judgement:
Appeal No. 378 of 1965.
Appeal from the Judgment and decree dated April 9, 1963 of the Bombay High Court in First Appeal No. 616 of 1961.
Rai Bahadur and B. R. Agarwala, for the appellants.
section T. Desai, O. P. Malhotra and 0.
C. Mathur, for the res pondent.
547 The Judgment of the Court was delivered by Shelat, J.
Whether in determining the rateable value of a building the assessing authority under section 154(1) of the Bombay, Municipal Corporation Act, III of 1888 can take into consideration income derived by the owner under an agreement entitling an advertisement hoarding to be put up on the roof of such building is the question arising in this appeal.
For consideration of this question a few relevant facts may first be recited.
The appellants are the owners of "Fulchand Nivas", a building situate at the corner of what was known at the relevant time as Marine Drive and Sandhurst Road opposite Chowpatty Sea Face, Bombay.
The building consists of ground and five upper floors and a terrace.
The ground floor and five upper floors of the building were and are let out.
For the last few years the Municipal Corporation has been assessing the rateable value of the building as equivalent to the actual rents recovered by the owners.
After the rateable value for the year 1956 57 was assessed it was found that the terrace of the building was used for advertising Tata Mercedes Benz Automobile Trucks and Buses by means of a neon sign.
This was done under an agreement dated February 5, 1957 entered into by the appellants under which the Tata Locomotive and Engineering Co. Ltd., had a reed to pay to the appellants Rs. 800 per month in consideration of their being allowed to display the said advertisement and a further sum of Rs. 700 in consideration of the owners agreeing not to allow any one else to use any portion of the said building for displaying any advertisement save those of the tenants on the ground floor not above the level of the height of the ground floor.
The agreement provided also that it would be the owners who, during the continuance of the agreement, would pay all existing and future rates, taxes etc., which would be assessed, imposed, charged or become payable in respect of the said building or the said advertisement except the Municipal Licence fee in respect of the said advertisement which would be borne by the Company.
On March 3, 1958 the respondent corporation issued a notice under section 167 of the Act informing the owners that the assessment book had been amended and that the amount of the rateable value of the building was increased from Rs. 44,320 to Rs. 64,685.
The appellants thereupon filed a complaint under section 163(2) of the Act against the said increase and the assessing authority by an order dated February 21, 1959 reduced the rateable value from Rs. 64,685 to Rs. 59,600.
In maintaining the increase from Rs. 44,320 to Rs. 59,600 the assessing authority took into account the additional income arising from the said agreement and received by the appellants.
The appellants thereupon filed an appeal before the Chief Judge, Small Cause Court, Bombay, objecting to the said increase.
The Chief Judge disallowed the said increase and directed that the rateable value should be Rs. 44,320.
The Chief Judge held that under the said agreement 548 there was no demise or transfer of an interest in the said property in favour of the Committee, that the said agreement amounted merely to a licence revocable at any time though subject to the express terms of the agreement and was no more than a grant of 'a right in gross to display neon sign outside the property and that the, only user of the property was that of a small portion of the terrace used as a base for the said advertisement.
He held that it was not any inherent or intrinsic quality 'of any portion of the property which commanded such a high consideration as the sum of Rs. 1,500 per month.
Aggrieved by this order, the respondent Corporation filed an appeal before the High Court at Bombay.
The High Court held that the Chief Judge was in error in holding that the Municipal Corporation was not entitled to take into account income earned by the owners under the said agreement, set aside his order and restored the original value assessed by the assessing authority at Rs. 59,600.
The High Court analysed section 154 of the Act and after consideration of the rules as to rating recognised by several decisions both English and that of the High Court itself in Mahad Municipality vs Bombay S.R.T. Corporation(1) held that the said increase was justified.
The appellants then applied for and obtained a certificate under article 133(1)(a) of the Constitution and filed this appeal.
Counsel for the owners challenged the correctness of the High Court 's judgment and order and contended that in deter mining the annual rent of the building the assessing authority can, take into account the rent at which the.
building is expected to be let, that therefore the income derived from an agreement which amounts to a mere licence and not a demise cannot be added to such rent, such income being totally irrelevant to the concept t of annual rent envisaged in rating.
To appreciate the contention it is necessary first to examine section 154(1) of the Act.
The section provides that in order to fix the rateable value of any building or land assessable to a property tax, there shall be deducted from the, amount 'of the annual rent for which such land or building might reasonably be expected to let from year to year a sum equal to ten percentum of the said annual rent and, the said deduction shall be in lieu of all allowances for repairs or on any other account whatever.
The assessing authority for the purpose of fixing to rateable value has therefore to determine the annual rent.
that is, the annual rent for which such building might reasonably be expected to let from year to.
year and to deduct the 10 percent statutory allowance therefrom and arrive at the net rateable value which would be, equivalent to the net annual rent.
The rateable value is thus taken to be the same as the net annual rent of the property.
It is a well recognised principle in rating that both gross, value and net annual, value are estimated by reference to the rent at which the property might reasonably be expected to let from, year to year.
Various methods of valuation are applied (1) LXIII Bombay Law Reporter, 174.
549 in order to arrive at such hypothetical rent, for instance by reference to the actual rent paid, for the property or for others comparable to it or where there are no rents by reference to the assessments of comparable properties or to the profits earned from the property or to the cost of construction.
The expression "gross value" means the rent at which a hereditament might reasonably be expected to let from year to year.
The rent which a tenant could afford to give is calculated rebus sic stantibus, that is to say, with reference to the property in its existing physical condition and to the mode in which it is actually used.
The hypo thetical tenant includes all persons who might possibly take the property including the person actually in occupation, even though he happens to be the owner of the property.
The rent is that which he will pay in the "higgling of the market", taking into account all existing circumstances and any relevant future trends.
If the property affords the opportunity for the carrying on of a gainful trade, that fact also must be taken into account.
The property is assumed to be vacant and to let and the material date for the valuation is that of the proposal which gives rise to the proceedings.
The actual rent paid for the property is not conclusive evidence of value, though such actual rent may serve as an indication as to what a hypothetical tenant can afford to pay.
However, if the actual rent is paid on terms which differ from those of the hypothetical tenancy it must be adjusted, if possible, to the terms of the hypothetical tenancy before it affords evidence of value.
(See Halsbury 's Laws of England, (3rd ed.) vol.
32, p. 60 and onwards).
It is also well recognised that while valuing the property in question every intrinsic quality and every intrinsic circumstance which tends to push the rental value up or down must be taken into consideration.
In other words, in estimating the hypothetical rent "all that could reasonably affect the mind of the intending tenant ought to be considered." (Cartwright vs Sculcoates Union(1).
Scott, L. J. Robinson Bros. vs Houghton and Chester le Street Assessment Committee( ') observed: "It is the duty of the valuer to take into consideration every intrinsic quality and every other circumstances which tends to push the rental value up or down, just bec ause it is relevant to the valuation and ought there fore to be cast into the scales of the balance.
The 'objective being the real value of the actual hereditament, the inquiry is primarily economic and not legal , it is only legal in so far as logical relevance is the measure of legal admissibility." (See also Ryde on Rating, 11th ed., 385, 387).
The measure for purposes of rating is therefore the rent which a hypothetical tenant, looking at the building as it is, would be prepared to pay.
Though the tenant is hypothetical and the rent (1) (2) at 469.
550 too is, hypothetical, the property in respect of which he would estimate that which he would offer as rent is not hypothetical but concrete.
While estimating the rent which he would be prepared to pay he would naturally take into consideration all the advantages, together with the disadvantages attached to the property, that is, the maximum beneficial use to which he would be able to put the property.
In doing so he is bound to take into consideration the fact of the property being situated at an unique place as the instant property undoutedly is, viz., at the juncture of two of the most prominent roads with the additional advantage of Chowpatty Sea Face being opposite to it where in the evenings and on week ends, it cannot be questioned, large crowds usually gather.
Coupled with this would be the ' advantage that a neon sign advertisement can be vividly seen if fixed on the top of the building by people, pedestrians and those in vehicles, from fairly long distances in all directions, especially as the advertisement happens to be a rotating one.
There can therefore be no doubt that if a property possesses such an amenity, such amenity is bound to add to its beneficial value and the tenant who desires to take it on lease is bound to take into consideration while making up his mind as to the rent which he can profitably offer as to how much income he would be able to derive from exploiting such an amenity.
The measure of the hypothetical rent which such a tenant would offer would thus be the extent of the beneficial use to which he would be able to put the property on its being demised ' to him.
That being so it seems to us that the question whether an agreement under which such a tenant would be able to exploit the advantageous situation in which the property is situate amounts to a lease or licence is totally irrelevant for the purpose of assessing the rateable value.
Equally irrelevant is the question whether the income arising from such an agreement is rent or licence fee.
To consider such income as irrelevant in the process of rating on the ground that it does not amount to rent but to licence fee is to misconstrue the true measure of the rent expected from the prospective tenant.
The tenant would not only take into consideration the actual rent derived from the property but also such other income which he would be able to extract from the situation of the property by exploiting as best as he can the beneficial use to which the property is capable of being put.
Therefore, the mere fact that the income from the agreement is not rent but licence fee and therefore cannot be added to the actual rent fetched by the property does not justify on any principle 'of rating or any construction of section 154 of the Act, disregard of it while estimating the rent which ' the property would be expected to fetch.
It is true that the rating was so far made including the year in question on the basis of the actual rent derived from 551 the property.
That appears to have been done because 'of the restrictions under the Bombay Rent Act by reason of which the property cannot be leased at rent higher than the standard rent allowed under the provisions of that Act.
Since no hypothetical tenant would pay rent higher than such standard rent the actual rent would ordinarily be the rent expected ' from a hypothetical tenant.
The question would be whether the Corporation would be justified in enhancing the rateable value by adding the said sum of Rs. 1500 per month arising from the said amount? It is true, as 'observed earlier, that the hypothetical rent cannot be in view of the rent restrictions higher than the actual rent.
But the income arising under the said agreement is not rent realised from letting out any part of the property to the Company but is in consideration of the exclusive privilege granted to it of displaying its neon sign advertisement.
It is manifest that the user thereunder of part of the terrace adds to the beneficial value of the building.
For such user the owner can legitimately expect something extra over and above the standard rent of the building.
Though the owner of the building cannot charge rent over and above that which is permissible under the provisions of the Rent Act, there is nothing in that Act which prohibits him from charging an amount from an advertiser in consideration of the privilege of displaying his advertisement.
A hypothetical tenant, therefore, would take into consideration such extra income arising from the special advantage attached to the building and would be prepared to pay over and above the actual rent something in respect of such an additional advantage.
Counsel for the appellants relied upon certain decisions which we may now examine.
Taylor vs Overseers of Pendle ton(1) is a case where the question was whether the advertising agent was a tenant or a licensee.
If he was a licensee it would be the owner who would be the occupier; if a tenant it would be the advertising agent who would be the occupier.
Since under the English law it is the occupier and not the owner who is liable for rates it was held that the agent being the tenant was the occupier and it was he and not the owner who was liable to pay rates.
In Wilson vs Tavener(2) the defendant agreed by an agreement to let the plaintiff erect a hoarding upon the forecourt of a cottage and to allow him the use of a gable end for a bill posting station at yearly rent.
It was held the agreement did not amount to tenancy from year to year but was a licence and a quarter 's notice terminating at the end of the year of the currency of the agreement was a reasonable notice.
These decisions cannot be appropriately brought to aid by the appellants as under the English law it is the occupier who is liable for the tax and it is for that reason that the court had to determine in each case whether the agreement in question create (1) (2) 552 a demise or a licence.
But whether the advertiser was a lessee or a mere licensee, the income arising from advertisement hoardings has always been rated irrespective of the question as to who was liable to pay the tax.
Reliance was placed both before the High Court and also before us on the decision in Corporation of Calcutta vs Anil Prakash Basu(1).
The building there was let out to the tenant at Rs. 64 / 14 / . per month.
On the roof of it, however, the Calcutta.
Street Advertising Company had displayed a neon sign board of Capstain cigarette for which the owner was paid Rs. 125 per month.
The question was whether the Calcutta Corporation was right in treating this income as rent within the meaning of section 127(a) of the Calcutta Municipal Act, 1923 and take it into account while determining the annual letting value of the building.
Section 127(a) is as follows.
: "For the purpose of assessing land and building to the consolidated rate the annual value of land and the annual value of any building erected for letting purposes or ordinarily let shall be deemed to be the gross annual rent at which the land or building might at the time of assessment reasonably be expected to let from year to year less in the case of a building an allowance of 10% for the cost of repairs and for all other expenses necessary to maintain the building in a state.
to command such gross rent.
" The High Court held that the roof of the building on which the, sign board was put up could not be said to have been demised, that the amount paid to the owner by the advertising agency was therefore not rent and that the use of the roof for putting up the sign board amounted to a licence and therefore could not be treated as rent for the purpose of assessing the annual value of the building.
The High Court relied on certain English decisions and also on its own earlier ' decisions for deciding whether the agreement between the owner and the advertising agency amounted to a lease or licence.
Having held that the agreement amounted to a licence and not lease and, the income was licence fee and not rent it rejected the contention of the Municipal Corporation that it was entitled to treat the amount of Rs. 125 a month as rent over and above the actual rent of the building.
, It may be observed that it was never argued before the High Court that the agreement, whether the said amount was rent or licence fee, added to the beneficial value of the building, that though the roof 'on the terms of that agreement could not be said to have been demised, what had to be considered under section 127(a) for assessing the annual rent of the building was the,, rent which a hypothetical tenant was expected to pay and not the actual rent, and whether such hypothetical tenant would or (1) A.I.R. 1958 Cal.
553 would not take into consideration the extra income derived from the use of the roof for the advertising hoarding over and above the actual rent while deciding what rent he can profitably offer for the building.
Such a question not having been raised or decided this decision also cannot assist the appellants.
In our view if the building or a part of it yields am extra income over and above the actual rent derived from it such income on the terms of section 154(1) of the Act can legitimately be taken into consideration by the assessing authority while determining the annual rent on the ground that a hypothetical tenant would take such extra income into account while considering what rent he can afford to offer for such building.
That being the correct position under section 154(1) of the Act the High Court, was right in confirming the enhancement of the annual rent from Rs. 44,320 to Rs. 59,600.
The appeal fails and is dismissed with costs.
Y. P. n Appeal dismissed.

summary:
The respondent municipal Corporation increased the rateable value of a building assessed the actual rent recovered by Appellant owner, by adding the income derived by the owner under an agreement entitling a Company to display an advertisement on the roof of the building.
The owner successfully filed a complaint against the increase which was upheld by the Small Cause Court to the High Court, and its confirmed the enhancement In appeal, this Court: HELD: The High Court was right in confirming the enhancement of the annual rent.
If a building or a part of it yields an extra income over and above the actual rent derived from it, such income on the terms of, section 154 (i) of the Bombay Municipal Corporation Act, can legitimately be taken into consideration by the assessing authority while determining the annual rent on the ground that a hypothetical tenant would take such extra income into account while considering what rent he can afford to offer for such building.
[553B] The hypothetical tenant includes all persons who might possibly take the property including the persons actually in occupation, even though he happens to be the owner of the property.
The rent is that which he will pay in the "higgling of the market", taking into account all existing circumstances and any relevant future trends.
Therefore, the mere fact that the income from the agreement is not rent but licence fee does not justify on any principle of rating ,or any construction of section 154 of the Act, disregard of it, while estimating the rent which the property would be expected to fetch.
[549B; C; 550G H] Though the owner of the building could not charge rent over and above that which was permissible under the provisions of the Rent Act, there was nothing in that Act which prohibited him from charging an amount from an advertiser in consideration of displaying his advertisement.
[551D] Mahad Municipality vs Bombay S.R.T. Corporation, LXIII Bom bay Law Reporter, 174; Cartwright vs Sculoates Union, ; Robinson Bros. vs Houghton and Chester le Street Assessment Committee, , Taylore vs Overseers of Pandleton, , Wilson vs Tavender , Corporation of Calcutta vs Anil Prakash Basu A.I.R. 1958 Cal. 423, referred to.


judgement:
Appeal No. 1283 of 1967.
Appeal by special leave from the Order dated April 2/3, 1967, of the Court of Assistant Commissioner (Judicial) 1, Sales Tax, Kanpur Range, Kanpur in Appeal No. D.F.78 of 1966.
J. P. Goyal and Sobhag Mal Jain, for the appellant.
O. P. Rana, for the respondents.
The Judgment of the Court was delivered by Hidayatullah, J.
This is an appeal by special leave against an order 2/3 April, 1967, of the Assistant Commissioner (Judicial) 1, Sales Tax, Kanpur Range, Kanpur by which the Assistant Commissioner rejected as defective the memorandum of appeal filed by the present appellant against the assessment order passed by the Sales Tax Officer (S 1) Kanpur.
The defect, according to the Assistant Commissioner, was that the memorandum of appeal (which had been filed well within time) was not accompanied by the challan showing the deposit of admitted tax under section 9 of the Uttar Pradesh Sales Tax Act, 1948.
The appellant did not file an application for revision and did not also invite a reference to the High Court of Allahabad but came direct to this Court by special leave which was granted by us on August 23, 1967.
At the first hearing of the petition, the State of Uttar Pradesh represented by Mr. O.P. Rana objected to the grant of special leave inasmuch as the other provisions under which remedy could be obtained under the Sales tax Act had been bypassed.
At that time, we overruled the objection and in the course of this judgment, we shall briefly indicate the reasons which had then prevailed with us.
The facts of the case are as follows: The appellant had declared his turnover for the year 1964 65 at Rs. 3,70,941.7 P. on which the admitted tax under the Act came to Rs. 11,135,58p.
The Sales tax authorities, however, assessed his turnover at Rs. 30 lakhs on which tax was calculated at Rs. 90.000.
The appellant appealed to the Assistant Commissioner (Judicial) 1, Sales tax, Kanpur Range, Kanpur.
His appeal was filed on May 16, 1966, the order of assessment and the demand notice having been served on him on April 16, 1966.
The appeal was therefore filed within time.
Section 9 of the Act provides that no appeal against an ,assessment shall be entertained unless it is accompanied by satisfactory proof of the payment of the amount of tax admitted by the appellant to be due or of such instalments thereof as may have become payable.
As is stated earlier, the admitted tax came to 507 Rs. 11,135.58 P.
The appellant was required under this provisions of law to give satisfactory proof, at the time of the entertainment of the appeal, that this tax was duly paid.
It appears that the appellant had paid a greater portion of the tax even before the assessment order had been made, and a balance of Rs. 99.99 P. was due from him from the amount of admitted tax.
This amount was deposited on April 26, 1966 before the appeal was filed by him.
He did not however present any proof of such deposit, because there is a dispute in the case whether the assessee bad shown proof of it to the mumarim or not.
As the finding is that he had not shown it we shall proceed on the assumption that the assessee had not furnished proof at the time of the filing of the appeal that the balance of tax had been paid, It is on this premise that the present appeal has proceeded before us.
On August 16, 1966 the assessee addressed a letter to the Sales tax Officer and asked for a certificate of payment of tax and this certificate having been furnished he filed it on January 24, 1967 before the Assistant Commissioner.
He also, as a matter of abundant caution, filed an application for condonation of delay under section 9(6) of the Act read with section 5 of the Indian Limitation Act.
The order against which the present appeal has been brought before us was made on 2/3 April, 1967 and the appeal of the assessee was rejected,.
because in the opinion of the Assistant Commissioner section 9 of the Act read with r. 66(2) had not been complied with since no proof had been given along with the memorandum of appeal that the tax had been paid.
Simultaneously, the application for condonation of delay was also dismissed.
Against this order the assessee has filed the present appeal.
The short question in this case is whether having made the deposit even before the appeal was filed and well within the period of limitation, the assessee could be deprived of his right of appeal under section 9 of the Act.
Alternatively, it is to be considered whether the proof of the payment of the admitted tax had to accompany the memorandum of appeal as required by r. 66(2) and on failure to furnish such proof, the appeal itself became incompetent.
In support of his order the Assistant Commissioner relied on a decision of the Allahabad High Court reported in Swastika Tannery of Jaimau vs Commissioner of Sales tax, U.P. Lucknow(1) in which the learned Chief Justice of that Court and another learned Judge have laid down that the proof of payment must be as required by the rules and, therefore.
the memorandum of appeal ouaht to be accompanied by the Challan showing payment of tax before the appeal can be said to be competent.
We shall refer to that ruling presently.
in this appeal, learned counsel for the assessee has relied upon a number of authorities in which the interpretation runs (1) (1963) 14 S.T.C. 518.
508 counter to the decision of the learned Chief Justice just adverted to and had contended that section 9 of the Act does not create the bar which the ruling and the Assistant Commissioner 's reliance on that ruling has created in the way of the appeal.
His contention is that if satisfactory proof is given before the appeal is heard or at any rate before it is admitted, the requirement of law under section 9 is satisfied and that it is not always incumbent to produce a challan with the memorandum of appeal, r. 66(2) notwithstanding.
It is this point which has given rise to the great controversy before us and the matter was argued at great length both at the time of grant of special leave and today.
To consider the matter, we may begin by quoting section 9 of the Act.
Section 9 which gives the power of appeal provides as follows: (1) Any dealer objecting to an order allowing 'or refusing an application for exemption certificate under cl.
(b) of sub section (1) of section 4 or to an order refusing an application under section .30 or to an order imposing a penalty under section 15 A or to an assessment made under section 7, 7 A, 7 B, 18 or 21, may within 30 days from the date of service of the copy of the order or notice of assessment, as the case may be, appeal to such authority as may be prescribed; Provided that no appeal against an assessment shall be entertained unless it is accompanied by satisfactory proof of the payment of the amount of tax admitted by the appellant to be due, or of such instalments thereof as may have become payable: Under section 24 of the Act power has been conferred upon the State ,"Government to make rules to carry out the purposes of the Act and in particular, to provide for all matters expressly required or allowed by this Act to be prescribed.
Under sub section
(4) of that section, it is provided that all rules made under the section shall be published in the Gazette and upon such publication, shall have effect immediately as if enacted in the Act and under the 5th sub section, it is further provided that all rules made under the Act shall be laid for fourteen days before the Legislature as soon as possible after they are made and shall be subject to such modifications as the Legislature may make during the session in which . they are so laid.
In exercise of this power, the State Government has framed the U.P. Sales tax Rules, 1948.
Rules 66 and 67 of these rules bear, among others, upon appeals.
Sub r. 1 of r. 66 provides for the content of the appeal by stating what the memorandum of appeal shall specify in relation to the name and address of the appellant etc.
We are not concerned with it.
Sub r.
509 2 then states that "the memorandum of appeal shall be accom panied by. . a challan showing deposit in the Treasury of the tax admitted by the appellant to be due or of such instalments thereof as might have become payable.
" Rule 67 days down how the appeals have to be presented.
Sub r. 1 provides that the memorandum of appeal shall be presented by the appellant or his lawyer or duly authorised agent to the Assistant Commissioner (Judicial) or may be sent by registered post addressed to the Assistant Commissioner,(Judicial).Sub r 2 provides that if the memorandum of appealis in order.
the Assistant Commissioner, (Judicial) shall admitit and on admission.
the Reader of the Assistant Commissioner (Judicial) shall endorse thereon the date of its presentation and shall register it in a book to be known as Register of Appeals.
The third sub rule says that if the memorandum of appeal is not in order.
it may be rejected or returned after the necessary endorsement on its back about the presentation and return to the applicant for correction and representation within the time to be fixed by the Assistant Commissioner (Judicial) or be amended then and there.
Lastly sub r. 4 provides that on admission of an appeal.
the Assistant Commissioner (Judicial) shall fix a date for hearing of the appeal and may send for the record,.
if necessary.
The contention of counsel for the assessee is that he had fully complied with the requirements of section 9 although not strictly as laid down in r. 66 which he characterised as directory.
The contention on the other side is that the rule lays down the only manner of compliance with the provisions of the Section and in support Counsel for the State refers to the provisions of section 24(4) and (5) in which it is stated that the rules on being framed become part of the Statute.
From this, counsel for the State infers that there is no other modeof compliance except the one stated in the rules and as in thiscase that mode of compliance was not followed, the appeal is rightly considered to be incompetent and properly rejected.
This in main represents the essence of the controversy between the parties.
To begin with it must be noticed that the proviso merely requires that the appeal shall not be entertained unless it is accompanied by satisfactory proof of the payment of the amount of tax admitted by the appellant to be due.
A question thus arises what is the meaning of the word 'entertained ' in this context? Does it mean that no appeal shall be received or filed or does it mean that no appeal shall be admitted or heard and disposed of unless satisfactory proof is available ' The dictionary meaning of the word 'entertain ' was brought to our notice by the parties, and both sides agreed that it means either "to deal with or admit to consideration".
We are also of the same opinion.
The question, therefore, is at what stage can the appeal be said to be entertained for the purpose of the appllication of the proviso? Is it 510 entertained when it is tiled or is it 'entertained ' when it is admitted and the date is fixed for hearing or is it finally 'entertained ' when it is heard and disposed of? Numerous cases exist in the law reports in which the word 'entertained ' or similar cognate expressions have been interpreted by the courts.
Some of them from the Allahabad High Court itself have been brought to our notice and we shall deal with them in due course.
For the present we must say that if the legislature intended that the word 'file ' or 'receive ' was to be used, there was no difficulty in using those words.
In some of the statutes which were brought to our .notice such expressions have in fact been used.
For example.
under Order 41.
rule I of the Code of Civil Procedure it is stated 'that a memorandum shall not be filed or presented unless it is accompanied etc.
; in section 17 of the Small Causes Courts Act, the expression is 'at the time of presenting the application '.
In sec.
6 .of the Court Fees Act, the words are 'file ' or 'shall be received '.
It would appear from this that the legislature was not at a loss for words if it had wanted to express itself in such forceful manner as is now suggested by counsel for the State.
It has used the word 'e entertain ' and it must be accepted that it has used it advisedly.
This word has come in for examination in some of the cases of the Allahabad High Court and we shall now refer to them.
In Kundan Lal vs Jagannath Sharma(1) the Court was concerned with Order 21, rule 90, of the Code of Civil Procedure which bad been amended by the High Court by changing the pro visions of the original Code.
The changed rule is as follows: "Provided that no application to set aside the sale shall be entertained: (a) upon any ground which should have been taken by the applicant on or before the date on which the sale proclamation was drawn up: (b) Unless the applicant deposits such amount not exceeding 12 1/2 " of the sum realised by the sale or furnishes such security as the court may in its discretion fix, except when for reasons to be recorded it dispenses with the requirements of this clause. . " The word 'entertain ' is explained by a Divisional Bench of the Allahabad High Court as denoting the point of time at which an application to set aside the sale is heard by the court.
The expression 'entertain ', it is stated.
does not mean.
the same thing as the filing of the application or admission of the application by the court.
A similar view was again taken in Dhoom Chand Jain vs Chamanlal Gupta & Anr.(2) in which the learned Chief (1) A.I.R. 1962 All. 547.
(2) A.LR.
1962 AU.
511 Justice Desai and Mr. Justice Dwivedi gave the same meaning to the expression 'entertain '.
It is observed by Dwivedi J. that the word 'entertain ' in its application bears the meaning 'admitting to consideration ', and therefore when the court cannot refuse to take an application which is backed by deposit or security, it cannot refuse judicially to consider it.
In a single bench decision of the same court reported in Bawan Ram & Anr.
vs Kunj Beharilal(1) one of us (Bhargava, J.) bad to consider the same rule.
There the deposit had not been made within the period of limitation and the question had arisen whether the court could entertain the application or not.
It was decided that the application could not be entertained because proviso (b) debarred the court from entertaining an objection unless the requirement of depositing the amount or furnishing security was complied with within the time prescribed.
In that case the word 'entertain ' is not interpreted but it is held that the Court cannot proceed to consider the application in the absence of deposit made within the time allowed by law.
This case turned on the fact that the deposit was made out of time.
In yet another case of the Allahabad High Court reported in Haji Rahim Bux & Sons and Ors.
vs Firm Samiullah & Sons(2) a division bench consisting of Cheif Justice Desai and Mr. Justice section D. Singh interpreted the words of 0. 21, r. 90, by saying that the word 'entertain ' meant not"receive ' or 'accept ' but 'proceed to consider on merits ' or 'adjudicate upon '.
In our opinion these cases have taken a correct view of the word 'entertain ' which according to dictionary also means 'admit to consideration '.
It would therefore appear that the direction to the court in the proviso to section 9 is that the court shall not proceed to admit to consideration an appeal which is not accompanied by satisfactory proof of the payment of the admitted tax.
This will be when the case is taken up by the court for, the first time.
In the decision on which the Assistant Commissioner relied, the learned Chief Justice (Desai C.J.) holds that the words 'accompanied by ' showed that something tangible had to accompany the memorandum of appeal.
If the memorandum of appeal had to be accompanied by satisfactory proof, it had to be in the shape of something tangible, because no intangible thing can accompany a document like the memorandum of appeal.
In our opinion, making 'an appeal ' the equivalent of the memorandum of appeal is not sound.
Even under 0.
41 of the Code of Civil Procedure.
the expressions "appeal" and "memorandum of appeal" are used to denote two distinct things.
In Wharton 's Law Lexicon, the word "appeal" is defined as the judicial examination of the decisions by a hi her Court of the decision of an inferior court.
The appeal is the judicial examination; the memorandum of appeal contains the rounds on which the judicial examination is invited.
(1) A.I.R. 1961 All. 42.
(2) A.I.R. 1963 All.
512 For purposes of limitation and for purposes of the rules of the Court it is required that a written memorandum of appeal shall be filed.
When the proviso speaks of the entertainment of the appeal, it means that the appeal such as was filed will not be admitted to consideration unless there is satisfactory proof available of the making of the deposit of admitted tax.
Now the complicating factor is the existence of the rule, and here, the divergence of submission arises on whether the rules can be regarded as mandatory or merely directory.
It is quite obvious that the section as it stands only requires that at the time of the consideration of the appeal, There should be satisfactory proof that the admitted tax has been deposited.
It only says that no appeal shall be entertained unless accompanied by satisfactory proof of the payment of the tax.
This satisfactory proof may take any form; in fact in the present case satisfactory proof was tendered in the shape of a certificate from the Sales tax Officer that the admitted tax had been deposited and well within time.
Under section 9 and its proviso as they stand, it is quite obvious that 'entertainment ' means the point of time when the appeal is being considered.
There was thus satisfactory proof in the present case.
No doubt, proof was not tendered following the method required by the rules but the question is whether the rules can make the section narrower by prescribing a particular mode.
The section is general; it provides that the court should accept satisfactory proof.
The rule requires that the memorandum of appeal shall be accompanied by the challan showing payment of tax.
The rule lays down one uncontestable mode of proof which the Court will always accept but it does not exclude the operation of the proviso when equally satisfactory proof is made available to the officer hearing the appeal and it is proved to his satisfaction that the payment of the tax has been duly made and in time.
In this sense, the rule can be regarded as directory since it lays down one of those modes which will be unquestioned for its validity.
The other modes of proof are not necessarily shut out.
It is to be remembered that all rules of procedure are intended to advance justice and not to defeat it.
Here the right of appeal has been made subservient to the payment of the admitted tax.
If the admitted tax is paid and there is proof available that it has been so paid, there exists no reason to create a second impediment in the way of the appeal.
No doubt, rule makes it easy for the assessee to bring satisfactory proof in an uncontestable manner, but the provision of the rule is not to the exclusion of other satisfactory modes of proof.
Suppose for instance that the I challan was lost and the time for the filing of the appeal was expiring, could or could not the person concerned say that he had the certificate but had lost it and that he would produce a copy of the challan from the Treasury or obtain a certificate from the 513 Treasury Officer.
Could he not obtain from the bank the discharged cheque by which the amount of tax was deposited by him and produce it as the discharged counterfoil of payment.
All those modes of proof will be equally, irrefutable.
In the present case the,, assessee had in his petition of appeal 'stated that the amount of tax had been paid and had fortified the 'Statement by an affidavit.
Before the hearing he produced, a certificate from the.
Sales tax Officer that the tax had, been paid.
The Assistant Commissioner ought therefore to have proceeded: with the appeal because it was accompanied by satisfactory proof of,; the payment of the tax.
To hold otherwise would put a premium upon a technicality which we do not see will advance the case either for the collection of the tax or,, for the: administration of justice.
, The rule, as we have stated, indicate& what :is the best and easiest method of achieving satisfactory proof.
The certificate from the Sales tax Officer, however, is as good proof as the challan from the Treasury and if such certificate was produced at the admission of the appeal, how the memorandum of appeal can be said to be defective under the section as it stands.
In these circumstances, we hold that the rule is merely directory and indicates only one of the modes of satisfactory proof.
The distinction made by the learned Chief Justice between the tangible and intangible objects does not in our opinion fall for consideration in the present case.
If one holds that by 'entertainment ' is meant the time of admission of the appeal, satisfactory proof may be furnished at the time of admission of the appeal.
We are of opinion that by the word "entertain" here is meant the first occasion on which the court takes up the matter for consideration.
It may be at the admission stage or if by the rules of that Tribunal the appeals are automatically admitted, it will be the time of hearing of the appeal.
But on the first occasion when the court takes up the matter for consideration, satisfactory proof must be presented that the tax was paid within the period by limitation available for the appeal.
, In the present case when the Assistant Commissioner took up the appeal for consideration, satisfactory proof was available in the shape of a certificate which even today is not denied.
In our opinion the Assistant Commissioner was wrong in declining to consider the appeal in the presence of such uncontestable proof.
It remains to point out why we did not insist upon the assessee exhausting his other remedies under the Act before coming to this Court.
It was made to appear to us that there is a right of revision and right of reference to the High Court ' in all such cases and that this remedy was not resorted to by the assessee before making a petition for special leave in this Court.
We were taken through a number of cases in which it has been laid down by this Court that this Court will not ordinarily grant special leave to appeal against an order when other remedies are available and L/JN)6 SCI No 7 514 have not been exhausted.
But there is no inflexible rule that 'this Court will never entertain an appeal and numerous instances have occurred in, this Court where such appeals have been admitted.
It would have been ,futile in this.
case for the assessee to have gone to the court , of revision which was bound by the ruling of :the Allahabad High, Court reported in Swastika Tannery of Jaimau v Commissioner of .
Sales tax U.P. Lucknow (1 ') and ' it would have been equally futile to, have.
gone to the High Court; on a reference.
The matter was more easily disposed of by giving special leave in this Court and we therefore felt that this was one of those extraordinary cases, in which the ends of justice would be better served, by avoiding a circuity of action and by dealing with this matter in this Court directly.
It is for this reason that we granted special leave to appeal.
The appeal shall therefore be allowed and the appeal shall be remitted to the Assistant Commissioner (Judicial) 1, Sales Tax, Kanpur Range, Kanpur, for disposal in accordance with law.
There shall be no order as to costs.
Y.P. Appeal allowed and remitted.
(1) (1963) 14 S.T.C. 518.

dataset_name: IN-Abs

summary:
The appellant assessee filed a memorandum of appeal to the Assistant Commissioner, Sales Tax, stating therein that the amount of admitted tax had been paid and forfeited the statement by an affidavit.
Before the hearing, he produced a certificate from the Sales Tax Officer that the tax had been paid.
The Assistant Commissioner relying on the Allahabad High Court 's decision in Swastika Tannery, Jaimau vs Commissioner of Sales tax, U.P. rejected as defective the memorandum of appeal, holding that it was not accompanied by the challan showing the deposit of admitted tax under section 9 of the Uttar Pradesh Sales Tax Act, 1948 and r. 66 of the U.P. Sales tax Rules.
Against this order the assessee directly filed special leave to appeal to this Court without exhausting the remedies of revision and reference provided in the Act.
This Court granted Special Leave and; HELD:The appeal must be allowed.
(i) By the word "entertain" in the proviso to section 9 is meant the first occasion on which the Court take up the matter for consideration.
It may be at the admission stage or if by the rules of that Tribunal, the appeals are automatically admitted, it will be the time of hearing of the appeal.
But on the first occasion when the court takes up the matter for consideration, satisfactory proof must be presented that the tax was paid within the period of limitation available for the appeal.
Rule 66(2) lays down one uncontestable mode of proof which the Court will always accept but it does not exclude the operation of the proviso when equally satisfactory proof is made available to the officer hearing the appeal and it is proved to his satisfaction that the payment of the tax has been duly made and in time.
[512E F; 513E G] In the present case, when the Assistant Commissioner took tip the appeal for consideration, satisfactory proof was available in the shape of a certificate.
Swastika Tannery of Jaimau vs Commissioner of Sales tax, U.P. Lucknow, (1963) 14 S.T.C. 518, disapproved.
Kundan Lal vs Jagannath Sharma, A.I.R. 1962 All. 547; Dhoom Chand Jain vs Chaman Lal Gupta and Anr.
A.I.R. 1962 All.
42: Haji Rahim Bux & Sons & Ors.
vs Firm Samiullah & Sons, A.I.R. 1963 All. 320, approved.
(ii) Though this Court would not ordinarily grant special leave to appeal against an order when other remedies were available and had not been exhausted, there is no inflexible rule that this Court will never entertain such an appeal.
It would have been futile in this case for the assessee to have gone to the court of revision which was bound by the decision in Swastika Tannery of Jaimau vs
Commissioner of Sales tax, U.P. and it would have been equally 506 futile to have gone to the High Court on a reference.
The matter was more easily disposed of by giving special leave in this Court and this was one of those extra ordinary cases in which the ends of justice would be better served, by avoiding a circuity of action and by dealing with this matter in this Court directly.
[513H 514C]


judgement:
Appeal No. 1056 of 1966.
Appeal from the judgment and order dated July 6, 1965 of the Calcutta High Court in Appeal from Original Order No. 284 of 1961.
A. N. Sinha and D. N. Gupta, for the appellant.
R. N. Sachthey and section P. Nayar, for the respondent.
The Judgment of the Court was delivered by Bhargava, J.
The appellant, M/s. Braithwaite & Co. (India) Ltd., (hereinafter referred to as "the Company") filed an application before the Employees ' Insurance Court for a declaration that 'Inam ' paid or to be paid to its workmen under the Inam Scheme initiated on 28th December, 1955 is not "wages " as defined in the (No. 34 of 1948) (hereinafter referred to as "the Act"), and that no contribution, either as employer 's special contribution or employees ' contribution, is payable by the Company in respect thereof.
The opposite party in this application was the present respondent, the Employees ' State Insurance Corporation, and there was.
also a prayer for perpetual injunction restraining the respondent from realising any contribution in respect of past or future payments of Inam under that Scheme.
A further prayer was for a decree for Rs. 32,761 against the respondent, being the amount which the respondent had already realised from the appellant claiming that the Inam was " wages", and for costs.
The case was contested by the respondent, but the Employees ' Insurance Court allowed the application of the appellant, passed a decree with costs, making a declaration that Inam was not wages and that no contribution in respect of Inam paid to the workmen was payable by the appellant to the respondent, and decreeing the claim of the appellant for the sum of Rs. 32,761 against the respondent.
The respondent, thereupon, appealed to the High Court of Calcutta under section 82 of the Act.
The High Court allowed the appeal, held that the Inam was wages and dismissed the claim of the appellant, but made no order as to costs.
The appellant has now come up to this Court on the basis of a certificate granted by the High Court under article 133 of the Constitution.
The decision of this appeal depends solely on the question whether the Inam paid by the appellant under the Scheme dated 28th December, 1955 is covered by the definition of "wages" as given in section 2(22) of the Act.
That definition is reproduced below.
(22) 'wages ' means all remuneration paid or payable in cash to an employee, if the terms of contract of employment.
express or implied, were fulfilled and includes L/P(F)7SCI 10 (a) 774 other additional remuneration, if any, paid at intervals not exceeding two months, but does not include (a) any contribution paid by the employer to any pension fund or provident fund, or under this Act; (b) any travelling allowance or the value of any travelling concession; (c) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or (d) any gratuity payable on discharge.
" The High Court has held that the Inam in question is covered by this definition where it is laid down that "wages" means ill remuneration paid or payable in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled.
Reliance is not placed on the second clause of the definition which includes other additional remuneration, if any, paid at intervals not exceeding two months.
Counsel appearing for the respondent before us also did not rely on this second part of the definition and sought to support the decision of the High Court only on the basis that it is Covered by the first part.
Counsel appearing for the appellant also did not rely on the last part of the definition which excludes from the definition of "wages" items mentioned in clauses (a), (b), (c) & (d).
In this case, therefore, we have to confine our decision to the interpretation of the first part of the definition of "wages".
The facts, which are relevant for deciding this question, are that conditions for the award of Inam were laid down in a Work Notice issued by the appellant on 28th December, 1955, and with this Work Notice were issued two separate Notices laying down the remaining conditions for payment of Inam which were required to be laid down by the Scheme contained in the first Work Notice which only stipulated the general terms.
One of these Notices issued on the same date covered the workmen employed in Structural and Tank Shop, while the other covered workmen employed in Wagon Shop.
The terms of the general scheme which are important for interpretation are those contained in paras.
4 to 10 of the Work Notice, and it was on the basis of the interpretation of these terms that the Employees ' Insurance Court accepted the plea of the appellant that Inam was not covered by the definition of " wages".
The High Court, on interpretation of the same terms, took a contrary view.
Both Courts concurrently held that the Inam paid under the Scheme was covered by the word "remuneration" used in the definition of "wages" and counsel appearing for the appellant did not challenge the correctness of this view.
The Employees ' Insurance Court held that the payments of Inam had nothing to do with the terms of employment and the workmen were not entitled to claim the Inam as a condition of service, so 775 that it could not be held that this remuneration was paid or payable, if the terms of the contract of employment, express or implied, were fulfilled.
On the other hand, the view of the High Court was that this remuneration was paid and became payable, if the terms of the contract of employment, express or implied.
were fulfilled.
This decision was given by the High Court after holding that, on an interpretation of the Scheme, the right of the employees to receive the Inam had become an implied term of the contract of employment.
It appears to us that, on a correct interpretation of the terms of the Scheme, the High Court committed an error in holding that the payment of this Inam had become a term of the contract of employment of the employees.
The features of the Scheme, which indicate that the payment of Inam did not become a term of the contract of employment, are clear from the Scheme itself.
The first is that this payment of Inam was not amongst the original terms of contract of employment of the employees.
In those terms, there was no 'offer of any reward or prize to be paid for any work done by the employees.
The employees were expected to work for certain periods at agreed rates of wages which, in some cases, left hourly rated and, in some, monthly rated.
This Inam Scheme was introduced at a later stage in December, 1955.
The only offer under the Scheme was to make incentive payments, if certain specified conditions were fulfilled by the employees.
Even though this offer of incentive payment was made, the appellant, in clear words, reserved the right to withdraw the Scheme altogether without assigning any reason or to revise its conditions at its sole discretion.
Clearly, if the right to the Inam had become an implied condition of the contract of employment, the employer could not withdraw that right at its discretion without assigning any reason, nor could the employer vary its conditions without agreement from the employees con cerned.
The payment of the Inam was dependent upon the em ployees exceeding the target of output appropriately applicable to him.
though primarily the right to receive the Inam depended on the efficient working of the employee, there was another clause which laid down that, if the targets were not achieved due to lack of orders, lack of materials, break down of machinery, lack of labour, strikes, lock outs, go slow or any other reason whatsoever, no Inam was to be awarded.
This condition is clearly inconsistent with the payment of Inam having become an implied term of the contract of employment, because Inam became nonpayable even if the production target was not achieved for reasons for which the employees were not at all to blame.
If the employer did not receive sufficient orders for sale of its output, or there was lack of raw materials, or there was breakdown of machinery and as a result, during the period for which the Inam was notified, it became impossible for the employee to achieve the minimum target fixed, there was no liability_on the appellant to pay the Inam.
Such exemption from payment of the Inam on grounds for which the employees could not be blamed and possibly for which the 776 appellant itself might be responsible clearly shows that the payment of this Inam was not enforceable as one of the terms of the contract of employment, whether implied or express.
The appellant had also laid down that, if any deterioration of workmanship was noticed on the part of the employees in order to achieve the targets prescribed for earning the Inam, the Scheme could be abandoned forthwith.
It was also made clear to the workmen in the Scheme that this payment of reward was in no way connected with or part of wages.
It was on these conditions that the employees were receiving the Inam.
Thus, though there was a payment to the employees and since that payment depended on their achieving certain targets, it has to be held to be remuneration, this payment of Inam cannot be held to have become a term of the contract of employment.
The High Court, in arriving at the contrary decision, referred to the Explanation to section 41 of the Act and held on its basis that, even if the terms of contract of employment are deemed to have been fulfilled, the remuneration paid would be wages.
The Explanation lays down,,.that for the purposes of sections 40 and 41, wages shall be deemed to include payment to an 'employee in respect of any period of authorised leave, lock out or legal strike.
It appears to us that the High Court committed an error in applying this legal fiction, which was meant for sections 40 and 41 of the Act only, and extending it to the definition of wages, when dealing with the question of payment in the nature of Inam under the Scheme started by the appellant.
The fiction in the Explanation was a very limited one and it only laid down that wages were to be deemed to include payment to an employee in respect of any period of authorised leave, lock out or legal strike.
It did not lay down that other payments made to, an employee under other circumstances were also to be deemed to be wages.
A legal fiction is adopted in law for a limited and definite purpose only and there is no justification for extending it beyond the purpose for which the legislature adopted it.
In the Bengal Immunity Co. Ltd. vs State of Bihar and Others,(1) this Court, dealing with the Explanation to Article 286(1) of the Constitution, as it existed before 11 9 1956, held: "Whichever view is taken of the Explanation, it should be limited to the purpose the Constitution makers had in view when they incorporated it in clause 1.
It is quite obvious that it created a legal fiction.
Legal fictions are created only for some definite purpose".
Applying the same principle, we have to hold that the Explanation to section 41 is not to be utilised fox interpreting the general definition of "wages" given in section 2(22) of the Act and is to be taken into count only when the word "wages" requires interpretation for purposes of sections 40 and 41 of the Act.
It cannot, therefore.
(1) , 646. 777 be held that remuneration payable under a scheme is to be covered by the word "wages", if the terms of contract of em ployment are taken to have been fulfilled.
What is really required by the definition is that the terms of the contract of employment must actually be fulfilled.
It is, therefore, not correct to hold that because payments made to an employee for no service rendered during the period of lock out, or during the period of legal strike, would be wages, Inam paid under that scheme must also be deemed to be wages.
The second reason which led the High Court to hold against the appellant was that, according to that Court, the Scheme contained an offer by the employer for payments to the employees for service rendered by them, and that offer was accepted by the employees impliedly by having worked on the terms of the Notice and having received payments on that basis.
The mere fact that a reward for good work offered by the employer is accepted by the employee after he has successfully satisfied the requirement laid down by the employer for earning reward cannot mean that this payment becomes a part of contract of employment.
In fact, in this case, there was no question of offer by the appellant and acceptance by the employees as a condition of their service.
The employees were already working in accordance with the terms of their contract of employment when the employer decided 'to make this extra payment if the employees did successfully what they were already expected to do under that contract.
It cannot, therefore, be held that this payment of Inam ever became even an implied term of the contract of employment of the employees of the appellant.
This Court in Bala Subrahmanya Rajaram vs B. C. Patil & Others,(1) had to interpret the meaning of word "wages" as defined in the Payment of Wages Act, where also wages were defined as remuneration which would be payable if the terms of the contract of employment, express or implied, were fulfilled.
The Court expressed its opinion in the following words: "Now the question is whether the kind of bonus contemplated by this definition must be a bonus that is payable `as a clause of the contract of employment '.
We think it is.
and for this reason.
" Thereafter, the Court proceeded to examine whether bonus was in fact, payable as a clause of the contract of employment.
The word "wages" in the Act having been defined in similar terms, a remuneration paid to an employee can only be covered by the definition of "wages" if it is payable under a clause of the contract of employment.
As we have indicated earlier, there was no express clause in the contract of employment of the employees of the appellant laying down the payment of Inam, and the Scheme, when brought into force, expressly excluded it from the contract of employment.
The terms on which the Inam was payable were (1) ; , 1508.
778 also not consistent with the Scheme having become a part of the contract of employment.
In this connection, counsel appearing for the respondent brought to our notice one other feature of the Scheme which was not relied upon by the High Court to hold that this Inam was wages.
That term is contained in the last paragraph of the Scheme where, after stating that the Company reserved the right to withdraw the Scheme altogether without assigning any reason or revise targets and any condition of the Scheme at its sole discretion, went on to add that the Company also reserved the right to discontinue the scheme at the end of any period, if the scheme is found to be in any respect unworkable or to be a source of labour discontent or for any other reason.
It was urged that the fact that the Scheme could only be discontinued at the end of a prescribed period and not in the midst of a period showed that the Inam was payable as one of the conditions of contract of employment of the employees, We do not think that there is any force in this submission.
It was again a one sided promise on behalf of the appellant not to deny this payment of Inam during a period for which the Inam Scheme had already been notified by the appellant, but such an assurance on behalf of the appellant does not indicate that the employees could claim that a right to receive the Inam had accrued to them as an implied condition of contract of employment.
The decision given by the High Court has, therefore, to be set aside.
The appeal is allowed with costs.
, The order passed by the High Court is set aside and the order passed by the Employees ' Insurance Court it restored.
V.P.S. Appeal allowed.

summary:
Section 2(22) of the , defines 'wages '.
Under its first part all remuneration paid or payable in cash to an employee.
if the terms of the contract of employment, express or implied, were fulfilled.
would be wages.
The Explanation to section 41 lays down that, for purposes of sections 40 and 41, wages shall be deemed to include payment to an employee in respect of any period of authorised leave, lock out or legal strike.
Under the original terms of the contract of employment between the appellant and its employees, the employees were expected to work for certain periods at agreed rates of wages and there was no offer of any reward or prize or inam to be paid for any work done by the employees.
An inam Scheme was introduced later by the appellant under which, there was an offer to make incentive payments, if certain specified conditions were fulfilled by the employees.
The appellant, however, reserved the right to withdraw the Scheme altogether without assigning any reason, or to revise its conditions at its sole discretion, even if the production target was not achieved for reasons for which the employees were not to be blamed.
The appellant had also laid down that, if any deterioration of workmanship was noticed on the part of the employees in order to achieve the targets prescribed for earning the inam, the Scheme could be abandoned forthwith.
It was also made clear to the workmen that this payment of reward was in no way connected with or part of wages.
The last paragraph of the Scheme stated that the appellant also reserved the right to discontinue the Scheme at the end of any period, if the Scheme was found to be in any respect unworkable or to be a source of labour discontent or for any other reason.
The appellant filed an application before the Employees ' Insurance Court constituted under the Act for a declaration that the inam paid or to be paid to its workmen was not wages as defined in the Act and for other reliefs.
The application was allowed.
On appeal, the High Court held that the inam was wages, because: (1) it was covered by the first part of the definition of wages; (2) even if the terms of the contract of employment were not in fact fulfilled but were only deemed to have been fulfilled.
the remuneration paid would be wages by, virtue of the Explanation to section 41; and (3) the Scheme contained an offer by the employer of payments to the employees for services rendered by them and as that offer was accepted by the employees impliedly, by having L, P(N)7SCI 10 672 worked on the terms of the Scheme and having received payments on that basis, the payment became a part of the contract of employment.
In appeal to this Court, the respondent sought 'co support the judgment of the High Court, also on the ground that, the fact that the Scheme could only be discontinued at the end of a prescribed period as laid down in the last paragraph of the Scheme and not in the midst of a period, showed that the inam was payable as one of the conditions of the contract of employment.
HELD: (1) A remuneration paid to an employee can only be covered by the definition of wages if it is payable under a clause of the contract of employment.
[778 H].
Bala Subrahmanya Rajaram vs B. C. Patil & Ors., ; , followed.
In this case there was a payment to the employees and since that payment depended on their achieving certain targets, A is remuneration, but this payment of inam cannot be held to have become a term of the contract of employment.
There was no express clause in the contract of employment for the payment of inam to the employees, and the Scheme, when brought into force, expressly excluded it from the contract of employment.
The terms in the Scheme were also not consistent with the Scheme having become a part of the contract of employment.
The fact that the appellant could withdraw the payment at its discretion and on grounds for which the employees could not be blamed, showed that the payment was not enforceable as one of the terms of the contract of employment.
[777 A C; 778 H; 779 A].
(2) A legal fiction is adopted in law for a limited and definite purpose only and there is no justification for extending it beyond the purpose for which the legislature adopted it.
The fiction in the Explanation to & 41 is a limited one and Is not to be utilised for interpreting the general definition of wages given in the Act, as it did not Iav down that payments made to an employee under other circumstances were also deemed to be wages.
The fiction is to be taken into account only when the word 'wages ' requires interpretation for purposes of sections 40 and 41 ' It cannot, therefore, be held that the remuneration payable under the Scheme is covered by the word wages if the terms of the contract are taken to have been fulfilled.
What is really required by the definition is that the terms of the contract of employment must actually be fulfilled.
[777 E G; 778 AB].
Beneaal Immunity Co. Ltd. vs State of Bihar and Ors. , followed.
(3) In this case, when the Scheme was introduced, there was no offer of any reward by the appellant which was accepted by the employees as a condition of their service.
The employees were already working in accordance with the terms of their contract of employment when the employer decided to make the extra payment if the employees did successfully what they were already expected to do under that contract.
The mere fact that the reward for good work was received by the employee after he had successfully satisfied the requirement laid down by the employer for earning the reward could not mean that the payment became a part of the contract of employment.
[778 C E].
(4) The term contained in the last paragraph of the Scheme was a one sided promise on behalf of the appellant not to deny the payment of inam during a period for which the Scheme had already 773 been notified by the appellant but such an assurance on behalf of the appellant does not indicate that the employees could claim that a right to receive the inam had accrued to them as an implied condition of the contract of employment.
[779 D E].