Prompt:
Appeals Nos. 884 887 of 1962.
Appeals from the judgment and decree dated May 2, 1960, of the Rajasthan High Court in Civil Second Appeal Nos.
268 of 1954, 203 of 1955, 4 of 1954 and 27 of 1954.
section K. Kapur and B. R. G. K. Achar, for the appellant 'in allthe appeals).
R. P. Modi and R. K. Garg, for the respondents (in C.A. No. 887/1962).
March 12, 1964.
The Judgment of the Court was delivered by WANCHOO, J.
These four appeals arise out of four certi ficates granted by the High Court of Rajasthan and raise a common question.
We therefore, propose to set out facts in one of the present appeals (No. 887), as the facts in other appeals are similar, except that the commodity involved was different and so was the amount in dispute.
The suit out 'of which appeal No. 887 has arisen was filed by the respondent against the State of Rajasthan.
The respondent was a resident of the former Dholpur State and the dispute which led to the suit related to a time before the merger of former Dholpur State into the Matsya Union.
The case of the respondent was that in 1947 certain commodities including chuni with which appeal No. 887 is concerned could only be exported from the former Dholpur State on export permits issued by the customs department of the said State.
It was also the practice in that State that when permits for export were issued, export duties had to be paid in advance, though the actual export was made later.
Consequently, in June 1947 the respondent applied for and was granted a permit for export of 15,000 maunds of chuni, and in connection therewith he deposited Rs. 30,000/as export duty in advance.
This permit had been granted on June 28, 1947 and remained in force upto December 2, 1947.
The respondent however was not able to export the entire quantity of 15,000 maunds for which the permit was granted; he could only export 4,572 maunds and 20 seers of chuni before December 2, 1947.
Thereafter he could not export further as his permit was not extended.
It was alleged on behalf of the respondent that the reason why he failed to export the entire 176 quantity of the commodity before December 2, 1947 was due to market conditions and inability to get allotment of railway wagons.
The respondent 's case further was that as he could not export the entire quantity of 15,000 maunds for which he had paid export duty in advance at the rate of Rs. 2/ per maund, he was entitled to refund of the proportionate export duty for the quantity of 10,427 maunds and 20 seers, which he could not export.
His case further was that though he asked the State for refund of this advance duty, the State did not pay back the same to him.
In the meantime, rapid constitutional changes took place after August 15, 1947.
By May 15, 1949, the United State of Rajasthan was formed including the Matsya Union into which the former State of Dholpur had merged on March 17, 1948.
The United State of Rajasthan eventually became the Part B State of Rajasthan on January 26, 1950 when the Constitution came into force.
Eventually when the State refused to refund the amount, the suit was filed, out of which appeal No. 887 has arisen, in January 1952.
The respondent claimed refund of Rs. 20,855/ along with interest and costs.
The suits were resisted by the State of Rajasthan on various grounds; but we are concerned now only with one ground which alone has been urged before us, namely, that the State of Rajasthan was not bound by any liability which might have arisen against the former State of Dholpur.
It was a new sovereign and was not bound by any obligation against the old sovereign of the former State of Dholpur unless it chose to recognise the obligation.
As the United State of Raja sthan into which the former State of Dholpur came to be merged in 1949 never recognised the obligations of the former State of Dholpur it was not bound to refund the amount due to the respondents.
In reply to this contention of the State, the respondent relied on article 295(2) of the Constitution and other provisions made during the period when mergers were taking place after August 15, 1947 and contended that in view of article 295(2) of the Constitution the State of Rajasthan was bound by the obligation of the former State of Dholpur.
Before we refer to the decisions of the courts below with regard to this controversy it would be convenient to clear the ground by indicating the admitted position, which resulted in the inclusion of the former Dholpur State into the Part B State of Rajasthan, which came into existence on January 26, 1950 and which would be bound by article 295(2) of the Constitution.
The former Dholpur State remained a separate entity till March 17, 1948, though it had acceded to the Dominion of India after August 15, 1947 with respect to three subjects, namely, communications, defence and external affairs.
In 1948, however, the process of merger in Rajasthan began and the 177 first merger that took place was of the former States of Alwar, Bharatpur, Dholpur and Karauli, which formed the Matsya Union as from March 18, 1948 by a Covenant entered on February 28, 1948.
It is not in dispute that on this merger, provision was made for the continuance of the laws in the covenanting State till such time as they were modified by the new State.
Provision was also made in the Covenant that all the assets and liabilities of the covenanting States shall be the assets and liabilities of the new State of Matsya.
Then came another union of certain other Rulers in Rajasthan in March 1948 by which these Rulers united under the Ruler of Udaipur to form what later came to be known as the Former State of Rajasthan.
In March 1949, the United State of Rajasthan was formed by Covenant entered into by fourteen Rulers of Rajasthan, including these who had formed the Former State of Rajasthan.
and this State came into existence from April 7.
It may be mentioned here that when this State came into existence on April 7, 1949, it provided for the continuance of all laws till they were repealed or amended by the new State.
There was also a provision in the Covenant by which the assets and liabilities of the covenanting States became the assets and liabilities of the new State.
In this State of United State of Rajasthan, the State of Matsya, merged in May 1949, and thus the former State of Dholpur came to be included in the United State of Rajasthan through the Matsya Union.
When this merger took place it is not in dispute that the exis ting laws were to continue till they were repealed or altered by the new State.
It is also not in dispute that the assets and liabilities of the Matsya Union were taken over as the assets and liabilities of the United State of Rajasthan in which the Matsya Union merged.
Finally the United State of Rajasthan in which the State of Sirohi was also merged became the Part B State of Rajasthan on January 26, 1950.
At this time also article 372 of the Constitution continued the existing laws subject to their being altered or repealed by the new State.
Further article 295(2) provided that the Government of each State specified in Part B of the First Schedule shall, as from the commencement of the Constitution, be the successor of the Government of the corresponding Indian State as regards all property and assets and all rights, liabilities and obligations.
whether arising out of any contract or otherwise, other than those referred to in cl.
This was subject to any agreement entered into in that behalf by the Government of India with the Government of the State concerned.
This completes the narration of the political changes that took place till the Constitution came into force on January 26, 1950.
We have already indicated that a number of defences were raised on behalf of the State of Rajasthan and these de fences were negatived by the trial court in three suits.
One 178 of the suits, out of which appeal No. 886 has arisen, was ismissed by the trial Court.
The State went in appeal in two of the suits to the District Judge and in one (out of which appeal No. 887 has arisen) to the High Court direct in view of the valuation.
In the fourth suit, the plaintiff went in appeal to the District Judge.
The appeals of the State to the District Judge were substantially dismissed while the appeal in the fourth suit by the plaintiff was substantially allowed.
Then followed three second appeals to the High Court by the State.
These second appeals were heard along with the first appeal in the High Court.
It seems that in the High Court for the first time a point was raised that the liability of the former Dholpur State did not fasten on the State of Rajasthan as it emerged on January 26, 1950.
The High Court permitted the point to be raised as it was a pure question of law.
AU the appeals came before a Division Bench of the High Court.
The two learned Judges composing the Division Bench disagreed on this question of the liability of the State of Rajasthan under article 295(2) in respect of the liability of the former State of Dholpur.
Thereupon there was a reference to a Full Bench on the question of liability which was formulated by the learned Judges thus: "Whether the expression 'Government of the corresponding State ' used in article 295(2) of the Constitution with reference to Rajasthan properly means the Government of the United State of Rajasthan which was the only Indian State in existence at the time of the commencement of the Constitution or it also includes the Government of any of the Covenanting States which had integrated with the United State before the Constitution came into operation.
" The three learned Judges who heard the reference were unanimously of the opinion that the expression "Government of the corresponding State" used in article 295(2) of the Constitution with reference to Rajasthan meant not only the Government of the United State of Rajasthan, but also the United State of Rajasthan including its component units.
The matter then went back to the Division Bench.
The three second appeals were dismissed by the High Court.
The first appeal out of which appeal No. 887 had arisen was also dismissed except that no interest was allowed upto the date of decree and the amount was reduced to the actual excess export duty, which had been deposited in advance and it was ordered to be refunded.
The only question that has been raised before us on behalf of the appellant is about the liability of the State of Rajasthan under article 295(2) of the Constitution in respect of the obligations of the former State of Dholpur, which came to be 179 included in the State of Rajasthan on account of political changes to which we have already referred.
In this connection, the appellant relies on the decision of this Court in M/s. Dalmia Dadri Cement Co. Ltd. vs The Commissioner of Incometax.
(1)That case dealt with the Covenant creating the State of Pepsu and particularly article VI thereof The covenant in the State of Pepsu was more or less similar in terms to the Covenant in the United State of Rajasthan.
This Court reviewed certain cases relating to the acquisition of territory by cession or by conquest, and held that it made no difference whether acquisition of new territory was by an existing State by conquest or by cession or a new State came into existence by agreement out of territories belonging to some former States.
In either case, it was held that there was establishment of new sove reignty over the territory in question and that was an act of State.
In consequence this Court further held that the Covenant by which the new State of Pepsu came into existence was in its entirety an act of State and that article VI therein could not operate to confer any right on the company as against the new State, for the principle was well settled that clauses in treaties entered into by sovereigns of independent States whereunder sovereignty in territories passed from one to the other providing for the recognition by the new sovereign of the existing rights of the residents of those territories must be regarded as invested with the character of an act of State and no claim based thereon could be enforced in a court of law.
This Court also negatived the argument which was urged in that case that part of the Covenant was an interim Constitution and head that the Covenant was in whole or in part an act of State and could not be treated as an interim Constitution.
Strong reliance is placed on behalf of the appellant on that decision in support of the contention that even if there was any liability of the former State of Dholpur to; refund the amount of tax collected in advance for no export was made, that liability did not devolve on the Part B State of Rajasthan under article 295(2) of the Constitution, as there was no recognition of this liability by the new State at any time and in that respect the present case was on all fours with that decision.
After laying down the above principles, this Court proceeded to consider in that decision the particular point raised before it.
That point was with respect to a clause in an agreement between the Ruler of the former Jind State and the Dalmia Dadri Cement Company with respect to income tax and certain concessions given to the company in that behalf.
The question that arose in that connection was whether there had been any recognition of the concessions by the new sovereign; and this Court held that there was no recognition of the concessions.
In that connection reference was made to Pepsu Ordinance No. 1 of 2005, dated August 20, 1948 by section 3 of which (1) [1959] section C. R. 729.
180 all laws in all Covenanting States were repealed and the laws in force in the State of Patiala were to apply mutatis mutandis to the entire territories of the new State.
This Ordinance was repealed and replaced by Ordinance XVI of Samvat 2006 which came into force on February 5, 1949 and which contained an exactly similar provision.
This Court therefore held that if the agreement was treated as a special law, it must be deemed to have been repealed by section 3 of Ordinance No. 1.
It further held that the repeal of all laws in the covenanting States other than Patiala and their replacement by the Patiala laws showed that the new sovereign did not recognise the rights of the subjects of the covenanting States arising from any law in force thereafter the State of Pepsu came into existence.
There fore it was held in that case that the concessions in the agreement came to an end when Ordinance No. 1 was passed as they were never recognised by the new sovereign and could not be availed of by the company.
It would be noticed that the decision that the new sovereign had not recognised the rights in States other than Patiala was based on the fact that Ordinance No. 1 repealed all laws in all States other than Patiala and applied the Patiala laws to the entire territory.
This was the basis of the particular decision arrived at in that case (apart from the general principles laid down in connection with the cession of territory to which we have already referred), and we shall refer to it when dealing with the facts in the present case.
Further though in that case it was held that article VI could not be enforced by citizens against the new sovereign as it was part of the Covenant, which was an act of State, this Court went on to point out that article VI of the Covenant would be valuable evidence from which affirmance of the rights mentioned therein could be inferred and added that such inference must relate to act or conduct of the new State after it came into existence.
If there were any acts of the new State which were equivocal in character, it would have been possible to bold in the light of article VI of the Covenant that its intention was to assume the liabilities.
In that case, however, this Court refused to treat article VI even as evidence because it pointed out that the first act of the new sovereign was the application of the Patiala State laws, including the Patiala Income tax Act, to the territories of Jind involving negation of the rights claimed in that case.
But apart from the particular decision in that case, we have to proceed on the basis of the general proposition enunciated in that case as to the effect of the coming into existence of a new State even in the manner in which the State of Pepsu or the United State of Rajasthan came into existence after their respective Covenants, and it is to this aspect of the matter we shall now turn.
We have already indicated when dealing with the history of the political changes which eventually culminated in the 181 Part B State of Rajasthan after the coming into force of the Constitution that two matters were always provided for there during all this process of merger.
The first was that each time a merger took place the new State by a provision in the Covenant took over the assets and liabilities of the merging States.
This provision in the Covenant could not be availed of by the subjects of the new State as, in view of the decisions in Dalmia Dadri Cement Co. 's case(1) the Covenant in whole or in part was an act of State.
But according to the same decision the presence of such a clause in the Covenant throughout would be valuable evidence which would show that the new State assumed the liabilities of the merging State, if there are any acts of the new State which are equivocal in character.
Now we find from the history we have already narrated above that every time there was a merger and formation of a new State, the old laws were always to continue till they were repealed, amended or altered by the new State.
We are of opinion that when the new State continued all the old laws till they were altered or repealed, and there was specific provision in each Covenant that the assets and liabilities of the Covenanting States were to be the assets and liabilities of the Union the new State must have intended to respect all the rights flowing from laws so continued and assume all liabilities arising from the existence of those laws.
Otherwise we see no sense or purpose in continuing the old laws till they are altered or repeated if the intention was that the obligations and liabilities flowing from the continuance of the old laws would notwithstanding the Covenant not be assumed by the new State.
If the intention was otherwise, we should have found a provision similar to that in the Pepsu case by which all the old laws were repealed in the merging States except Patiala and the Patila laws were to continue in the entire territory giving rise to such rights only as the Patiala Laws recognised or conferred.
But whereas in the present case the old laws were to continue till they were repealed or altered it follows in our opinion that the rights arising under the old laws in the subjects of the merging States would continue and these subjects would have the same rights against the new State as they would have under the old laws against the merging State.
Thus by continuing the old laws, till they are repealed, altered or modified, the new State in effect undertook the liability which might arise against it by virtue of the continuance of the old laws, Even if there was some doubt about the new State undertaking the liabilities of the old State in view of the continuance of the old laws, we can in accordance with the decision in the Daltia Dadri Cement Co. 's case(1) look to article VI of the Covenant to come to the conclusion that on continuing the old laws, until they were altered, repealed or modified, the (1) [1959] S.C.R. 729.
182 new State intended to affirm the rights of the subjects which they had against the merging State and to assume itself the liability if any arising against the merging State.
This is the basic difference between the Dalmia Dadri Cement Company case(1) and the present case, for in that case the old laws were repealed and thus repudiated in areas other than Patiala State while in the present case the old laws were continued till they were repealed or altered; and in view of that basic difference between that case and the present case we can legitimately call in aid article VI of the Covenant and similar provisions which were always made throughout this process of merger in Rajasthan and treat them as evidence from which to come to the conclusion that the new State, by continuing the old laws, without change till they were repealed or altered, recognised that it was liable in the same way as would have been the merging State if there was any liability on the merging State.
But this was of course subject to any law made by the new State repealing the old laws and the liabilities arising there under or even otherwise, provided the law so made was within the competence of the new State and after the Constitution came into force it did not transgress the constitutional limitations.
The result would be that the new State would be bound by the liabilities of the merging States and as similar provisions were there always throughout till we reach the Part B State of Rajasthan, it follows that there was always recognition of the rights of the subjects and that the new State assumed liabilities of the old State, throughout this process.
This was of course subject to any law passed by the New State provided that law was within its competence and after the Constitution came into force did not transgress the limitations contained therein.
In these circumstances we are of opinion that the new sovereign throughout this process of integration from 1948 to 1950 must be taken to have recognised the rights of the subjects and undertaken the liability, if any, of the old States.
It follows therefore that the State of Rajasthan will be liable under article 295(2) of the Constitution to meet the liabilities of all old States which eventually were included in it subject always to this that if the new State passed any law repealing the old law which would affect the liability or even otherwise that law would prevail and the liability may disappear provided the new law is within the competence of the State legislature and does not transgress the constitutional limitations after the Constitution came into force.
We are therefore of opinion that there was recognition of liability by the new State throughout this process and under the circumstances the suit was main tainable against the Part B State of Rajasthan in view of article 295(2) of the Constitution.
In this view of the matter we consider that it is unnecessary to decide whether the particular words used in article 295(2) include not only the United State of Rajasthan as it was just before January 26, 1950 but also the 183 old States which came to be merged into it through the process to which we have already referred.
Whether that is so or not, it follows in view of the history to which we have referred that there was always recognition by the new State of its liability in the manner already referred to with respect to the liabilities of the merging States, and if there is any doubt about it that doubt in our opinion is resolved by the existence of article VI or similar provision throughout the process of these political changes.
In this connection we may also refer to section 3 of the Raja sthan Administration Ordinance No. 1 of 1949, which conti nued existing laws of the old States till they were altered by the competent legislature or other competent authority in the new State.
Section 3 further said that the old laws will continue in force in the State concerned subject to the modification that reference therein to the Ruler or Government of that State shall be construed as a reference to the Rajpramukh or, as the case may be, to the Government of Rajasthan.
These words also indicate that whatever could be enforced under the laws in force in a State against the Ruler or the Government of the merging State could be enforced against the Rajpramukh or the Government of the new State.
This further bears out the conclusion that the new State recognised the rights of the subjects of the old States flowing from the old laws and was prepared to undertake the liability that may lie on it in consequence thereof.
We therefore agree with the Full Bench that the liability lay upon the State of Rajasthan because there was recognition of the liability even on the principles enunciate in the Dalmia Dadri Cement Company 's case(1).
In this view of the matter we need not express any view on the question whether the expression "Government of the corresponding Indian State" used in Art 295(2) would mean only the United State of Rajasthan as it was on January 26, 1950 or would also include all the former States which came to be merged in the United State of Rajasthan as it was on January 26,1950.
It only remains now to, refer to another decision of this Court in Maharaja Shree Umaid Mill Limited vs Union of India (2).
In that case there was an agreement between the Ruler of the former State of Jodhpur and the Maharaja Shree Umaid Mills Limited by which certain exemptions from income tax and excise duty were granted to the Mills.
Two questions arose for decision there.
The first was whether excise could be levied on the cloth manufactured and the second was whether income tax could be levied on the income of the Mills, in view of the agreement between the Mills and the former Ruler of Jodhpur.
The first question that was raised in that case was whether the agreement was a law; and this Court held that (1) [1959] S.C.R. 729.
(2) ; 184 the agreement was not a law.
With that aspect of the matter we are not concerned in the present appeals.
The next question that arose was whether the agreement had been recognized by the new sovereign and reliance was placed on the continuance of laws and article VI of the Covenant in that connection, and it was urged that in view of article 295 of the Constitution the exemption as provided in the agreement continued.
In that case, however, there was one vital difference; even though the old laws were continued for the time being by Rajasthan Ordinance No. 1 of 1949 the new State passed the Rajasthan Excise Duties Ordinance 1949 some time after.
That Ordinance clearly applied to the Mills and there was no doubt as to the State 's competence to enact it.
In view of that law, the exemption in the agreement was held not to have been affirmed by the new State of Rajasthan.
The facts of that case are thus different from the facts in the present case, for there was a competent law which clearly negatived the recognition of such an agreement and which clearly provided for excise duties.
So far as income tax was concerned it was imposed as from April 1, 1950 after the Constitution had come into force.
Here again we find a law which was competently passed by Parliament and which did not transgress any of the constitutional limitations.
Such a law therefore must prevail and in the presence of such a law there can be no question of recognition by the Union of the right to exemption, if any, under the agreement with the Ruler of the former Jodhpur State.
Therefore, with respect to both the claims raised in that case there was a law which clearly applied to the Mills and it was held that there was no recognition by the new sovereign.
In the present case we have only the continuance of the old laws and the valuable evidence afforded by article VI of the Covenant and there is nothing to show that the right to claim refund was taken away by any law competently passed.
In this view of the matter we are of opinion that the appellant can derive no assistance from the case of Maharaja Shree Umaid Mills(1).
The appeals therefore fail and are hereby dismissed.
Res pondent in Appeal No. 887 will get his costs from the appel lant.
Appeals dismissed.

Response:
In 1947, the Dholpur State acceded to the Dominion of India.
Later on, it was merged with other States and as a result of that merger, the Matsya Union was formed on March 18, 1948.
One of the provisions of the merger agreement was that the existing laws in the Covenanting States were to be continued till such time as they were modified or repealed by the new State and that all the assets and liabilities of the Covenanting States were taken over by the new State.
Later on, the Matsya Union was merged with the United State of Rajasthan which had come into existence from April 7, 1949.
A similar provision with regard to the recognition of the liabilities of the Covenanting States by the new State was also provided.
On January 26, 1950, Part B State of Rajasthan came into existence.
In the four appeals the respondents secured permits from the Dholpur State for the export of certain commodities and they had to pay export duties in advance.
As the respondents could not export the full quantity for which they had secured permits they asked the appellant to refund the excess export duty and when the latter refused to do so, filed suits for refund of the same with interest.
The defence taken up by the appellant was that it was not bound by any liability which might have arisen against the former State of Dholpur.
It was a new Sovereign and was not bound by any liability of the former State of Dholpur unless it chose to recognise the obligation but no such obligation was recognised in the present case.
One suit was dismissed by the trial court and other three were decreed.
The appeals of the State to the District Judge were substantially dismissed while the appeal in the first suit by the plaintiff was substantially allowed.
The State filed appeals to the High Court.
After referring the matter to the Full Bench, a Division Ben oh of the High Court dismissed the appeals filed by the State.
The Appellant came to this Court after obtaining certificate of fitness from the High Court.
The only question raised before this Court was about the liability of the State of Rajasthan under article 295(2) of the Constitution in respect of the obligations of the former State of Dholpur which came to be included in the State of Rajasthan.
Dismissing the appeals, Held, that the new State by continuing the old laws without change till they were repealed or altered, recognised that it was liable in the same way as the merging State would have been in any case.
Throughout the process of integration from 1948 to 1950, the new Sovereign must be taken to have recognised the rights of the subjects and undertaken the liabilities 175 of the old State.
So under article 295(2) of the Constitution, the State of Rajasthan was liable to meet the liabilities of all old States which eventually were merged into it.
Moreover, there was nothing to show that the right to claim the refund was taken away by any law competently passed.
M/s Dalmia Dadri Cement Co. Limited vs The Commissioner of Income tax [1959], S.C.R. 729 and Maharaja Shree Umaid Mill Limited vs Union of India, A.I.R. 1953, S.C. 953 referred to.


Prompt:
Appeal No. 251 of 1963.
Appeal by special leave from the judgment and order dated March 20, 1957, of the Patna High Court in Civil Revision No. 40 of 1956.
M. C. Setalvad, and R. C. Prasad, for the appellants.
The respondent did not appear.
March 24, 1964.
The short question which arises in this appeal is whether the term "wages" as defined by section 2(vi) of the (No. 4 of 1936) (hereinafter called 'the Act ') includes wages fixed by an award in an industrial dispute between the employer and his employees.
This question has to be answered in the light of the definition prescribed by section 2(vi) before it was amended in 1958.
The subsequent amendment expressly provides by section 2(vi) (a) that any remuneration payable under any award or settlement between the parties or order of a Court, would be included in the main definition under section 2(vi).
The point which we have to decide in the present appeal is whether the remuneration payable under an award was not already included in the definition of wages before the said definition was amended.
It is common ground that between the appellant, Sasamusa Sugar Works Ltd., and its workmen, the respondents, an award had been made by an Industrial Tribunal fixing the pay of the employees at Rs. 2/2/ per day, and in pursuance of the said award, the management of the appellant had entered into an agreement with the respondents that effect would be given to the wage structure, prescribed by the said award.
This agreement was subsequently published in the Bihar Gazette as a part of the award.
In spite of the award and the agreement, the appellant paid its employees only As.
/ 10 / per day and that led to the present claim made by the respondents under section 15 of the Act.
The respondents contended before the payment of wages authority that the refusal of the appellant to pay to them wages at the rate awarded, in substance, amounted to an illegal deduction from their wages and on that basis, they asked for an order from the authority directing the appellant to pay to the respondents the said prescribed wages.
The appellant raised two pleas against the respondents ' claim.
It urged that section 15 of the Act was inapplicable, because the rates of wages fixed by the award did not fall within the definition of wages prescribed by section 2(vi) and it also argue,, that the claim of the respondents was barred by limitation.
421 The authority has found that section 2(vi) includes wages prescribed by the Industrial Tribunal, and so, it has rejected the appellants ' contention that the applications made by the respondents were incompetent under section 15 of the Act.
In regard to the question of 'limitation, the authority did not decide the said question as a preliminary question, because it held, and, in our opinion, rightly, that it was a mixed question of fact and law, and so, it had to be tried after recording evidence.
The appellant challenged the correctness of the conclusion of the authority that the applications made by the res pondents were competent under section 15 of the Act before the Patna High Court by filing a petition under article 226 of the Constitution.
The High Court has affirmed the finding of the authority and held that section 15 was applicable to the case, because the wages prescribed by the award did amount to wages as defined by section 2(vi) of the Act.
On that view, the writ petition filed by the appellant was dismissed.
It is this order which the appellant seeks to challenge before us by its present appeal by special leave.
Section 2(vi) as it stood at the relevant time, provides, inter alia, that wages means all remuneration, capable of being expressed in terms of money, which would, if the terms of the ,contract of employment, express or implied, were fulfilled, be payable.
Mr. Setalvad for the appellant contends that before it is held that the wages prescribed by the award fall under section 2(vi), it must be shown that they constitute part of the terms of the contract of employment, either express or implied.
The terms in question need not be express and can be implied; but they must be terms which arise out of the contract of employment, and since an award made by an Industrial Tribunal cannot be said to amount to a contract of employment, the wage structure prescribed by the award cannot fall within the definition prescribed by section 2(vi).
That, in brief, is the substance of the argument raised by the appellant.
We are not inclined to hold that even under the unamended definition of wages, rates of remuneration prescribed by an award could not be included.
In dealing with the question of construing the unamended definition of the term "wages", it is essential to bear in mind the scope and character of the powers conferred on Industrial 'Tribunals when they deal with industrial disputes under the provisions of the Indus trial Disputes Act.
It is now well settled that unlike ordinary civil courts which are bound by the terms of contract between the parties when they deal with disputes arising between them in respect of the said terms, Industrial adjudication is not bound to uphold the terms of contract between the employer and the employees.
If it is shown to the satisfaction of Industrial adjudication that the terms of contract of employment, 422 for instance, need to be revised in the interests of social justice. it is at liberty to consider the matter, take into account all relevant factors and if a change or revision of the terms appears to be justified, it can, and often enough it does, radically change the terms of the contract of employment.
The development of industrial law during the last decade bears testimony to the fact that on references made under section 10(1) of the Industrial Disputes Act, terms of employment have constantly been examined by industrial adjudication and wherever it appeared appropriate to make changes in them, they have been made in accordance with the well recognised principles of fair play and justice to both the parties.
Therefore the basic assumption made by Mr. Setalvad in contending that section 2(vi) cannot take in the wages prescribed by the award, is not well founded.
When an award is made and it prescribes a new wage structure, in law the old contractual wage structure becomes inoperative and its place is taken by the wage structure prescribed by the award.
In a sense, the latter wage structure must be deemed to be a contract between the parties, because that, in substance, is the effect of industrial adjudication.
The true legal position is that when industrial disputes are decided by industrial adjudication and awards are made, the said awards supplant contractual terms in respect of matters covered by them and are substituted for them.
That being so, it is difficult to accede to the argument that the wages prescribed by the award cannot be treated as wages under section 2(vi) of the Act before it was amended.
The amendment has merely clarified what, in our opinion, was included in the unamended definition itself.
In this connection,we may incidentally refer to the decision of this Court in the South Indian Bank Ltd. vs A. R. Chacko(1), where it has been observed by this Court that the very purpose for which industrial adjudication has been given the peculiar authority and right of making new contracts between employers and workmen makes it reasonable to think that even though the period of operation of the award and the period for which it remains binding on the parties may elapse in respect of both of which special provisions have been made under sections 23 and 29 respectively the new contract would continue to govern the relations between the parties till it is replaced by another contract.
This observation clearly and emphatically bring out that the terms prescribed by an award, in law, and in substance, constitute a fresh contract between the parties.
This question appears to have been considered by the Bombay and the Calcutta High Courts.
In Jogendra Nath (1) A.I.R. 1964 S.C. 15.
423 Chatterjee and Sons vs Chandreswar, Singh(1), the Calcutta High Court appears to have taken the view which supports Mr. Setalvad 's argument, whereas in the Modern Mills Ltd. vs V. R. Mangalvedhkar(2), and in V. B. Godse, Manager, Prabha Mills Ltd., vs R. M. Naick, Inspector, under the Payment of Wages Act(3), the Bombay High Court has interpreted section 2(vi) to include wages directed to be paid by industrial adjudication.
In our opinion, the Bombay view correctly represents the true legal position in the matter.
The result is, the appeal fails and is dismissed.
The matter will now go back to the authority under the Act for disposal in accordance with law.
There would be no order as to costs.
Appeal dismissed (1) A.I.R. 1951 Cal. 29.
(2) A.I.R. 1930 Bom.

Response:
In pursuance of an award made by an Industrial Tribunal fixing the pay of the employees at Rs. 2/2/ per day, the management of the appellant had entered into an agreement with its workmen, that the effect would be given to the wage structure prescribed by the said award.
In spite of the award and the agreement, the appellant paid its employees only As.
/10/ per day and that led to the present claim made by the respondents under section 15 of the Payment of Wages Act.
They asked for an order from the payment of wages authority directing the appellant to pay the said prescribed wages.
Against the respondent 's claim it was urged by the appellant that section 15 of the Act was inapplicable, because the rates of wages fixed by the award did not fall within the definition of wages prescribed by section 2(vi) of the Act.
The authority rejected the appellant 's contention.
The appellant then challenged the correctness of the conclusion of the authority before the High Court under article 226 of the Constitution.
The High Court dismissed the writ petition and affirmed the finding of the authority.
It held that section 15 was applicable to the case, because the wages prescribed by the award did amount to wages as defined by section 2(vi) of the Act.
On appeal by Special Leave the appellant contended that before it is held that the wages prescribed by the award fall under section 2(vi), it must be shown that they constitute part of the terms of the contract of employment, either express of implied.
Held: The argument is not well founded.
When an award is made and it prescribes a new wage structure, in law the old contractual wage structure becomes inoperative and its place is taken by the wage structure prescribed by the award.
In a sense, the latter wage structure must be deemed to be the contract between the parties, because that, in substance, is the effect of industrial adjudication.
The true legal position is that when industrial disputes are decided by industrial adjudication and awards are made, the said awards supplant contractual terms in respect of matters covered by them and are substituted by them.
That being so, it is difficult to hold that the wages prescribed by the award cannot be treated as wages under section 2(vi) of the Act before it was amended.
The amendment has merely clarified what was included in the unamended definition itself.
South Indian Bank Ltd. vs A. R. Chacko, A.I.R, 1964 S.C. 1522, referred to.
Jogindra Nath Chatterjee and Sons, V. Chandreswar Singh, A.I.R., , inapplicable.
Modern Mills Ltd. vs V. R. Mangalvedhikar, A.I.R., 1950 Bom.
342 and V. B. Godse, Manager, Prabha Mills Ltd. vs R. M. Naick , approved L/P(D)lSCI 14(a) 420


Prompt:
Appeal No. 513 of 1963.
Appeal by special leave from the Award dated December 1961 of the Maharashtra Industrial Tribunal in Reference (I.T.) No. 48 of 1961.
section V. Gupte, Additional Solicitor General, C. L. Dudhia, K. T. Sule, Atiqur Rahman and K. L. Hathi, for the appel lants.
425 M. C. Setalvad, N. V. Phadke, J. B. Dadachanji, O. C. Mathur and Ravinder Narain, for the respondent No. 1.
March 24, 1964.
The Judgment of the Court was delivered by DAS GUPTA, J.
This appeal arises out of an industrial dispute as regards the age of retirement.
The first respondent, Shaw Wallace & Co., was incorporated in January, 1946 as a Private Limited Company to take over the business of the partnership firm of the Shaw Wallace & Co., which had been ,doing business in India for about 60 years.
In July.
1947 the Private Limited Company was converted into a Public Limited Company.
The Head Office of the Company is at Calcutta.
It has Branches in Bombay, Delhi and Via Madras.
The general practice of the Company both at the Head Office and the Branch Offices appears to have been to retire its employees at the age of 55 though in certain cases the Company in its discretion permitted an employee to continue beyond that age.
In September, 1959 an agreement was entered into between the Company and its employees at Calcutta under which the age of retirement was extended to 58 years subject to the employees passing a medical examination on reaching the age ,of 55.
Shortly after this the Company 's employees at Bombay raised a dispute regarding their retirement age.
They claimed that no workman should be retired from service before he bad completed 60 years of age.
This dispute was ultimately referred to the Industrial Tribunal, Maharashtra.
Before the Tribunal the Company resisted the workmen 's claim but submitted that it was agreeable to introduce for its Bombay employees provisions similar to those which had been introduced by agreement for the Calcutta employees retirement at the age of 58 subject to the employee passing a medical examination on reaching the age of 55.
The Tribunal has directed that the age of retirement should be 58 but the Company may in its discretion and with the express or implied consent of the employee concerned continue an employee after he attains that age.
It is against this decision that the present appeal has been filed by the workmen.
As has already been noticed there is no dispute that the age of compulsory retirement should not remain at 55.
The dispute is whether it should be fixed at 58 or at 60.
It is interesting to refer in this connection to the information that has been collected by the Pay Commission (1957 59) as regards the pensionable ages prescribed under the Pension Insurance Schemes for employees generally or for industrial 426 employees and under social assistance or universal schemes in forty eight countries in 1954.
According to this the pensionable age is 70 in two countries; 67 in another two; 65 in twenty four, 60 in seventeen, 55 in two and 50 in one.
Thus out of 48 countries for which information was available it was found that in 45 countries the pensionable age was fixed at 60 or more.
As the Pay Commission Report pointed out: "This is particularly remarkable, considering that the countries differ widely in demographic constitution, levels of economic development, and climatic and social condition; and it indicates a virtual unanimity of competent opinion that balancing the various factors physiological, economic and social that are relevant, the normal working life should continue up to the age of 60, and may well go on up to 65 years.
It is undoubtedly more useful, however, and indeed essential for our present purpose to examine the trends in this matter in our own country and specially in the region in which the present dispute has arisen.
In the delicate task of adjust ing needs of the employees to the interests of the employers and what is even more important to the general interests of the country at large, industrial adjudication has to pay special attention to the prevailing practice in the industrial region concerned.
If in any particular region employees have been successful in their claim for fixing the age of retirement at 60 this very success is bound to raise in others in the region similar expectations.
Refusal of similar relief to them is likely to create discontent.
It is the endeavour of industrial adjudication to prevent this.
That is why on questions of age of retirement and hours of work and other similar matters industrial tribunals attach much weight to what has been done in other industrial concerns in the neighbourhood in recent timeswhether by agreement or by adjudication.
In support of their demand for fixing the age of retirement at 60 the workmen tried to show that in recent years at least the tendency in comparable concerns in Bombay region has been to fix the retirement age at 60.
The Chart which is marked exhibit U 5 mentions 50 concerns in which the age of retirement is 60.
In several of these this age had been fixed as far back as 1950 while in the rest the age was fixed in later years, that is, between 1952 and 1961.
The workmen claim that these showed clearly a tendency in the Bombay region to fix the age of retirement in comparable concerns at 60.
Special emphasis was naturally placed on some decisions of this Court which contained pronouncements as regards the existence of such a trend.
In Imperial Chemical Industries 427 (India) Private Ltd., vs The Workmen(1) where the Tribunal had raised the age of retirement from 55 to 58 and both parties appealed, this Court pointed out that one of the documents on the record "would conclusively show that in Bombay the age of retirement is almost invariably fixed at 60 and not at 55".
In an earlier decision of this Court in Dunzlop Rubber Co. Ltd., vs Workmen(2) it had been urged that the employer was an All India concern and that changing the terms and conditions of service in regard to the age of retirement in one place might unsettle the uniformity and might have serious repercussions in other branches.
The Court pointed out that though this was a relevant consideration its effect had to be judged in the light of other material and relevant circumstances, and that one of the important material considerations in this connection would be that the age of retirement can be and often is determined on industry cum region basis.
The Court then took into account the fact that the Tribunal had found that in all the awards in recent times in various concerns in Bombay region the trend had been to fix the age of retire ment at 60 years.
It was mainly in view of this finding of the Tribunal that this Court refused to disturb the award fixing the age of retirement at 60 years.
It is important to notice that the correctness of the Tribunal 's finding that in all the awards in recent times in the Bombay region the trend had been to fix the retirement age at 60 years, was not challenged before this Court In the present case an attempt appears to have been made on behalf of the respondent Company to show that it was not correct to say that the trend in Bombay region had been to fix the age of retirement at 60.
Reliance was placed for this purpose on the Chart exhibit Cl.
It appears that the res pondent company wrote to the Bombay Chamber of Commerce to ascertain from its member concerns as regards the age of retirement observed by them and the information received from some of them was incorporated in this Chart.
The work men objected to this being received in evidence on the ground that the original letters had not been brought on the record.
It is not however seriously disputed that the Chart correctly reproduces the information as regards the age of retirement given by the various concerns named there.
We think therefore that the objection was rightly rejected by the Tribunal.
This Chart shows the age of retirement for 75 concerns.
In most of the cases the age of retirement is shown as 55 and in a few at 58.
At first sight therefore it appears to afford impressive (1) ; (2) ; 428 testimony against the workmen 's case that the recent trend in Bombay has been to fix the age of retirement at 60.
But on a closer examination it is clear that this document is of little assistance for finding out the recent trend.
There is no indication at all as to how long ago the age of retirement in these concerns was fixed at 55 or at 58.
The Statement filed by the workmen to explain this Chart shows that in two of these cases ' viz., Ingerzoll Band and Northern Assurance Co., the demand for fixing the age of retirement at 60 years is under negotiation.
Exhibit U 6 also shows that in 25 of these concerns the clerical and subordinate staff were not organised into trade unions.
There is thus good ground for thinking that the. reason why these concerns have kept the age of retirement at 55 or 58 are special to them and do not show any recent trend in the matter.
In spite of these infirmities this document, exhibit Cl, appears to have impressed the Tribunal.
The main diffi culty in accepting the Company 's case on this point, viz., the pronouncements of this Court, however, remained.
So, the Tribunal considered it to be its duty to enquire whether the conclusion recorded by this Court in some of its earlier decisions as to the relevant trend in the Bombay region was accurate.
Having embarked an this enquiry, the Tribunal, appears to have taken considerable pains to perform this duty and it has ultimately persuaded itself to hold that no such trend is established in fact.
We ought to add in this connection, that the approach adopted by the Tribunal in dealing with this aspect of the problem is not very commendable, and that its present conclusion that what was said by itself on an earlier occasion and was confirmed by this Court in appeal, was in fact inaccurate, is on the whole unsound.
If this Court had erred in making those pronouncements we would be the first to admit such mistakes and to correct the error.
After careful consideration of all the materials placed on this record, we have, however, found nothing to justify any doubt about the correctness of what was said on the earlier occasion.
On the contrary, the awards and agreements on the question of age of retirement about which information is furnished by the several documents on this record clearly show a consistent trend in the Bombay region to fix the retirement age of clerical and subordinate staff at 60.
The very few departures from this practice which the Tribunal has mentioned are, in our opinion, wholly insufficient to indicate any slowing down of this trend.
What the Tribunal has failed to notice is that instances which may justify a revision of the judicial opinion expressed on an earlier occasion about a particular trend must be strong and unambiguous and they must speak for the period both before and more particularly after the previous finding had been recorded in the matter.
429 Notice has also to be taken in this connection of the Report of the Norms Committee in which the following opinion was expressed: "After taking into consideration the views of the earlier Committees and Commissions including those of the Second Pay Commission the report of which has been released recently, we feel that the retirement age for workmen in all industries should be fixed at 60.
Accordingly, the norm for retirement age is fixed at 60".
This considered opinion of a Committee on which both employers and employees were represented emphasised the fact that in the Bombay region at least there is a general agree ment that the age of retirement should be fixed at 60.
The Tribunal has referred to these observations, but has brushed them aside in a way for which we find no justification.
On a consideration of all the facts and circumstances disclosed by the oral and documentary evidence on this record, we have come to the conclusion that the age of retirement of the appellant workmen should be fixed at 60.
Accordingly, we allow the appeal with costs, and in modi fication of the award made by the Tribunal direct that the age of retirement for the workmen of the respondent be fixed at 60.
Appeal allowed.

Response:
Shortly after the extension of the age of retirement from 55 to 58 subject to the employee passing a medical examination at 55 in the respondent company 's Head Office at Calcutta, their workmen at Bombay branch raised an industrial dispute claiming the extension of their age of retirement from 55 to 60.
The dispute was referred to the Industrial Tribunal.
The company resisted the claim but was agreeable to introduce similar provisions as introduced at Calcutta.
The difficulty in accepting the company 's case was the conclusion recorded by the Supreme Court in its earlier decisions that the trend in Bombay region was to fix the age at 60.
So the Tribunal considered it to be its duty to enquire whether the conclusion recorded by the Supreme Court was accurate and ultimately persuaded itself to hold that no such trend was established in fact, and directed that the age of retirement should be 58.
Held: (i) After careful consideration of all the materials placed on this record, there was nothing to justify any doubt about the correctness of what was said on the earlier occasion by this Court.
The approach adopted by the Tribunal in dealing with this aspect of the problem is not very commendable and its present conclusion that what was said by itself on an earlier occasion and was confirmed by this Court in appeal, was in fact inaccurate, is on the whole unsound.
What the Tribunal has failed to notice is that instances which may justify a revision of the judicial opinion expressed on an earlier occasion about a particular trend must be strong and unambiguous and they must speak for the period both before and more particularly after the previous finding had been recorded in the matter.
(ii) The information furnished by the several documents on this record clearly show a consistent trend in the Bombay region to fix the retirement age of clerical and subordinate staff at 60.
Imperial Chemical Industries (India) Private Ltd. vs Their Workmen, ; and Dunlop Rubber Co. Ltd. vs Workmen ; , relied on.


Prompt:
Appeal No. 68 of 1964.
Appeal from the judgment and decree dated July 27, 1959 of the Allahabad High Court in Income tax Reference No. 307 of 1957.
S.V. Gupte, Solicitor General, R. Ganapathy Iyer and R.N. Sachthey, for the appellant.
A.V. Viswanatha Sastri and S.P. Varma, for the respondent.
The Judgment of the Court was delivered by Sikri, J.
This appeal pursuant to a certificate granted by the Allahabad High Court under section 66A(2) of the Income tax Act (hereinafter referred to as the Act) is directed against the judgment of the High Court in a reference under the Act, answering the question referred to it in the negative.
The question referred by the Appellate Tribunal is: "Whether on a true interpretation of clause (viii) of subsection 3 of section 4 of the indian Income tax Act the sum of Rs. 36,396/ received by the assessee as an allowance during the previous year of the assessment year 1949 50 is revenue income liable to tax under the Indian Income tax Act, 1922?" The relevant facts stated in the Statement of the case are as follows: The assessee is a Hindu undivided family headed by one Sri Trivikram Narain Singh who is a descendant of one Sri Babu Ausan Singh who was the original founder and owner of what is known as Ausanganj State in the district of Benaras.
The district of Benaras was formerly a part of Oudh territory.
By a Treaty between the East India Company Nawab Asfuddaula in or about the year 1775, the province of Benaras was ceded to the British Government.
The British Government granted a sanad of Raj to Raja Chet Singh who in turn gave the Jagir of Parganas Seyedpore and Bhittery in perpetuity to Babu Ausan Singh.
It appears that in 1796 there were some disputes between Babu Ausan Singh and the Zamindars in the district and the matter was referred by the Collector of Benaras to the Board of Revenue in Calcutta.
The disputes between the Jagirdars and Zamindars ultimately ended in 1837 by a compromise between the British Government and the then Jagirdar Hat Narain Singh whereby the British Government 702 granted a pension of Rs. 36,322/8/ to Babu Hat Narain Singh anal his heirs in perpetuity.
The quantum of this pension was calculated on the basis of 1/4th of the revenue of the Jagir.
By this arrangement the revenue or land collections of Jagir became payable by the Zamindars direct to the Government and by the grant of the pension, Babu Hat Narain Singh and his successors no longer remained the proprietors of the Parganas or the Jagir and became entitled to merely a pension.
The letter by which the amount of pension was determined at Rs. 36,322/8/ is dated 7th of July, 1837 and was from H. Elliot Esqr., the Secretary Sadar Board of Revenue N.W.P. Allahabad, to J. Thompson Esqr., Offg.
Secretary to Lt. Government, N.W.P.".
The pension was paid regularly from year to year by the Government to Babu Har Narain Singh and his heirs.
During the previous year of the assessment year 1949 50, the assessee received a sum of Rs. 36,396/ on account of the aforesaid pension.
The Income tax Officer, in spite of the objection of the assessee, held that it was a regular annual income of the assessee and did not fall within the category of agricultural income tax.
He observed that "in fact this income arose from a statutory obligation of the Government to pay it, and although the Government recouped this from the person with whom the land was settled, land in the genealogical tree of Malikana appears in the second degree, its immediate and effective source is the Government 's statutory obligation to pay it, and this obligation is not land within the meaning of Income tax Act, vide C.I.T.v.
Raja Bahadur Karnakhaya Harain Singh(1)".
The assessee appealed to the Appellate Assistant Commissioner who held that "the alleged cash grant of varying and unspecified amount received by the appellant, in relation to land revenue of Seyedpur now Tehsil of District Ghazipur, clearly fell within the definition of agricultural income under Section 2(1) of the Incometax Act." The Income tax Officer appealed to the Income tax Appellate Tribunal.
The Tribunal held that the sum of Rs. 36,396/ was chargeable to tax under the Act as the income was not agricultural income for "although the pension was determined with respect to the quantum of the rent collection the rent collections or the land could not be said to be the immediate source of the pension.
The source of the pension was a liability undertaken by the Government for extinguishing the proprietary rights of the Jagirdar and when the immediate source of the income was not land or rent collections from land, it is difficult to hold that the receipt of the assessee was agricultural income within the meaning of Section 4(3)(viii) of the Income tax Act.
" The High Court held that from the language of the letter of July 7, 1837, it was manifest that the right which was conferred 703 was a right to a share of one fourth in the net land revenue collections after deducting costs of Tahsil establishment.
It relied on the fact that the amount which had been received by the successors of Babu Harnarain Singh varied from year to year.
It observed that "the language of the letter and this conduct of the parties can only lead to the inference that, by this settlement contained in the letter of 7th July, 1837, Babu Har Narain Singh and his successors were granted in perpetuity a right to one fourth of the land revenue collections themselves and not merely a right to receive u sum of money calculated on that basis." The High Court accordingly answered the question in the negative.
The learned Additional Solicitor General, on behalf of the appellant, contends that according to the true interpretation of the letter dated July 7, 1837, no right in the land revenue was granted to the assessee.
He relies on the decision of this Court in State of Uttar Pradesh vs Kunwar Sri Trivikram Narain Singh(1).
That case arose out of the writ petition filed by the present respondent in the High Court of Judicature at Allahabad for a writ in the nature of mandamus calling upon the State of Uttar Pradesh to forbear from interfering with his right to regular payment of the "pension, allowance or Malikana" payable in lieu of the hereditary estate of Harnarain Singh in respect of parganas "Syudpore Bhettree" and for an order for payment of the "pension, allowance or malikana" as it fell due.
This Court interpreted the same letter, dated July 7, 1837, and came to the conclusion that the respondent did not acquire any interest in land or any land revenue.
Shah, J., speaking for the Court, observed: "Because the annual allowance is equal to a fourth share of the net revenue of the mahals, the right of the respondent does not acquire the character of an interest in land or in land revenue.
Under the arrangement, the entire land revenue was to be collected by the Government and in the collection Harnarain Singh and his descendants had no interest or obligation.
As a consideration for relinquishing the right to the land and the revenue thereof, the respondent and his ancestors were given an allowance of Rs. 30,612 13 0.
The allowance was in a sense related to the land revenue assessed on the land, i.e. it was fixed as a percentage of the land revenue; but the percentage was merely a measure, and indicated the source of the right in lieu of which the allowance was given.
" The learned counsel for the respondent, Mr. A. Viswanatha Sastri urges that on its true interpretation the letter dated July 7, 1837, showed an arrangement for sharing collections.
We are unable to agree with his contention.
We respectfully adopt the reasoning and conclusion of this Court in the case of State of ; 704 Uttar Pradesh vs Kunwar Sri Trivikram Narain Singh(1) and hold that the respondent, under the arrangement, had no interest in land or in the land revenue payable in respect thereof.
If this is the true interpretation of the arrangement arrived at, the question arises whether the pension or allowance is agricultural income. 'Agricultural income ' is defined in section 2 of the Act as follows: "(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 British India or subject to a local rate assessed and collected by officers of the Crown as such: . " In Maharajkumar Gopal Saran Narain Singh vs Commissioner of Income tax, Bihar and Orissa(2), the facts were that the assessee had conveyed the greater portion of his estate.
The consideration for the transfer was, inter alia, an annual payment of Rs. 2,40,000/to the assessee for life.
The Privy Council held that this "annual payment was not agricultural income as it was not rent or revenue derived from land but money payable under a contract imposing a personal liability on the covenantor the discharge of which was secured by a charge on land." The Privy Council, in Commissioner of Income tax Bihar and vs Raja Bahadur Kamakhaya Narayan Singh and construed the word 'derived ' as :follows: "The word "derived" is not a term of article Its use in the definition indeed demands an enquiry into the genealogy of the product.
But the enquiry should stop as soon as the effective source is discovered.
In the genealogical tree of the interest land indeed appears in the second degree, but the immediate and effective source is rent, which has suffered the accident of nonpayment.
And rent is not land within the meaning of the definition." This Court observed in Mrs. Bacha F. Guzdar, Bombay Commissioner of Income tax, Bombay(4) as follow: "Agricultural income as defined in the Act is intended to refer to the revenue received by direct association with the land which is used for agricultural purposes and not by indirectly extending it to cases where that revenue or part thereof changes hands either by way of distribution of dividends or otherwise." (1) ; (2) (3) 16 I.T.R.325 (4) 705 The same test was adopted by this Court in Maharajadhiraja Sir Kameshwar Singh vs Commissioner of Income tax, Bihar and Orissa(1) and the Court again looked to the source of the right in order to determine whether income was agricultural income or not.
Shah, J., observed: "The appellant has no beneficial interest in the lands which are the subject matter of the trust: nor is he given under the trust a right to receive and appropriate to himself the income of the properties or a part thereof in lieu of any beneficial interest in that income.
The source of the right in which a fraction of the net income of the trust is to be appropriated by the appellant as his remuneration is not in the right to receive rent or revenue of agricultural lands, but rests in the covenant in the deed to receive remuneration for management of the trust.
The income of the trust appropriated by the appellant as remuneration is not received by him as rent or revenue of land; the character of the income appropriated as remuneration due is again not the same as the character in which it was received by the appellant as trustee.
Both the source and character of the income are, therefore, altered when a part of the income of the trust is appropriated by the appellant as his remuneration, and that is so, notwithstanding that computation of remuneration is made as a percentage of the income, a substantial part whereof is derived from lands used for agricultural purposes.
The remuneration not being received as rent or revenue of agricultural lands under a title, legal or beneficial in the property from which the income is received, it is not income exempt under section 4(3)(viii).
" It follows from the decisions of the Privy Council and the judgments of this Court cited above that if it is held in this case that the source of the allowance or pension is the arrangement arrived at in 1837.
then the income cannot be held to be derived from land within the meaning of the definition in section 2(1)(a) of the Act.
It seems to us that in this case the source of income is clearly the arrangement arrived at in 1837 and, therefore, it is not agricultural income as defined in the Act.
Mr. Sastri sought to distinguish those cases on the ground that the allowance here varied from year to year.
Assuming that the allowance varied from year to year, the source of the income still remains the arrangement and not land.
The next point that arises in this case is whether the allowance is taxable income at all.
Mr. Sastri contends that it is capital receipt.
He says that if the assessee 's predecessor had received ) 706 compensation for relinquishing his title to the lands in dispute, that would have been a capital receipt and not taxable.
He further says that the allowance was in fact a payment of the compensation for relinquishing the title to those lands.
He says that we must consider the quality of the income and not its periodicity.
He refers to the following passage from the speech of Viscount Simon in Commissioner of Inland Revenue vs Wesleyan and General Assurance Society(1): "It may be well to repeat two propositions which are well established in the application of the law relating to Income tax.
First, the name given to a transaction by the parties concerned does not necessarily decide the nature of the transaction.
To call a payment a loan if it is really an annuity does not assist the taxpayer, any more than to call an item a capital payment would prevent it from being regarded as an income payment if that is its true nature.
The question always is what is the real character of the payment, not what the parties call it.
" He, therefore, asked us to disregard the word 'pension ' in the letter dated July 7, 1837, and determine the real character of the payment.
Another passage from the speech of Viscount Simon is also relevant.
Lord Simon observed: "Secondly, a transaction which, on its true construction, is of a kind that would escape tax, is not taxable on the ground that the same result could be brought about by a transaction in another form which would attract tax.
As the Master of the Rolls said in the present case: 'In dealing with Income tax questions it frequently happens that there are two methods at least of achieving a particular financial result.
If one of those methods is adopted tax will be payable.
If the other method is adopted, tax will not be payable .
The net result from the financial point of view is precisely the same in each case, but one method of achieving it attracts tax and the other method does not.
There have been cases in the past where what has been called the substance of the transaction has been thought to enable the Court to construe a document in such a way as to attract tax.
That particular doctrine of substance as distinct from form was, I hope, finally exploded by the decision of the House of Lords in the case of Duke of Westminster vs Commissioner of Inland Revenue(2)".
It seems to us that where an owner of an estate exchanges a capital asset for a perpetual annuity, it is ordinarily taxable income in his hands.
The position will be different if he exchanges (1) 30 T.C. II.
(2) 707 his estate for a capital sum payable in installments.
The installments when received would not be taxable income.
Mr. Sastri, relying on Perrin vs Dickson(1) contends that an annuity is not always taxable as income.
This is true, but in this case no material has been produced to show that the allowance was in fact a payment in instalments of the value of the disputed title of the assessee 's predecessor in 1837.
In the result, we hold that the allowance is revenue income and not exempt from taxation as agricultural income.
Therefore, we accept the appeal and answer the question referred in the affirmative.
The appellant will have his costs here and in the High court.
Appeal allowed.

Response:
The respondent was the head of a Hindu undivided family and was the descendant of a Jagirdar.
Certain disputes between the Jagirdar and the Zamindars in the district had been settled in 1837 by a compromise between the British Government and the then Jagirdar, whereby, the Government granted the Jagirdar and his heirs a pension in perpetuity to be calculated on the basis of one fourth of the revenue of the Jagir.
By this arrangement the collections from the Jagir became payable by the Zamindars direct to the Government and the Jagirdar and his successors no longer remained the proprietors of the Jagir and became entitled only to a pension.
The Income tax Officer assessed the receipt of the pension by the respondent as part of his regular income and rejected the latter 's contention that the amount received was agricultural income within the meaning of section 4(3)(viii) of the Income tax Act, 1922.
In appeal, the Assistant Commissioner accepted the respondent 's contention, but the Tribunal reversed this finding.
The High Court, on a reference, decided the issue in favour of the respondent, on the grounds, inter alia, that the right conferred under the compromise of 1837 was a right to a share of one fourth in the net land revenue collections and furthermore, the amount received by the successors of the Jagirdar varied from year to year.
In the appeal before the Supreme Court, it was also contended on behalf of the respondent that the amount received was in the nature of a capital receipt, being a payment to the Jagirdar and his successors of compensation for relinquishing the title to the Jagir lands.
HELD: (i) Under the compromise and arrangement of 1837, the respondent had no interest in the land or in the land revenue payable in respect thereof.
[704 A] State of U.P.v.
Kunwar Sri Trivikram Narain Singh; , , followed.
As the source of the income in this case was the arrangement of 1837, the income could not be held to be derived from land within the meaning of the definition of agricultural income in section 2(1)(a) of the Act.
Even if the income varied from year to year, the source of the income was still the arrangement and not land.
[705 G] Maharajkumar Gopal Saran Narain Singh, vs
C.I.T. Bihar and Orissa, , C.I.T. Bihar and Orissa vs Raja Bahadur Kamkhya Narayan Singh and Ors, , Mrs. Bacha F. Guzdar vs
C.I.T. Bombay , MaharaJadhiraja Sir Kameshwar Singh, vs C.I.T. Bihar and Orissa, , followed.
(ii) The amount received by the respondent was not a capital receipt but revenue income and therefore taxable.
701 Where an owner of an estate exchanges a capital asset for a perpetual annuity, it is ordinarily taxable in his hands.
The position would be different if he exchanged his estate for a capital sum payable in installments.
Such installments when received would not be taxable as income.
But in the present case there was no material to show that the amount received was an instalment of this nature.
[706 H~707C] Commissioner of Inland Revenue vs Wesleyan and General Assurance Society, , and Perrin vs Dickson , referred to.