judgement:
Appeals Nos. 494 and 495 of 1958.
Appeals from the judgment and order dated April 18, 1955, of the Madras High Court in Case referred Nos. 53 of 1952 and 44 of 1953.
Hardayal Hardy and D. Gupta, for the appellant.
A. V. Viswanatha Sastri, R. Ganapathy Iyer, section Padmanabhan and G. Gopalakrishnan, for the respondent.
December 8.
The Judgment of the Court was delivered by SHAH, J.
These are two appeals filed with certificates of fitness granted by the High Court of Judicature at Madras.
Appeal No. 494 of 1958 arises out of orders passed in certain Excess Profits Tax Appeals and Appeal No. 495 of 1958 arises out of orders passed in certain Income tax References, Excess Profits Tax Appeals and Business Profits Tax Appeals.
M/s. N. M. Rayaloo Iyer & Sons hereinafter referred to as the assessees are a firm carrying on business principally in dyes and chemicals.
They are the chief representatives in "South India" of the products of the Imperial Chemical Industries Company (India) Ltd. hereinafter referred to as the "I.C.I.".
The business in dyes and chemicals was in the years material to these appeals, conducted in the name and style of "Colours Trading Company", with its Head Office at Madura and in thirteen branch offices in different 63 towns in "South India".
The busines was carried on originally in partnership by three brothers, N. M. R. Venkatakrishna Iyer, N. M. R. Subbaraman and N. M. ' R. Krishnamurti.
On April 13, 1946, N. M. R. Subbaraman retired from the firm and the share of N. M. R. Venkatakrishna Iyer was taken over by a private limited company N. M. R. Venkatakrishna Iyer & Sons Ltd., but the business was, notwithstanding the changes in the personnel, continued in the original name and style.
One N. M. R. Mahadevan (son of N. M. R. Venkatakrishna Iyer) hereinafter referred to as Mahadevan was employed by the assessees as the General Manager of the Colours Trading Co.
By letter dated April 17, 1940, the assessees wrote to Mahadevan agreeing to pay him remuneration at the rate of Rs. 1,800 per annum and 5% of the net profits of the concern (Colours Trading Company) calculated by deducting from the gross profits of the business, salaries, wages and other outgoings but without making any deduction for capital.
By letter dated March 30, 1943, the salary of Mahadevan was fixed at Rs. 3,000 per annum and the commission was enhanced to 12 1/2% of the net profits of the Colours Trading Company.
The branch offices were managed by local managers and assistant managers who were paid in addition to monthly salary, annual and special bonus and dearness allowance.
The assessees received from the I. C. I. commission at rates varying between 7 1/2% and 12% on different products sold to them.
With effect from April 1, 1944, the I. C. I. allowed a special emergency commission of 5% on all dyes and dye stuffs sold to the assessees.
This special emergency commission was increased to 15 % on all sales on or after March 1, 1945, but was subsequently reduced to 10% on sales on and after September 1, 1946.
These appeals relate to the liability of the assessees to Excess Profits Tax for the chargeable accounting periods ending April 13, 1943, April 12, 1944, April 12, 1945, and, March 31, 1946, and for Business Profits Tax for the chargeable accounting periods ending April 12, 1946, March 31, 1947, April 13, 1947, March 31, 1948, and April 12, 1948.
64 The assessees claimed that they had paid to their employees in the years of account 1942 43 to 1947 48 under agreements executed from time to time a share in the special emergency commission received from the I. C. I., in addition to monthly salary, dearness allowance and general and special bonus.
The I. C. I. in allowing the emergency commission by its letter dated January 24, 1944, recommended that 1% out of the 5% commission allowed may be "passed on" by the assessees to their "sub distributors".
The assessees claimed that pursuant to this recommendation, they paid to their employees commission at rates varying between 1 1/2% to 4%, and when the emergency commission was increased to 15% and the I. C. I. by letter dated February 23, 1945, recommended that 6% out of this commission may be passed on to the sub distributors, the assessees claimed to have distributed commission at rates varying from 2% to 7 1/2% and in some cases at a rate as high as 12%.
Under the service agreements, commission was payable to the employees only if the turnover in dyes exceeded Rs. 1,00,000 net in any year, but to employees in several branches the assessees claimed to have paid commission at generous rates even when the turnover fell far short of that amount.
In the year of account ending April 12, 1945, there was a revision of the scales of salaries of the employees, and the assessees commenced giving to their employees dearness allowance and special bonus which in the aggregate exceeded 50% of the basic annual salary and also annual bonus equal to the annual salary.
The result of this revision of emoluments was that each employee received an amount equal to at least 21 times his enhanced basic salary.
In addition to this remuneration, the assessees claimed that they had paid a share in the commission which in some cases exceeded 12 times the basic salary.
In computing the total income of the assessees for the years 1943 44 and 1944 45 for purposes of income tax, the Income tax Officer disallowed the payment of 12 1/2% of the net profits of the Colours Trading Co. to Mahadevan and in computing the income for the 65 assessment years 1945 46, 1946 47, 1947 48 and 194849 the Income tax Officer disallowed the commission.
paid to the branch managers and other employees.
In appeal the Appellate Assistant Commissioner set aside the order which disallowed the amount of commission paid to Mahadevan and following the order of the Income tax Appellate Tribunal in certain Excess Profits Tax appeals, allowed 5% of the net profits without deduction of Excess Profits Tax or Business Profits Tax, or 121% after deduction of Excess Profits Tax or ' Business Profits Tax whichever was higher.
That order was confirmed in appeal by the Income tax Appellate Tribunal.
The Tribunal also confirmed the order disallowing the emergency commission paid to the branch managers and other employees, and in the computation of taxable income for purposes of Income tax, Excess Profits Tax and Business Profits Tax, added back all those payments.
At the instance of the assessees, the Tribunal referred two sets of questions to the High Court under section 66(1) of the Income tax Act read with section 21 of the Excess Profits Tax Act.
Questions 1 to 3 in Referred Case No. 44 of 1953 were: (1) Whether in allowing a deduction under section 10(2) (xv) of the Income tax Act, the Income tax Officer is precluded from going into the question whether the amount was paid wholly and exclusively for the purpose of the assessee 's business? (2) Whether there was any material before the Tribunal to hold that the commission payment to N. M. R. Mahadevan at 121 % before deduction of Excess Profits Tax or Business Profits Tax was not wholly and exclusively laid out for the purpose of the assessee 's business? (3) Whether the commission payment to the branch managers, assistant managers and other employees is an expenditure laid out wholly and exclusively for the purpose of the business? Questions referred in Referred Case No. 53 of 1952 were: 66 (1) Whether the Appellate Tribunal erred in law in holding that in accordance with the terms of letters dated 17th April, 1940, and 30th March, 1943, and the conduct of the parties the Excess Profits Tax payable by the assessee should be deducted from the profits before the commission of 12 1/2% payable to M. N. R. Mahadevan is calculated? (2) Whether there is any material on evidence sufficient in law for the Appellate Tribunal to hold that the commission of 12 1/2% on profits paid to Mahadevan was unreasonable within the meaning of Rule 12 of Schedule 1 of the Excess Profits Tax Act? (3) Whether on the facts and circumstances of the case the disallowance by the Excess Profits Tax authorities of the commission paid to branch managers is justified under Rule 12 of Schedule 1 of the Excess Profits Tax Act? The material provisions relating to allowances under the Excess Profits Tax Act and the Business Profits Tax Act (which Act superseded the Excess Profits Tax Act as from March 30, 1946) were on the questions arising in this case substantially the same and hereafter reference to the Excess Profits Tax Act will in respect of the period after March 30, 1946, be deemed to be a reference to the Business Profits Tax Act.
In the opinion of the High Court, in computing the taxable income, the deductions claimed by the assessees fell to be considered not under section 10(2)(xv) of Income tax Act but properly under section 10(2)(x) of the Income tax Act, the latter being a specific provision in the Act relating to deduction of commission or bonus paid to an employee.
The High Court observed that in assessing liability to Excess Profits Tax the bonus or commission paid to the employees of the tax payer may be permitted as a deduction in the light of section 10(2)(x) of the Income tax Act and r. 12 of Sch. 1 to the Excess Profits Tax Act.
The case of Mahadevan, according to the High Court, did not present much difficulty, the only question which fell to be determined in this case being whether in allowing deduction of commission at the rate of 12 1/2% on the net profits, the 67 Excess Profits Tax paid by the assessees was to be taken into account.
Following a judgment of the Punjab High Court in Commissioner of Income tax, Delhi vs Delhi Flour Mills Ltd. (1), the High Court observed that in computing net profits Excess Profits Tax could not be deducted, but on the materials on the record, the question whether the commission paid to the branch managers and other employees was properly deductible could not be decided, and accordingly the High Court called for and obtained from the Tribunal a supplementary statement of facts.
The High Court after considering the supplementary statement observed that the assessees had undoubtedly distributed substantial sums out of the emergency commission to its managers and assistant managers in the branches at rates well above the minima recommended by the I. C. I., but the distribution was at rates within the percentages allowed by the I. C. I., as additional commission and the balance retained by the appellants out of the emergency Commission was also substantial.
In the view of the High Court, the Tribunal had to consider three factors, (1) the reasonableness of the commission in the light of the conditions laid down in section 10(2)(x), (2) the reasonableness of the percentages above the minima suggested by the I. C. I., and (3) the need for maintaining the reputation of the I. C. I., and the distributor in conditions that prevailed during that period when "black marketing was rampant", but observed the High Court "the Tribunal had made no real attempt to analyse the evidence before it to justify its conclusion that only the minima recommended by the I.C.I. and nothing in excess satisfied the test of reasonableness under r. 12, Sch. 1, of the Excess Profits Tax Act".
They then observed that, whether the test of reasonableness is that prescribed by section 10(2)(x) of the Income tax Act or whether reasonableness has to be judged in the light of commercial expediency under r. 12, Sch. 1, of the Excess Profits Tax Act, the expenditure was to be judged from the point of view of a businessman and not by the application of any subjective standard of a taxing (1) 68 officer and that on an analysis of the materials furnished, they were unable to see anything per se unreasonable in the amounts of commission actually paid by the assessees to the branch managers and assistant managers in the branches.
The High Court also observed that the minima recommended by the I. C. I. did not provide the only or an absolute standard for judging the reasonableness of the payments made, and stated: "No doubt, the employees of the assessee were in receipt of regular salaries and bonuses.
But then, a sub distributor if he had not been paid a salary, would have had to be paid a share of the basic commission itself.
What the assessee got in the years in question was in the nature of a windfall.
It shared it with its employees.
It had been instructed to share it.
The emergency commission was allowed by the Imperial Chemical Industries so that the distributors could maintain the reputation of the Imperial Chemical Industries in the market even under the disturbed conditions that prevailed in those years.
If, to maintain that reputation and to maintain its own, the assessee paid to its employee s even on a liberal basis, a share of that emergency commission, it is a little difficult to hold that, while receipt of the emergency commission was reasonable, sharing it beyond a particular point would per se be unreasonable, in the sense that no prudent businessman in that line of business, in those years, and in the market condition that prevailed then, with ample scope for black marketting, would have paid out commission on such a basis".
They then concluded: "Though, of course, it was for the assessee to show that it was entitled to the deduction claimed under section 10(2)(x) of the Income tax Act and r. 12 of Sch. 1 of the Excess Profits Tax Act, there was really no basis on record to show that judged from the point of view of a businessman, payments in excess of the minima recommended by the Imperial Chemical Industries were not reasonable.
We are of 69 opinion that the entire claim should have been allowed both under section 10(2)(x) of the Income tax Act and under r. 12 of Sch. 1 of the Excess Profits Tax Act on the ground that the statutory requirements were satisfied by the assessee.
" The High Court accordingly answered the questions about the disallowance of commission paid to the employees of the assessees being justified under r. 12, Sch. 1, of the Excess Profits, Tax Act in the negative.
Against those orders, these two appeals have been preferred with certificates of fitness from the High Court.
The first question which falls to be considered is whether in the computation of taxable income for purposes of Income tax and Excess Profits Tax, commission allowed to Mahadevan at 12 1/2% should be allowed after deducting the Excess Profits Tax paid.
By the agreement dated April 17, 1940, as modified by the agreement dated March 30, 1943, Mahadevan was to be paid remuneration at the rate of Rs. 3,000 per annum and 121 % of the net profits of the Colours Trading Company.
In the view of the High Court in determining the "net profits" under the agreement "in accordance with the principles of commercial accountancy and the principles laid down under the Excess Profits Tax Act" the Excess Profits Tax which is a tax on profits could not be deducted.
In our judgment the question is one of the true interpretation of the agreement.
Mahadevan was under the agreement to receive 121% commission on the net profits of the Colours Trading Co. calculated by deducting from the gross.
profits of the business the salaries, wages and other outgoings.
The expression "outgoings" is not restricted to business or commercial outgoings.
The agreement specifically disentitles the employers to make deductions of capital expenditure, but there is no indication that the outgoings are to be business outgoings only.
There is nothing in the agreement or in the context justifying the view that in the expression 'outgoings ' is not included the Excess Profits Tax paid by the assessees.
In Commissioner of Income Tax, Delhi vs Delhi 70 Flour Mills Co. Ltd. (1), it was observed by this Court in construing a similar agreement that the Excess Profits Tax was a part of the profits itself, but it was no part of the net profits contemplated by the parties; if it was a part which had to be deducted in arriving at the net profits, that is to say, the divisible profits which alone the parties had in mind, as a matter of construction the net profits meant divisible profits and were to be ascertained after deduction of Excess Profits Tax.
Counsel for the Revenue has not challenged the decision of the High Court that in computing taxable income for the purpose of income tax commission paid to the various employees is a permissible deduction under section 10(2)(x) of the Income tax Act.
The only question which survives on this branch for consideration is, therefore, whether those deductions are permissible in the assessment of Excess Profits Tax.
By section 21 of the Excess Profits Tax Act, amongst other provisions, section 10 of the Income tax Act is made applicable with modifications if any as may be prescribed as if it were a provision of the Excess Profits Tax Act and refers to the Excess Profits Tax instead of Income tax.
By section 2(19), the expression "profits" means profits determined in accordance with Sch. 1 of the Act which lays down the rules for computation of profits for the purpose of Excess Profits Tax Act.
Rule 12 of Sch. 1 (which was added by section 4 of the Excess Profits Tax Ordinance, 1943 provided as follows: "(1) In computing the profits of any chargeable accounting period no deduction shall be allowed in respect of expenses in excess of the amount which the Excess Profits Tax Officer considers reasonable and necessary having regard to the requirements of the business and in the case of directors ' fees or other payments for services, to the actual services rendered by the person concerned: Provided that no disallowance under this rule shall be made by the Excess Profits Tax Officer unless he has obtained the prior authority of the Commissioner of Excess Profits Tax.
(2) [1959] Supp. 1 S.C.R. 28.
71 (2) Any person who is dissatisfied with the decision of the Excess Profits Tax Officer under this rule may.
appeal in the prescribed time and manner to the Appellate Tribunal.
(3) In relation to chargeable accounting periods ending after the 31st day of December, 1942, the Central Government may make rules for determining the extent to which deductions shall be allowed in respect of bonuses or commissions paid.
We were informed at the bar that though authorised, the Central Government did not make rules for determining the extent to which deductions shall be allowed in respect of bonuses or commissions paid.
The Excess Profits Tax Act was substituted as from the year 1946 by the Business Profits Tax Act, 1947.
That Act also defined by ' section 2, cl.
(16), the expression "profits" as meaning profits determined in accordance with Sch. 1 and by section 19, the provisions of the sections of the Indian Income tax Act as applied to the Excess Profits Tax Act by virtue of sections 21 and 21A in so far they were not repugnant to the provisions of the Business Profits Tax Act applied to that Act as they applied to Excess Profits Tax Act and by cl.
(3) of Sch. 1, a provision substantially similar to cls.
(1) & (2) of cl. 12, Sch. 1, of the Excess Profits Tax Act was incorporated.
Profits of a business for purposes of Excess Profits Tax Act have to be ascertained by reference to section 10 of the Income tax Act modified to the extent directed by Sch. 1 of the Excess Profits Tax Act.
By cl.
(12) of Sch. 1 of the Excess Profits Tax Act, a deduction in respect of expenses in excess of the amounts which the Excess Profits Tax Officer considers reasonable and necessary having regard to the requirements of the business and in the case of payments for services to the actual services rendered by the persons concerned, is not to be allowed.
The deduction to be allowed, it is true, does not depend upon any subjective satisfaction of the Excess Profits Tax Officer, but on objective standards as to what is reasonable and necessary having regard to the requirements of the business and in the case of payments for services 72 to the actual services rendered by the persons concerned.
The order passed by the Excess Profits Tax , 'Officer is open to review by the Tribunal to which appeal against the order of the Excess Profits Tax Officer lies.
But in considering whether the deduction is properly claimed, the primary duty is vested by the Legislature in the Excess Profits Tax Officer.
It is for him subject to review by the Tribunal to decide whether the deduction is reasonable and necessary, having regard to the requirements of the business and in case of payments for services to the actual services rendered.
The jurisdiction which the High Court exercises on questions referred to it under the Excess Profits Tax Act is merely advisory; the High Court is not sitting in appeal over the judgment of the taxing authorities.
If the taxing authorities having regard to the circumstances come to a conclusion that expenditure claimed as a deduction is not reasonable and necessary, it is not open to the High Court to substitute its own view as to what may be regarded as reasonable and necessary.
Even if the High Court holds that the taxing authorities have committed an error in law by misconceiving the evidence, or by applying erroneous tests, or otherwise by acting perversely, the High Court may in answering the questions submitted, lay down the true principles applicable to the ascertainment of the permissible deductions and leave it to the taxing authorities to adjudicate upon the reasonableness and necessity of the expenses in the light of the requirements of the business.
In the case in hand, the Excess Profits Tax Officer held, (a) that the employees of the assessees were being amply remunerated for services rendered by adequate salary, generous dearness allowance and annual bonus equal to the basic salary, (b) that the emoluments of the employees had been increased year after year and there was no material to show that the employees had made a persistent demand for increased emoluments, (c) that the commission was credited to the employees ' account at the end of the year and was carried forward but no payments were made to 73 them ' (d) that the agreements which had been produced by the assessees were fabricated with a view to, reduce tax liability, and (e) that the expenditure ' claimed was not proved to have been laid out wholly and exclusively for the purpose of the business.
Taking into account these circumstances, the Excess Profits Tax Officer held that the remuneration paid to the employees was adequate and any additional commission paid was in excess of what was reasonable and necessary.
The only criticism urged by counsel for the assessees against the grounds given is that the Excess Profits Tax Officer observed that while the net profit according to the Profit & Loss Account of the firm was Rs. 20,487 leaving a share of Rs. 6,800 only to each of the partners, some of the managers got more than this amount.
It appears that the Excess Profits Tax Officer committed an error in so observing.
The profits of the Colours Trading Co. as disclosed by the order of assessment for the year 1945 46 were Rs. 99,435 and not Rs. 20,487; but that error did not affect the ultimate conclusion recorded by the Excess Profits Tax Officer.
According to the books of account of the assessees for the year 1943 44 of the business in dyes, the profits were Rs. 99,435 and they claimed to have distributed a commission of Rs. 1,00,715 to their employees out of the emergency commission, which was prima facie wholly disproportionate to the amount received by them.
The order passed by the Excess Profits Tax Officer was confirmed in appeal by the Appellate Tribunal.
In the view of the Appellate Tribunal, no additional incentive was required to sell dyes and chemicals in the years in question because dyes and chemicals were in short supply and there was a rise in demand.
The Tribunal also referred to the table setting out the distribution among the employees of dearness allowance, bonus and salary in the relevant years, and observed: "In addition to the generous allowances, the payment of this sum appears to us a payment made in order to dissipate the profits.
It would be sufficient to say that including the commission alleged 10 74 to have been paid, the total emoluments would be something like 1200% and in some cases even more than the basic annual salary.
There is no doubt in our mind, that this was wholly unnecessary for business purposes.
" Observing that the assessees having no sub distributors, the direction given by the I.C.I. did not require the assessees to "pass on" the commission to their employees, they concluded that the expenditure alleged to have been incurred was not reasonable and necessary within the meaning of r. 12, Sch. 1, of the Excess Profits Tax Act.
The following table which is incorporated in the statement of case of the Tribunal sets out for the four years in question the emergency commission received by the assessees and the aggregate amount paid by them to their employees.
Extra commis Amount of commis Assessment sion received sion paid by the year.
by the assessee.
assessee.
Rs. Rs. 1945 46 1,28,533 1,00,715 1946 47 3,20,391 2,44,698 1947 48 3,15,934 1,28,506 1948 49 3,70,964 1,75,079 This distribution out of the emergency commission to the employees has to be viewed in the context of the following circumstances set out by the Tribunal: (1)that even though the I.C.I. recommended payment to sub distributors and the assessees had no sub distributors, they claimed to have paid commission to their employees at rates in excess of the minimum rates recommended by I.C.I. (2) that this commission was paid to the employees in branches in which the annual turnover did not exceed Rs. 1,00,000 even though the agreements which the assessees had executed expressly provided that the commission was to be paid only if the annual turnover in a branch exceeded Rs.
I lakh and (3)that the basic salaries of the employees had been substantially increased from time to time and generous dearness allowance and Deepavali bonus 75 were given besides the annual bonus to the employees.
An analysis of annexure 'IL" to the supplemental statement of case made by the Tribunal discloses some striking instances of Payments to employees.
One Themaswamy was paid annually commission varying from Rs. 15,000 to Rs. 23,000 when his basic salary was Rs. 2,100 per annum; one K. N. Rajagopalachari was paid commission varying from Rs. 16,000 to Rs. 12,000 when his basic salary was Rs. 1,260 per annum; one section L. Radhakrishnan was paid commission varying from Rs. 5,700 to Rs. 13,000 when his salary varied between Rs. 516 and Rs. 636 per annum and one K. R. Rama Rao was paid commission varying from Rs. 4,600 to Rs. 10,520 his salary being Rs. 492 and later increased to Rs. 612 per annum.
There was thus ample evidence in support of the conclusion of the Excess Profits Tax Officer which was confirmed by the Tribunal.
As we have already observed, it is the province of the Excess Profits Tax Officer and the Tribunal to assess the permissible deductions in the context of reasonableness and necessity having regard to the requirements of the business and interference with the conclusion is permissible if the view of the taxing authorities is vitiated by an error of law or is not based on any materials, or the conclusion is such that no man instructed in law could have arrived at.
It is true that in considering whether the deduction claimed by the assessees for payments made as bonus or commission paid to an employee is to be allowed, the taxing officer must have regard to the provisions of section 10(2)(x) of the Income tax Act and cl.
(12) of Sch. 1 of the Excess Profits Tax Act; and in assessing the reasonableness, consideration of commercial expediency must undoubtedly be taken into account.
But commercial expediency must be viewed in the light of the requirements of the business and the actual services rendered by the persons concerned.
Any abstract consideration of commercial expediency is out of place.
In our view, the High Court was not justified in seeking to reappreciate the evidence on which the 76 conclusion of the Excess Profits Tax Officer which was confirmed by the Tribunal was based.
Their jurisdiction being advisory, the High Court had to answer the questions submitted for opinion on the facts found; if the High Court held the view that the taxing authorities had misdirected themselves in law or had made a wrong inference in law or had failed to apply the correct tests or had misconceived the evidence, it was.
open to them to invite the attention of taxing authorities to the error committed by them; but the High Court could not set aside the decision of the taxing authorities on a reappreciation of the evidence.
We may also point out that even if the High Court concluded that the total disallowance of the deduction claimed was not justified, the High Court could not substitute its own view as to what was reasonable and necessary.
The High Court bad, if it disagreed with the taxing authorities, still to answer the questions submitted and leave to the consideration of the Excess Profits Tax Officer what in the circumstances was reasonable and necessary.
Counsel for the assessees submitted that in any event, the Tribunal having in its supplementary statement of case stated that payment in excess of what was recommended by the I.C.I. was unjustified, this court may so modify the order of the High Court that deductions of the amounts which were recommended by the I.C.I. may be regarded as permissible deductions.
The I.C.I. recommended distribution of a certain percentage out of the emergency commission to the sub distributors; but in the administrative set up of the assessees, the sub distributors did not find a place.
The assessees carried on their business through paid employees.
In terms therefore the recommendation by the I.C.I. had no application to the assessees.
It is true that even if the assessees did not carry on the business through sub distributors, payment made to its employees if reasonable and necessary having regard to the requirements of the business, may still be deductible, but that in our judgment is a matter to be decided by the taxing authorities and not by us.
77 The Tribunal had come to the conclusion that no payment in addition to the salary, annual bonus and, special bonus was justified and any expression of opinion to the contrary in the supplementary statement pursuant to the order for statement of case could not in our judgment affect the conclusion originally recorded.
In our view the answer to the question whether the disallowance by the Excess Profits Tax authorities of the commission paid to branch managers was justified under r. 12, Sch. 1, of the Excess Profits Tax Act should have been answered in the affirmative.
On the view taken by us, Appeal No. 494/1958 will be allowed, but there will be no order as to costs.
Appeal No. 495 of 1958 will be allowed with *costs.
Appeals allowed.

summary:
The respondents, a firm carrying on business in dyes and chemicals under the name and style of Colours Trading Com pany, with their head office at Madurai and thirteen branch offices in different towns, were the chief representatives in South India of the products of the I. C. I., a manufacturing concern.
M was employed as the General Manager of the respondents and by virtue of an agreement, he was to be paid remuneration at the rate of Rs. 3,000 per annum and 12 1/2% of the net profits of the company calculated by deducting from the gross profits of the business the salaries, wages and other outgoings.
The branch offices were managed by local managers and assistant managers who were paid in addition to monthly salary, annual and special bonus and dearness allowance.
The respondents received from the I. C. I. commission at varying rates on the different products sold to them and with effect from April 1, 1944, the I.C.I. allowed a special emergency commission of 5% recommending that 1% out of the commission allowed may be passed on by the respondents to their sub distributors.
The respondents claimed to have distributed to their employees commission pursuant to the recommendation of the I.C.I. at rates varying between 2% and 7 1/2% and in some cases at a rate as high as 12%.
Though under the service agreement, commission was payable to the employees only if the turnover exceeded Rs. 1,00,000 net in any year, the respondents claimed to have paid them commission at generous rates even when the turnover fell far short of that amount.
In the year of account ending April 12, 1945, there was a revision of the scales of salaries of the employees, as a result of which the employees received an amount equal to 2 1/2 times the enhanced basic salary and also commission sometimes exceeding 12 times the basic salary.
In computing the total income of the respondents for the years 1943 44 and 1944 45 for purposes of income tax, the income tax Officer disallowed the payment Of 12 1/2% of the net 61 profits to M, and for the years 1945 49 he disallowed the commission paid to the branch managers and other employees on the ground that taking into account all the circumstances the remuneration paid to the employees was adequate and that any additional commission paid was in excess of what was reasonable or necessary.
The Appellate Tribunal confirmed the order of the Income tax Officer except in the case of M to whom payment of 5% of the net profits without deduction of Excess Profits Tax or Business Profits Tax, or 12% after deduction of Excess Profits Tax or Business Profits Tax, whichever was higher, was regarded as permissible deduction.
The High Court, on reference, took the view, inter alia, that in determining the net profits under the agreement with M, the excess profits tax could not be deducted, that in considering the question whether the bonus or commission paid to the employees in the present case might be permitted as a justifiable deduction, in the light of section 10(2)(X) Of the Income tax Act and r. 12 of Sch. 1 of the Excess Profits Tax Act, the test of reasonableness of the expenditure was to be judged from the point of view of a business man and not by the application of any subjective standard of a taxing officer, and that on an analysis of the materials furnished, there was nothing per se unreasonable in the amounts of commission actually paid by the respondents to the branch managers and assistant managers.
Held: (i) that the question whether in the computation of the taxbale income, the commission payable to M under the agreement entered into with him by the respondents should be allowed before deducting the excess profits tax, depended on the true interpretation of the agreement; the expression "outgoing" in the agreement was not restricted to business or commercial outgoings but included the excess profits tax paid by the assessees, and that, consequently, the net profits of which M was to be given a percentage by way of commission should be computed after deducting the excess profits tax paid.
Commissioner of Income tax, Delhi vs Delhi Flour Mills Co., Ltd., [1959] SUPP.
1 S.C.R. 28, relied on.
(2) that under cl.
(12) Of Sch.
1 of the Excess Profits Tax Act, 1940, it was for the Excess Profits Tax Officer, subject to review by the Tribunal, to decide whether the deduction was reasonable and necessary, having regard to the requirements of the business and in case of payments for services, to the actual services rendered by the persons concerned; it was not open to the High Court exercising its jurisdiction on questions referred to it under the Excess Profits Tax Act, to substitute its own view as to what may be regarded as reasonable and necessary and to set aside the decision of the taxing authorities on a re appreciation of the evidence.
If the High Court considered that the taxing authorities had committed an error in law by misconceiving the evidence or by applying erroneous tests or 62 otherwise by acting perversely, the proper course for it was in answering the questions submitted, to lay down the true principles applicable to the ascertainment of the permissible deductions and to leave it to the taxing authorities to adjudicate upon the reasonableness and necessity of the expenses in the light of the requirements of the business.
(3) that there was ample evidence in support of the conclu sion of the Excess Profits Tax Officer which was confirmed by the Tribunal, and that the question, whether the disallowance by the excess profits tax authorities of the commission paid to branch managers was justified under r. 12 of Sch.
1 of the Excess Profits Tax Act, should have been answered in the affirmative.


judgement:
Appeal No. 427 of 1959.
Appeal by special leave from the Award dated February 18, 1958, of the Industrial Tribunal (Textiles) U.P., Allahabad, in Petitions (under section 6 E) Nos.
(Tex.) 3 and 4 of 1957 and 1 of 1958.
M. C. Setalvad, Attorney General for India and G. C. Mathur, for the appellant.
B. P. Maheshwari, for the respondents.
December 12.
The Judgment of the Court was delivered by GAJENDRAGADKAR, J.
Three applications made by the appellant the Lord Krishna Textile Mills under section 6 E(2)(b) of the United Provinces (Act XXVIII of 1947) for obtaining the approval of the Industrial Tribunal to the dismissal of 8 of its workmen have been rejected; and the Tribunal has refused to accord its approval to the action taken by the appellant.
This appeal by special leave challenges the legality, validity as well as the propriety of the said order, and the principal question which it seeks to raise is in regard to the scope of the enquiry permissible under section 6 E(2)(b) as well as the extent of the jurisdiction of the Tribunal in holding such an enquiry.
Section 6 E(2) of the U. P. Act is identical in terms with section 33 of the (XIV of 1947) (hereafter called the Act), and for convenience we would refer to the latter section because what we decide in the present appeal will 206 apply as much to cases falling under section 6 E(2)(b) of the U. P. Act as those falling under section 33(2)(b) of the Act.
It appears that on October 12, 1957 when the appellant 's Controller of Production and the General Superintendent were discussing certain matters in the office of the appellant mills, Har Prasad, one of the 8 workmen dismissed by the appellant, came to see the Controller along with some other workmen.
These workmen placed before the Controller some of their grievances; and when the Controller told their leader Har Prasad that the grievances set forth by them were not justified Har Prasad replied that the Controller was in charge of the management of the appellant mills and could do what he liked, but he added that the ways adopted by the management were not proper and "it may bring very unsatisfactory results".
With these words Har Prasad and his companions left the office of the Controller.
Two days thereafter Har Prasad and Mool Chand saw the Controller again in his office and complained that one of the Back Sizers Yamin had reported to them that the Controller had beaten him; the Controller denied the allegation whereupon the two workmen left his office.
At about 6 p.m. the same evening a number of workmen of the appellant mills surrounded Mr. Contractor, the General Superintendent, and Mr. Surti when they were returning to their bungalows from the mills and assaulted and beat them.
The two officers then lodged a First Information Report at Thana Sadar Bazar, Saharanpur about 9 p.m.; thereupon the Inspector of Police went to the scene of the offence, and on making local enquiries arrested two workmen Ramesh Chander Kaushik and Tika Ram.
This offence naturally led to grave disorder in the mills, and the officers of the mills felt great resentment in consequence of which the mills remained closed for three days.
The appellant 's management then started its own investigations and on October 17 it suspended five workmen Har Prasad, Majid, Zinda, Yamin and Manak Chand.
Notice was served on each of these suspended workmen calling upon them to explain their conduct and 207 to show cause why they should not be dismissed from the service of the mills.
As a result of further investigation the management suspended two more workmen Om Parkash and Satnam on October 24 and served similar notices on them.
Ramesh Chander Kaushik and Tika Ram were then in police custody.
After they were released from police custody notices were served on them on November 24 asking them to show cause why their services should not be terminated.
All the workmen to whom notices were thus served gave their explanations and denied the charges levelled against them.
An enquiry was then held according to the Standing Orders.
At 'the said enquiry all the.
workmen concerned as well as the representatives of the union were allowed to be present and the offending workmen were given full opportunity to produce their witnesses as also to cross examine the witnesses produced by the management against them.
As a result of the enquiry thus held the management found the charges proved against the workmen concerned, and on November 19 Om Parkash, Satnam, Majid, Yamin, Zinda and Har Prasad were dismissed.
These dismissed workmen were asked to take their final dues together with one month 's pay in lieu of notice as required by the Standing Orders, On Decem ber 20, the enquiry held against Tika Ram and Ramesh Chander concluded and as a result of the findings that the charges were proved against them the said two workmen were also dismissed from service and required to take their final dues with one month 's wages in lieu of notice.
At this time an industrial dispute in respect of bonus for the relevant year was pending before the Industrial Tribunal (Textile) U.P., Allahabad.
The appellant, therefore, made three applications before the Tribunal under section 6 E(2) of the U. P. Act on November 21 and 27 and December 21, 1957 respectively.
By these applications the appellant prayed that the Industrial Tribunal should accord its approval to the dismissal of the workmen concerned.
On February 18, 1958 the Tribunal found that the appellant had failed to make out a case for dismissing the 208 workmen in question, and so it refused to accord its approval to their dismissal.
Accordingly it directed the appellant to reinstate the said workmen to their original jobs with effect from the dates on which they were suspended with continuity of service, and it ordered that the appellant should pay them full wages for the period of unemployment.
It is on these facts that the question about the construction of section 6 E(2)(b) of the U.P. Act falls to be considered.
As we have already observed the material provisions of section 6 E of the U. P. Act are the same as section 33 of the Act after its amendment made by Act 36 of 1956; and since the fatter section is of general application we propose to read the relevant provisions of section 33 of the Act and deal with them.
All that we say about this section will automatically apply to the corresponding provisions of section 6 E of the U. P. Act.
Section 33 occurs in Chapter VII of the Act which contains miscellaneous provisions.
The object of section 33 clearly is to allow continuance of industrial proceedings pending before any authority prescribed by the Act in a calm and peaceful atmosphere undisturbed by any other industrial dispute; that is why the plain object of the section is to maintain status quo as far as is reasonably possible during the pendency of the said proceedings.
Prior to its amendment by Act 36 of 1956 section 33 applied generally to all cases where alteration in the conditions of service was intended to be made by the employer, or an order of discharge or dismissal was proposed to be passed against an employee without making a distinction as to whether the said alteration or the said order of discharge or dismissal was in any manner connected with the dispute pending before an industrial authority.
In other words, the effect of the unamended section was that pending an industrial dispute the employer could make no alteration in the conditions of service to the prejudice of workmen and could pass no order of discharge or dismissal against any of his employees even though the proposed alteration or the intended action had no connection whatever with the dispute pending.
between him and his employees.
This led to a general 209 complaint by the employers that several applications had to be made for obtaining the permission of the specified authorities in regard to matters which were not connected with the industrial dispute pending adjudication; and in many cases where alterations in conditions of service were urgently required to be made or immediate action against an offending workman was essential in the interest of discipline, the employers were powerless to do the needful and had to submit to the delay involved in the process of making an application for permission in that behalf and obtaining the consent of the Tribunal.
That is why, by the amendment made in section 33 in 1956 the Legislature has made a broad division between action proposed to be taken by the employer in regard to any matter connected with the dispute on the one hand, and action proposed to be taken in regard to a matter not connected with the dispute pending before the authority on the other.
Section 33(1) provides that during the pendency of such industrial proceedings no employer shall (a) in regard to any matter connected with the dispute alter to the prejudice of the workmen concerned in such dispute the conditions of service applicable to them immediately before the commencement of such proceedings, or (b) for any misconduct connected with the dispute discharge or punish whether by dismissal or otherwise any workman connected with such dis pute, save with the express permission in writing of the authority before which the proceeding is pending.
Thus the original unamended section has now been confined to cases where the proposed action on the part of the employer is in regard to a matter connected with a dispute pending before an industrial authority.
Under section 33(1) if an employer wants to change the conditions of service in regard to a matter connected with a pending dispute he can do so only with the express permission in writing of the appropriate authority.
Similarly, if he wants to take any action against an employee on the ground of an alleged misconduct connected with the pending dispute he 27 210 cannot do so unless he obtains previous permission in writing of the appropriate authority.
The object of placing this ban on the employer 's right to take action pending adjudication of an industrial dispute has been considered by this Court on several occasions.
In the case of the Punjab National Bank Ltd. V. Its Workmen (1) this Court examined its earlier decisions on the point and considered the nature of the enquiry which the appropriate authority can hold when an application is made before it by the employer under section 33(1) and the extent of the jurisdiction which it can exercise in such an enquiry.
"The purpose the Legislature had in view in enacting section 33", it was held, "was to maintain the status quo by placing a ban on any action by the employer pending adjudication"; and it was added "but the jurisdiction conferred on the Industrial Tribunal by section 33 was a limited one.
Where a proper enquiry had been held and no victimisation or unfair labour practice had been resorted to, the Tribunal in granting permission had only to satisfy itself that there was a prima facie case against the employee and not to consider the propriety or adequacy of the proposed action".
It is significant that the Tribunal can impose no conditions and must either grant permission or refuse it.
It is also significant that the effect of the permission when granted was only to remove the ban imposed by section 33; it does not necessarily validate the dismissal or prevent the said dismissal from being challenged in an industrial dispute.
This position is not disputed before us.
What is in dispute before us is the nature of the enquiry and the extent of the authority 's jurisdiction in holding such an enquiry under section 33(2).
Section 33(2) deals with the alterations in the conditions of service as well as discharge or dismissal of workmen concerned in any pending dispute where such alteration or such discharge or dismissal is in regard to a matter not connected with the said pending dispute.
This class of cases where the matter giving rise to the proposed action is unconnected with the pending industrial dispute has now been taken (1) ; 211 out of the scope of section 33(1) and dealt with separately by section 33(2) and the following sub sections of section 33.
Section 33(2) reads thus: "During the pendency of any such proceeding in respect of an industrial dispute, the employer may, in accordance with the standing orders applicable to a workman concerned in such dispute, (a) alter, in regard to any matter not connected with the dispute, the conditions of service applicable to that workman immediately before the commencement of such proceeding; or (b) for any misconduct not connected with the dispute, discharge or punish, whether by dismissal or otherwise, that workman: Provided that no such workman shall be discharged or dismissed, unless he has been paid wages for one month and an application has been made by the employer to the authority before which the proceeding is pending for approval of the action taken by the employer.
" It would be noticed that even during the pendency of an industrial dispute the employer 's right is now recognised to make an alteration in the conditions of service so long as it does not relate to a matter connected with the pending dispute, and this right can be exercised by him in accordance with the relevant standing orders.
In regard to such alteration no application is required to be made and no approval required to be obtained.
When an employer, however, wants to dismiss or discharge a workman for alleged misconduct not connected with the dispute he can do so in accordance with the standing orders but a ban is imposed on the exercise of this power by the proviso.
The proviso requires that no such workmen shall be discharged or dismissed unless two conditions are satisfied; the first is that the employee concerned should have been paid wages for one month, and the second is that an application should have been made by the employer to the appropriate authority for approval of the action taken by the employer.
It is plain that whereas in cases falling under section 33(1) no action can be taken by the employer unless he has 212 obtained previously the express permission of the appropriate authority in writing, in cases falling under sub section
(2) the employer is required to satisfy the specified conditions but he need not necessarily obtain the previous consent in writing before he takes any action.
The requirement that he must obtain approval as distinguished from the requirement that he must obtain previous permission indicates that the ban imposed by section 33(2) is not as rigid or rigorous as that imposed by section 33(1).
The jurisdiction to give or withhold permission is prima facie wider than the jurisdiction to give or withhold approval.
In dealing with cases falling under section 33(2) the industrial authority will be entitled to enquire whether the proposed action is in accordance with the standing orders, whether the employee concerned has been paid wages for one month, and whether an application has been made for approval as prescribed by the said sub section.
It is obvious that in cases of alteration of conditions of service falling under section 33(2)(a) no such approval is required and the right of the employer remains unaffected by any ban.
Therefore, putting it negatively the jurisdiction of the appropriate industrial authority in holding an enquiry under section 33(2)(b) cannot be wider and is, if at all, more limited, than that permitted under section 33(1), and in exercising its powers under section 33(2) the appropriate authority must bear in mind the departure deliberately made by the Legislature in separating the two classes of cases falling under the two sub sections, and in providing for express permission in one case and only approval in the other.
It is true that it would be competent to the authority in a proper case to refuse to give approval, for section 33(5) expressly empowers the authority to pass such order in relation to the application made before it under the proviso to section 33(2)(b) as it may deem fit; it may either approve or refuse to approve; it can, however, impose no conditions and pass no conditional order.
Section 33(3) deals with cases of protected workmen and it assimilates cases of alterations of conditions of service or orders of discharge or dismissal proposed to 213 be made or passed in respect of them to cases falling under section 33(1); in other words, where an employer wants to alter conditions of service in regard to a protected workman, or to pass an order of discharge or dismissal against him, a ban is imposed on his rights to take such action in the same manner in which it has been imposed under section 33(1).
Sub section (4) provides for the recognition of protected workmen, and limits their number as therein indicated; and sub section
(5) requires that where an employer has made an application under the proviso to sub section
(2), the authority concerned shall without delay hear such application and pass as expeditiously as possible such orders in relation thereto as it deems fit.
This provision brings out the legislative intention that, though an express permission in writing is not required in cases falling under the proviso to section 33(2)(b), it is desirable that there should not be any time lag between the action taken by the employer and the order passed by the appropriate authority in an enquiry under the said.
proviso.
Before we proceed to deal with the merits of the dispute, however, we may incidentally refer to another problem of construction which may arise for decision under section 33(2)(b) and which has been argued before us at some length.
When is the employer required to make an application under the proviso to section 33(2)(b)? Two views are possible on this point.
It may be that the proviso imposes two conditions precedent for the exercise of the right recognised in the employer to dismiss or discharge his workman pending a dispute.
The use of the word "unless" can be pressed into service in support of the argument that the two conditions are conditions precedent; he has to pay wages for one month to the employee, and he has to make an application for approval; and both these conditions must be satisfied before the employee is discharged or dismissed.
On this view it would be open to the employer to discharge or dismiss his employee after satisfying the said two conditions without waiting for the final order which the authority may pass on the application made before it in that 214 behalf.
The Legislature has indicated that there should be no time lag between the making of the application and its final disposal, and so by sub section
(5) it has specifically and expressly provided that such application should be disposed of as expeditiously as possible.
This view proceeds on the assumption that the word "unless" really means "until" and introduces a condition precedent.
On the other hand, it is possible to contend that the application need not be made before any action has been taken, and that is clear from the fact that the application is required to be made for approval of the action taken by the employer.
"Approval" according to its dictionary meaning suggests that what has to be approved has already taken place; it is in the nature of ratification of what has already happened or taken place.
The word "approval" in contrast with the word "previous permission" shows that the action is taken first and approval obtained afterwards.
Besides, the words "action taken" which are underlined by us, it may be argued, show that the order of discharge or dismissal has been passed, and approval for action thus taken is sought for by the application made by the employer.
On the first construction the words "action taken" have to be construed as meaning action proposed to be taken, whereas on the latter construction the said words are given their literal meaning, and it is said that the discharge or dismissal has taken place and it is the action thus taken for which approval is prayed.
In support of the first view it may be urged that the words "action taken" can well be interpreted to mean "action proposed to be taken" because it is plain that the condition as to payment of wages cannot be literally construed and must include cases where wages may have been tendered to the workman but may not have been accepted by him.
In other words, the argument in support of the first interpretation is that in the construction of both the conditions the words "paid" and "action taken" cannot be literally construed, and in the context should receive a more liberal interpretation.
"Paid wages" would on that view mean "wages 215 tendered" and "action taken" would mean "action proposed to be taken".
If these two words are literally construed there may be some inconsistency between the notion introduced by the use of the word "unless" and these words thus literally construed.
It may also be urged in support of the first contention that if the ban imposed by the proviso does not mean that an application has to be made before any action is taken by the employer it would be left to the sweet will of the employer to make the requisite application at any time he likes.
The section does not provide for any reasonable period within which the application should be made and prescribes no penalty for default on the part of the employer in making such an application within any time.
On the other hand, this argument can be met by reference to section 33A of the Act.
If an employer does not make an application within a reasonable time the employee may treat that as contravention of section 33(2)(b) and make a complaint under section 33A, and such a complaint would be tried as if it is an industrial dispute; but, on the other hand an employer can attempt to make such a complaint ineffective by immediately proceeding to comply with section 33(2)(b) by making an application in that behalf and the authority may then have to consider whether the delay made by the employer in making the required application under section 33(2)(b) amounts to a contravention of the said provision, and such an enquiry could not have been intended by the Legislature; that is why the making of the applica tion should be treated as a condition precedent under the proviso.
If that be the true position then the employer has to make an application before he actually takes the action just as he has to tender money to the employee before dismissing or discharging him.
But, if it is not a condition precedent, then he may pass an order of discharge or dismissal and make an application in that behalf within reasonable time.
We have set forth the rival contentions in regard to the construction of the proviso, but we do not propose to express our decision on the point, because, having regard to their pleadings, we cannot allow the respondents to raise this question for our decision in the 216 present appeal.
It is clear from the contentions raised before the Tribunal and the pleas specifically raised by the respondents in their statement of case before this Court that both parties agreed that the application in question had been properly made under the proviso; and the only point at issue between them is about the validity and propriety of the order under appeal having regard to the limited jurisdiction of the enquiry under section 33(2)(b), and it, is to that question that we must now return.
Before we do so, however, we ought to add that our attention had been drawn to three decisions of this Court in which, without any discussion of the point, the validity of the employers ' applications made under section 33(2)(b) appears to have been assumed though the said applications were presumably made after the employers had dismissed their employees.
They are: Delhi Cloth and General Mills Ltd vs Kushal Bhan (1); The Management of Swatantra Bharat Mills, New Delhi vs Ratan Lal (2 ); and The Central India Coal fields Ltd., Calcutta vs Ram Bilas Shobnath (3).
We wish to make it clear that these decisions should not be taken to have decided the point one way or the other since it was obviously not argued before the Court and had not been considered at all.
In view of the limited nature and extent of the enquiry permissible under section 33(2)(b) all that the authority can do in dealing with an employer 's application is to consider whether a prima facie case for according approval is made out by him or not.
If before dismissing an employee the employer has held a proper domestic enquiry and has proceeded to pass the impugned order as a result of the said enquiry, all that the authority can do is to enquire whether the conditions prescribed by section 33(2)(b) and the proviso are satisfied or not.
Do the standing orders justify the order of dismissal? Has an enquiry been held an provided by the standing order? Have the wages for the month been paid as required by the proviso?; and, has an application been made as prescribed by the proviso? This last (1) ; (2) Civil Appeal No. 392 of 1959 decided on 28.3.1960 (3) Civil Appeal No. 162 of 1959 decided on 31.3.1960 217 question does not fall to be decided in the present appeal because it is common ground that the application has been properly made.
Standing Order 21 specifies ' acts of omission which would be treated as misconduct, and it is clear that under 21(s) threatening or intimidating any operative or employee within the factory premises is misconduct for which dismissal is prescribed as punishment.
This position also is not in dispute.
There is also no dispute that proper charge sheets were given to the employees in question, an enquiry was properly held, and opportunity wag given to the employees to lead their evidence and to cross examine the evidence adduced against them; in other words, the enquiry is found by the Tribunal to have been regular and proper.
As a result of the enquiry the officer who held the enquiry came to the conclusion that the charges as framed had been proved against the workmen concerned, and so orders of dismissal were passed against them.
In such a case it is difficult to understand how the Tribunal felt justified in refusing to accord approval to the action taken by the appellant.
It has been urged before us by the appellant that in holding the present enquiry the Tribunal has assumed powers of an appellate court which is entitled to go into all questions of fact; this criticism seems to us to be fully justified.
One has merely to read the order to be satisfied that the Tribunal has exceeded its jurisdiction in attempting to enquire if the conclusions ,of fact recorded in the enquiry were justified on the merits.
It did not hold that the enquiry was defective or the requirements of natural justice had not been satisfied in any manner.
On the other hand it has expressly proceeded to consider questions of fact and has given reasons some of which would be inappropriate and irrelevant if not fantastic even if the Tribunal was dealing with the relevant questions as an appellate court.
"The script in which the statements have been recorded", observes the Tribunal, "is not clear and fully decipherable".
How this can be any reason in upsetting.the finding of the enquiry it is impossible to 28 218 understand.
The Tribunal has also observed that the evidence adduced was not adequate and that it had not been properly discussed.
According to the Tribunal the charge sheets should have been more specific and clear and the evidence,should have been more satisfactory.
Then the Tribunal has proceeded to examine the evidence, referred to some discrepancies in the statements made by witnesses and has come to the conclusion that the domestic enquiry should not have recorded the conclusion that the charges have been proved against the workmen in question.
In our opinion, in making these comments against the findings of the enquiry the Tribunal clearly lost sight of the limitations statutorily placed upon its power and authority in holding the enquiry under section 33(2)(b).
It is well known that the question about the adequacy of evidence or its sufficiency or satisfactory character can be raised in a court of facts and may fall to be considered by an appellate court which is entitled to consider facts; but these considerations are irrelevant where the jurisdiction of the court is limited as under section 33(2)(b).
It is conceivable that even in holding an enquiry under section 33(2)(b) if the authority is satisfied that the finding recorded at the domestic enquiry is perverse in the sense that it is not justified by any legal evidence whatever, only in such a case it may be entitled to consider whether approval should be accorded to the employer or not; but it is essential to bear in mind the difference between a finding which is not supported by any legal evidence and a finding which may appear to be not supported by sufficient or adequate or satisfactory evidence.
Having carefully considered the reasons given by the Tribunal in its award under appeal, we have no hesitation in holding that the appellant is fully justified in contending that the Tribunal has assumed jurisdiction not vested in it by law, and consequently its refusal to accord approval to the action taken by the appellant is patently erroneous in law.
Mr. Maheshwari, however, wanted us to examine the case of Har Prasad, because, according to him, Har Prasad has been victimised by the employer for 219 his trade union activities.
Har Prasad is the President of the Kapra Mill Mazdoor Union, Saharanpur, and it is because of his activities as such President that the appellant does not like him.
It is common ground that at the relevant time Har Prasad was not recognised as a protected workman, and so his case does not fall under section 33(3).
The Tribunal has observed that this workman has not been named by any witness as having taken part in any assault, and it was therefore inclined to take the view that his dismissal amounted to victimisation.
We have carefully considered this workman 's case, and we are satisfied that the Tribunal was not justified in refusing to accord approval even to his dismissal.
It is common ground that Har Prasad led the deputation to the Controller of Production both on October 12 and October 14; and the threat held out by him on the earlier occasion is not denied by him.
In terms he told the Controller that his conduct would bring trouble.
It is significant that some of the workmen who assaulted the officers on October 14 had accompanied Har Prasad and were present when he gave the threat to the Controller.
Sushil Kumar, who is the appellant 's Controller of Production, has deposed to this threat.
The sequence of events that took place on October 14 unambiguously indicates that it was the threat held out by Har Prasad and the incitement given by him that led to the assault on the evening of October 14.
Mr. Sushil Kumar 's evidence appears to be straightforward and honest.
He has frankly admitted that in the past Har Prasad had been co operating with him and that he had.
never instigated any attack on the officers on any previous occasion.
Har Prasad no doubt denied that there was any exchange of hot words during the course of his interview with the officers but he has not disputed Mr. Sushil Kumar 's evidence that he uttered a warning at the time of the said interview.
In fact his contention appears to have been that action should have been taken against him soon after he uttered the threat.
On the evidence led at the enquiry, the enquiry officer came to the conclusion that the charge framed against this workman had 220 been clearly proved.
The charge was that he had plotted and hatched a conspiracy for assaulting the General Superintendent, Weaving Master, Chief Engineer, Factory Manager and the Controller of Production.
The details of the charge were specified, and at the enquiry it was held that these charges had been proved.
There is no doubt that these charges, if proved, deserve the punishment of dismissal under the relevant standing orders.
The Tribunal, however, purported to examine the propriety of the finding recorded against Har Prasad and came to the conclusion that the said finding was not justified on the merits.
As we have already pointed out the Tribunal had no jurisdiction to sit in appeal over the findings of the enquiry as it has purported to do.
The result is that the conclusion of the Tribunal in regard to all the workmen is unjustified and without jurisdiction.
The appeal is accordingly allowed, the order passed by the Tribunal is set aside, and approval is accorded to the action taken by the appellant under section 6E.
There will be no order as to costs.
Appeal allowed.

dataset_name: IN-Abs

summary:
Two officers of the appellant were assaulted by the workmen.
In this connection the appellant served notices on eight workmen calling upon them to explain their conduct and to show cause why they should not be dismissed.
In their explanations the workmen denied the charges.
Thereupon a proper enquiry was held according to the Standing Orders, as a result of which the charges were found proved against the workmen and the appellant dismissed the workmen and asked them to take their final dues together with one month 's pay in lieu of notice.
As a dispute in respect of bonus was pending before the Industrial Tribunal, the appellant made applications to it under section 6E(2) of the U. P. , for approval of the dismissal of the workmen.
The Tribunal refused to accord its approval and directed the appellant to reinstate the workmen from the date of suspension and to pay full wages for the period of unemployment.
The appellant contended that the Tribunal acted beyond its jurisdiction and assumed powers of an appellate Court over the decision of the appellant.
Held, that the Tribunal had assumed jurisdiction not vested in it by assuming powers of an appellate Court and its refusal to accord approval was patently erroneous in law.
The requirement of obtaining approval under section 6E(2)(b) of the U. P. Act (or section 33(2) Of the Central Act) in cases of dismissal or discharge for misconduct not connected with a pending dispute as distinguished from the requirement of obtaining previous permission under section 6E(1) of '.the
U. P. Act (or section 33(1) of the Central Act) in cases of misconduct connected with a pending dispute indicated that the ban imposed by section 6E(2) was not as rigid or rigorous as that imposed by section 6E(1).
The jurisdiction to give or withhold permission was Prima facie wider than the jurisdiction to give or withhold approval.
Where the employer had held a proper domestic enquiry and had dismissed the workmen as a result of such enquiry, all that the Tribunal could do was to enquire: (i) whether the Standing Orders justified the dismissal, (ii) whether the enquiry had been held as provided by the Standing Orders, (iii) whether wages for one month had been paid and (iv) whether an application for approval had been made as prescribed.
In the present case all these conditions were 205 satisfied but the Tribunal lost sight of its limitations and assumed powers of an appellate Court entitled to go into question of fact.
The Punjab National Bank Ltd. vs Its Workmen, [1960] S.C.R. 806, referred to.
Quaere: Whether the application for approval under section 6E(2)(b) of the U. P. Act or under section 33(2)(b) of the Central Act could be made after the order of dismissal had been passed or whether it had to be made before passing such an order.
Note: Section 6E of the U.,P. is identical in terms with section 33 of the Central .


judgement:
Appeal No. 31 of 1960.
Appeal by special leave from the judgment and order dated March 14, 1957, of the Patna High Court in Miscellaneous Judicial Case No. 165 of 1957.
P. K. Chatterjee, for the appellant.
section P. Varma, for respondents Nos. 1 and 4.
Nooni Coomar Chakravarti and B. P. Maheshwari, for respondent No. 2. 1960.
December 12.
The Judgment of the Court was delivered by DAS GUPTA, J.
This appeal by special leave is against an order of the High Court of Judicature at Patna dismissing summarily an application of the present appellant under article 226 and article 227 of the Constitution.
The appellant was a workman employed in the Digha factory of Bata Shoo Company (Private) Limited, since October, 1943.
On January 13, 1954, the management of the company served him with a charge sheet alleging that he had been doing anti union activities inside the factory during the working hours and so was guilty under section 12B(1) of the Standing Orders and Rules of the company.
On 198 January 14, he submitted a written reply denying the charge and asking to be excused.
On January 15, the management made an order terminating his services with effect from January 18, 1954.
An industrial dispute was raised on this question of dismissal by the Union and was referred along with a number of other disputes to the Industrial Tribunal, Bihar, by a notification dated April 29, 1955.
After written statements were filed by the Union and the management, February 20, 1956, was fixed for hearing at Patna.
Thereafter numerous adjournments were given by the Tribunal on the joint petition for time filed by both the parties stating that all the disputes were going to be compromised.
On November 16, 1956, the Tribunal made an order fixing December 20, 1956, "for filing compromise or hearing".
On December 20, 1956, however a fresh application for time was filed but it was stated that agreement had already been reached on some of the matters and opportunity was asked for to settle the other matters.
The case was however adjourned to January 21, 1957, for filing a compromise or hearing.
On that date a further petition was again filed and a further extension of time was allowed till February 1, 1957.
On January 31, the parties, that is, the management and the Union filed a joint petition of compromise settling all points of disputes out of court.
Prior to this, on January 12, 1957, the present appellant had made an application praying that D. N. Ganguli and M. P. Gupta, two of his co workers might be allowed to represent his case before the Tribunal instead of Fateh Singh, the Secretary of the Union and that he did not want his case to be represented by Fateh Singh as he had no faith in him.
This application was dismissed by the Tribunal by an order dated February 26, 1957.
On March 7, 1957, the appellant filed a fresh petition stating that he had not authorised Fateh Singh to enter into any agreement in his case and praying that the agreement filed in respect of his case should not be accepted and that he and his agents should be heard before the disposal 199 of the case.
This prayer was not allowed by the.
Tribunal and by an order dated March 11, 1957, an award in terms of the petition of compromise was made.
The appellant filed his application to the Patna High Court on March 13, 1957, praying for an issue of an appropriate writ or direction quashing the Tribunal 's order of February 26, 1957, by which the Tribunal had rejected his prayer for representation by a person of his own choice in place of Fateh Singh, the Secretary of the Union.
Prayer was made in this petition also for a direction on the Tribunal not to record the compromise in so far as it related to the appellant 's case and to give its award without reference to the settlement and on proper adjudication of the matter.
The High Court dismissed this application summarily.
It is against that order of dismissal that the present appeal by special leave has been preferred.
On behalf of the appellant it is argued that the Tribunal committed a serious error in rejecting his application to be represented by a person of his own choice instead of Fateh Singh, the Secretary of the Union and thereafter in making an award on the basis of the reference.
It has to be noticed that on the date the application *as made before the High Court the award had already been made and so there could be no direction as prayed for on the Tribunal not to make the award.
If however the appellant 's contention that the Tribunal erred in rejecting his application for separate representation was sound he would have been entitled to an order giving him proper relief on the question of representation as well as regarding the award that had been made.
The sole question that arises for our determination therefore is whether the appellant was entitled to separate representation in spite of the fact that the Union which had espoused his cause was being repre.
sented by its Secretary, Fateh Singh.
The appellant 's contention is that he was a party to the dispute in his own right and so was entitled to representation according to his own liking.
The question whether when a dispute concerning an individual workman is taken up by the Union, of which the workman is a member, as 200 a matter affecting workmen in general and on that basis a reference is made under the Industrial Disputes Act the individual workman can claim to be heard independently of the Union is undoubtedly of some importance.
The question of representation of a workman who is a party to a dispute is dealt with by section 36 of the Industrial Disputes Act.
That section provides that such a workman is entitled to be represented in any proceeding under the Act, by (a) an officer of a registered trade union of which he is a member, (b) an officer of a federation of trade unions to which the trade union of which he is a member is affiliated and (c) where the workman concerned is not a member of any trade union by an officer of any trade union concerned with the industry, or by any other workman employed in that industry.
The appellant was the member of a trade union; and he was actually represented in the proceedings before the Tribunal by an officer of that Union, its Secretary, Fateh Singh.
The Union through this officer, filed a written statement on his behalf.
Upto January 12, 1957, when the appellant filed his application for separate representation, this officer, was in charge of the conduct of the proceedings on behalf of the appellant.
Never before that date, the appellant appears to have raised any objection to this representation.
The question is, whether, when thereafter he thought his interests were being sacrificed by his representative, he could claim to cancel that representation, and claim to be represen.
ted by somebody else.
In deciding this question, we have on the one hand to remember the importance of collective bargaining in the settlement of industrial dis putes, and on the other hand, the principle that the party to a dispute should have a fair hearing.
In assessing the requirements of this principle, it is necessary and proper to take note also of the fact that when an individual workman becomes a party to a dispute under the Industrial Disputes Act he is a party, not independently of the Union which has espoused his cause.
It is now well settled that a dispute between an individual workman and an employer cannot be an 201 industrial dispute as defined in section 2(k) of the Industrial Disputes Act unless it is taken up by a Union of the workmen or by a considerable number of workmen.
In Central Provinces Transport Service Ltd. vs Raghunath Gopal Patwardhan (1) Mr. Justice Venkatarama Ayyar speaking for the Court pointed out after considering numerous decisions in this matter that the preponderance of judicial opinion was clearly in favour of the view that a dispute between an employer and a single employee cannot per se be an industrial dispute but it may become one if it is taken up by an Union or a number of workmen.
"Notwithstanding that the language of section 2(k) is wide enough to cover disputes, between an employer and a single employee", observed the learned Judge, "the scheme of the Industrial Disputes Act does appear to contemplate that the machinery provided therein should be set in motion to settle only disputes which involve the rights of workmen as a class and that a dispute touching the individual rights of a workman was not intended to be the subject of adjudication under the Act, when the same had not been taken up by the Union or a number of workmen".
This view which has been re affirmed by the Court in several later decisions recognises the great importance in modern industrial life of collective bargaining between the workman and the employers.
It is well known how before the days of collective bargaining labour was at a great disadvantage in obtaining reasonable terms for contracts of service from his employer.
As trade unions developed in the country and collective bargaining became the rule the employers found it necessary and convenient to deal with the representatives of workmen, instead of individual workmen, not only for the making or modification of contracts but in the matter of taking disciplinary action against one or more workmen and as regards all other disputes.
The necessary corollary to this is that the individual workman is at no stage a party to the industrial dispute independently of the Union.
The Union or those (1)[1954] S.C.R. 956.
26 202 workmen who have by their sponsoring turned the individual dispute into an industrial dispute, can therefore claim to have a say in the conduct of the proceedings before the Tribunal.
It is not unreasonable to think that section 36 of the Industrial Disputes Act recognises this position, by providing that the workman who is a party to a dispute shall be entitled to be represented by an officer of a registered trade union of which he is a member.
While it will be unwise and indeed impossible to try to lay down a general rule in the matter, the ordinary rule should in our opinion be that such representation by an officer of the trade union should continue throughout the proceedings in the absence of excep tional circumstances which may justify the Tribunal to permit other representation of the workman concerned.
We are not satisfied that in the present case, there were any such exceptional circumstances.
It has been suggested that the Union 's Secretary Fateh Singh himself had made the complaint against the appellant which resulted in the order of dismissal.
it has to be observed however that in spite of everything, the Union did take up this appellant 's case against his dismissal as its own.
At that time also, Fateh Singh was the Secretary of the Union.
If are Union had not taken up his cause, there would not have been any reference.
In view of all the circumstances, we are of opinion, that it cannot be said that the Tribunal committed any error in refusing the appellant 's prayer for representation through representatives of his own choice in preference to Fateh Singh, the Secretary of the Union.
As a last resort, learned counsel for the appellant wanted to urge that the Secretary of the Union had no authority to enter into any compromise on behalf of the Union.
We find that no such plea was taken either in the appellants application before the Tribunal or in his application under articles 226 and 227 of the Constitution to the High Court.
Whether in fact the Secretary had any authority to compromise is a question of fact which cannot be allowed to be raised at this stage.
203 In the application before the High Court a statement was also made that the compromise was collusive and mala fide.
The terms of the compromise of the dispute regarding the appellant 's dismissal were that he would not get reemployment, but by way of "humanitarian considerations the company agreed without prejudice to pay an ex gratia amount of Rs. 1,000/ (Rupees one thousand) only" to him.
There is no material on the record to justify a conclusion that this compromise was not entered in what was considered to be the best interests of the workman himself In our opinion, there is nothing that would justify us in interfering with the order of the High Court rejecting the appellant 's application for a writ.
The appeal is accordingly dismissed.
There will be no order as to costs.
During the hearing Mr. Chakravarty, learned counsel for the company, made a statement on behalf of the company that in addition to the sum of Rs. 1,000 which the company had agreed to pay to the appellant as a term of settlement the company will pay a further sum of Rs. 500 (Rupees five hundred) only ex gratia and without prejudice.
We trust that this statement by the counsel will be honoured by the company.

summary:
On the termination of the appellant 's services by his employer an industrial dispute was raised by his union and the question of his dismissal along with a number of other disputes was referred to the Industrial Tribunal.
After several adjournments of the case the management and the union filed a joint petition of compromise settling all the points in dispute out of Court.
Prior to this the appellant filed an application praying that he might be allowed to be represented by two of his co workers instead of the Secretary of the Union in whom he had no faith and who had no authority to enter into the compromise on his behalf.
This prayer was not allowed by the Tribunal which made an award in terms of the compromise.
The appellant, thereupon, made an application to the High Court praying for a writ quashing the order of the Tribunal disallowing him to be represented by a person of his own choice and 197 also for a direction to the Tribunal not to record the compromise.
The High Court summarily dismissed the Writ Petition.
, On appeal by special leave, Held, that the appellant was Dot entitled to separate repre sentation when already being represented by the Secretary of the union which espoused his cause.
A dispute between an individual workman and an employer cannot be an industrial dispute as defined in section 2(k) of the Industrial Disputes Act unless it is taken up by a Union of workmen or by a considerable number of workmen.
When an individual workman becomes a party to a dispute under the Industrial Disputes Act be is a party, not independently of the Union which has espoused his cause.
Central Provinces Transport Service Ltd. vs Raghunath Gopal Palwardhan, , followed.
Although no general rule can be laid down in the matter, the ordinary rule should be that representation by an officer of the trade union should continue throughout the proceedings in the absence of exceptional circumstances justifying other representation of the workman concerned.