judgement:
Appeals Nos. 37 & 38 of 1957.
Appeals from the judgment and order dated August 30, 1955, of the former Bombay High Court in Appeals Nos.
55 and 56 of 1955, arising out of the judgment and order dated June 23, 1955, of the said High Court in Misc.
Application No. 80 of 1955.
C. K. Daphtary, Solicitor General of India, B. Ganapathy Iyer and R. H. Dhebar, for the appellant (in C. A. No. 37 of 57) and respondent No. 6 (in C. A. No. 38/57).
section D. Vimadalal and I. N. Shroff, for the appellant (in C. A. No. 38/57) and respondent No. 6 (in C. A. No. 37/57.) Rajni Patel, section N. Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for respondents Nos.1 and 3 to 5 (in both the appeals).
section B. Naik and K. R. Chaudhuri, for respondent No. 2 (in both the appeals).
August 18.
The Judgment of the Court was delivered by GAJENDRAGADKAR J.
These two appeals arise from an industrial dispute between the Firestone Tyre and Rubber Co. of India Ltd., (hereafter called the company) and its workmen (hereafter called the respondents), and they raise a short and interesting question about the construction of section 12(5) of the 14 of 1947 (hereafter called the Act).
It appears that the respondents addressed four demands to the company; they were in respect of gratuity, holidays, classification of certain employees and for the payment of an unconditional bonus for the financial year ended October 31, 1953.
The respondents ' union also addressed the Assistant Commissioner of Labour, Bombay, forwarding to him a 229 copy of the said demands, and intimating to him that since the company had not recognised the respondents ' union there was no hope of any direct negotiations between the union and the company.
The Assistant Commissioner of Labour, who is also the conciliation officer, was therefore requested to commence the conciliation proceedings at an early date.
Soon thereafter the company declared a bonus equivalent to 1/4 of the basic earnings for the year 195253.
The respondents then informed the company that they were entitled to a much higher bonus having regard to the profits made by the company during the relevant year and that they had decided to accept the bonus offered by the company without prejudice to the demand already submitted by them in that behalf.
After holding a preliminary discussion with the parties the conciliation officer examined the four demands made by the respondents and admitted into conciliation only two of them ; they were in respect of the classification of certain employees and the bonus for the year 1952 53; the two remaining demands were not admitted in conciliation.
The conciliation proceedings initiated by the conciliator, however, proved infructuous with the result that on July 5, 1954, the conciliator made his failure report under section 12(4) of the Act.
In his report the conciliator has set out the arguments urged by both the parties before him in respect of both the items of dispute.
In regard to the respondents ' claim for bonus the conciliator made certain suggestions to the company but the company did not accept them, and so it became clear that there was no possibility of reaching a settlement on that issue.
Incidentally the conciliator observed that it appeared to him that there was considerable substance in the case made out by the respondents for payment of additional bonus.
The conciliator also dealt with the respondents ' demand for classification and expressed his opinion that having regard to the type and nature of the work which was done by the workmen in question it seemed clear that the said work was mainly of a clerical nature and the demand that the said workmen should be 230 taken on the monthly paid roll appeared to be in consonance with the practice prevailing in other comparable concerns.
The management, however, told the conciliator that the said employees had received very liberal increments and had reached the maximum of their scales and so the management saw no reason to accede to the demand for classification.
On receipt of this report the Government of Bombay (now the Government of Maharashtra) considered the matter and came to the conclusion that the dispute in question should not be referred to an industrial tribunal for its adjudication.
Accordingly, as required by section 12(5) on December 11, 1954, the Government communicated to the respondents the said decision and stated that it does not propose to refer the said dispute to the tribunal under section 12(5) " for the reason that the workmen resorted to go slow during the year 195253 ".
It is this decision of the Government refusing to refer the dispute for industrial adjudication that has given rise to the present proceedings.
On February 18, 1955, the respondents filed in the Bombay High Court a petition under article 226 of the Constitution praying for the issue of a writ of mandamus or a writ in the nature of mandamus or other writ, direction or order against the State of Maharashtra (hereafter called the appellant) calling upon it to refer the said dispute for industrial adjudication under section 10(1) and section 12(5) of the Act.
To this application the company was also impleaded as an opponent.
This petition was heard by Tendolkar J.
He held that section 12(5) in substance imposed an obligation on the appellant to refer the dispute provided it was satisfied that a case for reference had been made, and he came to the conclusion that the reason given by the appellant for refusing to make a reference was so extraneous that the respondents were entitled to a writ of mandamus against the appellant.
Accordingly he directed that a mandamus shall issue against the appellant to reconsider the question of making or refusing to make a reference under section 12(5) ignoring the fact that there was a slow down and taking into account only such reasons as are germane to the 231 question of determining whether a reference should or should not be made.
Against this decision the appellant as well as the company preferred appeals.
Chagla, C. J., and Desai, J., who constituted the Court of Appeal, allowed the two appeals to be consolidated, heard them together and came to the conclusion that the view( taken by Tendolkar J. was right and that the writ of mandamus had been properly issued against the appellant.
The appellant and the company then applied for and obtained a certificate from the High Court and with that certificate they have come to this Court by their two appeals Nos. 37 and 38 of 1957.
These appeals have been ordered to be consolidated and have been heard together, and both of them raise the question about the construction of section 12(5) of the Act.
Before dealing with the said question it would be convenient to state one more relevant fact.
It is common ground that during a part of the relevant year the respondents had adopted go slow tactics.
According to the company the period of go slow attitude was seven months whereas according to the respondents it was about five months.
It is admitted that under cl.23(c) of the standing orders of the company willful slowing down in performance of work, or abatement, or instigation thereof, amounts to misconduct, and it is not denied that as a result of the go slow tactics adopted by the respondents disciplinary action was taken against 58 workmen employed by the company.
The respon dents ' case is that despite the go slow strategy adopted by them for some months during the relevant year the total production for the said period compares very favorably with the production for previous years and that the profit made by the company during the relevant year fully justifies their claim for additional bonus.
The appellant has taken the view that because the respondents adopted go slow strategy during the relevant year the industrial dispute raised by them in regard to bonus as well as classification was not to be referred for adjudication under section 12(5).
It is in the light of these facts that we have to consider whether 232 the validity of the order passed by the appellant refusing to refer the dispute for adjudication under section 12(5) can be sustained.
Let us first examine the scheme of the relevant provisions of the Act.
Chapter III which consists of sections 10 and 10A deals with reference of dispute to Boards, Courts or Tribunals.
Section 10(1) provides that where the appropriate Government is of opinion that any industrial dispute exists or is apprehended, it may at any time by order in writing refer the dispute to one or the other authority specified in cls.(a) to (d).
This section is of basic importance in the scheme of the Act.
It shows that the main object of the Act is to provide for cheap and expeditious machinery for the decision of all industrial disputes by referring them to adjudication, and thus avoid industrial conflict resulting from frequent lock outs and strikes.
It is with that object that reference is con templated not only in regard to existing industrial disputes but also in respect of disputes which may be apprehended.
This section confers wide and even absolute discretion on the Government either to refer or to refuse to refer an industrial dispute as therein provided.
Naturally this wide discretion has to be exercised by the Government bona fide and on a consideration of relevant and material facts.
The second proviso to section 10(1) deals with disputes relating to a public utility service, and it provides that where a notice under section 22 has been given in respect of such a dispute the appropriate Government shall, unless it considers that the notice has been frivolously or vexatiously given or that it would be inexpedient so to do, make a reference under this sub section notwithstanding that any other proceedings under this Act in respect of the dispute may have commenced.
It is thus clear that in regard to cases falling under this proviso an obligation is imposed on the Government to refer the dispute unless of course it is satisfied that the notice is frivolous or vexatious or that considerations of expediency required that a reference should not be made.
This proviso also makes it clear that reference can be made even if other proceedings under the Act 233 have already commenced in respect of the same dispute.
Thus, so far as discretion of the Government to exercise its power of referring an industrial dispute is concerned it is very wide under section 10(1) but is limited under the second proviso to section 10(1).
Section 10(2) deals with a case where the Government has to refer an industrial dispute and has no discretion in the matter.
Where the parties to an industrial dispute apply in the prescribed manner either jointly or separately for a reference of the dispute between them the Government has to refer the said dispute if it is satisfied that the persons applying represent the majority of each party.
Thus, in dealing with this class of cases the only point on which the Government has to be satisfied is that the persons applying represent the majority of each party ; once that test is satisfied the Government has no option but to make a reference as required by the parties.
Similarly section 10A deals with cases where the employer and his workmen agree to refer the dispute to arbitration at any time before the dispute has been referred under section 10, and it provides that they may so refer it to such person or persons as may be specified in the arbitration agreement; and section 10A(3) requires that on receiving such an arbitration agreement the Government shall, within fourteen days, publish the same in the official Gazette.
Section 10A(4) prescribes that the arbitrator or arbitrators shall investigate the dispute and submit the arbitration award to the appropriate Government; and section 10A(5) provides that such arbitrations are outside the Arbitration Act.
Thus cases of voluntary reference of disputes to arbitration are outside the scope of any discretion in the Government.
That in brief is the position of the discretionary power of the Government to refer industrial disputes to the appropriate authorities under the Act.
The appropriate authorities under the Act are the conciliator, the Board, Court of Enquiry, Labour Court ') Tribunal and National Tribunal.
Section 11(3) confers on the Board, Court of Enquiry, Labour Court, Tribunal and National Tribunal all, the powers 30 234 as are vested in a civil court when trying a suit in respect of the matters specified by cls.(a) to (d).
A conciliation officer, however, stands on a different footing.
Under section 11(4) he is given the power to call for and inspect any relevant document and has been given the same powers as are vested in civil courts in respect of Compelling the production of documents.
Section 12 deals with the duties of conciliation officers.
Under section 12(1) the conciliation officer may hold conciliation proceedings in the prescribed manner where an industrial dispute exists or is apprehended.
In regard to an industrial dispute relating to a public utility service, where notice under section 22 has been given, the conciliation officer shall hold conciliation proceedings in respect of it.
The effect of section 12(1) is that, whereas in regard to an industrial dispute not relating to a public utility service the conciliation officer is given the discretion either to hold conciliation proceedings or not, in regard to a dispute in respect of a public utility service, where notice has been given, he has no discretion but must hold conciliation proceedings in regard to it.
Section 12(2) requires the conciliation officer to investigate the dispute without delay with the object of bringing about a settlement, and during the course of his investigation he may examine all matters affecting the merits and the right settlement of the dispute and do all such things as he thinks fit for the purpose of inducing the parties to come to a fair and amicable settlement.
The duty and function of the conciliation officer is as his very name indicates, to mediate between the parties and make an effort at conciliation so as to persuade them to settle their disputes amicably between themselves.
If the conciliation officer succeeds in his mediation section 12(3) requires him to make a report of such settlement together with the memorandum of the settlement signed by the parties to the dispute.
Section 18(3) provides that a settlement arrived at in the course of conciliation proceedings shall be binding on the parties specified therein.
It would thus be seen that if the attempts made by the conciliation officer to induce the parties to come to a settlement succeeds and a settlement is signed by them 235 it has in substance the same binding character as an award under section 18(3).
Sometimes efforts at conciliation do not succeed either because one of the parties to the dispute refuses to co operate or they do not agree as to the terms of settlement.
In such cases the conciliation officer has to send his report to the appropriate Government under section 12(4).
This report must set forth the steps taken by the officer for ascertaining the facts and circumstances relating to the dispute and for bringing about a settlement thereof together with a full statement of such facts and circumstances and the reasons on account of which in his opinion a settlement could not be arrived at.
The object of requiring the conciliation officer to make such a full and detailed report is to apprise the Government of all the relevant facts including the reasons for the failure of the conciliation officer so that the Government may be in possession of the relevant material on which it can decide what course to adopt under section 12(5).
In construing section 12(5), therefore, it is necessary to bear in mind the background of the steps which the conciliation officer has taken under section 12(1) to (4).
The conciliation officer has held conciliation proceedings, has investigated the matter, attempted to mediate, failed in his effort to bring about a settlement between the parties, and has made a full and detailed report in regard to his enquiry and his conclusions as to the reasons on account of which a settlement could not be arrived at.
Section 12(5) with which we are concerned in the present appeals provides that if, on a consideration of the report referred to in subsection (4), the appropriate Government is satisfied that there is a case for reference to a Board, Labour Court, Tribunal or National Tribunal, it may make such reference.
Where the appropriate Government does not make such a reference it shall record and communicate to the parties concerned its reasons therefore.
This section requires the appropriate Government to consider the report and decide whether a case for reference has been made out.
If the Government is satisfied that a case for reference has been made out it may make such 236 reference.
If it is satisfied that a case for reference has not been made out it may not make such a reference; but in such a case it shall record and communicate to the parties concerned its reasons for not making the reference which in the context means its reasons for not being satisfied that there is a case for reference.
The High Court has held that the word " may in the first part of section 12(5) must be construed to mean shall " having regard to the fact that the power conferred on the Government by the first part is coupled with a duty imposed upon it by the second part.
The appellant and the company both contend that this view is erroneous.
According to them the requirement that reasons shall be recorded and communicated to the parties for not making a reference does not convert " may " into " shall " and that the discretion vesting in the Government either to make a reference or not to make it is as wide as it is under section 10(1) of the Act.
Indeed their contention is that, even after receiving the report, if the Government decides to make a reference it must act under section 10(1) for that is the only section which confers power on the appropriate Government to make a reference.
It is true that section 12(5) provides that the appropriate Government may make such reference and in that sense it may be permissible to say that a power to make reference is conferred on the appropriate Government by section 12(5).
The High Court was apparently inclined to take the view that in cases falling under section 12(5) reference can be made only under section 12(5) independently of section 10(1).
In our opinion that is not the effect of the provisions of section 12(5).
If it is held that in cases falling under section 12(5) reference can and should be made only under section 12(5) it would lead to very anomalous consequences.
Section 10(3) empowers the appropriate Government by an order to prohibit the continuance of any strike or lock out in connection with an industrial dispute which may be in existence on the date of the reference, but this power is confined only to cases where industrial disputes are referred under section 10(1).
It would thus be clear that if a reference is made only under section 12(5) independently of 237 s.10(1) the appropriate Government may have no power to prohibit the continuance of a strike in connection with a dispute referred by it to the tribunal for adjudication ; and that obviously could not be the intention of the Legislature.
It is significant that sections 23 and 24 prohibit the commencement of strikes and lock outs during the pendency of proceedings there ' in specified, and so even in the case of a reference made under section 12(5) it would not be open to the employer to declare a lock out or for the workmen to go on strike after such a reference is made ; but if a strike has commenced or a lock out has been declared before such a reference is made, there would be no power in the appropriate Government to prohibit the continuance of such a strike or such a lock out.
Section 24(2) makes it clear that the continuance of a lock out or strike is deemed to be illegal only if an order prohibiting it is passed under section 10(3).
Thus the power to maintain industrial peace during adjudication proceedings which is so essential and which in fact can be said to be the basis of adjudication proceedings is exercisable only if a reference is made under section 10(1).
What is true about this power is equally true about the power conferred on the appropriate Government by section 10(4), (5), (6) and (7).
In other words, the material provisions contained in sub sections
(3) to (7) of section 10(1) which are an integral Dart of the scheme of reference prescribed by Chapter III of the Act clearly indicate that even if the appropriate Government may be acting under section 12(5) the reference must ultimately be made under section 10(1).
Incidentally it is not without significance that even in the petition made by the respondents in the present proceedings they have asked for a writ of mandamus calling upon the appellant to make a reference under sections 10(1) and 12(5).
Besides, even as a matter of construction, when section 12(5) provides that the appropriate Government may make such reference it does not mean that this provision is intended to confer a power to make reference as such.
That power has already been conferred by section 10(1); indeed section 12(5) occurs in a Chapter dealing with the procedure, powers and duties of the 238 authorities under the Act; and it would be legitimate to hold that section 12(5) which undoubtedly confers power on the appropriate Government to act in the manner specified by it, the power to make a reference which it will exercise if it comes to the conclusion that a case for reference has been made must be found in section 10(1).
In other words, when section 12(5) says that the Government may make such reference it really means it may make such reference under section 10 (1).
Therefore it would not be reasonable to hold that section 12(5) by itself and independently of section 10(1) confers power on the appropriate Government to make a reference.
The next point to consider is whether, while the appropriate Government acts under section 12(5), it is bound to base its decision only and solely on a consideration of the report made by the conciliation officer under section 12(4).
The tenor of the High Court 's judgment may seem to suggest that the only material on which the conclusion of the appropriate Government under section 12(5) should be based is the said report.
There is no doubt that having regard to the back ground furnished by the earlier provisions of section 12 the appropriate Government would naturally consider the report very carefully and treat it as furnishing the relevant material which would enable it to decide whether a case for reference has been made or not; but the words of section 12(5) do not suggest that the report is the only material on which Government must base its conclusion.
It would be open to the Government to consider other relevant facts which may come to its knowledge or which may be brought to its notice, and it is in the light of all these relevant facts that it has to come to its decision whether a reference should be made or not.
The problem which the Government has to consider while acting under section 12(5)(a) is whether there is a case for reference.
This expression means that Government must first consider whether a prima facie case for reference has been made on the merits.
If the Government comes to the conclusion that a prima facie case for reference has been made then it would be open to the Government also to con sider whether there are any other relevant or material 239 facts which would justify its refusal to make a reference.
The question as to whether a case for reference has been made out can be answered in the light of all the relevant circumstances which would have a bearing on the merits of the case as well as on the incidental question as to whether a reference should nevertheless be made or not.
A discretion to consider all relevant facts which is conferred on the Government by section 10(1) could be exercised by the Government even in dealing with cases under section 12(5) provid ed of course the said discretion is exercised bona fide, its final decision is based on a consideration of relevant facts and circumstances, and the second part of section 12(5) is complied with.
We have already noticed that section 12 deals with the conciliation proceedings in regard to all industrial dis putes, whether they relate to a public utility service or not.
Section 12(1) imposes an obligation on the con ciliation officer to hold conciliation proceedings in regard to an industrial dispute in respect of public utility service provided a notice under section 22 has been given.
If in such a dispute the efforts at conciliation fail and a failure report is submitted under section 12(4) Government may have to act under section 12(5) and decide whether there is a case for reference.
Now, in dealing with such a question relating to a public utility service considerations prescribed by the second proviso to section 10(1) may be relevant, and Government may be justified in refusing to make a reference if it is satisfied that the notice given is frivolous or vexatious or that reference would be inexpedient.
Just as discretion conferred on the Government under section 10(1) can be exercised by it in dealing with industrial disputes in regard to non public utility services even when Government is acting under section 12(5), so too the provisions of the second proviso can be pressed into service by the Government when it deals with an industrial dispute in regard to a public utility service under section 12(5).
It would, therefore, follow that on receiving the failure report from the conciliation officer Government would consider the report and other relevant material 240 and decide whether there is & case for reference.
If it is satisfied that there is such & case for reference it may make a reference.
If it does not make a reference it shall record and communicate to the parties concerned its reasons therefore.
The question which arises at this stage is whether the word " may " used in the context means " shall ", or whether it means nothing more than " may " which indicates that the discretion is in the Government either to refer or not to refer.
It is urged for the respondent that where power is conferred on an authority and it is coupled with the performance of & duty the words conferring power though directory must be construed as mandatory.
As Mr. Justice Coleridge has observed in Beg. vs Tithe Commissioners (1)." The words undoubtedly are only empowering; but it has been so often decided as to have become an axiom, that, in public statutes, words only directory, permissory or enabling may have & compulsory force where the thing to be done is for the public benefit or in advancement of public justice ".
The argument is that section 12(5) makes it obligatory on the Government to record and communicate its reasons for not making the reference and this obligation shows that the power to make reference is intended to be exercised for the benefit of the party which raises an industrial dispute and wants it to be referred to the authority for decision.
It may be that the Legislature intended that this requirement would avoid casual or capricious decisions in the matter because the recording and communication of reasons postulates that the reasons in question must stand public examination and scrutiny and would therefore be of such a character as would show that the question was carefully and properly considered by the Government; but that is not the only object in making this provision.
The other object is to indicate that an obligation or duty is cast upon the Government, and since the power conferred by the first part is coupled with the duty prescribed by the second part " may " in the context must mean " shall ".
There is considerable force in (1) ; , 474 : ; , 185.241 this argument.
Indeed it has been accepted by the High Court and it has been held that if the Government is satisfied that there is a case for reference it is bound to make the reference.
On the other hand, if the power to make reference is ultimately to be found in section 10(1) it would not be easy to read the relevant portion of section 12(5) as imposing an obligation on the Government to make a reference.
Section 12(5) when read with section 10(1) would mean, according to the appellant, that, even after considering the question, the Government may refuse to make a reference in a proper case provided of course it records and communicates its reasons for its final decision.
In this connection the appellant strongly relies on the relevant provisions of section 13.
This section deals with the duties of Boards and is similar to section 12 which deals with conciliation officers.
A dispute can be referred to a Board in the first instance under section 10(1) or under section 12(5) itself.
Like the conciliation officer the Board also endeavours to bring about a settlement of the dispute.
Its powers are wider than those of a conciliator but its function is substantially the same; and so if the efforts made by the Board to settle the dispute fail it has to make a report under section 13(3).
Section 13(4) provides that if on receipt of the report made by the Board in respect of a dispute relating to a public utility service the appropriate Government does not make a reference to a Labour Court, Tribunal or National Tribunal under section 10, it shall record and communicate to the parties concerned its reasons therefore.
The provisions of section 13 considered as a whole clearly indicate that the power to make a reference in regard to disputes referred to the Board are undoubtedly to be found in section 10(1).
Indeed in regard to disputes relating to non public utility services there is no express provision made authorising the Government to make a reference, and even section 13(4) deals with a case where no reference is made in regard to a dispute relating to a public utility service which means that if a reference is intended to be made it would be under the second proviso to section 10(1).
Incidentally this fortifies the conclusion that whenever 31 242 reference is made the power to make it is to be found under section 10(1).
Now, in regard to cases falling under section 13(4) since the reference has to be made under section 10 there can be no doubt that the considerations relevant under the second proviso to section 10(1) would be relevant and Government may well justify their refusal to make a reference on one or the other of the grounds specified in the said proviso.
Besides, in regard to disputes other than those falling under section 13(4) if a reference has to be made, it would clearly be under section 10(1).
This position is implicit in the scheme of section 13.
The result, therefore, would be that in regard to a dispute like the present it would be open to Government to refer the said dispute under section 12(5) to a Board,, and if the Board fails to bring about a settlement between the parties Government would be entitled either to refer or to refuse to refer the said dispute for industrial adjudication under section 10(1).
There can be no doubt that if a reference has to be made in regard to a dispute referred to a Board under section 13 section 10(1) would apply, and there would be no question of importing any compulsion or obligation on the Government to make a reference.
Now, if that be the true position under the relevant provisions of section 13 it would be difficult to accept the argument that a prior stage when Government is acting under section 12(5) it is obligatory on it to make a reference as contended by the respondent.
The controversy between the parties as to the construction of section 12(5), is, however, only of academic importance.
On the respondents ' argument, even if it is obligatory on Government to make a reference provided it is satisfied that there is a case for reference, in deciding whether or not a case for reference is made Government would be entitled to consider all relevant facts, and if on a consideration of all the relevant facts it is not satisfied that there is a case for reference it may well refuse to make a reference and record and communicate its reasons therefore.
According to the appellant and the company also though the discretion is with Government its refusal to make a reference can be justified only if it records and communicates its reasons therefore and it appears that the 243 said reasons are not wholly extraneous or irrelevant.
In other words, though there may be a difference of emphasis in the two methods of approach adopted by the parties in interpreting section 12(5) ultimately both of them are agreed that if in refusing to make a reference Government is influenced by reasons which are wholly extraneous or irrelevant or which are not germane then its decision may be open to challenge in a court of law.
It would thus appear that even the appellant and the Company do not dispute that if a consideration of all the relevant and germane factors leads the Government to the conclusion that there is a case for reference the Government must refer though they emphasise that the scope and extent of relevant consideration is very wide; in substance the plea of the respondents that " may " must mean " shall " in section 12(5) leads to the same result.
Therefore both the methods of approach ultimately lead to the same crucial enquiry : are the reasons recorded and communicated by the Government under section 12(5) germane and relevant or not ? It is common ground that a writ of mandamus would lie against the Government if the order passed by it under section 10(1) is for instance contrary to the provisions of section 10(1)(a) to (d) in the matter of selecting the appropriate authority ; it is also common ground that in refusing to make a reference under section 12(5) if Government does not record and communicate to the parties concerned its reasons therefore a writ of mandamus would lie.
Similarly it is not disputed that if a party can show that the refusal to refer a dispute is not bona fide or is based on a consideration of wholly irrelevant facts and circumstances a writ of mandamus would lie.
The order passed by the Government under section 12(5) may be an administrative order and the reasons recorded by it may not be justiciable in the sense that their propriety, adequacy or satisfactory character may not be open to judicial scrutiny ; in that sense it would be correct to say that the court hearing a petition for mandamus is not sitting in appeal over the decision of the Government : nevertheless if the court is satisfied that the reasons given 244 by the Government for refusing to make a reference are extraneous and not germane then the court can issue, and would be justified in issuing, a writ of mandamus even in respect of such an administrative order.
After an elaborate argument on the construction of section 12(5) was addressed to us it became clear that on this part of the case there was no serious dispute between the parties.
That is why we think the controversy as to the construction of section 12(5) is of no more than academic importance.
That takes us to the real point of dispute between the parties, and that is whether the reason given by the appellant in the present case for refusing to make a reference is germane or not.
The High Court has held that it is wholly extraneous and it has issued a writ of mandamus against the appellant.
We have already seen that the only reason given by the appellant is that the workmen resorted to go slow during the year 1952 53.
It would appear prima facie from the communication addressed by the appellant to the respondents that this was the only reason which weighed with the Government in declining to refer the dispute under section 12(5).
It has been strenuously urged before us by the appellant and the company that it is competent for the Government to consider whether it would be expedient to refer a dispute of this kind for adjudication.
The argument is that the object of the Act is not only to make provision for investigation and settlement of industrial disputes but also to secure industrial peace so that it may lead to more production and help national economy.
Co operation between capital and labour as well as sympathetic understanding on the part of capital and discipline on the part of labour are essential for achieving the main object of the Act; and so it would not be right to assume that the Act requires that every dispute must necessarily be referred to industrial adjudication.
It may be open to Government to take into account the facts that the respondents showed lack of discipline in adopting go slow tactics, and since their conduct during a substantial part of the relevant year offended against the standing orders that was a fact which 245 was relevant in Considering whether the present dispute should be referred to industrial adjudication or not.
On the other hand, the High Court has held that the reason given by the Government is wholly extraneous and its refusal to refer the dispute is plainly punitive in character and as such is based on considerations which are not at all germane to section 12(5).
This Court has always expressed its disapproval of breaches of law either by the employer or by the employees, and has emphasised that while the employees may be entitled to agitate for their legitimate claims it would be wholly wrong on their part to take recourse to any action which is prohibited by the standing orders or statutes or which shows wilful lack of discipline or a concerted spirit of non co operation with the employer.
Even so the question still remains whether the bare and bald reason given in the order passed by the appellant can be sustained as being germane or relevant to the issue between the parties.
Though considerations of expediency cannot be excluded when Government considers whether or not it should exercise its power to make a reference it would not be open to the Government to introduce and rely upon wholly irrelevant or extraneous considerations under the guise of expediency.
It may for instance be open to the Government in considering the question of expediency to enquire whether the dispute raises a claim which is very stale, or which is opposed to the provisions of the Act, or is inconsistent with any agreement between the parties, and if the Govern ment comes to the conclusion that the dispute suffers from infirmities of this character, it may refuse to make the reference.
But even in dealing with the question as to whether it would be expedient or not to make the reference Government must not act in a punitive spirit but must consider the question fairly and reasonably and take into account only relevant facts and circumstances.
In exercising its power under section 10(1) it would not be legitimate for the Government for instance to say that it does not like the appearance, behaviour or manner of the secretary of the union, or even that it disapproves of the political 246 affiliation of the union, which has sponsored the dispute.
Such considerations would be wholly extraneous and must be carefully excluded in exercising the wide discretion vested in the Government.
In the present case it is significant that the company has voluntarily paid three months bonus for the relevant year not withstanding the fact that the workmen had adopted go slow tactics during the year, and the report of the conciliator would show prima facie that he thought that the respondents ' claim was not at all frivolous.
The reasons communicated by the Government do not show that the Government was influenced by any other consideration in refusing to make the reference.
It is further difficult to appreciate how the misconduct of the respondents on which the decision of the Government is based can have any relevance at all in the claim for the classification of the specified employees which was One of the items in dispute.
If the work done by these employees prima facie justified the claim and if as the conciliator 's report shows the claim was in Consonance with the practice prevailing in other comparable concerns the misconduct, of the respondents cannot be used as a relevant circumstance in refusing to refer the dispute about classification to industrial adjudication.
It was a claim which would have benefited the employees in future and the order passed by the appellant deprives them of that benefit in future.
Any considerations of discipline cannot, in our opinion, be legitimately allowed to impose such a punishment on the employees.
Similarly even in regard to the claim for bonus, if the respondents are able to show that the profits earned by the company during the relevant year compared to the profits earned during the preceding years justified their demand for additional bonus it would plainly be a punitive action to refuse to refer such a dispute solely on the ground of their misconduct.
In this connection it may be relevant to remember that for the said misconduct the company did take disciplinary action as it thought fit and necessary, and yet it paid the respondents bonus to which it thought they were entitled.
Besides, in considering the question 247 as to whether a dispute in regard to bonus should be referred for adjudication or not it is necessary to bear in mind the well established principles of industrial adjudication which govern claims for bonus.
A claim for bonus is based on the consideration that by their contribution to the profits of the employer the employees are entitled to claim a share in the said profits, and so any punitive action taken by the Government by refusing to refer for adjudication an industrial dispute for bonus would, in our opinion, be wholly inconsistent with the object of the Act.
If the Government had given some relevant reasons which were based on, or were the consequence of, the misconduct to which reference is made it might have been another matter.
Under these circumstances we are unable to bold that the High Court was in error in coming to the conclusion that the impugned decision of the Government is wholly punitive in character and must in the circumstances be treated as based on a consideration which is not germane and is extraneous.
It is clear that the Act has been passed in order to make provision for the investigation and settlement of industrial disputes, and if it appears that in cases falling under section 12(5) the investigation and settlement of any industrial dispute is prevented by the appropriate Government by refusing to make a reference on grounds which are wholly irrelevant and extraneous a case for the issue of a writ of mandamus is clearly established.
In the result we confirm the order passed by the High Court though not exactly for the same reasons.
The appeals accordingly fail and are dismissed with costs, one set of hearing fees.
Appeals dismissed.

summary:
Section 2(5) of the , properly construed, does not by itself confer the power on the appropriate Government to make a reference.
That power is really contained in section 10(i) of the Act.
In deciding whether it should or should not make a reference under section 12(5) of the Act the appropriate Government need not base its decision solely on the report of the conciliation officer, but is free to take into consideration all other relevant facts and circumstances under section 10(1), and where it refused to make a reference it must record and com municate its reasons therefore to the parties concerned.
Such reasons, however, must be germane, and not extraneous or irrelevant, to the dispute.
But in exercising such wide powers as are conferred by section 10(1), the appropriate Government must act fairly and reasonably and not in a punitive spirit, and although considerations of expediency may not be wholly excluded, it must not be swayed by any extraneous considerations.
Consequently, in a case where the issues in dispute related to a claim of classification for specified employees and additional bonus and the sole ground on which the Government refused to refer the dispute for adjudication under section 12(5) was that the employees had adopted go slow tactics during the relevant year, although the company had nevertheless voluntarily paid three months ' bonus for that year and the report of the conciliation officer was in favour of the employees, Held, that the Government acted on irrelevant considerations and its decision being wholly punitive in character a clear case for the issue of a writ of mandamus was made out.
Held, further, that since the work done by the employees prima facie justified the claim for classification and it was in consonance with the practice prevailing in other comparable concerns, the misconduct of the respondents could be no ground for refusing reference as the claim was in regard to the future benefit to the employees.
228 The claim of bonus being also prima facie justified by the profits earned during the relevant year in accordance with well settled principles of industrial adjudication, the order of refusal was in the nature of a punitive action that was wholly inconsistent with the object of the Act.


judgement:
Appeal No. 200 of 1960.
Appeal from the Judgment and Order dated the 19th March, 1959, of the Mysore High Court, Bangalore, in Writ Petition No. 263 of 1957.
K.Srinivasan and R. Gopalakrishnan, for the appellant.
A. N. Kirpal and D. Gupta, for the respondent.
December 5.
The Judgment of the Court was delivered by SHAH, J.
This appeal with certificate of fitness granted by the High Court of Judicature of Mysore is from an order rejecting the petition of the appellant for a writ to quash a notice of reassessment under section 34 of the Indian Income Tax Act.
The appellants are a Hindu Undivided Family carrying on business in groundnuts and other commodities at Goribidnur, Kolar District, in the territory which formed part of the former State of Mysore.
The Mysore Income Tax Act was repealed and the Indian ' Income Tax Act was brought into force in the Part B State of Mysore as from April 1, 1950.
The appellants had adopted as their year of; account July 1 to June 30 of the succeeding year and they were assessed under the Mysore Income Tax Act on that footing for the year of assessment 1949 50 corresponding to the year of account July 1, 1948,to June 30, 1949.
After the Indian Income Tax Act was applied to the State of Mysore on December 26, 1950, notice under section 22(2) of the Indian Income Tax Act was served upon the appellants requiring them to submit their 913 return of income for the assessment year 1950 51.
On September 8, 1952, the appellants submitted their return stating that for the year ending June 30, 1949, corresponding to the assessment year 1949 50, they were assessed under the Mysore Income Tax Act, that their income for the year ending June 30, 1950, was assessable under the Indian Income Tax Act in the assessment year 1951 52 and that they had no assessable income for the assessment year 1950 51.
The Income Tax Officer passed on that return an order "no proceeding" and closed the assessment.
For the assessment year 1951 52, the appellants submitted their return of income.
In the books of account produced by the appellants an opening cash credit balance of Rs. 1,87,000 odd on July 1, 1949, was disclosed.
The Income Tax Officer called upon the appellants to produce their books of account of previous years, but the books were not produced on the plea that the same were lost.
In assessing the income of the appellants for the year of account 1949 50, the Income Tax Officer held that Rs. 1,37,000 out of the opening balance in the books of account dated July 1, 1949, represented income from an undisclosed source.
In appeal, the Appellate Assistant Commissioner observed that the appellants not having exercised their option under section 2(ii) of the Indian Income Tax Act, and in the absence "of any system of accounting adopted" by them, the only course open to the Income Tax Officer was to take the financial year ending March 31, 1950, as the previous year for the income from an undisclosed source, and directed the Income Tax Officer to consider this credit in the assessment for the year 1950 51 after giving opportunity to the appellants to explain the nature and source thereof.
Before the appeal was disposed of by the Appellate Assistant Commissioner, the appellants had submitted a fresh return for the assessment year 195051 purporting to do so under section 22(3) of the Indian Income Tax Act.
Pursuant to the direction of the Appellate Assistant Commissioner, the Income Tax Officer issued a notice of reassessment under section 34 of the Income Tax Act and served it on October 15, 1957, 914 calling upon the appellants to submit a fresh return.
The appellants thereupon submitted a petition under article 226 of the Constitution to the High Court of Mysore praying for an order declaring that the notice under section 34 was without jurisdiction and for quashing the notice and proceeding consequent thereon.
This petition was dismissed by the High Court, but the High Court, on the application of the appellants, certified that the appeal was a fit one for appeal to this court.
Section 34(1) of the Indian Income Tax Act at the relevant time in so far as it is material provided: "(1) If (a). the Income Tax Officer has reason to believe that by reason of the omission or failure on the part of the assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to incometax have escaped assessment for that year, or (b). notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income Tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income tax have escaped assessment for any year, he may in cases falling under el.
(a) at any time within eight years and in cases falling cl.
(b) within four years of the end of that year, serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub section
(2) of section 22 and may proceed to assess or reassess such income, profits or gains; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub section.
" In the course of the assessment proceedings for 1951 52, the appellants produced their books of account containing an entry dated July 1, 1949, showing an opening cash balance of Rs. 1,87,000 odd which was not satisfactorily explained.
Though called upon, they did not produce their books of account for the earlier year.
The appellants had failed to disclose in their return for the assessment year 1950 51 any 915 income.
In the circumstances, the Income Tax Officer had reason to believe that by reason of failure on the part of the appellants to disclose fully and truly all ' material facts necessary for assessment for that year, income chargeable to tax had escaped assessment.
The Income Tax Officer had therefore jurisdiction to issue the notice for reassessment.
The submission that the previous return submitted on September 8, 1952, "had not been disposed of" and until the assessment pursuant to that return was made, no notice under section 34(1) for reassessment could be issued, has in our judgment no substance.
The Income Tax Officer had disposed of the assessment proceeding accepting the submission made by the appellants that they had no income for the assessment year 1950 51.
Under section 23(1) of the Indian Income Tax Act, it is open to the Income Tax Officer, if he is satisfied that the return made by an assessee under section 22 is correct, to assess the income and to determine the sum payable by the assessee on the basis of the return without requiring the presence of the assessee or production by him of any evidence.
The appellants had in their return dated September 8, 1952, submitted that they had no assessable income for the year in question and on this return, the Income Tax Officer had passed the order "no, proceeding".
Such an order in the circumstances of the case meant that the Income Tax Officer accepted the return and assessed the income as "nil".
If thereafter, the Income Tax Officer had reason to believe that the appellants had failed to disclose fully and truly all material facts necessary for assessment for that year, it was open to him to issue a notice for reassessment.
Under section 22, sub section
(3), an assessee may submit a revised return if after he has furnished the return under sub section
(2) he discovers any omission or wrong statement therein.
But such a revised return can only be filed "at any time before the assessment is made" and not thereafter.
The return dated February 26, 1957, was submitted after the assessment was made pursuant to the earlier return and it could not be entertained.
Nor could the lodging of such a return 916 debar the Income Tax Officer from commencing a proceeding for reassessment of the appellant under section 34(1) of the Indian Income Tax Act.
There is also no substance in the contention that for the assessment year 1950 51 the assessee could be assessed under the Mysore Income Tax Act and not under the Indian Income Tax Act.
By the Finance Act XXV of 1950 section 13, cl.
(1), it was provided in so far as it is material that: "If immediately before the 1st day of April, 1950, there is in force in any Part B State. any law relating to income tax or super tax or tax on profits of business, that law shall cease to have effect except for the purposes of the levy, assessment and collection of income tax and super tax in respect of any period not included in the previous year for the purposes of assessment under the Indian Income Tax Act, 1922 (XI of 1922), for the year ending on the 31st day of March, 1951, or for any subsequent year.
" By virtue of section 13(1), the Mysore Income Tax Act ceased to be in operation as from April 1, 1950, except for the purposes of levy, assessment and collection of income tax and super tax in respect of any period which was not included in the previous year for the purposes of assessment under the Indian Income Tax Act for the assessment year 1950 51.
The appellants had been assessed for the period July 1, 1948, to June 30, 1949, under the Mysore Income Tax Act.
It is manifest that for any account year which was the previous year in relation to the assessment year 195051, the appellants were liable to be assessed under the Indian Income Tax Act and not under the repealed Act.
The year of account July 1, 1949, to June 30, 1950, was not a period prior to such previous year and therefore liability to pay tax in respect of that period could be assessed not under the Mysore Income Tax Act, but under the Indian Income Tax Act.
It was urged that this interpretation of section 13 may, when the account year of an assessee does not coincide with the financial year lead to double taxation of the income for the account year ending between April 1, 1949, 917 and March 31, 1950.
But in order to avoid the contingency envisaged by the appellants, the Central Government has, in exercise of its power under section 60A of the Indian Income Tax Act, issued the Part B States (Taxation Concessions) Order, 1950, which by cl.
5(1) provides amongst other things, that the income, profits and gains of any previous year ending after the 31st day of March, 1949, which is a previous year for the State assessment year 1949 50 shall be assessed under the Act (Indian Income Tax Act, 1922) for the year ending on the 31st March, 1951, if and only if such income, profits and gains have not, before the appointed day, been assessed under the State law.
If, in respect of the previous year for the purposes of the assessment year ending 31st March, 1951, the appellants had been assessed by any State Government under a law relating to income tax in force in the State, the Indian Income Tax authorities would be in competent to assess income for that year; but in default of such assessment income of the appellants for that year was assessable under the Indian Income Tax Act.
The notice under section 34 was also not issued after the expiry of the period prescribed in that behalf.
The notice was issued by the Income Tax Officer because he had reason to believe that by reason of failure on the part of the appellants to disclose fully and truly all material facts necessary for the assessment for the the year 1950 51, income had escaped assessment.
Such a notice fell manifestly within section 34(1)(a) and could be issued within eight years, from the end of the year of assessment.
The impugned notice under section 34 for reassessment of the income of the appellants for the year 1950 51 was, in our judgment, properly issued and the High Court was right in dismissing the petition for a writ to quash the notice.
The appeal fails and is dismissed with costs.

dataset_name: IN-Abs

summary:
The appellants, a Hindu undivided family, carrying on business in the former State of Mysore, were assessed under the Mysore Income tax Act for the year of assessment 1949 50 corresponding to the year of account July 1, 1948, to June 30, 1949.
The Indian Income tax Act came into force in that area in April 1, 1950, and on December 26, 1950, notice under section 22(2) of that Act was served upon the appellants to submit their return for the assessment year 1950 51.
On September 8, 1952, the appellants submitted their return stating that they had no assessable income for that year.
The Income Tax Officer passed on that return an order, "no proceeding", and closed the assessment.
When the appellants submitted their return for the next assessment year, their books of account disclosed an opening cash credit balance of Rs. 1,87,000 and odd on July 1. 1949.
They failed to produce the books of account of the previous years, and the Income tax Officer held that Rs. 1,37,000 out of the said opening balance represented income from an undisclosed source.
The appellants submitted a fresh return for the assessment year 1950 51 purporting to do so under section 22(3) of the Indian Incometax Act.
Pursuant to the direction of the Appellate Assistant Commissioner, the Income Tax Officer on October 15, 1957, served on the appellants a notice under section 34 of the Act and thereupon the appellants moved the High Court under article 226 for an order quashing the said notice and the proceeding as without jurisdiction.
The High Court dismissed the petition.
Held, that it was not correct to say that the issue of the notice for reassessment was without jurisdiction as the assessment was yet pending.
Under section 23(1) of the Indian Income tax Act, it is open to the Income tax Officer, if he is satisfied as to correctness of the return filed by the assessee, to assess the income and determine the sum payable on the basis of the return without requiring the assessee either to be present or to Produce evidence.
The order 'no proceeding recorded on the.
return must, therefore, mean that the Income Tax Officer bad accepted the previous return and assessed the income as nil.
A revised return under section 22(3) filed by the assessee may be 912 entertained only before the order of assessment and not thereafter.
Lodging of such a return after the assessment is no bar to reassessment under section 34(1) of the Act.
It could not be said, having regard to the provisions of section 13(1) of the Finance Act (XXV of 1950) and cl.
5(1) of Part.
B States (Taxation Concessions) Order 1950, issued by the Central Government under section 60A of the Indian Income tax Act, that for the assessment year 1950 51 the appellants were assessable under the Mysore Income tax Act and not under the Indian Income tax Act.


judgement:
Appeal No. 328 of 1960.
Appeal from the order dated March 4, 1958, of the Punjab High Court, Chandigarh, in Civil Reference No. 29 of 1952.
A. V. Viswanatha Sastri, R. Ganapathy Iyer and G. Gopalakrishnan, for the appellant.
Hardyal Hardy and D. Gupta, for the respondent.
December 6.
The Judgment of the Court was delivered by SHAH, J.
The Income Tax Appellate Tribunal, Delhi Bench, stated under section 66(1) of the Indian Income Tax Act the following question for decision of the High Court of Judicature at Chandigarh: "Whether the assessee 's receipts from consumers for laying service lines, (that is, not distributing mains) were trading receipts and whether the profit element therein, viz., service connection receipts minus service connection cost was taxable income in the assessee 's hands?" The High Court answered the question as follows: ". the company 's receipts from the consumers for laying the service lines are trading receipts and 958 the profit element therein being the difference bet ween the service connection receipts and the service connection costs is taxable income in the hands of the company." With certificate granted under section 66A(2) of the Income Tax Act, this appeal is preferred by the Hoshiarpur Electric Supply Company hereinafter referred to as the assessee.
The assessee is a licensee of an electricity undertaking.
In the year of account, April 1, 1947March 31, 1948, the assessee received Rs. 12,530 for new service connections granted to its customers.
Out of this amount, Rs. 5,929 were spent for laying the service lines, and Rs. 1,338 were spent for laying certain mains.
The Income Tax Officer treated the entire amount of Rs. 12,530 as trading receipt.
In appeal to the Appellate Assistant Commissioner, the cost incurred for laying service lines and mains was excluded and the balance was treated as taxable income.
In appeal, the Appellate Tribunal agreed with the Appellate Assistant Commissioner and held that the service connection receipts were trading receipts and that the "profit element" therein was taxable income in the hands of the assessee.
In a reference under section 66(1) of the Income Tax Act, the High Court substantially agreed with the view of the Tribunal.
The assessee has installed machinery for producing electrical energy and has also laid mains and distributing lines for supplying it to its customers.
The assessee makes no charge to the consumers for laying service lines not exceeding 100 ft.
in length from its distributing main to the point of connection on the consumer 's property in accordance with cl.
6(1)(b) of the Schedule to the .
But where the length of a service line to be installed exceeds 100 ft., the cost is charged at certain rates by the assessee.
The charge consists usually of cost of wiring copper as well as galvanised iron, service and other brackets, insulators, meter wiring, poles and appropriate labour and supervision charges.
In the year of account, the assessee gave 229 new connections 959 and received Rs. 12,530 out of which Rs. 5,929 have been regarded as taxable income.
In the forms of account prescribed under the Indian Electricity Rules framed under section 37 read with section 11 of the , the assessee credited service connection receipts to the revenue account and debited the Inc, corresponding cost of laying service lines to the capital account.
But the classification of the receipts in the form of accounts is not of any importance in considering whether the receipt is taxable as revenue.
The assessee contended that the service lines when installed became the property of the assessee, because they were in the nature of an extension of the assessee 's distributing mains.
On behalf of the Revenue, it was urged relying upon the judgment of the High Court that the service lines which are paid for by the consumers do not become the property of the assessee.
We do not think that it is open to us in an appeal from an order under section 66 of the Indian Income Tax Act to enter upon this question.
The Tribunal did not record a finding on the question whether the assessee was the owner of the service lines.
Undoubtedly, contributions were made by the consumers towards the cost of the service lines installed by the assessee which exceeded 100 ft. in length.
Normally, a person who pays for installation of property may be presumed to be the owner thereof; but such a presumption cannot necessarily be made in respect of a service line, which so long as it is used for supplying electrical energy remains an integral part of the distri buting mains of an electrical undertaking.
The High Court was exercising advisory jurisdiction, and the question as to who was the owner of the service lines after they were installed could be adjudicated upon only by the Tribunal.
It was for the Tribunal to record its conclusion on that question, but the Tribunal has recorded none.
In our judgment, the High Court was in error in assuming to itself jurisdiction substantially appellate in character and in proceeding to decide the question as to ownership of the service lines which is a mixed question of law and fact, on which the Tribunal has given no finding.
960 The assessee contended that the amount paid by the consumers for new connections is capital receipt and not liable to tax, because the amount is paid by the consumers towards expenditure to be incurred by the assessee in laying new service lines an asset of a lasting character.
This question falls to be determined in the light of the nature of the receipt irrespective of who remained owner of the materials of the service lines installed for granting electrical connections to new customers.
The assessee only spends a part of the amount received by it from the consumers.
It is not clear from the statement of the case whether amongst the 229 new connections given, there were any which were of a length less than 100 ft. Payments received by the assessee must of course be for service lines installed of length more than 100 ft., but it is not clear on the, record whether the expenditure of Rs. 5,929 incurred by the assessee is only in respect of service lines which exceeded 100 ft.
in length or it is expenditure incurred in respect of all service lines.
It is however not disputed that a part of the amount received from the consumers remains with the assessee after meeting the expenses incidental to the construction of the service lines.
But an electric service line requires constant inspection and occasional repairs and replacement and expenses in this behalf have to be undertaken by the assessee.
The amount contributed by the consumer for obtaining a new connection would of necessity cover all those services.
The amount contributed by the consumer is in direct recoupment of the expenditure for bringing into existence an asset of a lasting character enabling the assessee to conduct its business of supplying electrical energy.
By the installation of the service lines, a capital asset is brought into existence.
The contribution made by the consumers is substantially as consideration for a joint adventure; the service line when installed becomes an appanage of the mains of the assessee, and by the provisions of the Electricity Act, the assessee is obliged to maintain it in proper repairs for ensuring efficient supply of energy.
The assumption made by the 961 Department that the excess remaining in the hands of the assessee, after defraying the immediate cost of installation of a service line must be regarded as a trading profit of the company is not correct.
The assessee is undoubtedly carrying on the business of distributing electrical energy to the consumers.
Installation of service lines is not an isolated or casual act; it is an incident of the business of the assessee.
But if the amount contributed by the consumers for installation of what is essentially reimbursement of capital expenditure, the excess remaining after expending the cost of installation out of the amount contributed is not converted into a trading receipt.
This excess which is called by the Tribunal "profit element" was not received in the form of profit of the business; it was part of a capital receipt in the hands of the assessee, and it was not converted into a trading profit because the assessee was engaged in the business of distribution of electrical energy, with which the receipt was connected.
In Commissioner of Income tax vs Poona Electric Supply Co. Ltd. (1), it was held by a Division Bench of the Bombay High Court that the amount received from the Government of Bombay by the Poona Electric Company in reimbursement of expenses incurred for constructing new supply lines for supplying energy to new areas not previously served, was a capital receipt and not a trade receipt.
The question of the taxability of the "profit element" in the contribution received from the Government was not expressly determined; but the court in that case held that the entire amount received by the Poona Electric Company from the Government as contribution was a capital receipt.
In Monghyr Electric Supply Co. Ltd. vs Commissioner of Income tax, Bihar and Orissa (2), it was held that the amount paid by consumers of electricity for meeting the cost of service connections was a capital receipt in the hands of the electricity undertaking and not revenue receipt and the difference between the amount received on account of service connection charges and (1) (2) 962 the amount immediately not expended was not taxable as revenue.
The receipts though related to the business of the assessee as distributors of electricity were not inciden t nor in the course of the carrying on of the assessee 's business; they were receipts for bringing into existence capital of lasting value.
Contributions were not made merely for services rendered and to be rendered, but for installation of capital equipment under an agreement for a joint venture.
The total receipts being capital receipts, the fact that in the installation of capital, only a certain amount was immediately expended, the balance remaining in hand, could not be regarded as profit in the nature of a trading receipt.
On that view of the case, in our judgment, the High Court was in error in holding that the excess of the, receipts over the amount expended for installation of service lines by the assessee was a trading receipt.
The appeal is allowed and the question submitted to the High Court is answered in the negative.
The assessee is entitled to its costs in this court as well as in the High Court.
Appeal allowed.

summary:
The assessee, an electricity supply undertaking, received certain sum of money for new service connections granted to its customers.
Part of this amount was spent for laying mains and service lines.
The Income tax Officer treated the entire amount as trading receipt.
In appeal the Appellate Assistant Commissioners excluded the cost of laying service lines and the mains and treated the balance as taxable income.
The Appellate Tribunal agreed with the Appellate Assistant Commissioner and held that the service connection receipts were trading receipts and the "profit element" therein was taxable income in the hands (1)[1929] A.C. 386; 957 of the assessee.
In a reference under section 66(1) of the Income tax Act, the High Court substantially agreed with the view of the Tribunal.
On appeal by the assessee, Held, that the High Court erred in holding that the excess of the receipts over the amount spent by the assessee for installation of service lines was a trading receipt.
The receipts though related to the business of the assessee as distributors of electricity were not incidental to nor in the course of the carrying on of the assessee 's business.
They were receipts for bringing into existence capital of lasting value.
The total receipts being capital receipts the balance remaining after a part thereof was expended for laying service lines and mains, could not be regarded as 'profit ' in the nature of a trading receipt.
Commissioner of Income tax vs Poona Electric Supply Co. Ltd., and Monghyr Electric Supply Co. Ltd. vs Commissioner of Income tax, Bihar and Orissa, , discussed and applied.