissioners who decided that the allowances were gifts of personal nature only.
+It was hold that the payments were not income assessable to income tax in the hands of the assessee.
+Rowlatt, J., said at p. 14: "Now the question is whether this ceases to be a mere gift because what has led to it is a past employment, an employment which has ceased.
+It has been.
+made abundantly clear by the Court in Scotland in Duncan 's case(1) that this sort of sums received by a person cannot possibly be put as receipts from his office or in respect of his office or employment, and they said in terms of that kind in a case like this that these emoluments cannot be taxed under Schedule 'E ', and I am bound to say I think that goes a very long way to conclude this case.
+But it is said that nevertheless they are in respect of the employment.
+Well, it seems to me that is a complete fallacy.
+It is nothing but a gift moved by the remembrance of past services already efficiently remunerated as services in them.
+selves; it is merely a gift moved by that sort of gratitude or that sort of moral obligation if you please: it is merely a gift of that kind.
+In this ease it happens to be very large; in many cases it is very small, but in all the cases it seems to me, whether it is large gift like this or whether it is a small gift to a humble servant they are exactly on the same footing as gifts which are made to a child or gifts which are made to any other person whom the giver thinks he ought to supply with funds for one reason or another; and as the (1) 751 Lord President in Scotland points out it is only a matter of history that the feeling between the parties which has generated the gift arises out of an employment." Mr. Kolah also relied on Reed vs Seymour (1).
+In that case a committee of a Cricket Club granted a benefit match to a professional cricketer in their service.
+Out of the profits of the benefit match the beneficiary, who was the assessee purchased a farm and assessment was made on him under Schedule 'E ' in respect of the proceeds of the benefit match but this was discharged by the General Commissioner on appeal.
+This sum was held to be in the nature of a personal gift and not assessable *to income tax.
+Viscount Cave in his speech posed the question which Rowlatt, J., put, i.e., "is it in the end a personal gift or is it remuneration"; if the latter it is subject to tax, if the former it is not.
+In that case the test applied by Viscount Cave was that the terms of the assessee 's employment did not en title him to a benefit; the purpose for which the amount was paid was to express gratitude of the employers and of the cricket loving public for what he had done and in their appreciation of his personal qualities.
+It was also stated that if the benefit had taken place after Seymour 's retirement no one would have sought to tax the proceeds as his income and the circumstance that it was given before but in contemplation of, retirement does not alter its quality and the whole sum was a testimonial and not a perquisite and therefore it was not a remuneration for services but a personal gift.
+Counsel also relied on Moorehouse vs Dooland (2).
+In that case a cricket professional was employed under a contract in which it was provided that collections shall be made for any meritorious performance by him in accordance with the rules for the time being of the employing Cricket League Club.
+The assessee played twenty matches and on eleven occasions collections were made on his behalf under the rules of the Club and a total sum of pound 48 15s.
+was collected.
+This was sought to be taxed as fees, wages perquisites or profits (1) [1927] XI T.C. 625.
+(2) 752 arising from his employment.
+It was held that (1) the test of liability to tax on voluntary payments from the standpoint of the person who receives it was that it accrued to him by virtue of his office or employment, i.e., byway of remuneration of his services; (2) that if the assessee 's contract of employment entitled him to receive voluntary payments and (3) that the payment was of a periodic and recurring character.
+On the other hand if a voluntary payment was made in circumstances which showed that it was given by way of a present or a testimonial on grounds personal to the recipient, the proper conclusion was that the payment was not profit accruing to the recipient by virtue of his office or employment but a gift to him as an individual paid and received by reason of his personal needs or by reason of his personal qualities.
+Applying these principles the proceeds were by the terms of the contract of employment received by way of remuneration and were liable to tax.
+In that case the payment was treated as being subject to tax because it was substantially in respect of services and accrued to the assessee by reason of his office.
+It is quite clear that had the gift been as a testimonial or a contribution for specific performance peculiarly due to the personal qualities of the recipient, it would have been treated as a mere present.
+The next case relied upon was David Mitchell vs Commissioner of Income tax (1) where the test laid was whether the payment was made in appreciation of .the personality and character of the assessee or in appreciation of the professional services rendered by him in order to give him an extra profit over and above the share of profit he might get from the firm for the services rendered.
+Counsel for the respondent argued that the gift made by the Maharaja was not in respect of personal qualities of the recipient but was relatable to his office although made by an ex employer and was therefore taxable; that the gift was voluntary is clear but it is not quite clear how the amount can be said to be relatable to the office held by the recipient.
+Even (1) 753 according to the case of the respondent the amount was paid about two years after the assessee had ceased to be an employee of the Maharaja or the State and immediately on his ceasing to be the Dewan of Bhavnagar State, the Maharaja had granted him a pension from out of the public funds for his services to the State as Dewan and for services rendered to the Maharaja and his family a handsome and a generous monthly pension of Rs. 2,000 per mensem.
+Apart from the fact that the Tribunal relied upon a document which was not contemporaneous, it seems to have overlooked the fact that there was a gap of two years before the amount of Rs. 5,00,000 was paid by the Maharaja out of his personal funds.
+Counsel for the respondent relied upon a judgment of this Court in P. Krishna Xenon vs The Commissioner of Income tax, Mysore, Travancore Cochin and Coorg, Bangalore (1).
+In that case the assessee was a teacher who taught his disciples Vedanta philosophy without any motive or intention of making any profit.
+One of the disciples made gifts of money to him on several occasions and it was contended by the assessee that he was not liable to tax on the amounts received from his disciple as he was not carrying on any vocation.
+But it was held that in teaching Vedanta philosophy the assessee was carrying on a vocation and that the payments made by the disciple were received by the recipient from his vocation.
+It was also held that if the voluntary payments had been made for reasons purely personal to the donee and not connected with his office or vocation, they would not be taxable but if they were made because of the office they would be taxable.
+The question was not what the donor thought he was doing but why the donee received it.
+The first thing to notice about that case is that those gifts were not made by the disciple as a gift to mark his esteem and affection for his preceptor but as was stated by the disciple in his affidavit he had paid those amounts because he had obtained the benefit of the teachings by the preceptor on Vedanta.
+It was found in that case and the disciple admitted (1) [1959] Supp. 1 S.C.R. 133. 754 that he had received benefit from the teaching of his preceptor and that the gifts that he had made, even though as a mark of esteem and affection, were the result of teaching imparted by the preceptor and because the amounts were paid to the preceptor as preceptor and the imparting of the teaching was the causa causans of the making of the gift,; it was not merely causa sine qua non.
+The payments were repeated and came with some regularity as the disciple visited the preceptor for receiving instructions.
+It was in these circumstances that this court held the payments to the preceptor as payments because of the imparting of the teaching and therefore they were income arising from the vocation of the recipient as a teacher of Vedanta philosophy.
+In our opinion the sum of Rs. 5,00,000 was not paid to the assessee in token of appreciation for the services rendered as a Dewan of Bhavnagar State but as a personal gift for the personal qualities of the assessee and as a token of personal esteem.
+The appeal is therefore allowed and the order of the High Court set aside and the reference is answered against the Commissioner of Income tax.
+The appellants will have their costs throughout.
+HIDAYATULLAH, J. I have had the advantage of reading the judgment just delivered by my brother, Kapur, J.
+I regret very much my inability to agree that the appeal should be allowed and the order of the High Court set aside.
+In my opinion, the High Court had correctly answered the question referred to it.
+The facts of the case have been stated in detail in the judgment of my learned brother, and I need not repeat them but refer only to some of them briefly.
+On June 12, 1950, a sum of Rs. 5 lakhs was given by the Maharaja of Bhavnagar to the predecessor of the appellants, who was an ex Dewan of the State.
+This was paid by Messrs. Premchand Roychand & Sons, Bombay, with whom the Maharaja had an account.
+There is no contemporaneous record to show why this payment was made; but it appears that when the accountant of the Maharaja enquired how the amount 755 was to be entered in the books of account, the Maharaja issued an order on December 27, 1950, to the following effect: "In consideration of Shri Annantrai P. Pattani the Ex Diwan of our Bhavnagar State having rendered loyal and meritorious services Rs. 5,00,000 (Rupees Five lacs) are given to him as gift.
+Therefore, it is ordered that the said amount should be debited to our Personal Expense Account." After the assessment proceedings had commenced in this case, the original assessee produced a letter written by the Maharaja on March 10, 1953, as follows: "I confirm that in June, 1950, I gave you a sum of rupees five lacs (Rs. 5,00,000) which was a gift as a token of my affection and regard for you and your family.
+This amount was paid to you by Premchand Roychand & Sons according to my letter of 31st May, 1950, from moneys in my account with them.
+" The question in this case was whether section 7(1) of the Income tax Act read with Explanation 2 to that section as it stood prior to the amendment in 1955, applied to this payment.
+That section, so far as it is material, is as follows: "7(1).
+The tax shall be payable by an assessee under the head 'Salaries ' in respect of any salary or wages, any annuity, pension or gratuity and any fees, commissions, perquisites or profits in lieu of, or in addition to, any salary or wages, which are allowed to him by or are due to him, whether paid or not, from, or are paid by or on behalf of any private employer;. . . . .
+Explanation 2.
+A payment due to or received by an assessee from an employer or former employer or from a provident or other fund, is to the extent to which it does not consist of contributions by the assessee or interest on such contributions a profit received in lieu of salary for the purpose of this subsection, unless the payment is made solely as compensation for loss of employment and not by way of remuneration for past services;. . .".
+To determine whether the second Explanation applies 756 to the facts in this case, it has to be found if this pay ment was received by the assessee from a former employer by way of remuneration for past services.
+The Tribunal did not accept the letter of the Maharaja, and observed as follows: "In support of the latter view Mr. Tricumdas strongly relied upon the letter dated 10 3 1953 addressed by the Maharaja to the assessee, vide para 2 above.
+We have already indicated the circumstances in which that letter came to be written and would merely observe that we find it difficult to bring ourselves to believe in (sic) the contents of that letter and would leave the matter at that.
+" This, in my opinion, is a finding upon the evidentiary .value of the letter of the Maharaja, and though the order of the Tribunal is worded mellifluously, the Tribunal 's decision is quite clearly that it was not per suaded to accept it.
+Indeed, of the two documents, greater worth has to be attached to one which was issued before the controversy started and was written not to the assessee but to the Maharaja 's accountant who enquired how the account was to be adjusted.
+The use of the word 'contemporaneous ' to describe the order to the accountant meant no more than this that it was earlier in time and very soon after the amount was given.
+The Tribunal did not rely on any extra neous evidence in reaching its conclusion, but on something which had proceeded from the Maharaja himself.
+The motive of the Maharaja may be irrelevant, because what has to be seen is not why the payment was made but for what the assessee had received it.
+The Maharaja no doubt had been generous in fixing the pension at Rs. 2,000 per month.
+But the payment of such a large sum was not just bounty but to reward the past services, which judged from the scale of the pension had not adequately been paid for in the past.
+In this connection, the words of the Maharaja himself (and what better evidence can there be?) were that the amount was paid "in consideration of Shri Annantrai P. Pattani the Ex Dewan of our Bhavnagar State having rendered loyal and meritorious services Rs. 5,00,000 are given to him as gift".
+757 The word gift ' does not alter the nature of the payment.
+The Maharaja indeed made a gift, as he had stated over again; but this order quite clearly disclosees that it was by way of remuneration for past services.
+The case, therefore, falls within the ruling of the a Supreme Court reported in P. Krishna Menon vs The Commissioner of Income tax, Mysore, Travancore Cochin and Coorg, Bangalore (1), and is indistinguishable from it.
+In the earlier case of this Court, the person who gave the money did not even mention any past services; but this Court found that because the recipient had taught him Vedanta philosophy, the payment was really in the nature of remuneration for past services.
+The facts in P. Krishna Menon 's case (1) were that the assessee was teaching his disciples Vedanta philosophy without any motive or intention of making a profit out of such activity.
+One J. H. Levy who used to go to Travancore from England at intervals attended his teachings.
+Levy had an account with Lloyd 's Bank at Bombay, and on December 31, 1944, Levy transferred the entire amount of Rs. 2,41,103 11 3 to the credit of an account which Levy got the assessee to open in his ' own name.
+Levy made further remittances and by August 19, 1951, had paid about Rs. 4,50,000.
+It was held by this Court that the assessee was carrying on a vocation.
+In deciding the question whether the amounts were assessable to tax, this Court observed as follows: ". it seems to us that the present case is too plain to require any authority.
+The only point is, whether the moneys were received by the appellant by virtue of his vocation.
+Mr. Sastri contended that the facts showed that the payments were purely personal gifts.
+He drew our attention to the affidavit of Levy where it is stated 'all sums of money paid into his account by me have been gifts to mark my esteem and affection for him and for no other reason '.
+But Levy also there said, 'I have had the benefit of his teachings on Vedanta '.
+It is important to remember however that the point is not what the donor (1) [1959] Supp.
+1 S.C.R. 133.
+96 758 thought he was doing but why the donee received it".
+Sarkar, J., then referred to the dictum of Collins, M. R., in Herbert vs Mc Quade (1), which may be quoted here: "Now that judgment, whether or not the particular facts justified it, is certainly an affirmation of a principle of law that a payment may be liable to income tax although it is voluntary on the part of the persons who made it, and that the test is whether, from the standpoint of the person who receives it, it accrues to him in virtue of his office; if it does, it does not matter whether it was voluntary or whether it was compulsory on the part of the persons who paid it.
+That seems to me to be the test; and if we once get to this that the money has come to or accrued to, a person by virtue of his office it seems to me that the liability to income tax is not negatived merely by reason of the fact that there was no legal obligation on the part of the persons who contributed the money to pay it." The learned Judge also referred to the observations of Rowlatt, J., in Reed vs Seymour (2) and of Viscount Cave, L. C., in Seymour vs Reed (3), and observed that the real question was, is the payment in the nature of a personal gift or is it a remuneration?, and quoted as the reply the words of the Lord Chancellor "If the latter, it is subject to the tax; if the former, it is not." Sarkar, J., also referred to the observations of Lord Ashbourne in Blakiston vs Cooper (4), which were: "It was suggested that the offerings were made as personal gifts to the Vicar as marks of esteem and respect.
+Such reasons no doubt played their part in obtaining and increasing the amount of the offerings, but I cannot doubt that they were given to the vicar as vicar and that they formed part of the profits accruing by reason of his office.", and concluded as follows: "We have no doubt in this case that the imparting (1) (3) (2) (4) [1909] A.C. 104.
+759 of the teaching was the causa causans of the making of the gift; it was not merely a causa sine qua non.
+The payments were repeated and came with the same regularity as Levy 's visits to the appellant for receiving instructions in Vedanta.
+We do not feel impressed by Mr. Sastri 's contention that the first payment of Rs. 2,41,103 11 3 was too large a sum to be paid as consideration.
+In any case, we are not concerned in this case with that payment.
+We are concerned with payments which are of much smaller amounts and as to which it has not been said that they were too large to be a consideration for the teaching.
+And one must not forget that these are cases of voluntary payments and the question of the appraisement of the value of the teaching received in terms of money is not very material.
+If the first payment was too big to have been paid for the teaching received, it was too big to have been given purely by way of gift.
+" In my opinion, the case of this Court concludes the matter, and the Tribunal was within its rights in accepting one piece of evidence in preference to another, and the finding on the evidentiary value of the letter of the Maharaja was a matter essentially for the Tribunal to decide finally.
+I thus agree with the High Court in the answer which it gave, in agreement on facts with the Tribunal, and the reasons for which the answer was given.
+I would, therefore, dismiss the appeal with costs.
+BY COURT: In view of the majority judgment of the Court, the appeal is allowed with costs throughout.
+Appeal allowed.

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+Appeals Nos. 98 and 99 of 1957.
+Appeals from the judgment and order dated August 31, 1954, of the Madhya Pradesh High Court in Civil Misc.
+Case No. 9 of 1953.
+R. Ganapathi Iyer and D. Gupta, for the appellant in C. A. No. 98 of 1957 and respondents in C. A. No. 99 of 1957.
+section K. Kapur and Naunit Lal, for the respondents in C. A. No. 98 of 1957 and appellant in C. k. No. 99 of 1957.
+November 30.
+MUDHOLKAR, J. These are cross appeals from two judgments of the erstwhile High Court of Madhya Bharat.
+Both of them arise out of a writ petition presented by the Gwalior Sugar Company Ltd., who are respondents in C. A. 98 of 1957, in which they challenged the validity of the levy of a cess on sugarcane purchased by the respondents.
+The grounds on which the validity of the cess is challenged are two.
+The first ground is that it was not levied under any law and the second ground is that it is discriminatory against the respondents.
+In order to appreciate these contentions it is necessary to set out certain facts.
+In the year 1940 in pursuance of an agreement entered into between the Government of Gwalior State and Sir Homi Mehta and others a sugar factory was established at Dabra.
+The name of that factory is The Gwalior Sugar Co., Ltd. On June 20, 1946, the Maharaja Scindia, the ruler of Gwalior State constituted a Committee to consider the desirability of imposing a "cane cess on the lines of the United Provinces or Bihar and to recommend a procedure for fixation of sugar prices within the terms of the agreement subsisting between the Government and the factory".
+The Report of the 621 Committee was submitted to the Maharaja by the Chairman on July 23, 1946.
+In their report the Committee observed that in order to put the industry on a sure and stable footing it was absolutely necessary to develop the cane area and yield in the shortest possible time.
+For this purpose the Committee recommended that it was essential to levy a cane cess of one anna per maund on all sugar cane purchased by the respondent factory.
+At the foot of this report the Maharaja made the following endorsement "Guzarish sanctioned, J. M. Scindia, 27 7 46".
+It may be mentioned that the Committee also recommended the establishment of a Cane Development Board.
+This recommendation was also accepted by the Ruler.
+On August 26, 1946, the Economic Adviser to the Government of Gwalior wrote a letter to the Manager of the respondent factory.
+It will be useful to reproduce the text of that letter as it will have some relevance on the second ground on which the cess is challenged.
+The letter runs thus: "Dear air, With a view to expand cane area and cane yield in the Harsi commanded area so that the Gwalior Sugar Co., Ltd., be put on a sound and stable basis, the Gwalior Government have decided to impose a cane cess of one anna per maund on all sugarcane purchased by your factory.
+The operation of this cess will start from the coming sugarcane crushing season.
+The proceeds of the cess have been earmarked for cane development work in the Harsi region that will be undertaken by a Cane Development Board constituted for the purpose.
+The Cane Development Board expects your co operation in this development work, which is proposed to be undertaken as soon as possible.
+Yours sincerely, Secretary, Cane Development Board.
+" The respondent factory protested against this levy.
+After the formation of the State of Madhya Bharat, 79 622 the respondent made a representation to the Government of Madhya Bharat against the levy of the cess.
+That representation was, however, rejected.
+They, then, paid the cess for the years 1946 to 1948 amounting to Rs. 1,17,712 8 2.
+The Government of Madhya Bharat made a demand from the respondents for a sum of Rs. 2,79,632 14 9 for the years 1949 to 1951.
+The respondents challenged the demand upon the two grounds set out above and presented a petition before the High Court of Madhya Bharat for quashing the demand.
+The petition was opposed on behalf of the State of Madhya Bharat which was the successor State of the former Gwalior State.
+The High Court granted the petition partially by holding that the State of Madhya Bharat was not entitled to recover the cess due from the respondents after January 26, 1950.
+It may be mentioned that it was conceded on behalf of the respondent company before the High Court that the State was entitled to recover the cess prior to January 26, 1950.
+Later, however, the respondents preferred a review petition to the High Court in which they sought relief even in respect of the cess for the period prior to January 26, 1950.
+The review petition was dismissed by the High Court upon the ground that no such petition lay.
+The respondents are challenging the view of the High Court in C. A. No. 99 of 1957.
+After the coming into force of the States Reorganization Act, 1956, the State of Madhya Pradesh has been substituted for the State of Madhya Bharat and they are shown as appellants and respondents respectively in the two appeals.
+The High Court struck down the cess upon the ground that the order dated July 27, 1946, of the Gwalior Durbar was only an executive order and not a law under article 265 of the Constitution and that, therefore, there was no authority for the imposition of the cess after January 26, 1950.
+This point is covered by the decision of this Court in Madhaorao Phalke vs The State of Madhya Bharat and Another (1) decided on October 3, 1960.
+In the course of the judgment of this Court delivered by Gajendragadkar, J., he pointed out: (1) ; 623 "It would thus be seen that though Sir Madhya Rao was gradually taking steps to associate the public with the government of the State and with that object he was establishing institutions consistent with the democratic form of rule, he had maintained all his powers as a sovereign with himself and had not delegated any of his powers in favour of any of the said bodies.
+In other words, despite the creation of these bodies the Maharaja continued to be an absolute monarch in whom were vested the supreme power of th e legislature, the executive and the judiciary. "In dealing with the question as to whether the orders issued by such an absolute monarch amount to a law or regulation having the force of law, or whether they constitute merely administrative orders, it is important to bear in mind that the distinction between executive orders and legislative commands is likely to be merely academic where the Ruler is the source of all power.
+There was no constitutional limitation upon the authority of the Ruler to act in any capacity he liked; he would be the supreme legislature, the supreme judiciary and the supreme head of the executive, and all his orders, how ever issued, would have the force of law and would govern and regulate the affairs of the State including the rights of the citizens.
+"It is also clear that an order issued by an absolute monarch in an Indian State which had the force of law would amount to an existing law under article 372 of the Constitution." From these observations it would be quite clear that the endorsement of the Maharaja on the Guzarish whereby he accepted the recommendation of the Committee about imposing a cess on the sugarcane crushed by the factory amounted to a law, however informal that endorsement may appear to be.
+Since it was a law enacted by the Maharaja then, with the coming into force of the Constitution, it became an existing law under article 372 and thus it satisfies the requirements of article 265 of the Constitution.
+624 Disagreeing with the High Court we therefore hold that the cess was imposed by authority of law.
+What remains to be considered is whether this cess violates the guarantee of equal protection contained in article 14 of the Constitution.
+What was urged Ltd. before the High Court and what was also urged before us was that this is the only sugar factory in the present State of Madhya Pradesh which is liable to pay the cess whereas other sugar factories are exempt therefrom.
+The result of this is that those other sugar factories do not have to pay this cess and are thus better placed in the matter of carrying on their business of manufacturing and marketing of sugar than the respondents and so there is discrimination against the respondents in that respect.
+It seems to us, however, that this cannot be regarded as discrimination at all, even after the formation of the State of Madhya Pradesh.
+The reason is that the difference arises out of the historical background to the imposition of this cess.
+It has recently been held by this Court in M. K. Prithi Rajji vs The State of Rajasthan & Ors (1) decided on November 2, 1960, that geographical classification based upon certain historical factors is a permissible mode of classification.
+In our opinion, the principle underlying that decision would also apply to the present case.
+In view of the decision, Mr. Kapur the learned counsel for the respondents sought to rest his argument on a somewhat different ground.
+That ground is that under the order of June 27, 1946, the respondent factory alone was made liable to pay cess and that no similar liability was imposed upon any other factory in Gwalior.
+It would, however, appear that at that time no other sugar factory was at all in existence in the Gwalior State.
+The respondent factory was the first to be established and for all we know is even today the only sugar factory in the area which formerly constituted the State of Gwalior.
+We have already quoted the letter written by the Economic Adviser to the Gwalior Government addressed to the Management of the Gwalior Sugar Co., Ltd. From that letter it would (1) C.A. NO. 327 of 1956.
+625 appear that the cess was imposed for a definite purpose and that was to expand the cane area in the Harsi commanded region so that the Gwalior Sugar Co., Ltd., that is, the respondent factory would be put on a sound and stable basis.
+It will, therefore, be clear that far from discriminating against the factory, the whole object of the cess was to do something for the benefit of the factory and for the benefit of the sugar industry in the State which was at that date in its infancy.
+Apart from the fact that in the matter of taxation the legislature enjoys a wide discretion, it should be borne in mind that a tax cannot be struck down as discriminatory unless the Court finds that it has been imposed with a deliberate intention of differentiating between an individual and an individual or upon grounds of race, religion, creed, language or the like.
+There was no question of doing anything like this in the year 1946 when no other sugar factory existed in the State of Gwalior.
+The cess was thus good in law when enacted and it has not been rendered void under article 13 by reason of the coming into force of the Constitution on the ground that it violates article 14.
+In our opinion, therefore, both the grounds on which the validity of the cess is challenged are ill conceived and the cess is a perfectly valid one.
+It would, therefore, be competent to the State of Madhya Pradesh to realise that cess from the respondent factory.
+Upon the view we have taken in the matter in C. A. No. 98 of 1957 nothing remains to be considered in C. A. No. 99 of 1957.
+Accordingly we allow the appeal by the State and dismiss that of the respondents.
+The costs of the appeal will be borne by the respondents in C. A. No. 98 of 1957.
+As both the appeals were argued together, there will be only one set of hearing fees.
+Appeal No. 98 allowed.
+Appeal No. 99 dismissed.

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+15 of 1959, 14 of 1960 and 21 of 1959.
+Petitions under article 32 of the Constitution of India for enforcement of Fundamental Rights.
+Frank Anthony and J. B. Dadachanji, for the petitioners (In Petns.
+Nos. 15 and 21 of 1959).
+612 H. J. Umrigar, O. P. Rana and A. G. Ratnaparkhi, for the petitioners (In Petn.
+No. 14 of 1960).
+L. K. Jha and section P. Varma, for the respondent (In Petn.
+No. 15 of 1959).
+C. K. Daphtary, Solicitor General of India, M. Adhikari, Advocate General for the State of Madhya Pradesh and I. N. Shroff, for the respondent (In Petn.
+No. 14 of 1960).
+H. N. Sanyal, Additional Solicitor General of India and C. P. Lal, for the respondent (In Petn.
+No. 21 of 1959).
+November 23.
+The Judgment of the Court was delivered by section K. DAS, J.
+These three writ petitions have been heard together, as they raise common questions of law and fact.
+They relate, however, to three different enactments made by the Legislatures of three different States Bihar in writ petition No. 15, Uttar Pradesh in writ petition No. 21, and Madhya Pradesh in writ petition No. 14.
+The petitioners in the several petitions have challenged the 'validity of a number of provisions of the enactments in question and, in some cases, also of the rules made thereunder.
+The impugned provisions are similar in nature, but are not exactly the same.
+Therefore, we shall first state in general terms the case of the petitioners and then consider in detail and separately the impugned provisions in each case.
+But before we do so, it is necessary to refer to some background history of the legislation under consideration in these cases.
+In the year 1958 this Court had to consider the validity of certain provisions of three Acts: (1) The Bihar Preservation and Improvement of Animals Act, (Bihar Act II of 1956); (2) the Uttar Pradesh Prevention of Cow Slaughter Act, 1955 (U. P. Act 1 of 1956); and (3) the Central Provinces and Berar Animal Preservation Act, 1949 (C. P. and Berar Act LII of 1949).
+The Bihar Act put a total ban on the slaughter of all 613 categories of animals of the species of bovine cattle.
+The U. P. Act put a total ban on the slaughter of cows and her progeny which included bulls, bullocks, heifers and calves.
+The C. P. and Berar Act placed a total ban on the slaughter of cows, male or female calves of cows, bulls, bullocks, and heifers, and the slaughter of buffaloes (male or female, adults or calves) was permitted only under a certificate granted by the proper authorities.
+These three Acts were enacted in pursuance of the directive principle of State policy contained in article 48 of the Constitution.
+The petitioners who challenged the various provisions of the aforesaid Acts in 1958 were engaged in the butcher 's trade and its subsidiary undertakings; they challenged the constitutional validity of the Acts on the ground that they infringed their fundamental rights under articles 14, 19(1)(f) and (g) of the Constitution.
+In the decision which this Court gave in Mohd. Hanif Quareshi vs The State, of Bihar (1), it held (i) that a total ban on the slaughter of cows of all ages and calves of cows and of she buffaloes, male or female, was quite reasonable and valid; (ii) that a total ban on the slaughter of she buffaloes or breeding bulls, or working bullocks (cattle as well as buffaloes) so long as they were capable of being used as milch or draught cattle was also reasonable and valid; and (iii) that a total ban on slaughter of she buffaloes, bulls and bullocks (cattle or buffalo) after they ceased to be capable of yielding milk or of breeding or working as draught animals was not in the interests of the general public and was invalid.
+In the result this Court directed the respondent States not to enforce their respective Acts in so far as they were declared void by it.
+This led to some amending or new legislation, and we are concerned in these three cases with the provisions of these amending or new Acts and the rules made thereunder.
+In Bihar (Writ Petition No. 15 of 1959) the impugned Act is called the Bihar Preservation and Improvement of Animals (1) ; 78 614 (Amendment) Act, 1959 which received the assent of the Governor on January 13, 1959.
+in Uttar Pradesh (Writ Petition No. 21 of 1959) the impugned Act is called the Uttar Pradesh Prevention of Cow Slaughter (Amendment) Act, 1958 and in Madhya Pradesh (Writ Petition No ' 14 of 1960) a new Act was passed called the Madhya Pradesh Agricultural Cattle Preservation Act, 1959 (Act 18 of 1959) which received the assent of the President on July 24, 1959 and came into force on January 15, 1960.
+The rules made there under are called the Madhya Pradesh Agricultural Cattle Preservation Rules, 1959.
+The general case of the petitioners, who are several in number in each of the three cases, is that they are citizens of India and carry on their profession and trade of butchers; they allege that the various provisions of the impugned legislation infringe their fundamental rights in that they, for all practical purposes, have put a total ban on the slaughter of she buffaloes, bulls or bullocks, even after such animals have ceased to be useful, and have virtually put an end to their profession and trade.
+It is pointed out that the age up to which the animals referred to above cannot be slaughtered (20 or 25 years) has been put so high that the practical effect is that no animals can be slaughtered, and the amending or new legislation has put in other restrictions so arbitrary and unreasonable in nature that in effect they amount to a prohibition or destruction of the petitioner 's right to carry on their trade and profession.
+The following allegations quoted from one of the petitions (Writ Petition No. 15 of 1959) give a general idea of the nature of the case which the petitioners have put forward: "That there is good professional authority for the view that even in countries where animal husbandry is organised on a highly progressive and scientific basis, cattle seldom live beyond 15 or 16 years.
+That there is also good authority to the effect that even pedigree breeding bulls are usually discarded at the age of 12 or 14 years.
+, That in India bulls and bullocks and she buffaloes rarely live even up to the age of 15 years; draught bullocks begin to age after eight years, 615 That the raising of the age limit from 15 to 20 years is arbitrary, unreasonable and against the general public interests and is repugnant to and infringes the, fundamental rights of the, petitioners under Article 19 (1)(f) and (g) of the Constitution.
+That section 3 of the amending Act is a mala fide, colourable exercise of power, repugnant to the fundamental rights of the petitioners under Article 19 (1)(f) and (g).
+That this arbitrary raising of the age limit will be against the public interests For the following among ' other reasons: (i) That there will, in fact, be no bulls or bullocks or she buffaloes available for slaughter as few, if any, of such animals survive in India up to the age of 15 years; (ii) that the profession, trade and occupation of millions of Muslims will be permanently and irreparably injured; (iii) that millions of members of the minority communities such as Christians, Scheduled Castes, Scheduled Tribes and Muslims, for whom cattle beef is a staple item of their diet, will be deprived of this diet; (iv) that the menace of the rapidly increasing uneconomic cattle population in such matters as the destruction of crops, being a public nuisance, will be accentuated by this arbitrary age limit, and in effect will ensure that bulls and bullocks cannot be slaughtered; (v) that the menace of the rapidly increasing population of uneconomic cattle to the fodder and other animal food resources of the country will be accentuated.
+(vi) that the competition between the rapidly increasing cattle population, a large percentage I of which is uneconomic and useless, add the human population for available land will be accentuated; (vii) that this piece of legislation will ensure the steady increase of useless bulls and bullocks and must react disastrously against any attempt to improve milk production, bullock power or animal husbandry generally." 616 Similar allegations have been made in the other two petitions also.
+The correctness of these allegations has been con.
+tested on behalf of the respondent States, which through some of their officers have filed affidavits in reply.
+We shall presently examine at greater length the averments made in these affidavits, but we may indicate here in broad outline what their general effect is.
+In Bihar the age below which the slaughter of she buffaloes, bulls and bullocks is prohibited is 25 years.
+The respondent State has taken the plea that the usefulness or longevity of live stock for breeding and other purposes depends to a very great extent on (a) better animal husbandry facilities like feeding and management and (b) control of animal diseases, and as these facilities are now available in a greater measure, the legislature came to the conclusion that a bull or bullock or a she buffalo below 25 years of age continues to remain useful; if a bull, bullock or shebuffalo is permanently incapacitated below that age the impugned provision permits its slaughter and therefore the legislation which is challenged conforms to the decision of this Court and does not violate any fundamental right.
+In Uttar Pradesh the age is 20 years as respects bulls or bullocks, with a further restriction to be referred to later.
+The reply of the res pondent State is that bulls or bullocks do not become unfit at the age of 12 or 14 years as alleged by the petitioners; on the contrary, they continue to be useful and at no time they become entirely useless.
+It is then stated in the affidavit: "As a matter of fact, the age up to which the animals can live and are serviceable depends upon the care and attention they receive and the quality of the grass on which they are grazed. . . . . .According to a high authority the average age of an ox under favourable conditions would be between 15 to 20 years.
+Even under conditions prevailing in Uttar Pradesh, bulls can live upto 20 years or more as would appear from an analysis of a survey report of the animal husbandry department.
+" 617 On these averments the respondent State contends that the legislation is valid.
+In Madhya Pradesh also the age is 20 years.
+The Under Secretary to the( State Government in the Agricultural Department ' has made the reply affidavit in which it has been stated inter alia that conditions in Madhya Pradesh are different from conditions in other States.
+The affidavit then states: "The State of Madhya Pradesh has a total area of 107,589,000 acres, out of which total cropped area is 43,572,000 acres.
+Forest area is 33,443,000 acres, area not available for cultivation is 11,555,000 acres, uncultivated land is 18,405,000 acres and fallow land is 5,834,000 acres.
+It will thus be seen that this State has a large forest area and plenty of grass land for pasturage.
+As the forests supply the greater part of the fuel needs of the human population, the dung of animals is largely available as manure.
+The legislature considered that bulls, bullocks and buffaloes are useful in this State till they are well past twenty years of age and that they should not be slaughtered till they are past that age and are also unfit for work or breeding.
+The problem of animals dying of slow starvation or of worthless animals depriving useful animals of fodder needs no consideration in this State.
+The agricultural community in the State benefits by the existence of animals as long as they are useful.
+" There are also further averments as to the shortage of breeding bulls, working bullocks and she buffaloes in Madhya Pradesh.
+On these averments the contention of the respondent State is that the cattle in that State are useful up to the age of 20 years.
+We have indicated above in general terms the case of the petitioners and the reply which the respondent States have given.
+We proceed now to a detailed consideration of the impugned legislation in each case.
+(1) We take up first the Bihar Preservation and Improvement of Animals (Amendment) Act, 1959 and the rules made under the main Act of 1955.
+Section 3 of the Act as amended reads: "section 3.

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+Appeal No.232 of 1960.
+Appeal from the Judgment and Order dated October 6, 1958, of the Bombay High Court in Income Tax Reference No. 10 of 1958.
+R. J. Kolah, Dwaraka Das, section N. Andley, Rameshwar Nath, J. B. Dadachanji and P. L. Vohra for the Appellants.
+Hardyal Hardy and D. Gupta for the Respondent.
+November 29.
+The Judgment of J. L. Kapur and J. C. Shah, JJ., was delivered by Kapur, J. M. Hidayatullah, J., delivered a separate Judgment.
+KAPUR, J. This is an appeal pursuant to a certificate of the High Court of Bombay against the judgment and order of that Court in Income tax Reference No. 10 of 1958, answering the question referred to it against the assesses whose legal representatives are 744 the appellants before, us, the respondent being the Commissioner of Income tax.
+The facts which have given rise to the appeal are that the late Mr. Annantrai P. Pattani, hereinafter called the assessee was, by Hazur Order dated December 10, 1937, appointed the Chief Dewan of Bhavnagar State.
+On January 15, 1948, the Maharaja of Bhavnagar introduced responsible Government in his State and appointed the assessee as the Chairman of the Bhavnagar Durbar Bank but he received no salary for that post.
+On the same date by another Hazur Order the Maharaja granted a monthly pension of Rs. 2,000 to the assessee.
+The order was in the following terms: "He looked after us well in our childhood and rendered valuable services sincerely and with single minded loyalty to us and our State during extremely difficult period of the last war and thereafter, which has enhanced the prestige and prosperity of the State and given the State and the people a place of pride in India.
+In appreciation of this, it is (hereby) decided to grant him a monthly pension of Rs. 2,000 two thousand which is the monthly salary he is drawing at present.
+Date 22 1 1948.
+" On May 31, 1950, the Maharaja directed Messrs. Premchand Roychand & Sons, Bombay, with whom he had an account "to pay by cheque to Mr. A.P. Pattani Rs. 5 lacs out of the amount lying to the credit of my account with you." This sum was paid to the assessee on June 12, 1950.
+It is stated that the accountant of the Maharaja asked for instructions as to how that amount of Rs. 5 lacs was to be adjusted in the accounts and on December 27, 1950, the Maharaja made the following order: "In consideration of Shri Annantrai P. Pattani the Ex Diwan of our Bhavnagar State having rendered loyal and meritorious services Rs. 5,00,000 (Rupees Five Lacs) are given to him as gift.
+Therefore, it is ordered that the said amount should be debited to our Personal Expense Account." On March 1, 1948, Bhavnagar State was merged in the United States of Saurashtra and the Maharaja ceased to be the ruler of the said State as from that 745 date.
+The assessability of this sum of Rs. 5 lacs was raised in the course of the assessment proceedings for the assessment year 1951 52 and at the request of the ' assessee which is stated to be oral the Maharaja wrote on March 10, 1953, the following: "I confirm that in June 1950, 1 gave you a sum of rupees five lacs (Rs. 5,00,000) which wag a gift as a token of my affection and regard for you and your family.
+This amount was paid to you by Premchand Roychand & Sons according to my letter of 31st May, 1950, from moneys in my account with them.
+" On these facts the Income tax Officer held that Rs. 5,00,000 received on June 12, 1950, was liable to income tax under section 7(1) read with explanation (2) of that section as it stood before the amendment by the Finance Act, 1955.
+The assessee took an appeal to the Appellate Assistant Commissioner which was dismissed.
+Against that order an appeal was taken to the Income tax Appellate Tribunal but the Tribunal also dismissed the appeal.
+The Tribunal held that looking to the circumstances they would attach more importance to the "contemporaneous document, i.e., the order of the 27th December, 1950"; which clearly mentioned why the sum of Rs. 5,00,000 was paid to the assessee.
+The Tribunal was not inclined to "believe in the contents of that letter and would leave the matter at that.
+" The reference is to the letter of the Maharaja dated March 10, 1953.
+The Tribunal further held that there was no distinction between the Maha raja and the State and "assuming for a moment that this view of ours is not found to be correct, still it is clear from the Huzur Order No. 13 dated 22 1 1948 (vide para 2 above) that the assessee rendered services not only to the State, if it is distinct from the Maharaja but to the Maharaja as well; for that Huzur Order clearly refers to assessee rendering "valuable services sincerely and conscientiously to us and our State".
+We would, therefore, hold that the amount of Rs. 5 lacs is a taxable receipt falling under Section 7(1) read with Explanation 2.
+" At the instance of the assessee the following question of law was referred to the High Court: 746 "Whether the sum of Rs. 5 lacs has been properly ,brought to tax in the hands of the assessee for the assessment year 1951 52?" and a further question as to the applicability of section 4(3) (vii) of the Income tax Act was not referred on the ground that it did not arise out of the order of the Tribunal.
+The High Court, on the findings given by the Tribunal came to the conclusion that section 7(1) explanation (2) of the Income tax Act applied.
+It held that it was not possible to regard the receipt of this sum of money by the assessee as a windfall nor as a personal gift of the nature of a testimonial; that the gift was not made in appreciation of the personality or character of the assessee nor was it symbolical of its appreciation of his personal qualities; that the consideration for the gift was in terms stated to be past services and therefore it could not be treated as a mere gift by an employer to an employee when the Court did not know what motivated the making of that gift.
+On the facts of the case the High Court reached the conclusion, though with some reluctance, that the case fell within the ambit of section 7(1), Explanation (2).
+The High Court also held that this sum could not be exempted from tax on the ground that it was merely a casual or nonrecurring receipt because once connection with the employment was established there was no question of considering the recurring or the casual nature of the receipt.
+During the pendency of the proceedings in the High Court the assessee died and his heirs and legal representatives were brought on the record and hence they are the appellants.
+It was argued on behalf of the appellants that the facts showed that the sum paid cannot fall within section 7(1), Explanation (2), of the Income tax Act.
+By Hazur Order dated January 22, 1948, the Maharaja had compensated the assessee for valuable services rendered and single minded loyalty to the Maharaja and to his State during the difficult period of the war and thereafter, which had added to the prestige and prosperity of the State and in appreciation of that the 747 Maharaja had granted to the assessee a monthly pension of Rs. 2,000, which was paid to the assessee even after the merger and of the establishment of the United States of Saurashtra from out of the public revenue.
+At the time when Rs. 5,00,000 were paid, the State of Bhavnagar as such had ceased to exist.
+The Maharaja was no longer a Ruling Chief but was the Governor of the State of Madras.
+The order by which Messrs. Premchand Roychand & Sons, Bombay, were directed to pay the sum of Rs. 5,00,000 out of the account of the Maharaja does not mention any reason for payment.
+When as is alleged an accountant of the Maharaja asked as to how that amount of Rs. 5,00,000 was to be adjusted in the accounts, the Maharaja wrote on December 27, 1950, what is described as an order and directed that the sum should be debited to his Personal Expense Account.
+It also stated, why it is not clear, that that sum was to be given to the assessee in consideration of the assessee 's loyal and meritorious services as a gift.
+When asked later to clarify the reasons for making this gift the Maharaja made it clear that the gift was as a token of affection and regard for the assessee and his family and that the amount was paid by Messrs. Premchand Roychand & Sons from out of the private monies of the Maharaja with that firm.
+The Income tax Appellate Tribunal took into account the two documents the first of which has been described as an order of December 27, 1950, which was treated as a "contemporaneous document" and the other the letter of March 10, 1953, which was about two years later.
+The Tribunal did not accept the correctness of what was stated in the letter but attached a great deal of importance to the document of December 27, 1950, which the Tribunal thought was a con temporaneous document.
+It appears to us that the Tribunal was in error in treating the document of December 27, 1950, as a contemporaneous document and because of this erroneous approach the finding that it has given cannot be treated as a finding of fact which should bind the court in its decision.
+It is obvious that the reason why the 748 Tribunal attached all this importance to the document of December 27, 1950, was that it was contemporaneous.
+It would be difficult to accept that a document written six months after the fact of payment could be termed as contemporaneous document particularly when the object of that document was only to instruct an accountant as to how he should make a particular entry.
+The letter which was written by the Maharaja on March 10, 1953, was rejected because of the circumstances of the case one of which was the contemporaneous document.
+It does not appear to us that the Tribunal gave sufficient or any consideration to the fact that the Maharaja had already passed an order of a liberal and almost generous grant of a pension of Rs. 2,000 per mensem which was in lieu of the services rendered by the assessee both to the State as well as to the Maharaja and his family and that pension was ordered before the merger of the State and when the employment of the assessee as the Dewan terminated.
+According to what was stated in the letter of the Maharaja dated March 10, 1953, the sum of Rs. 5,00,000 was given as a gift in token of Maharaja 's affection and regard for the assessee and the assessee 's family.
+There is no reason shown why the Maharaja should have aided and abetted the assessee in escaping income tax.
+The only reason stated by the Tribunal is based on a wrong assumption as to the nature of the document of December 27, 1950.
+The payment of Rs. 5,00,000 was sought to be brought within the purview of section 7(1) of the Act read with explanation (2).
+This section at the relevant time provided: section 7(1) "The tax shall be payable by an assessee under the head "Salaries" in respect of any salary or wages, any annuity, pension or gratuity and any fees, commissions, perquisites or profits in lieu of, or in addition to, any salary or wages, which are due to him from; whether paid or not or are paid by or on behalf of. . . any private employer. . . . .
+Explanation 2: A payment due to or received by 749 an assessee from an employer or former employer or from a provident or other fund, is to the extent to, which it does not consist of contributions by the ', assessee or interest on such contributions a profit received in lieu of salary for the purpose of this subsection, unless the payment is made solely as compensation for loss of employment and not by way of remuneration for past services;. . . .
+Counsel for the appellants contended that the payment did not fall within this section because it was a gift made on account of personal qualifications and was a testimonial unconnected with any service rendered.
+The submission was that the assessee had already been compensated for his services to the Maharaja personally and the State and this sum of Rs. 5 lacs was a gift in token of affection and regard and not as a payment in consideration of the services already rendered to the State or the Maharaja or both.
+It will not be inappropriate to mention that in the document dated December 27, 1950, it is stated that Rs. 5,00,000 was paid to the assessee as ex Dewan of Bhavnagar State in consideration of his having rendered loyal and meritorious services to Bhavnagar State.
+There is no mention in the document of December, 1950, of any services rendered to the Maharaja and it does not seem to have been considered by the Tribunal as to why the Maharaja should make out of his personal account the gift of such a large amount for something which was not done for the Maharaja specifically, particularly when the services to the State and to the Maharaja and his family had already been well compensated.
+This lends support to the submission of the appellants that the amount was paid merely as a gift in token of Maharaja 's affection and regard for the assessee.
+Mr. Kolah for the appellants relied on several cases in support of his contention that the amount was not liable to tax under section 7.
+In Beynon vs Thorpe (1) the assessee resigned his position as a Managing Director of the Company; did no work for the company; did (1) 95 750 not attend any Board meetings and received no remuneration as a Director of the Company.
+It was, however, a custom of the company to give to its retiring employees voluntary pension or allowance and the company voted a pension of pound 5,000 a year to the assessee but this resolution was rescinded and by another resolution pound 5,000 was voted to the assessee" not as or because he is a Director but as a personal gift".
+The assessee was assessed under Schedule 'E ' in respect of both the pension and the final payment but these assessments were discharged on appeal by the Special Commissioners who decided that the allowances were gifts of personal nature only.
+It was hold that the payments were not income assessable to income tax in the hands of the assessee.
+Rowlatt, J., said at p. 14: "Now the question is whether this ceases to be a mere gift because what has led to it is a past employment, an employment which has ceased.
+It has been made abundantly clear by the Court in Scotland in Duncan 's case(1) that this sort of sums received by a person cannot possibly be put as receipts from his office or in respect of his office or employment, and they said in terms of that kind in a case like this that these emoluments cannot be taxed under Schedule 'E ', and I am bound to say I think that goes a very long way to conclude this case.
+But it is said that nevertheless they are in respect of the employment.
+Well, it seems to me that is a complete fallacy.
+It is nothing but a gift moved by the remembrance of past services already efficiently remunerated as services in themselves; it is merely a gift moved by that sort of gratitude or that sort of moral obligation if you please: it is merely a gift of that kind.
+In this ease it happens to be very large; in many cases it is very small, but in all the cases it seems to me, whether it is large gift like this or whether it is a small gift to a humble servant they are exactly on the same footing as gifts which are made to a child or gifts which are made to any other person whom the giver thinks he ought to supply with funds for one reason or another; and as the (1) 751 Lord President in Scotland points out it is only a matter of history that the feeling between the parties which has generated the gift arises out of an employment."
+Mr. Kolah also relied on Reed vs Seymour (1).
+In that case a committee of a Cricket Club granted a benefit match to a professional cricketer in their service.
+Out of the profits of the benefit match the beneficiary, who was the assessee purchased a farm and assessment was made on him under Schedule 'E ' in respect of the proceeds of the benefit match but this was discharged by the General Commissioner on appeal.
+This sum was held to be in the nature of a personal gift and not assessable *to income tax.
+Viscount Cave in his speech posed the question which Rowlatt, J., put, i.e., "is it in the end a personal gift or is it remuneration"; if the latter it is subject to tax, if the former it is not.
+In that case the test applied by Viscount Cave was that the terms of the assessee 's employment did not en title him to a benefit; the purpose for which the amount was paid was to express gratitude of the employers and of the cricket loving public for what he had done and in their appreciation of his personal qualities.
+It was also stated that if the benefit had taken place after Seymour 's retirement no one would have sought to tax the proceeds as his income and the circumstance that it was given before but in contemplation of, retirement does not alter its quality and the whole sum was a testimonial and not a perquisite and therefore it was not a remuneration for services but a personal gift.
+Counsel also relied on Moorehouse vs Dooland (2).
+In that case a cricket professional was employed under a contract in which it was provided that collections shall be made for any meritorious performance by him in accordance with the rules for the time being of the employing Cricket League Club.
+The assessee played twenty matches and on eleven occasions collections were made on his behalf under the rules of the Club and a total sum of pound 48 15s was collected.
+This was sought to be taxed as fees, wages perquisites or profits (1) [1927] XI T.C. 625.(2) 752 arising from his employment.
+It was held that (1) the test of liability to tax on voluntary payments from the standpoint of the person who receives it was that it accrued to him by virtue of his office or employment, i.e., byway of remuneration of his services; (2) that if the assessee 's contract of employment entitled him to receive voluntary payments and (3) that the payment was of a periodic and recurring character.
+On the other hand if a voluntary payment was made in circumstances which showed that it was given by way of a present or a testimonial on grounds personal to the recipient, the proper conclusion was that the payment was not profit accruing to the recipient by virtue of his office or employment but a gift to him as an individual paid and received by reason of his personal needs or by reason of his personal qualities.
+Applying these principles the proceeds were by the terms of the contract of employment received by way of remuneration and were liable to tax.
+In that case the payment was treated as being subject to tax because it was substantially in respect of services and accrued to the assessee by reason of his office.
+It is quite clear that had the gift been as a testimonial or a contribution for specific performance peculiarly due to the personal qualities of the recipient, it would have been treated as a mere present.
+The next case relied upon was David Mitchell vs Commissioner of Income tax (1) where the test laid was whether the payment was made in appreciation of .the personality and character of the assessee or in appreciation of the professional services rendered by him in order to give him an extra profit over and above the share of profit he might get from the firm for the services rendered.
+Counsel for the respondent argued that the gift made by the Maharaja was not in respect of personal qualities of the recipient but was relatable to his office although made by an ex employer and was therefore taxable; that the gift was voluntary is clear but it is not quite clear how the amount can be said to be relatable to the office held by the recipient.
+Even (1) 753 according to the case of the respondent the amount was paid about two years after the assessee had ceased to be an employee of the Maharaja or the State and immediately on his ceasing to be the Dewan of Bhavnagar State, the Maharaja had granted him a pension from out of the public funds for his services to the State as Dewan and for services rendered to the Maharaja and his family a handsome and a generous monthly pension of Rs. 2,000 per mensem.
+Apart from the fact that the Tribunal relied upon a document which was not contemporaneous, it seems to have overlooked the fact that there was a gap of two years before the amount of Rs. 5,00,000 was paid by the Maharaja out of his personal funds.
+Counsel for the respondent relied upon a judgment of this Court in P. Krishna Xenon vs The Commissioner of Income tax, Mysore, Travancore Cochin and Coorg, Bangalore (1).
+In that case the assessee was a teacher who taught his disciples Vedanta philosophy without any motive or intention of making any profit.
+One of the disciples made gifts of money to him on several occasions and it was contended by the assessee that he was not liable to tax on the amounts received from his disciple as he was not carrying on any vocation.
+But it was held that in teaching Vedanta philosophy the assessee was carrying on a vocation and that the payments made by the disciple were received by the recipient from his vocation.
+It was also held that if the voluntary payments had been made for reasons purely personal to the donee and not connected with his office or vocation, they would not be taxable but if they were made because of the office they would be taxable.
+The question was not what the donor thought he was doing but why the donee received it.
+The first thing to notice about that case is that those gifts were not made by the disciple as a gift to mark his esteem and affection for his preceptor but as was stated by the disciple in his affidavit he had paid those amounts because he had obtained the benefit of the teachings by the preceptor on Vedanta.
+It was found in that case and the disciple admitted (1) [1959] Supp. 1 S.C.R. 133. 754 that he had received benefit from the teaching of his preceptor and that the gifts that he had made, even though as a mark of esteem and affection, were the result of teaching imparted by the preceptor and because the amounts were paid to the preceptor as preceptor and the imparting of the teaching was the causa causans of the making of the gift,; it was not merely causa sine qua non.
+The payments were repeated and came with some regularity as the disciple visited the preceptor for receiving instructions.
+It was in these circumstances that this court held the payments to the preceptor as payments because of the imparting of the teaching and therefore they were income arising from the vocation of the recipient as a teacher of Vedanta philosophy.
+In our opinion the sum of Rs. 5,00,000 was not paid to the assessee in token of appreciation for the services rendered as a Dewan of Bhavnagar State but as a personal gift for the personal qualities of the assessee and as a token of personal esteem.
+The appeal is therefore allowed and the order of the High Court set aside and the reference is answered against the Commissioner of Income tax.
+The appellants will have their costs throughout.
+HIDAYATULLAH, J. I have had the advantage of reading the judgment just delivered by my brother, Kapur, J.
+I regret very much my inability to agree that the appeal should be allowed and the order of the High Court set aside.
+In my opinion, the High Court had correctly answered the question referred to it.
+The facts of the case have been stated in detail in the judgment of my learned brother, and I need not repeat them but refer only to some of them briefly.
+On June 12, 1950, a sum of Rs. 5 lakhs was given by the Maharaja of Bhavnagar to the predecessor of the appellants, who was an ex Dewan of the State.
+This was paid by Messrs. Premchand Roychand & Sons, Bombay, with whom the Maharaja had an account.
+There is no contemporaneous record to show why this payment was made; but it appears that when the accountant of the Maharaja enquired how the amount 755 was to be entered in the books of account, the Maharaja issued an order on December 27, 1950, to the following effect: "In consideration of Shri Annantrai P. Pattani the Ex Diwan of our Bhavnagar State having rendered loyal and meritorious services Rs. 5,00,000 (Rupees Five lacs) are given to him as gift.Therefore, it is ordered that the said amount should be debited to our Personal Expense Account."
+After the assessment proceedings had commenced in this case, the original assessee produced a letter written by the Maharaja on March 10, 1953, as follows: "I confirm that in June, 1950, I gave you a sum of rupees five lacs (Rs. 5,00,000) which was a gift as a token of my affection and regard for you and your family.This amount was paid to you by Premchand Roychand & Sons according to my letter of 31st May, 1950, from moneys in my account with them."
+The question in this case was whether section 7(1) of the Income tax Act read with Explanation 2 to that section as it stood prior to the amendment in 1955, applied to this payment.
+That section, so far as it is material, is as follows: "7(1).The tax shall be payable by an assessee under the head 'Salaries ' in respect of any salary or wages, any annuity, pension or gratuity and any fees, commissions, perquisites or profits in lieu of, or in addition to, any salary or wages, which are allowed to him by or are due to him, whether paid or not, from, or are paid by or on behalf of any private employer;. . . . .
+Explanation 2. A payment due to or received by an assessee from an employer or former employer or from a provident or other fund, is to the extent to which it does not consist of contributions by the assessee or interest on such contributions a profit received in lieu of salary for the purpose of this subsection, unless the payment is made solely as compensation for loss of employment and not by way of remuneration for past services;. . .".
+To determine whether the second Explanation applies 756 to the facts in this case, it has to be found if this pay ment was received by the assessee from a former employer by way of remuneration for past services.
+The Tribunal did not accept the letter of the Maharaja, and observed as follows: "In support of the latter view Mr. Tricumdas strongly relied upon the letter dated 10 3 1953 addressed by the Maharaja to the assessee, vide para 2 above.
+We have already indicated the circumstances in which that letter came to be written and would merely observe that we find it difficult to bring ourselves to believe in (sic) the contents of that letter and would leave the matter at that.
+" This, in my opinion, is a finding upon the evidentiary value of the letter of the Maharaja, and though the order of the Tribunal is worded mellifluously, the Tribunal 's decision is quite clearly that it was not per suaded to accept it.
+Indeed, of the two documents, greater worth has to be attached to one which was issued before the controversy started and was written not to the assessee but to the Maharaja 's accountant who enquired how the account was to be adjusted.
+The use of the word 'contemporaneous ' to describe the order to the accountant meant no more than this that it was earlier in time and very soon after the amount was given.
+The Tribunal did not rely on any extra neous evidence in reaching its conclusion, but on something which had proceeded from the Maharaja himself.
+The motive of the Maharaja may be irrelevant, because what has to be seen is not why the payment was made but for what the assessee had received it.
+The Maharaja no doubt had been generous in fixing the pension at Rs. 2,000 per month.
+But the payment of such a large sum was not just bounty but to reward the past services, which judged from the scale of the pension had not adequately been paid for in the past.
+In this connection, the words of the Maharaja himself (and what better evidence can there be?) were that the amount was paid "in consideration of Shri Annantrai P. Pattani the Ex Dewan of our Bhavnagar State having rendered loyal and meritorious services Rs. 5,00,000 are given to him as gift".
+757 The word gift ' does not alter the nature of the payment.
+The Maharaja indeed made a gift, as he had stated over again; but this order quite clearly disclosees that it was by way of remuneration for past services.
+The case, therefore, falls within the ruling of the a Supreme Court reported in P. Krishna Menon vs The Commissioner of Income tax, Mysore, Travancore Cochin and Coorg, Bangalore (1), and is indistinguishable from it.
+In the earlier case of this Court, the person who gave the money did not even mention any past services; but this Court found that because the recipient had taught him Vedanta philosophy, the payment was really in the nature of remuneration for past services.
+The facts in P. Krishna Menon 's case (1) were that the assessee was teaching his disciples Vedanta philosophy without any motive or intention of making a profit out of such activity.
+One J. H. Levy who used to go to Travancore from England at intervals attended his teachings.
+Levy had an account with Lloyd 's Bank at Bombay, and on December 31, 1944, Levy transferred the entire amount of Rs. 2,41,103 11 3 to the credit of an account which Levy got the assessee to open in his ' own name.
+Levy made further remittances and by August 19, 1951, had paid about Rs. 4,50,000.
+It was held by this Court that the assessee was carrying on a vocation.
+In deciding the question whether the amounts were assessable to tax, this Court observed as follows: ". it seems to us that the present case is too plain to require any authority.
+The only point is, whether the moneys were received by the appellant by virtue of his vocation.
+Mr. Sastri contended that the facts showed that the payments were purely personal gifts.
+He drew our attention to the affidavit of Levy where it is stated 'all sums of money paid into his account by me have been gifts to mark my esteem and affection for him and for no other reason '.
+But Levy also there said, 'I have had the benefit of his teachings on Vedanta '.
+It is important to remember however that the point is not what the donor (1) [1959] Supp.1 S.C.R. 133.96 758 thought he was doing but why the donee received it".
+Sarkar, J., then referred to the dictum of Collins, M. R., in Herbert vs Mc Quade (1), which may be quoted here: "Now that judgment, whether or not the particular facts justified it, is certainly an affirmation of a principle of law that a payment may be liable to income tax although it is voluntary on the part of the persons who made it, and that the test is whether, from the standpoint of the person who receives it, it accrues to him in virtue of his office; if it does, it does not matter whether it was voluntary or whether it was compulsory on the part of the persons who paid it.
+That seems to me to be the test; and if we once get to this that the money has come to or accrued to, a person by virtue of his office it seems to me that the liability to income tax is not negatived merely by reason of the fact that there was no legal obligation on the part of the persons who contributed the money to pay it." The learned Judge also referred to the observations of Rowlatt, J., in Reed vs Seymour (2) and of Viscount Cave, L. C., in Seymour vs Reed (3), and observed that the real question was, is the payment in the nature of a personal gift or is it a remuneration?, and quoted as the reply the words of the Lord Chancellor "If the latter, it is subject to the tax; if the former, it is not." Sarkar, J., also referred to the observations of Lord Ashbourne in Blakiston vs Cooper (4), which were: "It was suggested that the offerings were made as personal gifts to the Vicar as marks of esteem and respect.
+Such reasons no doubt played their part in obtaining and increasing the amount of the offerings, but I cannot doubt that they were given to the vicar as vicar and that they formed part of the profits accruing by reason of his office.", and concluded as follows: "We have no doubt in this case that the imparting (1) (3) (2) (4) [1909] A.C. 104.
+759 of the teaching was the causa causans of the making of the gift; it was not merely a causa sine qua non.
+The payments were repeated and came with the same regularity as Levy 's visits to the appellant for receiving instructions in Vedanta.
+We do not feel impressed by Mr. Sastri 's contention that the first payment of Rs. 2,41,103 11 3 was too large a sum to be paid as consideration.
+In any case, we are not concerned in this case with that payment.
+We are concerned with payments which are of much smaller amounts and as to which it has not been said that they were too large to be a consideration for the teaching.
+And one must not forget that these are cases of voluntary payments and the question of the appraisement of the value of the teaching received in terms of money is not very material.
+If the first payment was too big to have been paid for the teaching received, it was too big to have been given purely by way of gift.
+" In my opinion, the case of this Court concludes the matter, and the Tribunal was within its rights in accepting one piece of evidence in preference to another, and the finding on the evidentiary value of the letter of the Maharaja was a matter essentially for the Tribunal to decide finally.
+I thus agree with the High Court in the answer which it gave, in agreement on facts with the Tribunal, and the reasons for which the answer was given.
+I would, therefore, dismiss the appeal with costs.
+BY COURT: In view of the majority judgment of the Court, the appeal is allowed with costs throughout.
+Appeal allowed.

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+Appeal No. 517 of 1958.
+Appeal from the judgment and order dated October 31, 1957, of the Kerala High Court in O. P. No. 215 of 1957.
+G. B. Pai and Sardar Bahadur, for the appellant.
+Hardyal Hardy and D. Gupta, for the respondents.
+November 29.
+The Judgment of the Court was delivered by SHAH, J.
+C. A. Abraham hereinafter referred to as the appellant and one M. P. Thomas carried on business in food grains in partnership in the name and style of M. P. Thomas & Company at Kottayam.
+M. P. Thomas died on October 11, 1949.
+For the account years 1123, 1124 and 1125 M.E. corresponding to August 1947 July 1948, August 1948 July 1949 and August 1949 July 1950, the appellant submitted as a partner returns of the income of the firm as an unregistered firm.
+In the course of the assessment proceedings, it was discovered that the firm had carried on transactions in different commodities in fictitious names and had failed to disclose substantial income earned therein.
+By order dated November 29, 1954, the Income Tax Officer assessed the suppressed income of the firm in respect of the assessment year 1124 M.E. under the Travancore Income Tax Act and in respect of assessment years 1949 50 and 1950 51 under the Indian Income Tax Act and on the same day issued notices under section 28 of the Indian Income Tax Act in respect of the years 1949 50 and 1950 51 and 767 under section 41 of the Travancore Income Tax Act for the year 1124 M.E., requiring the firm to show cause why penalty should not be imposed.
+These notices were served upon the appellant.
+The Income Tax Officer after considering the explanation of the appellant imposed penalty upon the firm, of Rs. 5,000 in respect of the year 1124 M. E., Rs. 2,O00 in respect of the year 1950 51 and Rs. 22,000 in respect of the year 1951 52.
+Appeals against the orders passed by the Income Tax Officer were dismissed by the Appellate Assistant Commissioner.
+The appellant then applied to the High Court of Judicature of Kerala praying for a writ of certiorari quashing the orders of assessment and imposition of penalty.
+It was claimed by the appellant inter alia that after the dissolution of the firm by the death of M. P. Thomas in October, 1949, no order imposing a penalty could be passed against the firm.
+The High Court rejected the application following the judgment of the Andhra Pradesh High Court in Mareddi Krishna Reddy vs Income Tax Officer, Tenali (1).
+Against the order dismissing the petition, this appeal is preferred with certificate of the High Court.
+In our view the petition filed by the appellant should not have been entertained.
+The Income Tax Act provides a complete machinery for assessment of tax and imposition of penalty and for obtaining relief in respect of any improper orders passed 'by the Income Tax authorities, and the appellant could not be permitted to abandon resort to that machinery and to invoke the jurisdiction of the High Court under article 226 of the Constitution when he had adequate remedy open to him by an appeal to the Tribunal.
+But the High Court did entertain the petition and has also granted leave to the appellant to appeal to this court.
+The petition having been entertained and leave having been granted, we do not think that we will be justified at this stage in dismissing the appeal in limine.
+On the merits, the appellant is not entitled to relief.
+The Income Tax Officer found that the appellant had, with a view to evade payment of tax, (1) 768 deliberately concealed material particulars of his income.
+Even though the firm was carrying on transactions in food grains in diverse names, no entries in respect of those transactions in the books of account were posted and false credit entries of loans alleged to have been borrowed from several persons were made.
+The conditions prescribed by section 28(1)(c) for imposing penalty were therefore fulfilled.
+But says the appellant, the assessee firm had ceased to exist on the death of M. P. Thomas, and in the absence of a provision in the Indian Income Tax Act whereby liability to pay penalty may be imposed after dissolution against the firm under section 28(1)(c) of the Act, the order was illegal.
+Section 44 of the Act at the material time stood as follows: "Where any business,. carried on by a firm. has been discontinued . every person who was at the time of such discontinuance . a partner of such firm,. shall in respect of the income, profits and gain of the firm be jointly and severally liable to assessment under Chapter IV for the amount of tax payable and all the provisions of Chapter IV shall, so far as may be, apply to any such assessment.
+" That the business of the firm was discontinued because of the dissolution of the partnership is not disputed.
+It is urged however that a proceeding for imposition of penalty and a proceeding for assessment of income tax are matters distinct, and section 44 may be resorted to for assessing tax due and payable by a firm business whereof has been discontinued, but an order imposing penalty under section 28 of the Act cannot by virtue of section 44 be passed.
+Section 44 sets up machinery for assessing the tax liability of firms which have discontinued their business and provides for three consequences, (1) that on the discontinuance of the business of a firm, every person who was at the time of its discontinuance a partner is liable in respect of income, profits and gains of the firm to be assessed jointly and severally, (2) each partner is liable to pay the amount of tax payable by the firm, and (3) that the provisions of Chapter, so far as may be, apply to such assessment.
+The liability declared by section 44 is 769 undoubtedly to assessment under Chapter IV, but the expression "assessment" used therein does not merely mean computation of income.
+The expression "assessment" as has often been said is used in the Income Tax Act with different connotations.
+In Commissioner of Income Tax, Bombay Presidency & Aden vs Khemchand Ramdas (1), the Judicial Committee of the Privy Council observed: "One of the peculiarities of most Income tax Acts is that the word "assessment" is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the tax payer.
+The Indian Income tax Act is no exception in this respect. . ".
+A review of the provisions of Chapter IV of the Act sufficiently discloses that the word "assessment" has been used in its widest connotation in that chapter.
+The title of the chapter is "Deductions and Assessment".
+The section which deals with assessment merely as computation of income is section 23; but several sections deal not with computation of income, but determination of liability, machinery for imposing liability and the procedure in that behalf.
+Section 18A deals with advance payment of tax and imposition of penalties for failure to carry out the provisions there in.
+Section 23A deals with power to assess individual members of certain companies on the income deemed to have been distributed as dividend, section 23B deals with assessment in case of departure from taxable territories, section 24B deals with collection of tax out of the estate of deceased persons; section 25 deals with assessment in case of discontinued business, section 25A with assessment after partition of Hindu Undivided families and sections 29, 31, 33 and 35 deal with the issue of demand notices and the filing of appeals and for reviewing assessment and section 34 deals with assessment of incomes which have escaped assessment.
+The expression "assessment" used in these sections is not used merely in the sense of computation of income and there is in our judgment no ground for holding (1) 770 that when by section 44, it is declared that the partners or members of the association shall be jointly and severally liable to assessment, it is only intended to declare the liability to computation of income under section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof.
+Nor has the expression, "all the provisions of Chapter IV shall so far as may be apply to such assessment" a restricted content: in terms it says that all the provisions of Chapter IV shall apply so far as may be to assessment of firms which have discontinued their business.
+By section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest contumacious conduct of the assessee.
+It is true that this liability arises only if the Income tax Officer is satisfied about the existence of the conditions which give him jurisdiction and the quantum thereof depends upon the circumstances of the case.
+The penalty is not uniform and its imposition depends upon the exercise of discretion by the Taxing authorities; but it is imposed as a part of the machinery for assessment of tax liability.
+The use of the expression "so far as may be" in the last clause of section 44 also does not restrict the application of the provisions of Chapter IV only to those which provide for computation of income.
+By the use of the expression "so far as may be" it is merely intended to enact that the provisions in Ch.
+IV which from their nature have no application to firms will not apply thereto by virtue of section 44.
+In effect, the Legislature has enacted by section 44 that the assessment proceedings may be commenced and continued against a firm of which business is discontinued as if discontinuance has not taken place.
+It is enacted manifestly with a view to ensure continuity in the application of the machinery provided for assessment and imposition of tax liability notwithstanding discontinuance of the business of firms.
+By a fiction, the firm is deemed to continue after discontinuance for the purpose of assesment under Chapter IV.
+The Legislature has expressly enacted that the provisions of Chapter IV shall apply to the assessment of 771 a business carried on by a firm even after discontinuance of its business, and if the process of assessment includes taking steps for imposing penalties, the plea that the Legislature has inadvertently left a lacuna in the Act stands refuted.
+It is implicit in the contention of the appellant that it is open to the partners of a firm guilty of conduct exposing them to penalty under section 28 to evade penalty by the simple expedient of discontinuing the firm.
+This plea may be accepted only if the court is compelled, in view of unambiguous language, to hold that such was the intention of the Legislature.
+Here the language used does not even tend to such an interpretation.
+In interpreting a fiscal statute, the court cannot proceed to make good deficiencies if there be any: the court must interpret the statute as it stands and in case of doubt in a manner favourable to the tax payer.
+But where as in the present case, by the use of words capable of comprehensive import, provision is made for imposing liability for penalty upon tax payers guilty of fraud, gross negligence or contumacious conduct, an assumption that the words were used in a restricted sense so as to defeat the avowed object of the Legislature qua a certain class will not be lightly made.
+Counsel for the appellant relying upon Mahankali Subbarao vs Commissioner of Income Tax (1), in which it was held that an order imposing penalty under section 28(1)(c) of the Indian Income Tax Act upon a Hindu Joint Family after it had disrupted, and the disruption was accepted under section 25A(1) is invalid, because there is a lacuna in the Act, submitted that a similar lacuna exists in the Act in relation to dissolved firms.
+But whether on the dissolution of a Hindu Joint Family the liability for penalty under section 28 which may be incurred during the subsistence of the family cannot be imposed does not fall for decision in this case: it may be sufficient to observe that the provisions of section 25A and section 44 are not in pari materia.
+In the absence of any such phraseology in section 25A as is used in section 44, no real analogy between the content of that section and section 44 may be assumed.
+Undoubtedly, (1) 772 by section 44, the joint and several liability which is declared is liability to assessment in respect of income, profits or gains of a firm which has discontinued its business, but if in the process of assessment of income, profits or gains, any other liability such as payment of penalty or liability to pay penal interest as is provided under section 25, sub section
+(2) or under section 18A sub sections
+(4), (6), (7), (8) and (9) is incurred, it may also be imposed, discontinuation of the business notwithstanding.
+In our view, Chief Justice Subba Rao has correctly stated in Mareddi Krishna Reddy 's case (supra) that: "Section 28 is one of the sections in Chapter IV.
+It imposes a penalty for the concealment of income or the improper distribution of profits.
+The defaults made in furnishing a return of the total income, in complying with a notice under sub section
+(4) of section 22 or sub section
+(2) of section 23 and in concealing the particulars of income or deliberately furnishing inadequate particulars of such income are penalised under that section.
+The defaults enumerated therein relate to the process of assessment.
+Section 28, therefore, is a provision enacted for facilitating the proper assessment of taxable income and can properly be said to apply to an assessment made under Chapter IV.
+We cannot say that there is a lacuna in section 44 such as that found in section 25A of the Act.
+We are unable to agree with the view expressed by the Andhra Pradesh High Court in the later Full Bench decision in Commissioner of Income Tax vs Rayalaseema Oil Mills (1), which purported to overrule the judgment in Mareddi Krishna Reddy 's case (supra).
+We are also unable to agree with the view expressed by the Madras High Court in section V. Veerappan Chettiar vs Commissioner of Income Tax, Madras (2).
+In the view taken by us, the appeal fails and is dismissed with costs.
+(1) Appeal dismissed.

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+Appeals Nos. 490 and 491 of 1958.
+Appeals from the judgment and decree dated February 18, 1955, of the Madras High Court in Second Appeals Nos.
+2038 and 2039 of 1950.
+N. R. Raghavachariar, M. R. Krishnaswami and T. V. R. Tatachari, for the appellant.
+R. Ganapathi Iyer and D. Gupta, for the respondent.
+November 29.
+The Judgment of the Court was delivered by KAPUR, J.
+Two suits were brought by the appellants for a declaration against the levy of sales tax by the State of Madras and an injunction was also prayed for.
+Both the suits were decreed by the Subordinate Judge of Salem and the decrees were confirmed on appeal by the District Judge of Salem.
+Two appeals were taken to the High Court by the State of Madras against those decrees and by a judgment dated February 18, 1955, the decrees were set aside by a common judgment.
+Against these decrees the appellants have brought these appeals by a certificate of that Court.
+The appellants are merchants dealing in cotton yarn.
+They obtained a license under section 5 of the Madras General Sales Tax Act (Act IX of 1939), hereinafter referred to as the 'Act '.
+This license exempted 738 them from assessment to sales tax under section 3 of the Act on the sale of cotton yarn and on handloom cloth "subject to such restrictions and conditions as may be prescribed including conditions as to license and license fees".
+The license was issued on March 31,1941, and was renewed for the following years.
+On September 20, 1944, the Commercial Tax Authorities made a surprise inspection of the premises of the appellants and discovered that they were maintaining two separate sets of account on the basis of one of which the appellants submitted their returns to the Department.
+Because the other set of account books showed black market activities of the firm Balakrishna Chetty was prosecuted and sentenced to six months ' imprisonment for an offence connected with the breach of Cot.
+ton Yarn Control Order.
+During the pendency of those proceedings the Deputy Commercial Tax Officer made assessments for the years.
+1943 44 and 1944 45, the tax for the former was Rs. 37,039 and for the latter Rs. 3,140.
+The appellants unsuccessfully appealed against these assessments and their revisions also failed.
+On August 24, 1945, the appellants brought a suit for a declaration and injunction in regard to the first assessment alleging that the assessment was against the Act.
+On September 2, 1946, a similar suit was brought in regard to the second assessment.
+It is out of these suits that the present appeal has arisen.
+The controversy between the parties centres round the interpretation of the words "subject to" in section 5 of the Act.
+The High Court has held that on a true interpretation of the provisions of the Act and the rules made thereunder, the observance of conditions of the license was necessary for the availability of exemption under section 5; that as the appellants had contravened those conditions they were liable to pay tax for both the years notwithstanding the license which had been issued to them under section 5 of the Act.
+it will be convenient at this stage to refer to the provisions of the Act which are relevant for the purpose of this appeal.
+section 2(b) " dealer" means any person who carries on the business of buying or selling goods;" 739 section 2(f) " "prescribed" means prescribed by rules made under this Act;".
+section 3(1) "Subject to the provisions of this Act, every dealer shall pay in each year a tax in accordance with the scale specified below: (a). . . . . . (b) if his turnover ex One half of I per ceeds twenty cent of such turn thousand rupees.
+over".
+section 5 "Subject to such restrictions and conditions as may be prescribed, including the conditions as to licenses and license fees, the sale of bullion and specie, of cotton, of cotton yarn and of any cloth woven on handlooms and sold by persons dealing exclusively in such cloth shall be exempt from taxation under Section 3".
+section 13 "Every dealer and every person licensed under section 8 shall keep and maintain a true and correct account showing the value of the goods sold and paid by them; and in case the accounts maintained in the ordinary course, do not show the same in an intelligible form, he shall maintain a true and correct account in such form as may be prescribed in this behalf.".
+The following rules are relevant for the purpose of this appeal and we quote the relevant portions: R. 5 "(1) Every person who (a). . . . . (b) deals with cotton and/or cotton yarn, (c). . . . . . (d). . . . . . (e) shall if he desires to avail himself of the exemption provided in sections 5 and 8 or of the concession of single point taxation provided in section 6, submit an application in Form I for a licence and the relevant portion of Form III is as follows: "Form III Cotton Licence to a dealer in Cotton yarn cloth woven on handlooms 740 See rule 6(5).
+Licence No. dated having paid a licence fee of Rs. (in words) hereby licensed as a dealer in Cotton/Cotton yarn Cotton woven on handlooms for the year ending at (place of business) subject to the provisions of the Madras General Sales Tax Act, 1939, and the rules made thereunder and to the following conditions:".
+R. 8 "Every licence granted or renewed under these rules shall be liable to cancellation by the Deputy Commercial Tax Officer in the event of a breach of any of the provisions of the Act, or of the Rules made thereunder or of the conditions of the licence.
+" The contention raised on behalf of the appellants was that as long as they held the licence it was immaterial if they were guilty of any infraction of the law and that they were not liable to any assessment of sales tax under the provisions of the Act and the only penalty they incurred was to have their licence cancelled and/or be liable to the penalty which under the criminal law they had already suffered.
+The contention comes to this that in spite of the breaches of the terms and conditions of the licence, having a licence was sufficient for the purpose of exemption under the Act.
+This contention, in our opinion, is wholly untenable.
+Section 3 is the charging section and section 5 gives exemption from taxation but that section clearly makes the holding of a licence subject to restrictions and conditions prescribed under the provisions of the Act and the rules made thereunder because the opening words of that section are "subject to such restrictions and conditions as may be prescribed." Under B. 13 an important condition imposed under the Act is the keeping by the dealer and every person licensed of true and correct accounts showing the value of the goods sold and paid by him.
+Next there is r. 5 of the General Sales Tax Rules which provided 741 that if any person desired to avail himself of the exemption provided in section 5, he had to submit an application in Form I for a licence and the Form of the licence shows that the licence was subject to the provisions of the Act and the rules made thereunder which required the licensee to submit returns as required and also to keep true accounts under section 13.
+This shows that the giving of the licence was subject to certain conditions being observed by the licensee and the licence itself was issued subject to the Act and the rules.
+But it was contended that the words "subject to" do not mean "conditional upon" but "liable to the rules and the provisions" of the Act.
+So construed section 5 will become not only inelegant but wholly meaningless.
+On a proper interpretation of the section it only means that the exemption under the licence is conditional upon the observance of the conditions prescribed and upon the restrictions which are imposed by and under the Act whether in the rules or in the licence itself ; that is, a licensee is exempt from assessment as long as he conforms to the conditions of the licence and not that he is entitled to exemption whether the conditions upon which the licence is given are fulfilled or not.
+The use of the words "subject to" has reference to effectuating the intention of the law and the correct meaning, in our opinion, is "conditional upon".
+The appellants have been found to have contravened the provisions of the Act as well as the rules and therefore it cannot be said that they have observed the conditions upon which the exemption under the licence is available.
+In that view of the matter, it was rightly held that they were not exempt from assessment under the Act.
+The appeals are therefore dismissed with costs.
+Appeals dismissed.

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+Appeal No. 395 of 1959.
+Appeal by special leave from the Award dated November 25, 1957 of the Industrial Tribunal, Bombay, in Reference (I. T.) No. 24 of 1956.
+N. C. Chatterjee, D. H. Buch and K. L. Hathi, for the appellants.
+M. C. Setalvad, Attorney General for India, J. B. Dadachanji and section N. Andley, for the respondent Nos. 1 and 2.
+M. C. Setalvad, Attorney General for India, Dewan Chaman Lal Pandhi and I. N. Shroff, for the respondent No. 3. 1960.
+November 30.
+The Judgment of the Court was delivered by WANCHOO, J.
+This is an appeal by special leave in an industrial matter.
+It appears that the appellants were originally in the service of the Scindia Steam Navigation Co. Ltd. (hereinafter called the Scindias).
+Their services were transferred by way of loan to the Air Services of India Limited (hereinafter referred to as the ASI).
+The ASI was formed in 1937 and was 813 purchased by the Scindias in 1943 and by 1946 was a full subsidiary of the Scindias.
+Therefore from 1946 to about 1951, a large number of employees of the, Scindias were transferred to the ASI for indefinite periods.
+The Scindias had a number of subsidiaries and it was usual for the Scindias to transfer their employees to their subsidiary companies and take them back whenever they found necessary to do so.
+The ' appellants who were thus transferred to the ASI were to get the same scale of pay as the employees of the Scindias and the same terms and conditions of service (including bonus whenever the Scindias paid it) were to apply.
+The Scindias retained the right to recall these loaned employees and it is the case of the appellants that they were entitled to go back to the Scindias if they so desired.
+Thus the terms and conditions of service of these loaned employees of the ASI were different from those employees of the ASI who were recruited by the ASI itself.
+This state of affairs continued till 1952 when the Government of India contemplated nationalisation of the existing air lines operating in India with effect from June 1953 or thereabouts.
+When legislation for this purpose was on the anvil the appellants felt perturbed about their status in the ASI which was going to be taken over by the Indian Air Lines Corporation (hereinafter called the Corporation), which was expected to be established after the , No. XXVII of 1953, (hereinafter called the Act) came into force.
+They therefore addressed a letter to the Scindias on April 6, 1953, requesting that as the Government of India intended to nationalise all the air lines in India with effect from 1 June, 1953, or subsequent thereto, they wanted to be taken back by the Scindias.
+On April 24, the Scindias sent a reply to this letter in which they pointed out that all persons working in the ASI would be governed by cl. 20 of the Air Corporation Bill of 1953, when the Bill was enacted into law.
+It was also pointed out that this clause would apply to all those actually working with the ASI on 103 814 the appointed day irrespective of whether they were recruited by the ASI directly or transferred to the ASI from the Scindias or other associated concerns.
+It was further pointed out that if the loaned employees or others, employed under the 'ASI, did not want to join ,the proposed Corporation they would have the option not to do so under the proviso to cl.
+20(1) of the 'Bill; but in case any employee of the ASI whether loaned or otherwise made the option not to join the proposed Corporation, the Scindias would treat them as having resigned from service, as the Scindias could not absorb them.
+In that case such employees would be entitled only to the usual retirement benefits and would not be entitled to retrenchment compensation.
+Finally, it was hoped that all those in the employ of the ASI, whether loaned or otherwise, having been guaranteed continuity of employment in the new set up would see that the Scindias would not be burdened with surplus staff, requiring consequential retrenchment of the same or more junior personnel by the Scindias.
+On April 29, 1953, a reply was sent by the union on behalf of the appellants to the Scindias.
+It was pointed out that the loaned staff should not be forced to go to the proposed Corporation without any consideration of their claim for re absorption into the Scindias.
+It was suggested that the matter might be taken up with the Government of India and the persons directly recruited by the ASI who were with other subsidiary companies might be taken by the proposed Corporation in place of the appellants.
+It seems that this suggestion was taken up with the Government of India but nothing came out of it, particularly because the persons directly recruited by the ASI.
+who were employed in other subsidiary companies did not want to go back to the ASI.
+In the meantime, the Scindias issued a circular on May 6,1953, to all the employees under the ASI including the loaned employees, in which they pointed out that all the persons working with the ASI would be governed by cl.
+20(1) when the Bill became law and would be absorbed in the proposed Corporation, unless 815 they took advantage of the proviso to cl.
+20(1).
+It was also pointed out that such employees as took advantage of the proviso to el.
+20(1) would be treated as having resigned from service and would be entitled to usual retirement benefits as on voluntary retirement, and to nothing more.
+It was also said that their conditions of service would be the same until duly altered or amended by the proposed Corporation.
+The circular then dealt with certain matters relating to provident fund with which we are however not concerned.
+It appears that the Act was passed on May 28, 1953.
+20(1) of the Act, with which we are concerned, is in these terms: "(1) Every officer or other employee of an existing air company (except a director, managing agent, manager or any other person entitled to manage the whole or a substantial part of the business and affairs of the company under a special agreement) employed by that company prior to the first day of July, 1952, and still in its employment immediately before the appointed day shall, in so far as such officer or other employee is employed in connection with the undertaking which has vested in either of the Corporations by virtue of this Act, become as from the appointed date an officer or other employee, as the case may be, of the Corporation in which the undertaking has vested and shall hold his office or service therein by the same tenure, at the same remuneration and upon the same terms and conditions and with the same rights and privileges as to pension and gratuity and other matters as he would have held the same under the existing air company if its undertaking had not vested in the Corporation and shall continue to do so unless and until his employment in the Corporation is terminated or until his remuneration, terms or conditions are duly altered by the Corporation : Provided nothing contained in this section shall apply to any officer or other employee who has, by notice in writing given to the Corporation concerned prior to such date as may be fixed by the Central Government by notification in the official gazette 816 intimated his intention of not becoming an officer or other employee of the Corporation." After the Act was passed, notice was sent on June 17, 1953, to each employee of all the air companies which were being taken over by the proposed Corporation m and he was asked to inform the officer on special duty by July 10, 1953, if he desired to give the notice contemplated by the proviso to section 20(1).
+A form was sent in which the notice was to be given and it was ordered that it should reach the Chairman of the Corporation by registered post by July 10.
+The appellants admittedly did not give this notice as required by the proviso to section 20(1).
+In the meantime on June 8, 1953, a demand was made on behalf of the appellants in which the Scindias were asked to give an assurance to them that in the event of retrenchment of any loaned staff by the proposed Corporation within the first five years without any fault, the said staff would be taken back by the Scindias.
+Certain other demands were also made.
+The Scindias replied to this letter on July 3 and pointed out that they could not agree to give an assurance to take back the loaned staff in case it was retrenched by the proposed Corporation within the next five years.
+We are not concerned with the other demands and the replies thereto.
+On July 8, a letter was written on behalf of the appellants to the Scindias in which it was said that the appellants could not accept the contention contained in the circular of May 6, 1953.
+Though the appellants were carrying on this correspondence with the Scindias, they did not exercise the option which was given to them under the proviso to section 20(1) of the Act,.
+by July 10, 1953.
+First of August, 1953, was notified the appointed day under section 16 of the Act and from that date the undertakings of the "existing air companies" vested in the Corporation established under the Act (except the Air India International).
+So on August:1, 1953, the ASI vested in the Corporation and section 20(1) of the Act came into force.
+Hence as none of the appellants had exercised the option given to them under the proviso, they would also be governed by the said provision, 817 unless the contention.
+raised on their behalf that they could in no case be governed by section 20(1), is accepted.
+The tribunal came to the conclusion that, whatever the position of the appellants as loaned staff from the Scindias to the ASI, as they were informed on May 6, 1953, of the exact position by the Scindias and they did not ask for a reference of an industrial dispute immediately thereafter with the Scindias and as they" ' did not exercise the option given to them by the proviso to section 20(1) before July 10, 1953, they would be governed by section 20(1) of the Act.
+In consequence, they became the employees.
+of the Corporation as from August 1, 1953 and would thus have no right there after to claim that they were still the employees of the Scindias and had a right to revert to them.
+The consequence of all this was that they were held not to be entitled to any of the benefits which they claimed in the alternative according to the order of reference.
+It is this order of the tribunal rejecting the reference which has been impugned before us in the present appeal.
+The main contention of Mr. Chatterjee on behalf of the appellants is that they are not governed by section 20 (1) of the Act and in any case the contract of service between the appellants and the Scindias was not assignable and transferable even by law and finally that even if section 20(1) applied, the Scindias were bound to take back the appellants.
+We are of opinion that there is no force in any of these contentions.
+20(1) lays down that every officer or employee of the "existing air companies" employed by them prior to the first day of July, 1952, and still in their employment immediately before the appointed day shall become as I from the appointed day an officer or employee, as the case may be, of the Corporation in which the undertakings are vested.
+The object of this provision was to ensure continuity of service to the employees of the "existing air companies" which were being taken over by the Corporation and was thus for the benefit of the officers and employees concerned.
+It is further provided in section 20(1) that the terms of service etc. would be the same until they are duly altered by the Corporation.
+One should have thought that the employees of the air 818 companies would welcome this provision as it ensured them continuity of service on the same terms till they were duly altered.
+Further there was no compulsion on the employees or the officers of the "existing air companies" to serve the Corporation if they did not want to do so.
+The proviso laid down that any officer or other employee who did not want to go into the service of the Corporation could get out of service by notice in writing given to the Corporation before the date fixed, which was in this case July 10, 1953.
+Therefore, even if the argument of Mr. Chatterjee that the contract of service between the appellants and their employers had been transferred or assigned by this section and that this could not be done,, be correct, it loses all its force, for the proviso made it clear that any one who did not want to join the Corporation, was free not to do so, after giving notice upto a certain date.
+Mr. Chatterjee in this connection relied on Nokes vs Doncaster Amalgamated Collieries Ltd. where it was observed at p. 1018 "It is, of course, indisputable that (apart from statutory provision to the contrary) the benefit of a contract entered into by A to render personal service to X cannot be transferred by X to Y without A 's consent, which is the same thing as saying that, in order to produce the desired result,, the old contract between A and X would have to be terminated by notice or by mutual consent and a new contract of service entered into by agreement between A and Y." This observation itself shows that a contract of service may be transferred by a statutory provision; but in the present case, as we have already said, there was no compulsory transfer of the contract of service between the "existing air companies", and their officers and employees to the Corporation for each of them was given the option not to join the Corporation, if he gave notice to that effect.
+The provision of section 20(1) read with the proviso is a perfectly reasonable provision and, as a matter of fact, in the interest of employees themselves.
+But, Mr. Chatterjee argues that section 20(1) will only apply to those who were in the employ of the "existing air companies"; it would not (1) , 819 apply to those who might be working for the "existing air companies" on being loaned from some other company.
+In other words, the argument is that the, appellants were in the employ not of the ASI but of the Scinaias and therefore section 20(1) would not apply to them and they would not become the employees of the Corporation by virtue of that provision when they failed to exercise the option given to them by the proviso.
+According to him, only those employees of the ASI who were directly recruited by it, would be covered by section 20(1).
+We are of opinion that this argument is fallacious.
+It is true that the appellants were not originally recruited by the ASI.
+They were recruited by the Scindias and were transferred on loan to the ASI on various dates from 1946 to 1951.
+But for the purposes of section 20(1) we have to see two things: namely, (i) whether the officer or employee was employed by the existing air company on July 1, 1952, and (ii) whether he was still in its employment on the appointed day, (namely, August 1,1953).
+Now it is not disputed that the appellants were working in fact for the ASI on July 1, 1952, and were also working for it on August 1, 1953.
+But it is contended that though they were working for the ASI they were still not in its employment in law and were in the employment of the Scindias because at one time they had been loaned by the Scindias to the ASI.
+Let us examine the exact position of the appellants in order to determine whether they were in the employ of the ASI or not.
+It is not disputed that they were working for the ASI and were being paid by it; their hours of work as well as control over their work was all by the ASI.
+From this it would naturally follow that they were the employees of the ASI, even though they might not have been directly recruited by it.
+It is true that there were certain special features of their employment with the ASI.
+These special features were that they were on the same terms and conditions of service as were enjoyed by the employees of the Scindias in the matter of remuneration, leave, bonus, etc.
+It may also be that they could not be, dismissed by the ASI and the Scindias may have had to take action in case it was 820 desired to dismiss them.
+Further it may be that they could be recalled by the Scindias and it may even be that they might have the option to go back to the Scindias.
+But these are only three special terms of their employment with the ASI.
+Subject to these special terms, they would for all purposes be the employees of the ASI and thus would in law be in the employment of the ASI both on July 1, 1952 and on August 1, 1953.
+The existence of these special terms in the case of these appellants would not in law make them any the less employees of the ASI, for whom they were working and who were paying them, who had power of control and direction over them; who would grant them leave, fix their hours of work and so on.
+There can in our opinion be no doubt that subject to these special terms the appellants were in the employ of the ASI in law.
+They would therefore be in the employ of the ASI prior to July 1, 1952 and would still be in its employ immediately before August 1, 1953.
+Consequently, they would clearly be governed by section 20(1).
+As they did not exercise the option given to them by the proviso to section 20(1), they became the employees of the Corporation from August 1, 1953, by the terms of the statute.
+The last point that has been urged is that even if section 20(1) applies, the Scindias are bound to take back the appellants.
+Suffice it to say that there is no force in this contention either.
+As soon as the appellants became by force of law the employees of the Corporation, as they did so become on August 1, 1953, in the circumstances of this case, they had no further right against the Scindias and could not; claim to be taken back in their employment on the ground that they were still their employees, in spite of the operation of section 20(1) of the Act.
+Nor could they claim any of the alternative benefits specified in the order of reference, as from August 1, 1953, they are by operation of law only the employees of the Corporation and can have no rights whatsoever against the Scindias.
+We are therefore of opinion that the tribunal 's decision is correct.
+The appeal fails and is thereby dismissed.
+There will be no order as to costs.
+Appeal dismissed.

104.txt

@@ -0,0 +1,169 @@
+Appeals Nos. 12 and 13 of 1951.
+Appeals from the Judgment and Decree dated the 17th/21st February, 1947, of the High Court of Judicature at Calcutta (Mukherjea and Biswas JJ.) in Appeal from Original Order No. 62 of 1946 with cross objectiou and Civil Revision Case No. 657 of 1946 arising out of Judgment and Order dated the 13th March, 1946, of the Court of the Subordinate Judge, Howrah, in Title Execution Case No. 68 of 1936.
+M. C. Setalvad (Attorney General for India) and Purushottam Chatterjee (section N. Mukherjee, with them) for the appellant in Civil Appeal No. 12 of 1951 and respondent in Civil Appeal No. 13 of 1951.
+C. K. Daphtary (Solicitor General for India) and N. C. Chatterjee (C. N. Laik and A. C. Mukherjea, with them) for the respondents in Civil Appeal No. 12 of 1951 and appellants in Civil Appeal No. 13 of 1951.
+October 30.
+The judgment of the Court was delivered by MAHAJAN J.
+These are two cross appeals from the decision of the High Court at Calcutta in its appellate jurisdiction dated 17th February, 1947, modifying the order of the Subordinate Judge of Howrah in Title Execution Case No. 68 of 1936.
+The litigation culminating in these appeals comnmenced about thirty years ago.
+In the year 1923, one Durga Prasad Chamria instituted a suit against the respondents, Radha Kissen Chamria, Motilal Chamria and their mother Anardevi Sethan (since deceased) for specific performance of an agreement, 139 for sale of an immoveable property in Howrah claiming a sum of Rs. 11,03,063 8 3 and other reliefs.
+The suit, was eventually decreed compromise the 19th April, 1926.
+Under the compromise decree the plaintiff became entitled to a sum of Rs. 8,61,000 from the respondents with interest at 61 per cent.
+with yearly rests from the date fixed for payment till realization.
+Part of the decretal sum was payable the execution of the solenama and the rest by instalments within eighteen months of that date.
+Within fifteen months from the date of the decree a sum of Rs. 10,00,987 15 6 is said to have been paid towards satisfaction of it.
+No steps were taken either by the judgment debtors or the decre holder regarding certification of most of those payments within the time prescribed by law.
+The judgment debtors after the expiry of a long time made an application for certification but the decree holder vehemently resisted it and declined to 'admit the payments.
+The result was that the court only recorded the payment of the last three instalments which had been made within ninety days before the application and the judgmentdebtors had to commence a regular suit against the decree holder for recovery of the amounts paid, and not admitted in the execution proceedings.
+In the year 1929 a decree was passed in favour of the judgment debtors for the amount paid by them and not ,certified in the execution.
+In the meantime the decree holder had realized further amounts in execution of the decree by taking out execution proceedings two or three occasions.
+The amount for which a decree had been passed against the decree holder was also thereafter adjusted towards the amount duo under ' the consent decree.
+On the 17th March, 1933, the decree was assigned by Durga Prasad to the appellant Keshardeo Chamria.
+The execution proceedings out of which these appeals arise were started by the assignee the 10th October, 1936, for the realization of Rs. 4,20,693 8 9 and interest and costs.
+This execution had a chequered career.
+To begin with, the judgment debtors raised 140 an objection that the assignee being a mere benamidar of Durga Prasad Chamria had no locus standi to take out execution.
+This dispute eventually ended in favour of the assignee after about five years ' fight and it was held that the assignment was bonafide and Keshardeo was not a benamidar of the decree holder.
+On the 17th July, 1942, Keshardeo made an application for attachment of various new properties of the judgment debtors and for their arrest.
+Another set of objections was filed against this application by Radha Kissen Chamria.
+He disputed the correctness of the decretal amount, and contended that a certain payment of Rs. 1,60,000 should be recorded and certified as made the 28th May, 1934, and not the date the sum was actually paid to the decreeholer.
+This objection was decided by the Subordinate Judge the 11th September, 1942, and it was held that the judgment debtors were liable to pay interest the sum of Rs. 1,60,000 up to the 12th October, 1936, and not up to the 4th July, 1941, 'as claimed by the assignee.
+appeal the High Court by its judgment dated the 22nd June, 1943, upheld the decree holder 's contention, and ruled that the judgment debtors were liable to pay interest up to the 4th July, 1941, this sum of Rs. 1,60,000.
+The judgment debtors then applied for leave to appeal to the Privy Council against this decision and leave was granted.
+the 13th February, 1945, an application wag made to withdraw the appeals, and with ' drawal was allowed by an order of the court dated the 20th February, 1945.
+Thus the resistance offered by the judgment debtors to the decree holder 's application of the 17th July, 1942, ended the 20th February, 1945.
+The records of the execution case were then sent back by the High Court and reached the Howrah Court the 28th February, 1945.
+The decreeholder 's counsel was informed of the arrival of the records by an order dated the 2nd March, 1945.
+The hearing of the case was fixed for the 5th March 1945.
+the 5th March, 1945 the court made the following order; 141 Decree holder prays for time to take necessary steps.
+The case is adjourned to 10th March, 1945, for order.
+Decree holder to take necessary steps by, that date positively.
+" The decree holder applied for further adjournment, of the case and the 10th the court passed an order in these terms: "Decree holder prays for time ' again to give necessary instructions to his pleader for taking necessary steps.
+The 'petition for time is rejected.
+The execution case is dismissed part satisfaction.
+" When the decree holder was apprised of this order, he, the 19th March, 1945, made an application under section 151, Civil Procedure Code, for restoration of the execution and for getting aside the order of dismissal.
+this application notice was issued to the judgment debtors who raised a number of objections against the decree holder 's petition to revive the execution.
+By an order dated the 25th April, 1945, the Subordinate Judge granted the decree holder 's prayer and ordered restoration of the execution.
+The operative part of the order is in these terms: " 10th March, 1945, the decree holder again prayed for time for the purpose of giving necessary instructions to his pleader for taking steps.
+That petition was rejected by me.
+10th March,, 1945, by the same order I mean the order rejecting the petition for adjournment I dismissed the 'execution case part satisfaction.
+The learned counsel behalf of the present petitioner wants me to vacate the order by which I have dismissed the execution case part satisfaction.
+He has invoked the aid of section 151, Civil Procedure Code,: for cancellation of this order and the consequent restoration of the execution case.
+I would discuss at the very outset as to whether I was justified in dismissing the,execution case in the same order,after rejecting the petition of the decree holder for an 142 adjournment without giving him an opportunity to his pleader to make any submission he might have to make after the rejection of the petition for time.
+It is clear from the order that the fact that the petition for time 'filed by the decree holder 10th March, 1945, was rejected by me was not brought to the notice of the pleader for the decree holder.
+It seems to me that there was denial of justice to the decree holder in the present execution proceeding inasmuch as it was a sad omission my part not to communicate to his pleader the result of this petition he made praying for an adjournment of this execution proceeding and at the same time, to dismiss the execution case part satisfaction which has brought about consequences highly prejudicial to the interest of the decree holder.
+I think section 151, Civil Procedure Code, is the only section which.
+empowers me to rectify the said omission I have made in not com municating to the pleader for the decree holder as to the fate of his application for an adjournment of the execution case and as such I would vacate the order passed by me dismissing the execution case part satisfaction.
+The ends of justice for which the court exists demand such rectification and I would do it.
+The learned Advocate General behalf of the judgment debtor Radha Kissen has argued before me that this court has no jurisdiction to vacate the order passed by me 10th March, 1945, dismissing the execution case part satisfaction.
+His argument is that section 48, Civil Procedure Code, stands in my way inasmuch as the law of limitation as provided in the above section debars the relief as sought for by the decree holder in the present application.
+I do not question the soundness of this argument advanced by the learned Advocate General.
+The facts of this case bring home the fact that in the present case I am rectifying a sad omission made by me which brought about practically a denial of justice to the decree holder and as such the operation of section 48, Civil Procedure Code, does not come to the assistance of the judgment debtor Radha Kissen," 143 It would have saved considerable expense and trouble to the parties had the dismissal for default chapter been closed for ever by this order of the Judge; the proceedings, however, took a different course.
+A serious controversy raged between the parties about the correctness of this obviously just order and after seven years it is now before us.
+An appeal and a revision were preferred to the High Court against this order.
+By its judgment dated 24th August, 1945, the High Court held that no appeal lay against it as the question involved did not fall within the ambit of section 47, Civil Procedure Code.
+It, however, entertained the revision application and allowed it, and remanded the case to the Subordinate Judge for reconsideration and disposal in accordance with the observations made in the order.
+The High Court took the view that the Subordinate Judge was in error in restoring the execution without taking into consideration the point whether the decree holder 's pleader could really take any step in aid of the execution if he had been apprised of the order of the court dismissing the adjournment application.
+This is what the High Court said: "The ground put forward by the Subordinate Judge in support of his order for restoration is that the order rejecting the adjournment petition should have been communicated to the pleader for the decree holder but this was not done.
+We will assume that this was an omission the part of the court.
+The question now is whether it was possible for the decree holder to take any further steps in connection with the execution of the decree and thereby prevent the execution case from being dismissed for default.
+No evidence was taken by the learned Subordienate Judge this point and even the pleader who was in charge of the execution case behalf of the decree holder was not examined. .
+If really the decree holder was not in a position to state that day as to what was the amount due under the decree for which he wanted the execution to be levied and if according to him it required elaborate accounting for the purpose 144 of arriving at the proper figure, it was not possible for him to ask the court to issue any process by way of attachment of the property that date.
+It seems to us that the learned Judge should have considered this matter properly and he should have found proper material as to whether the decree holder could really take any steps after the application for adjournment was disallowed." In sharp contrast to the opinion contained in the order of remand is the view now expressed by the High Court this point in its final judgment under appeal "One important circumstance which, in our opinion ; tells 'in favour of the decreeholder is the fact we have noticed before, namely, that after the ' petition for time was rejected the court did not call the execution case and otherwise intimate its decision to go with it.
+In one sense this,might be regarded as a mere error of procedure the part of the court which it would be wrong to allow the decreeholder to take advantage of, but an, error it was, as was admitted by the learned judge himself who had dealt with the matter, and we do not think his opinion, can be lightly brushed aside.
+There can be no doubt that the learned judge was in the best position to speak as regards the actual proceedings in his court % the 10th March, 1945, and if he thought that it amounted to a 'denial of justice ' to have rejected the petition for time and by the same order to dismiss the ,execution case, it is not for us to say that he was not right.
+It may well be that even if the case was called the decree holder 's pleader would even then have been absent, but having regard to all the facts and circumstances of the case, we think the court might yet give the decree holder the benefit of doubtin this matter, and assume in his favour that his pleader would have appeared before the learned, judge and tried to avert a peremptory dismissal of the execution case, even though he or his client might not have been fully ready with all necessary materials for continuing the execution proceeding.
+145 As we have pointed out before and as the court below has also found, it was possible,for the decreeholder or his pleader to have submitted to the court, some sort,of an account of the decretal dues that date after refusal of the adjournment but even if this could not be done, we still believe that the pleader, if he appeared, could have done something, either by drawing the court 's attention to some of its previous orders or otherwise, by which a dismissal of the case might be prevented.
+" It was not difficult to envisage what the counsel would have done when faced with such a dilemma.
+He, would.
+have straightaway stated that the execution should issue, for an amount,which was roughly known to ' him, and that the court should,issue a process, for the arrest of the judgment debtors.
+BY such a statement he would have saved the dismissal without any,detriment to his client: who could later make another application stating the precise amount due and praying for additional reliefs.
+After remand the 13th March, 1946, the learned Subordinate Judge restored the execution case in respect of a sum of Rs.92,OOO only and maintained the order of dismissal in other respects.
+He held that the decree holder was grossly negligent on the 5th and the 10th March, 1945, and that due to his negligence the execution case was dismissed in default that even if his pleader had been informed of the order rejecting the application for adjournment he could not have taken any steps to prevent the dismissal of the execu tion; that the execution being now barred by limitation the judgment debtors should not be deprived of the valuable rights acquired by them but at the same time they should not be allowed to retain the advantage of an acknowledgment of a debt of Rs, 92,000 made by the decree holder.
+Both the decree holder and the judgment debtors were dissatisfied with this order.
+The decree holder preferred an appeal to the High Court and also filed an application under section 115, Civil Procedure 146 Code.
+The judgment debtors filed cross objections in the appeal and also preferred an alternative application in revision.
+The appeal, the cross objections and the two revision 'applications were disposed of together by the High Court by its judgment dated 17th February, 1947.
+The order dismissing the execution in default was set aside and the case was restored terms.
+The decreeholder was held disentitled to interest the decretal amount from 10th March, 1945, to the date of final ascertainment of the amount of such interest by the executing court and was ordered to pay to the judgment debtors a consolidated sum of Rs. 20,000 by way of compensatory costs.
+He was to pay this amount to the judgment debtora within two weeks of the arrival of the records in the executing court or have it certified in the execution.
+In default the appeal was to stand dismissed with costs and the cross objections decreed with costs.
+An application for leave to appeal to His Majesty in Council against this order was made by the judgment debtors and leave was granted to them 30th May, 1947.
+The decree holder also applied for leave and he was granted leave 27th June, 1946.
+Both the appeals were consolidated by an order of the court dated 4th December, 1947, and thereafter the appeals were transferred to this court.
+On behalf of the decree holder it was contended that the High Court was wrong in allowing the judgment debtors Rs. 20,000 by way of compensation for costs, and that having regard to the terms of the compromise decree it had no jurisdiction to deprive the decree holder of the interest allowed to him by the decree, and that it had neither power nor jurisdiction under section 115, Civil Procedure Code, to set aside the order dated 25th April, 1945, passed by Mr. Chakravarti, Subordinate Judge, under section 151 of the said Code and that the interlocutory remand order of the High Court being without jurisdiction.
+, all subsequent proceedings taken thereafter were null and void.
+147 The earned counsel for the judgment debtors not only supported the judgment of the High Court to the extent it went in their favour but contended that the High Court should have refused to restore the execution altogether and that the assumption made by it that the decree holder 's pleader could do something to prevent the dismissal of the case or could present some sort of statement to the court was wholly unwarranted and unjustifiable.
+It was urged that it ought to have been held that the decree holder was guilty of gross negligence and he was himself responsible for the dismissal of the case, and that it was not necessary to formally call the case after the rejection of the petition for adjournment and that a valuable right having accrued to the judgment debtors by efflux of time, they should not have been deprived of it in the exercise of the inherent powers of the court.
+It is unnecessary to consider all the points taken in these appeals because, in our opinions the point canvassed behalf of the decree holder that the order of remand was without jurisdiction and that all the proceedings taken subsequent to the order of the executing court reviving the execution were void, has force.
+The sole ground which the Subordinate Judge had ordered restoration of the execution was that he had himself made a sad mistake in dismissing it at the same time that he dismissed the adjournment application without informing the decree holder 's counsel that the request for adjournment had been refused and without calling upon him to state what he wanted done in the matter in those circumstances.
+As the Subordinate Judge was correcting his own error in the exercise of his inherent powers, it was not necessary for him to investigate into the correctness of the various allegations and counter allegations made by the parties.
+He was the best judge of the procedure that was usually adopted in his court in such cases and there is no reason whatsoever for the supposition that when the Subordinate Judge said that he had not given any opportunity to 148 the decree holder 's pleader to take any steps in execution of the decree after the dismissal of the adjournment application he was not right.
+It could not be seriously suggested that such an opportunity was given to the decree holder, the dismissal order of the execution having been made at the same moment of time as the order dismissing the application for adjournment It is quite clear that the interest of justice demanded that the decree holder 's pleader should have been informed that his request for adjournment had been refused, and further given opportunity to state what he wanted done in that situation.
+It was wholly unnecessary in such circumstances to speculate what the pleader would have done when faced with that situation.
+I The solid fact remains that he was not given that opportunity and that being so, the order dismissing the execution was bad and was rightly corrected by the court its own initiative in the exercise of its inherent powers.
+The point for determination then is whether such an order could be set aside by the High Court either in the exercise of its appellate or revisional powers.
+It is plain that the High Court bad no jurisdiction in the exercise of its appellate jurisdiction to reverse this decision.
+In the remand order itself it was held that it was difficult to say that the order by itself amounted to a final determination of any question relating to execution, discharge or satisfaction of a decree and that being so, it did not fall within the ambit of section 47 Civil Procedure Code.
+We are in entire agreement with this observation.
+The proceedings that commenced with the decree holder 's application for restoration of the execution and terminated with the order of revival can in no sense be said to relate to the determination of any question concerning the ,execution, discharge or satisfaction of the decree.
+Such proceedings are in their nature collateral to the execution and are independent of it.
+It was not contended and could not he seriously urged that an order under section 151 simpliciter is 149 appealable.
+Under the Code of Civil Procedure certain specific orders mentioned in section 104 and Order XLIII, rule 1, only are appealable and no appeal lies from any other orders.
+(Vide section 105, Civil Procedure Code).
+An order made under action 151 is not included in the category of appealable orders.
+In support of his contention that an order made under section 151 may in certain circumstances be appealable, Mr. Daphtary placed reliance two single Judge judgments of the Madras High Court and a Bench decision of Oudh.
+[Vide Akshia Pillai vs Govindarajulu Chetty(1); Govinda Padayachi vs Velu Murugiah Chettiar(2); Noor Mohammad vs Sulaiman Khan(1)].
+In all these cases execution sale had been set aside by the court in exercise of inherent powers and it was held that such orders were appealable.
+The ratio of the decision in the first Madras case is by no means very clear and the reasoning is somewhat dubious.
+In the other two cases the orders were held appealable the ground that they fell within the ambit of section 47, Civil Procedure Code, read with section 151.
+It is unnecessary to examine the correctness of these decisions as they have no bearing the point before us, ' there being no analogy between an order setting aside an execution sale and an order setting aside the dismissal of an application.
+The High Court was thus right in upholding the preliminary objection that no appeal lay from the order of the Subordinate Judge dated 25th April, 1945.
+We now proceed to consider whether a revision was competent against the order of the 25th April, 1945, when no appeal lay.
+It seems to us that in this matter really the High Court entertained an appeal in ' the guise of a revision.
+The revisional ' jurisdiction of the High Court is set out in the 115th section of the Code of Civil Procedure in these terms: (I) A.I.R. 31924 Mad. 778.
+(3) A.I.R. 1943 Oudh 35.
+(2) A.I.R. 1933 Mad.
+399 20 150 "The High Court may call for the record of any case which has been decided by any court subordinate to such High Court and in which appeallies thereto, and if such subordinate court appears: (a) to have exercised a jurisdiction not vested in it by law, or (b) to have failed to exercise a jurisdiction so vested, or (e) to have acted in the exercise of its jurisdiction illegally or with material irregularity, the High Court may make 'such order in the case as it thinks fit.,, A large number of cases have been collected in the fourth edition of Chitaley & Rao 's Code of Civil Procedure (Vol.
+I), which only serve to show that the High Courts have not always appreciated the limits of the jurisdiction conferred by this section.
+In Mohunt Bhagwan Ramanuj Das vs Khetter Moni Dassi(1), the High Court of Calcutta expressed the opinion that sub clause (c.) of section 115, Civil Pro cedure Code, was intended to authorize the High Courts to interfere.
+and correct gross and palpable errors of subordinate courts, so as to prevent grave injustice in non appealable cases.
+This decision was, however, dissented from by the same High Court in Enat Mondul vs Baloram Dey(2), but was cited with approval by Lort Williams J., in Gulabohand Bangur vs Kabiruddin Ahmed(1).
+In these circumstances it is worthwhile recalling again to mind the decisions ,of the Privy Council this subject and the limits stated therein for the exercise of jurisdiction conferred by this section the High Courts.
+As long ago as 1894, in Hajah Amir Has8an Khan 'vs Sheo Baksh Singh(1), the Privy Council made the following observations section 622 of the former Code of Civil Procedure, which was replaced by section 115 of the Code of 1908: "The question then is, did the Judges of the lower courts in this case, in the exercise of their (I) (1897) I C.W.N. 617.
+(3) Cal.
+(a) (4) (1883 84) L.R. xi I.A. 237.
+151 jurisdiction, act illegally or with material irregularity.
+It appears that they had perfect jurisdiction to decide the case, and even if they decided wrongly, they did not exercise their jurisdiction illegally or with material irregularity." In 1917 again in Balakrishna Udayar vs Vasudeva Aiyar(1), the Board observed: "It will be observed that the section applies to jurisdiction alone, the irregular exercise or nonexercise of it, or the illegal assumption of it.
+The section is not directed against conclusions of law or fact in which the question of jurisdiction is not involved.
+" In 1949 in Venkatagiri Ayyangar vs Hindu Religious Endowments Board, Madras(1), the Privy Council again examined the scope of section 115 and observed that they could see no justification for the view that the section was intended to authorize the High Court to interfere and correct gross and palpable errors of subordinate courts so as to prevent grave injustice in non appealable cases and that it would be difficult to formulate any standard by which the degree of err or of subordinate courts could be measured.
+It was said " Section 115 applies only to cases in which no appeal lies, and, where the legislature has provided no right of appeal, the manifest intention is that the order of the trial Court, right or wrong, shall be final.
+The section empowers the High Court to satisfy itself three matters, (a) that the order of the subordinate court is within its jurisdiction ; (b) that the case is one in which the court ought to exercise jurisdiction; and (c) that in exercising jurisdiction the court has not acted illegally, that is, in breach of some provision of law, or with material irregularity, that is, by committing some error of procedure in the course of the trial which is material in that it may have affected the ultimate decision.
+If the High Court is satisfied those three matters,, it has no (1) (1917) L.R. 44 I,A. 26i.
+(2) (1949) L.R. 76 I.A. 67.
+power to interfere because it differs, however profoundly, from the conclusions of the subordinate court questions of fact or law.
+" Later in the same year in Joy Chand Lal Babu vs Kamalaksha Choudhury(1), their Lordships had again adverted to this matter and reiterated what they had said in their earlier decision.
+They pointed out "There have been a very large number of decisions of Indian High Courts section 115 to many of which their Lordships have been referred.
+Some of such decisions prompt the observation that High Courts have not always appreciated that although error in a decision of a subordinate court does not by itself involve that the subordinate court has acted illegally or with material irregularity so as to justify interference in revision under sub section (c), nevertheless, if the erroneous decision results in the sub ordinate court exercising a jurisdiction not vested in it by law, or failing to exercise a jurisdiction so, vested, a case for revision arises under subsection (a) or subsection (b) and sub section (c) can be ignored.
+" Reference may also be made to the observations of Bose J. in his order of reference in Narayan Sonaji vs Sheshrao Vithoba(2) wherein it was said that the words "illegally" and "material irregularity" do not cover either errors of fact or law.
+They do not refer to the decision arrived at but to the manner in which it is reached.
+The errors contemplated relate to material defects of procedure and not to errors of either law or fact after the formalities which the law prescribes have been complied with.
+We are therefore of the opinion that in reversing the order of the executing court dated the 25th April, 1945, reviving the execution, the High Court exercised jurisdiction not conferred it by section 116 of the Code.
+It is plain that the order of the Subordinate Judge dated the 25th April, .
+1945, was one that he had jurisdiction to make, that in making that order he neither acted in excess, of his jurisdiction (I) (I949) T .R .
+76 J. A. 131.
+(2) A.I.R. 1948 Nag.
+153 nor did he assume jurisdiction which he did not possess.
+It could not be said that in the exercise of it he acted with material irregularity or committed any breach of the procedure laid down for reaching the result.
+All that happened was that he felt that be had committed an error, in dismissing the main execution while he was merely dealing with an adjournment application.
+It cannot be said that his omission in not taking into consideration what the decree holder 's pleader would have done had he been given the opportunity to make his submission amounts to material irregularity in the exercise of jurisdiction.
+This speculation was hardly relevant in the view of the case that he took.
+The Judge had jurisdiction to correct his own error without entering into 'a discussion of the grounds taken by the decree holder or the objections raised by the judgment debtors.
+We are satisfied therefore that the High Court acted in excess of its jurisdiction when it entertained an application in revision against the order of the Subordinate Judge dated the 25th April, 1945, and set it aside in exercise of that jurisdiction and remanded the case for further enquiry.
+The result therefore is that Appeal No. 12 of 1951 is allowed, as the interlocutory remand order of the High Court was one without jurisdiction and that being so, the subsequent proceedings taken in consequence of it, viz., the order of the Subordinate Judge restoring the application for execution to the extent of Rs. 92,000, and the further order of the High Court appeal restoring the execution case terms, are null and void and have to be set aside and the order of the executing court dated the 25th April, 1945, restored.
+We order accordingly.
+Appeal No. 13 of 1951 is dismissed.
+In the peculiar circumstances of this case we direct that the parties be left to bear their own costs throughout, that is, those incurred by them in the High Court in the proceedings which terminated with the remand order, the costs incurred in the subordinate court after the remand order, and the costs there after 154 incurred in the High Court and those incurred in this court i n these appeals.
+Appeal No. 12 allowed.
+Appeal No. 13 dismissed.
+I Agent for the appellant in C. A. No. 12 and respondent in C.A. No. 12: P. K. Chatterjee.
+Agent for the respondents in C. A. No. 12 and appellants in C. A. No. 13: Sukumar Ghose.

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@@ -0,0 +1,74 @@
+Appeal No. 327 of 1959.
+Appeal from the order dated June 28, 1956, of the Bombay High Court at Nagpur in Misc.
+First Appeal No. 15 of 1954.
+98 774 A. V. Viswanatha Sastri, Shankar Anand and A. G. Batnaparkhi, for the appellant.
+K. N. Rajagopal Sastri, as amicus curiae.
+November 29.
+The Judgment of the Court was delivered by SHAH, J.
+Ramachandra Dhondo Datar hereinafter referred to as the respondent was employed by the appellant company in its publications branch.
+By agreement dated March 23, 1943, the appellant company agreed to pay to the respondent as from April 1, 1943, remuneration per annum equal to 3 1/2% of the gross sales or Rs. 12,000 whichever was greater.
+The agreement was to remain in operation for ten years from April 1, 1943, in the first instance and was renewable at the option of the respondent for such period as he desired.
+By notice dated April 19, 1948, served on the respondent on April 22, 1948, the appellant company terminated the employment of the respondent.
+The respondent then filed a civil suit in the court of the Fifth Additional District Judge, Nagpur, for a decree for Rs. 1,30,000 being the amount of compensation for wrongful termination of employment, arrears of salary and interest.
+On July 17, 1953, the court after giving credit for the amount received by the respondent passed a decree for Rs. 42,359 (which was inclusive of Rs. 36,000 as compensation for termination of employment and Rs. 6,000 as salary in lieu of six months notice and interest) and costs and interest on judgment.
+The respondent then applied for execution of the decree and claimed Rs. 54,893 12 0 less Rs. 18,501 10 0 decreed against him in a cross suit filed by the appellant company.
+The Income Tax Officer, Nagpur, served a notice under section 46 of the Indian Income Tax Act upon the respondent and also gave intimation to the District Judge, Nagpur, that the appellant company be permitted to deduct at source and to pay into the Government Treasury Rs. 15,95613 0 as income tax, surcharge and super tax due on the sum of Rs. 50,972 2 0 awarded to the respondent.
+The appellant company also applied that the 775 executing Court do declare that the appellant company was entitled and in law bound to deduct the tax due on the amount.
+The learned Judge directed the appellant company to pay to the Income Tax Department Rs. 15,956 13 0 on account of income tax and super tax on the amount due to the respondent and directed it to pay the balance in court after filing a receipt for payment of tax from the Income Tax department.
+In appeal to the High Court of Judicature at Nagpur, the order passed by the District Judge was reversed and execution as claimed by the respondent was directed.
+The appellant company contends that under section 18(2) of the Income Tax Act, it was bound to deduct the tax computed at the appropriate rate on the salary payable to the respondent as the amount due under the decree represented salary.
+Section 18 sub section
+(2) of the Income Tax Act in so far as it is material provides that any person paying any amount chargeable under the head "salaries" shall at the time of payment deduct income tax and super tax at the rate representing the average of the rates applicable to the estimated total income of the assessee under the head "salary".
+Sub section
+(7) declares that a person failing to deduct the taxes required by the section shall be deemed to be an assessee in default in respect of such tax.
+The Legislature has, it is manifest, imposed upon the employer the duty to deduct tax at the appropriate rate on salary payable to the employee and if he fails to do so, the tax not deducted may be recovered from him.
+But the liability to deduct arises in law, if the amount is due and payable as salary.
+In this case, there has been no assessment of tax due by the Income Tax Officer on the amount payable to the respondent.
+Under section 46(5), any person paying salary to an assessee may be required by the Income Tax Officer to deduct arrears of tax due from the latter and the employer is bound to comply with such a requisition and to pay the amount deducted to the credit of the Government.
+But this order can only be passed if income tax has been assessed and has remained unpaid.
+It is undisputed that at the, material 776 time, no tax was assessed against the respondent; the Income Tax Officer had accordingly no authority to issue a notice under section 46(5).
+Nor could the Income Tax Officer claim to recover tax due by a proceeding in the nature of a garnishee proceeding by applying to the civil court to attach the Judgment debt payable by the company.
+The application submitted by the Income Tax Officer must therefore be ignored.
+Undoubtedly, the employer is by section 18 of the Act liable to deduct from the salary payable by him to his employee the amount of tax at the average rate appli cable to the estimated total income; but can it be said that as between the appellant company and the respondent the decretal amount represented salary? The respondent had filed a suit for a decree for arrears of salary, compensation for wrongful termination of employment and interest.
+The court having passed a decree on that claim, it became a judgment debt.
+It may have been open to the appellant company in the suit to apply to the court for making a provision in the decree for payment of income tax due by the respondent, but no such provision was made.
+We are not concerned to decide in this appeal whether in the hands of the respondent the amount due to him under the decree, when paid, will be liable to tax; that question does not fall to be determined in this appeal.
+The question to be determined is whether as between the appellant company and the respondent the amount decreed is due as salary payment of which attracts the statutory liability imposed by section 18.
+The claim decreed by the civil court was for compen sation, for wrongful termination of employment, arrears of salary, salary due for the period of notice and interest and costs, less withdrawals on salary account.
+The amount for which execution was sought to be levied was the amount decreed against which was set off the claim under the cross decree.
+A substantial part of the claim decreed represented compensation fir wrongful termination of employment and it would be difficult to predicate of the claim sought to be enforced what part thereof if any represented salary due.
+Granting that compensation payable to an 777 employee by an employer for wrongful termination of employment be regarded as in the nature of salary, when the claim is merged in the decree of the court, ' the claim assumes the character of a judgment debt and to judgment debts section 18 has not been made applicable.
+The decree passed by the civil court must be executed subject to the deductions and adjustments permissible under the Code of Civil Procedure.
+The judgment debtor may, if he has a cross decree for money, claim to set off the amount due thereunder.
+If there be any adjustment of the decree, the decree may be executed for the amount due as a result of the adjustment.
+A third person who has obtained a decree against the judgment creditor may apply for attachment of the decree and such decree may be executed subject to the claim of the third person: but the judgment debtor cannot claim to satisfy, in the absence of a direction in the decree to that effect the claim of a third person against the judgment creditor, and pay only the balance.
+The rule that the decree must be executed according to its tenor may be modified by a statutory provision.
+But there is nothing in the Income Tax Act which supports the plea that in respect of the amount payable under a judgment debt of the nature sought to be enforced, the debtor is entitled to deduct income tax which may become due and payable by the judgment creditor on the plea that the cause of action on which the decree was passed was the contract of employment and a part of the claim decreed represented amount due to the employee as salary or damages in lieu of salary.
+Counsel for the appellant company strongly relied upon the decision of the House of Lords in Westminster Bank Ltd. vs Riches (1).
+That was a case in which in an action brought by one R against the Westminster Bank trustee of the estate of one X R was awarded a decree for pound 36,255 principal and pound 10,028 as interest.
+The Bank thereafter brought an action for a declaration that it had satisfied the judg ment in the action by R by paying him the amount (1) 18 Tax Cases 159.
+778 due less pound 5,014, the latter sum representing income tax on the interest awarded by the judgment.
+It was held by the House of Lords that pound 10,028 was "interest of money" within Schedule D and General Rule 21 of the Income Tax Act, 1918, and that income tax was deductible therefrom.
+In that case, the only argument advanced on behalf of the Bank is set out in the speech of Viscount Simon, L. C. at p. 187: "The appellant contends that the additional sum of pound 10,028 though awarded under a power to add interest to the amount of the debt, and though called interest in the judgment, is not really interest such as attracts Income Tax, but is damages.
+The short answer to this is that there is no essential incompatibility between the two conceptions.
+The real question, for the purposes of deciding whether the Income Tax Acts apply, is whether the added sum is capital or income, not whether the sum is damages or interest." The House of Lords in that case by a majority held that pound 10,028 awarded under the judgment represented not capital but interest and was liable to tax.
+In our view, ' this case has no application to the facts of the present case.
+In the case before us, there is a decree passed in favour of the respondent: under the scheme of the Civil Procedure Code, that decree has to be executed as it stands, subject to such deductions or adjustments as are permissible under the Code.
+There was no tax liability which the respondent was assessed to pay in respect of this amount till the date on which the appellant company sought to satisfy the alleged tax liability of the respondent.
+As between the appellant company and the respondent, the amount did not represent salary; it represented a judgment debt and for payment of income tax thereon, no provision was made in the decree.
+The Civil Procedure Code bars an action of the nature which was filed in Westminster Bank 's case (supra).
+The defence to the execution if any must be raised in the execution proceeding and not by a separate action.
+The amount payable by the appellant company to the respondent was not salary but a judgment debt, and before paying that debt the appellant company could not claim 779 to deduct at source tax payable by the respondent.
+Nor could the appellant company seek to justify its plea on the ground that the judgment creditor was indebted to a third person.
+The principle of the case in Manickam Chettiar vs Income Tax Officer, Madura (1), on which reliance was also sought to be placed by the appellant company has no application to this case.
+In Manickam Chettiar 's case (1), in execution of a money decree certain properties belonging to a judgment debtor were attached and sold and the sale proceeds were received by the court.
+The Income Tax Officer who had assessed the decree holder to tax payable by him on his other income applied to the court for an order directing payment to him out of the sale proceeds the amount of income tax due by the decree holder.
+It was held that the claim for income tax was entitled to priority in payment and the court had inherent power to make an order on the application for payment of money due as income tax.
+Tax had admittedly been assessed, and proceedings substantially for recovery of the tax so assessed were adopted by the Income Tax Officer.
+It was held in the circumstances that the court had jurisdiction to direct recovery of tax out of the amount standing to the credit of the decree holder.
+The principle of that case can have no application to the facts of the present case.
+The respondent had not appeared before us, but we have been assisted by Mr. Rajagopala Sastri and we are indebted to him for placing the evidence and the various aspects of the case on a true appreciation of which the question in issue fell to be determined.
+The appeal fails and is dismissed.
+As there was no appearance for the respondent, there will be no order for costs.
+Appeal dismissed.
+(1) VI I.T. R. 180.

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+Appeals Nos. 776 and 777 of 1957.
+Appeals by special leave from the judgment and order dated September 25, 1956, of the Bombay High Court in Income tax Application No. 48 of 1956; and from the judgment and order dated March 17,1954, of the Income tax Appellate Tribunal, Bombay, in E.P.T.A. Nos. 757, 903 and 944 of 1948 49, respectively.
+A. V. Viswanatha Sastri and G. Gopalakrishnan, for the appellants.
+A. N. Kripal and D. Gupta.
+for the respondent.
+November 30.
+The Judgment of the Court was delivered by HIDAYATULLAH, J.
+These are two appeals, with special leave, against an order of the High Court of Bombay rejecting a petition under section 66(2) of the Indian Income tax Act and the order of the Income tax Appellate Tribunal, Bombay, in respect of which the petition to the High Court was made.
+Messrs. section C. Cambatta & Co. (Private) Ltd., Bombay, have filed these appeals, and the Commissioner of Excess Profits Tax, Bombay, is the respondent.
+We are concerned in these appeals with three chargeable accounting periods, each ending respectively on December 31, beginning with the year, 1943 and ending with the year, 1945.
+807 The appellants carry on various businesses, and one such business was the running of a theatre and restaurant, called the Eros Theatre and Restaurant.
+In October, 1943, a subsidiary Company called the Eros Theatre and Restaurant, Ltd. was formed.
+The paid up capital of the subsidiary Company was Rs. 7,91,100 divided into 7,911 shares of Rs. 100 each.
+7,901 shares were allotted to the appellant Company as consideration for assets, goodwill, stock in trade and book debts which were taken over by the subsidiary Company, and the remaining 10 shares were held by the Cam batta family.
+The assets which were transferred were as follows: Assets: Assets transferred.
+Rs.1,28,968 Stock in trade.
+Rs.40,000 Book debts. .
+Rs.100 Rs.1,69,068 They together with the capital reserve of Rs. 6,21,032 made up the amount of Rs. 7,90,100.
+In the books of the subsidiary Company, the share capital account was shown separately as follows: Rs. 2,50,000 debited to the various assets account.
+Rs. 5,00,000 debited to the goodwill account.
+Rs. 40,000 debited to the stock in trade account.
+Rs. 100 debited to the book debts account.
+It will thus appear that goodwill was not shown separately in the appellants ' account books, but only in the accounts of the subsidiary Company.
+In working out the capital of the two Companies for excess profits tax, a sum of Rs. 5,00,000 was claimed as goodwill as part of the capital of the subsidiary Company.
+Both the Department as well as the Tribunal held that section 8(3) of the Excess Profits Tax Act applied; and the goodwill was not taken into account in working out the capital.
+The Tribunal declined to state a case, but the High Court directed that a reference be made on two questions, which were framed as follows: 808 "(1) Whether on the facts of the case, the Appellate Tribunal was right in applying section 8(3) of the Excess Profits Tax Act? (2).
+Whether in the computation of the capital employed. in the business of the assessee, the Tribunal erred in. not including the value of the goodwill or any "portion thereof?" The High Court by its judgment and order answered the first question in the negative and the second, in the affirmative.
+It held that sub section
+(5) and not sub section
+(3) of section 8 of the Excess Profits Tax Act was applicable.
+It, therefore, held that "the Tribunal should have allowed for the value of the goodwill whatever it thought was reasonable at the date of the transfer.
+" When the matter went before the Tribunal again, three affidavits and a valuation report by a firm of architects were filed.
+The goodwill, according to the report of the architects, amounted to Rs. 25 lakhs.
+It may be mentioned here that the subsidiary Company was using the premises under a lease granted on November 20, 1944, for three years beginning from April 1, 1944, on a rental of Rs. 9,500 per month.
+The Tribunal came to the conclusion that no goodwill had been acquired by the business of the Theatre as such, and that whatever goodwill there was, related to the site and building itself.
+They then proceeded to consider what value should be set upon the goodwill on the date of the transfer of the subsidiary Company as directed by the High Court.
+They took into account certain factors in reaching their conclusions.
+They first considered the earning capacity of the business, and held that prior to 1942 the business had not made profits, and that the name of Eros Theatre and Restaurant thus by itself had no goodwill at all.
+They, therefore, considered that the only goodwill which had been acquired attached to the lease, which the trustees had given to the Eros ;Theatre and Restaurant Ltd., and computing the goodwill as the value of the lease to the subsidiary Company, they felt that Rs. 2 lakhs was a liberal estimate of the value of the goodwill in the hands of Eros Theatre and Restaurant, Ltd. at the material time.
+809 Petitions under sections 66(1) and 66(2) read with a. 21 of the Excess Profits Tax Act were respectively rejected by the Tribunal and the High Court; but the appellants obtained special leave from this Court, and filed these appeals.
+In our opinion, a question of law did arise in the case whether the goodwill of the Eros Theatre and ' Restaurant, Ltd., was calculated in accordance with law.
+The Tribunal seems to have taken into account only the value of the leasehold of the site to the subsidiary Company, and rejected other considerations which go to make up the goodwill of a business.
+No doubt, in Cruttwell vs Lye(1), Lord Eldon, L. C. observed that goodwill was "nothing more than the probability that the old customers would resort to the old place".
+The description given by Lord Eldon has been considered always to be exceedingly narrow.
+The matter has to be considered from the nature of the business, because the goodwill of a public inn and the goodwill of a huge departmental stores cannot be calculated on identical principles.
+The matter has been considered in two cases by the House of Lords.
+The first case is Trego vs Hunt (2), where all the definitions previously given were considered, and Lord Macnaghten observed that goodwill is "the whole advantage, whatever it may be of the reputation and connection of the firm, which may have been built up by years of honest work or gained by lavish expenditure of money".
+In a subsequent case reported in Inland Revenue Commissioners vs Muller & Co.s.
+Margarin, Ltd. (3), Lord Macnaghten at pp.
+223 and 224 made the following observations:.
+"What is goodwill? It is a thing very easy to describe, very difficult to define.
+It is the benefit and advantage of the good name, reputation, and connection of a business.
+It is the attractive force which brings in custom.
+It is the one thing which distinguishes an old established business from a new business at its first start. . .
+If there is one attribute common to all cases of goodwill in it is the attribute (1) 346.
+(2) (3) 810 of locality.
+For goodwill has no independent existence.
+It cannot subsist by itself. 'It must be attached to a business.
+Destroy the business, and the goodwill perishes with it, though elements remain which may perhaps be gathered up and be revived again".
+These two cases and others were considered in two 'Australian cases.
+The first is Daniell vs Federal Com missioner of Taxation (1), where, Knox, C. J. observed: "My opinion is that while it cannot be said to be absolutely and necessarily inseparable from the premises or to have no separate value, prima facie at any rate it may be treated as attached to the premises and whatever its value may be, should be treated as an enhancement of the value of the premises".
+In the second case reported in Federal Commissioner of Taxation vs Williamson (2), Rich, J., observed at p. 564 as follows: "Hence to determine the nature of the goodwill in any given case, it is necessary to consider the type of business and the type of customer which such a business is inherently likely to attract as well as the surrounding circumstances. .
+The goodwill of a business is a composite thing referable in part to its locality, in part to the way in which it is conducted and the personality of those who conduct it, and in part to the likelihood of competition, many customers being no doubt actuated by mixed motives in conferring their custom".
+In Earl Jowitt 's Dictionary of English Law, 1959 Edn., "goodwill" is defined thus: "The goodwill of a business is the benefit which arises from its having been carried on for some time in a particular house, or by a particular person or firm, or from the use of a particular trade mark or trade name" It will thus be seen that the goowill of a business depends upon a variety of circumstances or a combination of them.
+The location, the service, the standing of the business, the honesty of those who run it, and the lack of competition and many other factors go individually or together to make up the goodwill, (1) ; (2) ; 811 though locality always plays a considerable part.
+Shift the locality, and the goodwill may be lost.
+At the same time, locality is not everything.
+The power to attract custom depends on one or more of the other factors as well.
+In the case of a theatre or restaurant, what is catered, how the service is run and what the competition is, contribute also to the goodwill.
+From the above, it is manifest that the matter of goodwill needs to be considered in a much broader way than what the Tribunal has done.
+A question of law did arise in the case, and, in our opinion, the High Court should have directed the Tribunal to state a case upon it.
+Civil Appeal No. 776 of 1957 is allowed.
+The High Court will frame a suitable question, and ask for a statement of the case from the Tribunal, and decide the question in accordance with law.
+The costs of this appeal shall be borne by the respondent; but the costs in the High Court shall abide the result.
+There will be no order in Civil Appeal No. 777 of 1957.
+C. A. No. 776 of 1957 allowed.

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+Appeals Nos. 187 and 190 of 1960.
+Appeals from the judgment dated 22nd January, 1957, of the Punjab High Court (Circuit Bench), Delhi, in Civil Reference No. 6 of 1953.
+Veda Vyasa, section K. Kapur and K. K. Jain, for the appellant.
+B. Ganapathi Iyer and D. Gupta, for the respondent.
+November 30.
+The Judgment of the Court was delivered by KAPUR, J.
+These appeals are brought by the assessee company against a common judgment and order of the Punjab High Court by which four appeals were decided in Civil Reference No. 6 of 1953.
+The appeals relate to four assessment years, 1947 48, 1948 49, 1949 50 and 1950 51.
+Two of these assessments, i.e., for the years 1947 48 and 1948 49 were made on the 800 appellant as successor to the two limited companies hereinafter mentioned.
+Briefly stated the facts of the case are that the appellant company was incorporated in the year 1947.
+Its objects inter alia were to acquire as a going concern activities, functions and business of the Delhi Stock & Share Exchange Limited and the Delhi Stock and Share Brokers Association Limited and to promote and regulate the business of exchange of stocks and shares, debentures and debenture stocks, Government securities, bonds and equities of any description and with a view thereto, to establish and conduct Stock Exchange in Delhi and/or elsewhere.
+Its capital is Rs. 5,00,000 divided into 250 shares of Rs. 2,000 each on which dividend could be earned.
+The appellant company provided a building and a hall wherein the business was to be transacted under the supervision and control of the appellant.
+The appellant company also made rules for the conduct of business of sale and purchase of shares in the Exchange premises.
+The total income for the year 1947 48 was Rs. 29,363 out of which a sum of Rs. 15,975 shown as admission fees was deducted and the income returned was Rs. 13,388.
+In the profit and loss account of that year Members ' admission fees were shown as Rs. 9,000 and on account of Authorised Assistants admission fees Rs. 6,875.
+The Income tax Officer who made the assessment for the year 1947 48 disallowed this deduction.
+The return for the following year also was made on a similar basis but the return for the years 1949 50 and 1950 51 did not take into account the admission fees received but in the Director 's report the amounts so received were shown as having been taken directly into the balance sheet.
+The Income tax Officer, however, disallowed and added back the amount so received to the income returned by the appellant.
+Against these orders appeals were taken to the Appellate Assistant Commissioner who set aside the additional assessments made under section 34 in regard to the assessment years 1947 48, 1948 49 and 1949 50 and the 4th appeal in regard to the year 1950 51 was decided against the appellant.
+Both sides appealed 801 to the Income tax Appellate Tribunal against the respective orders of the Appellate Assistant Commissioner and the Tribunal decided all the appeals in favour of the appellant.
+It was held by one of the members of the Tribunal that the amounts received as entrance fees were intended to be and were in fact treated as capital receipts and were therefore excluded from assessment and by the other that as there was no requisite periodicity, those amounts were not taxable.
+At the instance of the respondent a case was stated to the High Court on the following question: "Whether the admission fees of Members or Authorised Assistants received by the assessee is taxable income in its hands?" The High Court answered the question in favour of the respondent.
+The High Court held that the appellant was not a mutual society and therefore was not exempt from the payment of income tax; that it had a share capital on which dividend could be earned and any person could become a shareholder of the company by purchasing a share but every shareholder could not become a member unless he was enrolled, admitted or elected as a member and paid a sum of Rs. 250 as admission fee.
+On becoming a member he was entitled to exercise all rights and privileges of membership.
+It also found that the real object of the company was to carry on business as a Stock Exchange and the earning of profits.
+It was held therefore that the admission fees fell within the ambit of the expression "profits and gains of business, profession or vocation".
+The further alternative argument which was raised, i.e., that the income fell under section 10(6) of the Act, was therefore not decided.
+Mr. Veda Vyasa contended on behalf of the appellant that there were only 250 members of the appellant company; that the amount received as membership fees was shown as capital in the books of the company and there was no periodicity and therefore the amounts which had been treated as income should have been treated as capital receipts and therefore exempt from assessment.
+It was firstly contended that the question did not arise out of the order of the 802 Tribunal and that a new question had been raised but the objection is futile not only because of the absence of any such objection at the stage of the drawing up the statement of the case but also because of failure to object in the High Court; nor do we see any validity in the objection raised.
+That was the only matter in controversy requiring the decision of the court and was properly referred by the Tribunal.
+It was then contended that the question had to be answered in the light of facts admitted or found by the Tribunal and that the nature of the appellant 's business or the rules in regard to membership could not be taken into consideration in answering the question.
+That again is an unsustainable argument.
+The statement of the case itself shows that all these matters were taken into consideration by one of the members of the Tribunal and the learned judges of the High Court also decided the matter on that material which had been placed before the Income tax authorities and which was expressly referred to in their orders and which again was placed before the High Court in the argument presented there on behalf of the appellant company.
+It is wholly immaterial in the circumstances of the present case to take into consideration as to how the appellant treated the amounts in question.
+It is not how an assessee treats any monies received but what is the nature of the receipts which is decisive of its being taxable.
+These amounts were received by the appellant as membership admission fees and as admission fees paid by the members on account of Authorised Assistants.
+As far as the latter payment is concerned that would fall within the decision of this Court in Commissioner of Income tax.
+vs Calcutta Stock Exchange Association Ltd. (1) and therefore is taxable income.
+The former, i.e., members admission fees has to be decided in accordance with the nature of the business of the appellant company, its Memorandum and Articles of Association and the Rules made for the conduct of business.
+The appellant company was an association which carried on a trade and its profits were divisible as dividend amongst the shareholders.
+(1) 803 The object with which the company was formed was to promote and regulate the business in shares, stocks and securities etc., and to establish and conduct the business of a Stock Exchange in Delhi and to facilitate the transaction of such business.
+The business was more like that in Liverpool Corn Trade Association vs Monks (1).
+In that case an association was formed with the object of promoting the interest of corn trade with a share capital upon which the association was empowered to declare a dividend.
+The Association provided a Corn Exchange market, newsroom and facilities for carrying on business and membership was confined to persons engaged in the corn trade and every member was required to be a shareholder and had to pay an entrance fee.
+The Association also charged the members and every person making use of facilities a subscription which varied according to the use made by them.
+The bulk of the receipts of the Association was derived from entrance fees and subscriptions.
+It was therefore contended that the Association did not carry on a trade and that it was a mutual association and entrance fees and subscriptions should be disregarded in computing assessment of the assessable profits.
+It was held that it was not a mutual association whose transactions were inca pable of producing a profit; that it carried on a trade and the entrance fee paid by members ought to be included in the associations receipts for purposes of computing the profit.
+Rowlatt, J. said at p. 121: "I do not see why that amount is not a profit.
+The company has a capital upon which dividends may be earned, and the company has assets which can be used for the purpose of obtaining payments from its 'members for the advantages of such use, and one is tempted to ask why a profit is not so made exactly on the same footing as a profit is made by a railway company who issues a traveling ticket at a price to one of its own shareholders, or at any rate as much a profit as a profit made by a company from a dealing with its own shareholders in a line of business which is restricted to the shareholders." (1) 804 In Commissioner of Income tax, Bombay City vs Royal Western India Turf Club Ltd. (1) this Court rejected the applicability of the principle of mutuality because there was no mutual dealing between members inter se.
+There was no putting up a common fund for discharging a common obligation undertaken by the contributors for their mutual benefit and for this reason the case decided by the House of Lords in Styles V. New York Life Insurance Company (2) was held not applicable.
+In the present case the Memorandum of Association shows that the object with which the company was formed was to promote and regulate the business of exchange of stocks, shares, debentures, debenture stocks etc.
+The income, if any, which accrued from the business of the appellant company was distributable amongst the shareholders like in every joint stock company.
+According to the Articles of Association the members included shareholders and members of the Exchange and according to the rules and bye laws of the appellant company 'member ' means an individual, body of individuals, firms, companies, corporations or any corporate body as may be on the list of working members of the Stock Exchange for the time being.
+In the Articles of Association cls.
+7 & 8, provision was made for the election of members by the Board of Directors and Rules 9 & 10 laid down the procedure for the election of these members.
+The entrance fees were payable by the trading members elected under the Rules and Bylaws of the Association, who alone with their Associates, could transact business in stocks and shares in the Association.
+Therefore, the body of trading members who paid the entrance fees, and the shareholders among whom the profits were distributed were not identical and thus the element of mutuality was lacking.
+It is the nature of the business of the company and the profits and the distribution thereof which are the determining factors and in this case it has not been shown that the appellants business was in any way different from that which was carried on in the (1) ; , 308.
+(2) ; 805 case reported as Liverpool Corn Trade Association vs Monks (1).
+In our opinion the judgment of the High Court is right and the appeals are therefore dismissed with costs.
+One hearing fee.
+Appeals dismissed.