judgement:
l Appeal No. 2483 of 1968.
Appeal by special leave from the Award dated July 24, 1968 o,f the Labour Court, Meerut in Case No. 92 of 1966.
S.V. Gupte, D.N. Mukherjee and M.L. Car, for the appellant.
Mohan Kumaramangalam, M.K. Ramamurthi, Vineet Kumar, Shyamala Pappu and J. Ramamurthy, for the respondents.
The Judgment of the Court was delivered by Shelat, J.
In this appeal, by special leave, two questions arise: (1) whether standing orders govern the employees appointed before they ,are certified under the , 20 of 1946, and (2) whether the appellant company was entitled to terminate the service of a workman appointed as a probationer before the expiry of the period of probation except on the ground of misconduct.
The first question relates to 3 workmen, Alladin, Ram Prasad and Noorul Zaman, who were employed in 1929, 1935 and 1937 respectively, long before the company 's standing orders were certified and brought into force in 1951 and who were superannuated 811 under standing order 32 of the said standing orders.
Prior to 1951 there were no rules or conditions of service prescribing the age of superannuation.
Standing order 32 for the first time laid down 55 years as the age of superannuation.
Relying on standing order 32 the company served on the three workmen notices dated December 19, 1964, November 20, 1963 and January 27, 1964, who had by then attained the age of 58, 64 and 59 years, by which the company retired them with effect from January 1, 1965, December 29, 1963 and March 1, 1964 respectively.
The Labour Court, to which the dispute arising from the compulsory retirement was referred, held that the company 's standing orders having been certified long after these workmen were employed and the conditions of their employment not having provided any age of retirement, the company could not apply standing order 32 to them, and therefore, the orders of superannuation were bad, and directed their reinstatement and payment to.
them of their wages from the date of retirement till the date when they would be reinstated.
Thus, the question involved in this appeal is whether the company could retire 'by applying standing order 32 these three workmen, who admittedly had long passed the age of superannuation provided thereunder.
Counsel for the company argued that once the standing orders are certified and come into operation, they would, subject to their modification as provided under the Act, bind all workmen, irrespective of whether they were employed before or after they came into force ', and that therefore, the Labour Court was in error in holding to the contrary and ordering their reinstatement.
Mr. Kumaramangalam, on the other hand, argued ( 1 ) that the company 's action amounted to applying standing order 32 retrospectively, that was not warranted, for, if the standing orders were intended to be so applied, they would have so expressly provided, and (2) that in a previous reference, being Ref.
91 of 1964, between the appellant company and its workmen, this very Labour Court had decided that these standing orders did not apply to workmen previously employed, that an appeal was sought to be filed in this Court against that order but no special leave was granted, and therefore, that order became final.
Consequently, the company was not entitled to reagitate the same question, as it was precluded from doing so by principles analogous to the principle of res judicata.
The question as to whether standing orders were retrospective in their application can obviously arise only if they do not in law bind workmen previously employed.
Such a question can hardly arise if the provisions of the Act show, as contended by counsel for the Company, that once they are certified and come into force, they bind both the employer and all the workmen presently employed.
812 As observed in Shahdara (Delhi) Saharanpur Light Railway Company Ltd. vs Shahdara Saharanpur Railway Workers ' Union(1) the Act is a beneficent piece of legislation, its object being to require, as its preamble and its long title lay down, employers industrial establishments to define with sufficient precision the conditions of employment of workmen employed under them and to make them known to such workmen.
Before the passing of the Act, there was nothing in law to prevent an employer having different contracts of employment with workmen employed by him with different and varying conditions of service.
Such a state of affairs led to confusion and made possible discriminatory treatment between employees ,and employees though all of them were appointed in the same premises and for the same or similar work.
Such a position is clearly incompatible with the principles of collective bargaining and renders their effectiveness difficult, it not impossible.
To do away with such diversity and bargaining with each individual workman, the legislature provided by section 3 of the Act that every employer of an industrial establishment must, within 6 months from the date of the Act becoming applicable to his industrial establishment, submit to the certifying authority under the Act draft standing orders prepared by him for adoption in his industrial establishment providing therein for *all matters set out in the Schedule to the Act, and where model standing orders are prescribed to have such draft standing orders in conformity with them.
The draft standing orders are to be accompanied by particulars of workmen employed in the establishment as also the name of the union, if any, to which they belong.
This requirement clearly means particulars of the workmen in employment at the date of the submission of the draft standing orders for certification and not those only who would be employed in future after certification.
Under section 4, such draft orders 'are certifiable if they provide for all matters set out in the Schedule, are otherwise in conformity with the Act and are adjudicated as fair and reasonable by the certifying officer or the appellate authority.
Section 5 requires the certifying officer to forward a copy of the draft standing orders to the union or in its absence to workmen in the prescribed manner with a notice requiring objection, if any, from the workmen.
After giving the employer and the union or the workmen 's representatives an opportunity of being heard, the certifying officer has to decide whether or not any modification or addition to the draft submitted by the employer is necessary and then certify the draft standing orders 'and send copies thereof and of his order in that behalf to the employer, the union or the representatives of the workmen.
Section 6 confers the right of appeal to any person aggrieved by such order to the appellate authority, who, by his order, can.
either confirm or amend the standing orders.
Under section 7, such standing (1) 813 orders are to come into operation on the expiry of 30 days from the date on which their authenticated copies are sent by the certifying officer to the parties where no appeal against these orders is filed or where such appeal is filed on expiry of 7 days from the date on which copies of the appellate authority 's order are sent as required by section 6(2).
Section 9 requires the employer to post the standing orders 'as finally certified on boards maintained for that purpose at or near the entrance through which the majority of workmen inter the industrial establishment and in ' all departments thereof.
Section 10 confers the right to an employer or any of the workmen to apply for modification after expiry of 6 months from the date on which they of the last modification thereof came into operation.
The Schedule to the Act sets out matters which the standing orders must provide for.
These matters are classification of workmen, shift working, periods and hours of work, holidays, pay days, wage rates, conditions and procedure for applying for grant of leave, closing and reopening of sections of the industrial establishment, temporary stoppage: of work, liabilities and rights of the employer and the workmen arising therefrom, termination of employment, disciplinary action, penalties etc.
The obligation imposed on the employer to have standing orders certified, the duty of the certifying authority to adjudicate upon their fairness and reasonableness, the notice to be given to the union and in its absence to the representatives of the workmen, the right conferred on them to raise objections, the opportunity given to them of being heard before they are certified, the fight of appeal and the right to apply for modifications given to workmen individually, the obligation on the employer to have them published in such a manner that they become easily known to the workmen, all these provisions abundantly show that once the standing orders are certified and come into operation, they become binding on the employer and all the workmen presently employed as also those employed thereafter in the establishment conducted by that employer.
It cannot possibly be that such standing orders would bind only those who are employed after they come into force and not those who were employed previously but are still in employment when they come into force.
The right of being heard given to the union or, where there is No. union, to the representatives of the workmen, the right of appeal and the right to apply for modification given to workmen individually clearly indicate that they were provided for because the standing orders, as they emerge after certification, are intended to be binding on all workmen in the employment of the establishment at the date when they come into force and those employed thereafter.
Surely, the union or, in its absence, the representatives of workmen, who are given the right to raise objections either to the draft standing orders proposed by the employer or to the fairness and reasonableness of their provi 814 sions, could not have been intended to speak for workmen to be employed thereafter and not those whom they presently represent.
Besides, if the standing orders were to bind only those who are subsequently employed, the result would be that there would be different conditions of employment for different classes of workmen, one set of conditions for those who are previously employed and another for those employed subsequently, and where they are modified, even several sets of conditions of service depending upon whether a workman was employed before the standing orders are certified or after, whether he was employed before or after a modification is made to any one of them and would bind only a few who are recruited after and not the bulk of them, who though in employment were recruited previously.
Such a result could never have been intended by the legislature, for, that would render the conditions of service of workmen as indefinite and diversities, as before the enactment o,f the Act.
Why does section 3 (3) of the Act require the employer to give particulars of the workmen employed by him at the date of his submission of the draft standing orders unless the object of making him furnish the particulars was to have uniformity of conditions of service and to make the standing orders binding on all those presently employed.
That is why the Act also insists among other things that after they are certified they must be made known to all workmen by posting them at or near the entrance through which they pass and in the language known to the majority o,f them.
In Guest, Keen, Williams Pvt.
Ltd. vs
P.J. Sterling(1) a view apparent contrary to the one above stated was said to have been taken since it was held there that it was unfair in that particular case to fix the age of superannuation of previous employees by a subsequent standing order, which should apply in that matter to future entrants.
In that view the Court fixed 60 years as the age of retirement for such previous employees although the standing order had provided 55 years as the age of superannuation.
Salem Erode Electricity Distribution Company Ltd. vs Salem Erode Electricity Distribution Co. Ltd. Employees Union(2) this Court, however, took the same view which we have stated above and held that the provisions of the Act clearly indicated that matters specified in the Schedule to the Act should be covered by uniform standing orders applicable to all workmen employed in an industrial establishment and not merely to entrants employed after their certification.
The question arose out of an application made by the employer for modification of the existing standing orders by providing different rules relating to holidays and leave for employees appointed before a certain date and those appointed after that date.
Negativing such a modification, the Court, after examining (1) ; (2) ; 815 the relevant provisions of the Act, stated at pages 504 and 505 as follows: "One has ' merely to.
examine these clauses one by one to be satisfied that there is no scope for having two separate Standing Orders in respect to any one of them.
Take the case of classification of workmen.
It is inconceivable that there can be two separate Standing Orders in respect of this matter.
What we have said about classification is equally true ,about each one of the other said clauses; and so, the conclusion appears to be irresistible that the object of the Act is to, certify Standing Orders in respect of the matters covered by the Schedule; and having regard to these matters, Standing Orders so certified would be uniform and would ,apply to all workmen alike who are employed in any industrial establishment.
On principle, it seems expedient and desirable that matters specified in the Schedule to the Act should be covered by uniform Standing Orders applicable to all workmen employed in an industrial establishment.
It is not difficult to imagine how the application of two sets of Standing Orders in respect of the said matters is bound to lead to confusion in the working of the establishment and cause dissatisfaction amongst the employees.
If Mr. Setalvad is right in contending that the Standing Orders in relation to these matters can be changed from time to time, it may lead to the anomalous result that in course of 10 or 15 years there may come into existence 3 or 4 different sets of Standing Orders applicable to the employees in the same industrial establishment, the application of the Standing Orders depending upon the date of employment of the respective employees.
That, we think, is not intended by the provisions of the Act.
" At page 509 to 510 the Court referred to.
the case of Guest, Keen, Williams Private Ltd. (1), relied on by the employers ' counsel, and explained why the Court had fixed 60 years as the age of superannuation ,for the employees appointed before the standing orders were certified although the standing orders had fixed 55 years as the.
age of superannuation stating that: "that course was adopted under the special and unusual circumstances expressly stated in the course of the judgment." (1) ; LISSupCI/69 8 816 This decision thus confirms the view taken by us that the object of the Act is to have uniform standing orders providing for the matters enumerated in the Schedule to.
the Act, that it was not intended that there should be different conditions of service for those who are employed before and those employed after the standing orders come into force, and finally, that once the standing orders come into force, they bind all those presently in the employment of the concerned establishment as well those who are appointed thereafter.
Counsel for the workmen, however, drew our attention to.
the award in Ref.
91 of 1964 under section 4(k) of the U.P.
That reference, no doubt, was between the appellant company and its workmen and the question decided there was whether the company was right in compulsorily retiring the six workmen there concerned under these very standing orders although they were employed.
before they were certified and came into force.
The Labour Court, relying on Workmen of Kettlewell Bullen & Co. Ltd. vs Kettlewell Bullen & Co. Ltd.(1) which in turn had relied on Guest, Keen, Williams ' case(2), held that Standing Order 32 of these Standing Orders could not be applied to those previously appointed and that, therefore, the company 's action in retiring those workmen was.
not justified.
We may mention that the case of Kettlewell Bullen & Co.(1) was not one concerned with Standing Orders but with rules made by the company and this Court, relying on the decision in Guest, Keen, Williams Private Ltd. (2) held that where the rules of retirement are framed by the company they would have no application of its prior employees unless such employees have accepted the new rules.
It is clear that neither the case of Kettlewell Bullen & Co.(1) nor the case of Guest, Keen, Williams Private Ltd.(2) in the fight of the explanation given in the case of Salem Erode Electricity Distribution Ca. Ltd.(a), was applicable and the Labour Court was, therefore, clearly in error in basing its award on the decision in the case of Kettlewell Bullen & Co. (1).The argument, however, was that even if that award was erroneous, the company did not appeal against it, consequently it became final and the issue there decided being the same and between the same parties, principles analogous to the principle of res judicata would apply and therefore no relief should be granted in the present case to the company.
It is.
true, as stated in The Newspapers Ltd. vs The State Industrial Tribunal, U.P.(4) that an award bind 's not only the individualS present or represented but all workmen employed in the establishment and even future entrants.
But that principle is rounded on the essential condition for the (1) , (2) ; (3) (4) ; , 761. 817 raising of an industrial dispute itself.
If an industrial dispute can be raised only by a group of workmen acting on their own or through their union, the conclusion must be that all those who sponsored the dispute ,are concerned in it and therefore bound by the decision on such dispute.
(see M/s. New India Motors (P) Ltd. vs
K.T. Morris)(1).
Such a consideration, however, is not the same as the principle of res judicata or principles analogous to res judicata.
In Workmen vs Balmer Lawrie & Co.(2) no doubt, a case of revision of wage scales, this Court cautioned against applying technical considerations of res judicata thereby hampering the discretion of industrial adjudication.
(see also Shahdara (Delhi) Saharanpur Light Railway Co. Ltd. vs Shahdara Saharanpur Railway Workers ' Union(a).
How inexpedient it is to apply such a principle.
is evident from the fact that the 'award in Ref.
91 of 1964 was based on the decision in Kettlewell Bullen & Co. Ltd. (4) which in turn had followed the case of Guest, Keen, Williams Private Ltd.(5) on the supposition (which, as aforesaid, was no.t correct) that standing orders are not binding on those who are employed prior to their certification and their coming into force.
The company, presumably, did not challenge the correctness of that award because it was perhaps then thought that was the law laid down in Guest, Keen, Williams Private Ltd.(5).
The consequence of holding that the company is barred by principles analogous to res judicata would be that there would be two sets of conditions of service, one for those previously employed and the other for those employed after the standing orders were certified, a consequence wholly incompatible with the object and policy of the Act.
The very basis of the award in Ref.
91 of 1964, namely, the wrong understanding of the decision in Guest, Keen, Williams Private Ltd.(5), having gone, it becomes all the more difficult and undesirable to perpetuate the distinction made therein between those who were previously appointed and those appointed subsequently and to refuse on such an untenable distinction relief to the company.
The award in Ref.
91 of 1964 was made on May 24, 1965 when it was believed that the decision in Guest, Keen, Williams Co. Ltd.(5) laid down the principle that standing orders would not bind workmen previously employed.
That was not so was clarified in the case of Salem Erode Electricity Distribution Co. Ltd.(6), the decision in which was pronounced on November 3, 1965 removing thereby any possible misapprehension.
The present reference was made on June 23, 1966, tong after the decision in Salem Erode Electricity Distribution Co. Ltd.(6) and the Labour Court gave the award impugned in this appeal on July 24, 1968.
Thus, both the Reference and the award were made in circumstances different from those which (1) , 357.
(2) ; (3) (4) (5) ; (6) ; 818 prevailed when Ref.
91 of 1964 was made and disposed of, a factor making it doubtful the application of a principle such as res judicata.
The second question relates to the workman, Shameem Khan.
The company appointed him under a letter of appointment dated December 2, 1965 to the post of a cleaner as a probationer for 6 months with discretion to the resident engineer to extend that period.
The letter also stated that during his probationary period his service would be liable to termination without any notice and without assigning any reason therefore and that he would not be deemed to have been confirmed automatically in the post on the expiry of the probation period unless so advised in writing.
The workman worked ,as such probationer till February 28, 1966 when he was served with a memorandum that his service was terminated as from the close of that day.
The workman 's case was that the company had no right to terminate his service before the expiry of the 6 months period of probation which is the period prescribed by standing order 2(c), that the stipulation in the letter of appointment that his service was liable to termination during the probation period was contrary to.
that standing order, and that therefore, that stipulation was not valid, and lastly, that the said order, though apparently one of termination simpliciter, was not a bona fide order, was in truth punitive m nature, and therefore, could not be passed without an opportunity of being heard having been given to him in a properly held enquiry.
The ,fact is that no such enquiry was held and no opportunity was given to the workman to explain any misconduct for which he could be removed or dismissed.
The evidence before the Labour Court was that the concerned workman had unauthorisedly used the motor cycle belonging to one Sidhana, a shift engineer in the company and that motorcycle met with an accident while the workman was using it causing damage to it.
Three days after that accident a report alleging that his work as a probationer was unsatisfactory was made by his superior officer.
On this evidence the Tribunal came to the conclusion that the impugned order was not an order of termination simpliciter, that though couched in that language it was.
passed as a punishment or the workman having used that vehicle without the consent of its owner and was, therefore, an order of dismissal.
The Tribunal was also of the opinion that the said report alleging unsatisfactory work by the.
workman was colourable and made at the instance of the shift engineer or at any rate was inspired by the s.aid incident.
In this view the Labour Court held that the exercise of power to terminate the service of the workman was not bona fide and consequent it set aside that order and directed his reinstatement.
819 Now, it is a well settled principle of industrial adjudication that even if an impugned order is worded in the language of a simple termination of service, industrial tribunals can look into the facts and circumstances.
of the case to ascertain if it ' was passed in colourable exercise of the power of the management to terminate the service of an employee and find out whether it was in fact passed with a view to punish him.
The letter of appointment clearly states that the workman, Shameem Khan, was appointed as a probationer for a period of 6 months with power to the resident engineer to extend the period of probation.
Ordinarily, that would mean that at the end of the probation period the company would have to decide whether to confirm him to a permanent post or, if that is not possible, to terminate his service.
Standing order 2 (c) provides that a probationer is 'an employee who is provisionally employed to fill a permanent vacancy in a post and who has not completed the period of probation thereunder.
It also lays down that the normal period of probation shall be 6 months but the resident engineer has the discretion to extend that period, the maximum period of probation being 12 months in all.
Ordinarily, this would mean that a probationer 's service cannot be terminated except for some misconduct until the expiry of the probation period.
The letter of appointment, No. doubt, contained a provision that the service of the workman was liable to.
termination even during the probationary period.
That provision, however, must be read to mean that the appointment was subject to the management 's power of termination as provided in the standing orders.
Standing order 14 provides for such a power 'and lays down that the service of "any employee" (which expression includes a probationer as is clear from the classification of employees in standing order 2) can be terminated on grounds (a) to (f) therein set out.
It is quite clear that the termination of service of the concerned workman cannot be attributed to any one of these grounds.
Therefore, that order cannot be said to have been passed conformity with the power to terminate his service under the standing orders.
But apart from this consideration, the Labour Court came to a finding on the evidence before it that the real reason for passing the impugned order was not the alleged unsatisfactory work on the part of the workman but his having unauthorisedly used the motorcycle and causing damage to.
it, that the order was punitive and not a Simple termination of service and was therefore in colourable exercise of the power of termination.
This finding is clearly one of fact and meant that the Labour Court rejected the evidence led by the management that the work of the concerned workman was ,found unsatisfactory.
It is impossible to say from the evidence before the Labour Court that finding was perverse o.r such as could not be reasonably arrived at.
In that view, it is 820 impossible to interfere with the order of the Labour Court relating to workman, Shameem Khan.
In the result, the appeal is partly ,allowed.
The order of the Labour Court in connection with the 3 workmen whom the company retired, is set aside but its order relating to workman, Shameem Khan, is confirmed.
In accordance with the order, passed by this Court on January 24, 1969, while granting stay to the appellant company, the company will pay to the workman, Shameera Khan, interest at 6% per annum on the amount of the arrears of wages still due to him under the order of the Labour Court.
As the appeal is partly allowed and partly dismissed, there will be nO order as to costs.
V.P.S. Appeal partly allowed.

summary:
Prior to 1951 there were no rules or conditions of service prescribing the age of superannuation in the appellant Company.
In 1951, its Standing Orders were certified under the , and were brought into force.
Standing Order 32 provided 55 years as the age of superannuation.
The first three respondents were workmen employed in the Company in 1929, 1935 and 1937.
Relying on Standing Order 32 the Company served notices on these 3 workmen who had attained the ages of 58, 64 and 59 on the dates of the 'respective notices, and retired them.
The Labour Court, to which the dispute arising from such retirement was referred, held that the Standing Orders having been certified long after these workmen were employed and the conditions of their employment not having provided any age of retirement.the Company could not apply Standing Order 32 to them, that the orders of retirement on the ground of superannuation were bad and gave conse quential directions.
The Company appointed the 4th respondent in December 1965 as a cleaner.
The letter of appointment stated that he was to be a probationer for 6 months with discretion to the concerned officer to extend the period.
The letter also stated that during the probationary period his service was liable to.
termination without any notice and without assigning any reasons therefore.
His service was terminated in February 1966.
Before the Labour Court evidence was led on behalf of the Management that workman 's service was terminated because his work as probationer was unsatisfactory.
The Labour Court found on the evidence before it that the real reason for passing the impugned order of termination was not the alleged unsatisfactory work but his having unauthorisedly used a motorcycle belonging to an engineer of the Company and caused damage to it.
In that view, the Labour Court held that the exercise of the power to terminate was not bona fide and consequently set aside that order also.
In appeal to this Court, HELD: (1)(a) The Act provides that every employer of an indusTrial establishment must have his Standing Orders certified, that the Standing Orders should be submitted to the certifying authority along with particulars of all the workmen then employed as also the name of the union if any, to which they belong, That the certifying authority should give notice to the union, and in its absence, to the workmen to make Their objections and an opportunity to the employer and the representatives of The workmen for being heard, that the authority should thereafter adjudicate upon the fairness and reasonableness of the Standing Orders submit 809 ted, that the authority should certify the Standing Orders with modifications or additions if any, that any person aggrieved by such certification may appeal to the appellate authority, that the Standing Orders as finally certified come into operation on a particular day, that the employer should publish them on notice boards in such a manner that they become easily known to the workmen, and that, after the expiry of 6 months from the date on which the Standing orders or the last modification came into operation, either the employer or any of the workmen could apply for a modification.
These provisions show that once the Standing Orders as certified come into operation, they 'become binding on the employer as well as all the workmen presently employed and those employed thereafter in the establishment, as uniform conditions of service.
If the Standing Orders were to bind only those who are subsequently employed, the result would be that there would be different conditions of employment for different classes of workmen, depending on whether the workmen were employed before or after the certification of the Standing Orders or a modification of such Standing Orders, and would render the principle of collective bargaining ineffective.
Such a result would render the conditions of service of workmen as indefinite and diversified as before the enactment of the statute though it was to do away with such diversity that the Act was passed.
[812 D H; 813 A D; 814 A E] Salem Erode Electricity Distribution Co. Ltd. vs Salem Erode Electricity Distribution Co. Ltd. Employees Union, ; , follOwed.
Guest, Keen, Williams Pvt.
Ltd. vs
P.J. Sterling; , , explained.
(b) The decision of the same Labour Court in Ref.
No. 91 of 1964 between the appellant Company and its workmen, wherein it was held that the very same Standing Orders did not apply to workmen employed prior to their coming into force, did not prevent the Company from reagitating the same question, because: [816 F] (i) The rule that an award binds all the workmen employed in an establishment and even future entrants is not based on the principle of res judicata but.
is rounded on the condition for raising an industrial disputed.
[817 A B] The Newspapers L.td.
vs The State Industrial Tribunal, U.P. ; , 761, Workmen vs Balmer Lawrie & Co. ; and Shahdara (Delhi) Saharanpur Light Rly.
Co. Ltd. vs Shahdara Saharanpur Railway Workers ' Union , referred to.
(ii) The award in Ref.
91 of 1964 was based on the supposition that the Guest, Keen, Williams case, decided that Standing Orders were not binding on those who were employed prior to the certification and their coming into force.
But the Salem Erode Electricity Distribution Co. Ltd. cage has explained that case and shown that such a supposition was not correct.
Since the very basis of the award in Ref.
91 was wrong the distinction made therein between those who were previously appointed and those appointed subsequently is also wrong.
[817 E H] (iii) Further, the consequence of holding that the Company was barred by principles analogous to res judicata would be that there would be two sets of conditions of service, one for those previously employed and the other for those employed after the Standing Orders were certified, a consequence wholly incompatible with the object and policy of the Act.
[817 D E] 810 (2) It is.
a well settled principle of industrial adjudication that even if an impugned order is worded in the language of a simple termination of service, industrial tribunals can look into the facts and circumstances of the case to ascertain if it was passed in colourable exercise of the power of the management to terminate the service of an employee and find out whether it was in fact passed with a view to punish him.
In the present case, the letter of appointment states that the workman was appointed as a probationer for a period of 6.
months with power to extend the period of probation.
Standing Order 2(c) also provides that the normal period of probation shall be 6 months with discretion to extend the period, the maximum period of probation being 12 months.
That means that at tie end of the period of probation the Company would have to decide whether to confirm him or terminate his service and that the probationer 's service cannot be terminated during the probation period except for some misconduct.
The statement in the letter that workman 's service was liable to termination even during the probationary period only meant that the appointment was subject to the Management 's power of termination as provided in the Standing Orders.
Such a power is provided in Standing Order 14, but the termination of the workman was not for any of the grounds set out therein.
Therefore, the termination during probation was not in conformity with the power to terminate under the Standing Orders.
[819 A F] Further, the finding of the Labour Court is one of fact and meant that it rejected the evidence led by the Management that the work of the workman was found unsatisfactory.
Since the finding is not perverse and is based on evidence, it means the termination was punitive in nature.
Such an order could be passed only after a proper inquiry.
Therefore, order of the Labour Court setting aside the termination was right.
[819 G H]


judgement:
tter of the Contempt of Court proceedings relating to the printing, publishing and circulation of a pamphlet over the name of Hira Lal Dixit (General Secretary, Praja Socialist Party, Mainpur) entitled "HAMARA VAHAN VIBRAG" arising out of (Civil) Petition No. 379 of 1953.
(Hira Lal Dixit vs The State of Uttar Pradesh).
The Attorney General for India (P. A. Mehta, with him) to assist the Court.
S.C. Issacs (R. Patnaik and section section Shukla, with him) for respondent No. I (Hira Lal Dixit).
Mohan Lal Saxena and section section Shukla for respondent No. 2 (Kishore Dutt Paliwal).
S.S. Shukla for respondent No. 3 (Printer, Sainik Press).
679 1954.
October 1.
The Judgment of the Court was delivered by DAS J.
This Rule was issued by this Court on the 16th September, 1954, calling upon the respondents to appear and show cause why they should not be proceeded against for contempt of this Court.
It is desirable to mention at the outset the cir cumstances in which it became necessary for this Court to issue this Rule.
On the 14th September, 1954, there were on that day 's cause list for hearing and final disposal two appeals, being 'Appeal No. 182 of 1954 (Saghir Ahmad vs The State of Uttar Pradesh and Others) and Appeal No. 183 of 1954 (Mirza Hasan Agha vs The State of Uttar Pradesh and Others).
A large number of writ petitions, 224 in number, under article 32 of the Constitution raising the same questions were also on the cause list for that day.
Both the appellants and all the petitioners were engaged in carrying on businesses as carriers of passengers and goods by motor buses or lorries on different routes under licenses issued by the State of Uttar Pradesh and in cases where the route passed into or through the State of Delhi, countersigned by that State.
Some of these persons had originally been granted permanent permits by the Regional Transport Authority.
Pursuant to the policy of nationalisation of road transport business the State of Uttar Pradesh made declarations under section 3 of the Uttar Pradesh State Road Transport Act, 1950, to the effect that road transport services on certain routes should be run and operated by the State Government in the manner mentioned in the relevant declarations and it also published schemes of road transport services under section 4 of that Act.
In furtherance of its object the State Government began to serve notices on the licensees to stop plying buses on specified routes.
The appellant thereupon applied to the Allahabad High Court for a writ of mandamus directing the State Government and its Minister of Transport to withdraw the declaration made under section 3 of the Uttar Pradesh Road Transport Act, 1950, in respect of their respective routes and directing them and their officers to refrain from proceeding further under sections 4 and 680 5 of that Act and not to interfere with the operation of their respective stage carriages and for other ancillary reliefs.
By an order made on the 17th November, 1953, the Allahabad High Court dismissed those, applications.
The two petitioners thereupon filed these two appeals in this Court after having obtained a certificate from the Allahabad High Court under article 132(1) of the Constitution.
The appellants obtained orders for stay of proceedings until the determination of their appeals.
In view of the decision of the Allahabad High Court many other persons holding licenses for plying motor stage carriages or contract carriages came direct to this Court with applications under article 32 for appropriate writs and obtained interim stay.
As already stated, the two appeals and all those numerous applications were posted on the cause list for the 14th September, 1954, for final disposal.
The respondent, Hira Lal Dixit, was the petitioner in one of those writ applications.
The two appeals were called on for hearing on that day and were part heard.
The hearing continued for the whole of the 15th and 16th September, 1954, and was concluded on the 17th September, 1954, when the Court took time for considering its decision.
The Court has not 'yet delivered its judgment.
A large number of persons, presumably the petitioners in the writ petitions or otherwise interested therein, attended the Court on all those dates, for the result of the decision of the appeals would also conclude the writ petitions.
It appears that on the 15th September, 1954, a leaflet printed in the Hindi language and characters, consisting of 18 pages, intituled "Hamara Vahan Vibhag" meaning "Our Transport Department", purporting to be written by the respondent Hira Lal Dixit and containing a foreword purporting to be written by Sri Krishna Dutt Paliwal and a block photograph of the respondent, Hira Lal Dixit, on the front page was distributed in the Court premises.
The leaflet contained a graphic account of the harassment and indignity said to have been meted out to the writer by the State officers and the then State Minister of Transport in connection with the cancellation and eventual restoration of his license 681 in respect of a passenger bus.
The second paragraph on page 15 of that leaflet contained a passage of which the following is an English translation prepared by an advocate of this Court duly authorised in that behalf" The public has full and firm faith in the Supreme Court, but sources that are in the know say that the Government acts with partiality in the matter of appointment of those Hon 'ble Judges as Ambassadors, Governors, High Commissioners, etc., who give judgments against Government but this has so far not made any difference in the firmness and justice of the Hon 'ble Judges.
" The leaflet containing the above offending paragraph having been brought to its notice the Court on the 16th September, 1954, issued the present rule and sent a copy of the rule to the Attorney General for India.
All the respondents have been duly served.
They have filed affidavits and have appeared before us by their respective advocates.
The respondent, Sri Krishna Dutt Paliwal, the writer of the foreword, who was present in Court, made the following statement to the Court through his advocate, Sri Mohan Lal Saksena: " When I wrote the foreword I did not go through the whole manuscript.
I was only told that it dealt with the working of the Transport Control.
Now that my attention has been drawn to the passage objected to I am sorry that I wrote a foreword to the pamphlet and I offer my apology to the Court.
I never knew that the pamphlet was intended for circulation and I was not a party to its circulation.
" One., Devendra Sharma, the General Manager of the Sainik Press, Agra, where the offending leaflet was printed, filed an affidavit on behalf of the respondent Press stating that at the time when the leaflet had been given to the Press for being printed he did not notice the paragraph in question, that his attention was drawn to it only after the service of the present Rule, that he was sorry that it, had been printed in the Press and that he never had the slightest intention of committing any contempt of this Court.
In his affidavit as well as through his advocate, Sri section Sukla, the 682 respondent Press represented by Devendra Sharma who was present in Court tendered an unqualified apology to the Court.
In view of the statements made in Court by the advocates of these two respondents this Court accepts their apology and discharges the rule as against them and nothing further need be said about them.
Learned counsel appearing for the respondent, Hira Lal Dixit, strongly urged that the passage complained of could not possibly be capable of any derogatory meaning or implication and could not be regarded as constituting a contempt of Court.
There are innumerable ways by which attempts can be made to hinder or obstruct the due course of administration of justice in Courts.
One type of such interference is to be found in cases where there is an act or publication which scandalises the Court itself.
A situation of that type was considered by this Court in the case of Brahma Prakash Sharma and Others vs The State of Uttar Pradesh(1), and the principles governing a case of that type were discussed and laid down in the judgment of the Court.
The present case does not fall within that category, for here there has been no scandalising of the Court itself.
The question here is whether the offending passage is of such character and import or made in such circumstances as would tend to hinder or obstruct or interfere with the due course of administration of justice by the Court.
To begin with, the leaflet was written by a person who was himself the petitioner in one of the writ petitions which were on the cause list for hearing.
The actual timing of the publication of the leaflet is significant.
It was circulated at a time when the appeal and the writ petitions including that of the respondent, Hira Lal Dixit, himself were posted on the cause list and the appeals, on the decision of which depended the fate of those numerous petitions, were being actually heard.
The place of publication was also not without significance.
It was distributed in the Court premises where a very large number of licensees had fore gathered.
The fact of distribution of the leaflet in the Court premises was denied in the affidavit of this respondent but when a (1) 683 suggestion was made that evidence be recorded on this point the learned counsel appearing for him did not press for it and accepted the position that the leaflet was in fact distributed in the Court premises.
In the circumstances, the only other question that remains is as to what was the meaning and purpose of the offending passage in the leaflet.
Learned counsel for the respondent, Hira Lal Dixit, maintained that the passage in question was perfectly innocuous and only expressed a laudatory sentiment towards the Court and that such flattery could not possibly have the slightest effect on the minds of the Judges of this august tribunal.
We do not think flattery was the sole or even the main object with which this passage was written or with which it was published at the time when the hearing of the appeals was in progress.
It no doubt begins with a declaration of public faith in this Court but this is immediately followed by other words connected with the earlier words by the significant conjunction "but.
" The words that follow are to the effect that sources that are in the know say that the Government acts with partiality in the matter of appointment of those Judges as Ambassadors, Governors, High Commissioners, etc., who give judgments against the Government.
The plain meaning of these words is that the Judges who decide against the Government do not get these high appointments.
The necessary implication of these words is that the Judges who decide in favour of the Government are rewarded by the Government with these appointments.
The attitude of the Government is thus depicted surely with a purpose and that purpose cannot but be to raise in the minds of the reader a feeling that the Government, by holding out high hopes of future employment, encourages the Judges to give decisions in its favour.
This insinuation is made manifest by the words that follow, namely, "this has so far not made any difference in the firmness and justice of the Hon 'ble Judges.
" The linking up of these words with the preceding words by the conjunction "but" brings into relief the real significance and true meaning of the earlier words.
The passage read as a 684 whole clearly amounts to this: "Government disfavours Judges who give decisions against it but favours those Judges with high appointments who decide in its favour: that although this is calculated to tempt Judges to give judgments in favour of the Government it has so far not made any difference in the firmness and justice of the Judges.
" The words "so far" are significant.
What, we ask, was the purpose of writing this passage and what was the object of the distribution of the leaflet in the Court premises at a time when the Court was in the midst of hearing the appeals ? Surely, there was hidden in the offending passage a warning that although the Judges have "so far" remained firm and resisted the temptation of deciding cases in favour of Government in expectation of getting high appointments, nevertheless, if they decide in favour of the Government on this occasion knowledgeable people will know that they had succumbed to the temptation and had given judgment in favour of the Government in expectation of future reward in the shape of high appointments of the kind mentioned in the passage.
The object of writing this paragraph and particularly of publishing it at the time it was actually done was quite clearly to affect the minds of the Judges and to deflect them from the strict performance of their duties.
The offending passage and the time and place of its publication certainly tended to hinder or obstruct the due administration of justice and is a contempt of Court.
These is another aspect of the matter.
Even if the passage about the Judges were not in the leaflet the rest would still amount to a serious contempt of Court.
There is in ' it a strong denunciation of the State of Uttar Pradesh, a party to the appeal and the petitions ' regarding the very matters then under the consideration of this Court.
It was not fair comment on the proceedings but an attempt to prejudice the Court against the State and to stir up public feeling on the very question then pending for decision.
The manner in which the leaflets were distributed, the language used in them and the timing of their publication could only have had one object, namely, to try and influence 685 the Judges in favour of the petitioner and the others who were in the same position as himself.
This again is a clear contempt of this Court.
It is well established, as was said by this Court in Brahma Prakash Sharma and Others vs The State of Uttar Pradesh (supra), that it is not necessary that there should in fact be an actual interference with the course of administration of justice but that it is enough if the offending publication is likely or if it tends in any way to interfere with the proper administration of law.
Such insinuations as are implicit in the passage in question are derogatory to the dignity of the Court and are calculated to undermine the confidence of the people in the integrity of the Judges.
Whether the passage is read as fulsome flattery of the Judges of this Court or is read as containing the insinuations mentioned above or the rest of the leaflet which contains an attack on a party to the pending proceed ings is taken separately it is equally contemptuous of the Court in that the object of writing it and the time and place of its publication were, or were calculated, to deflect the Court from performing its strict duty, either by flattery or by a veiled threat or warning or by creating prejudice in its mind against the State.
We are, therefore, clearly of opinion and we hold that the respondent, Hira Lal Dixit, by writing the leaflet and in particular the passage in question and by publishing it at the time and place he did has committed a gross contempt of this Court and the qualified apology contained in his affidavit and repeated by him through his counsel cannot be taken as sufficient amends for his misconduct.
It should no doubt be constantly borne in mind that the summary jurisdiction exercised by superior Courts in punishing contempt of their authority exists for the purpose of preventing interference with the course of justice and for maintaining the authority of law as is administered in the Court and thereby affording protection to public, interest in the purity of the administration of justice.
This is certainly an extraordinary power which must be sparingly exercised but where the public interest demands it, the Court will 88 686 not shrink from exercising it and imposing punishment even by way of imprisonment, in cases where a mere fine may not be adequate.
After anxious consideration we have come to the conclusion that in all the circumstances of this case it is a fit case where the power of the Court should be exercised and that it is necessary to impose the punishment of imprisonment.
People must know that they cannot with impunity hinder or obstruct or attempt to hinder or obstruct the due course of administration of justice.
We, therefore, find respondent, Hira Lal Dixit, guilty of contempt of Court, make the Rule absolute as against him and direct that he be arrested and committed to civil prison to undergo simple imprisonment for a fortnight.
He must also pay the costs, if any, incurred by the Union of India.
Order accordingly.

dataset_name: IN-Abs

summary:
The petitioner was an applicant in one of the writ petitions which had been filed in the Supreme Court challenging the validity of U. P. Road Transport Act, 1951.
During the hearing of the writ petitions a leaflet printed in the Hindi language and intituled "Our Transport Department" purporting to be written by the petitioner was distributed in the Court premises.
The leaflet contained a graphic account of the harassment and indignity said to have been meted out to the writer by the State officers and the then State Minister of Transport in connection with the cancellation and eventual restoration of his license in respect of a passenger bus.
87 678 The second paragraph at page 15 of that leaflet contains a passage of which the following is the English translation : " The public has full and firm faith in the Supreme Court, but sources that are in the know say that the Government acts with, partiality in the matter of appointment of those Hon 'ble Judges as Ambassadors, Governors, High Commissioners, etc., who give judgments against Government but this has so far not made any difference in the firmness and justice of the Hon 'ble Judges.
" Held, (1) that the offending passage and the time and place of its distribution tended to hinder or obstruct the due administration of justice and was a contempt of Court.
(2)It was not fair comment on the proceedings but an attempt to prejudice the Court against the State and to stir up public feeling on the very question then pending for decision.
The manner in which the leaflets were distributed, the language used in them and the timing of their publication could only have had one object, namely, to try and influence the Judges in favour of the petitioner and the others who were in the same position as himself.
This again was clear contempt of the Supreme Court.
(3)It is not necessary that there should in fact be an actual interference with the course of administration of justice but it is enough if the offending publication is likely or if it tends in any way to interfere with the proper administration of law.
Such insinuations as were implicit in the passage in question were derogatory to the dignity of the Court and were calculated to undermine the confidence of the people in the integrity of the Judges.
Brahma Prakash Sharma and Others vs The State of Uttar Pradesh ([1953] S.C.R. 1 169) referred to.


judgement:
ivil Appeal No. 2115 of 1968.
SupCl/69 5 768 Appeal from the judgment and order dated January 6, 1965 Of the Calcutta High Court in Income tax Reference No. 145 of 1961.
B. Sen, section A. L. Narayana Rao, R.N. Sachthey and B.D. Sharma, for the appellant.
section Mitra and P.K. Mukherjee, for the respondent.
The Judgment of the Court was delivered by Ramaswami, J.
The respondent is a private limited company (hereinafter referred to as the assessee).
The appeal relates to the assessment year 1956 57 for which the previous year is the year ending September 30, 1955.
The business of the assessee was to deal with shares and securities.
On September 30, 1954 the assessee purchased 11,900 shares of Kedarnath Jute Manufacturing Co. Ltd. in two.
lots, one at the rate of Rs. 9 8 0 per share and the other at Rs. 9 4 0 per share from one Beharilal Nathani, Share broker, for a total consideration of Rs. 1,12,575/ .
When the assessee purchased the said shares a large amount of dividends was in arrear as the previous owners had not claimed the dividends declared between 1936 and 1945, although a large part of the dividends on the said shares in respect of the years 1945 to 1954 had been collected by the previous owners of the said shares.
A letter addressed by Beharilal Nathani to the assessee bearing the date September 30, 1954 goes to show that the shares had been "sold with arrear dividends".
It is admitted that the dividends which had been declared between the years 1936 and 1945 and were received by the assessee during the accounting period amounted to Rs. 43,925/ .
The assessee first credited this sum to the profit and loss appropriation account and thereafter transferred the same to a reserve fund in the accounting year ending September 30, 1955.
No adjustment was made in the share purchase account on account of the receipt of dividend.
The value of the shares which represented the stock in trade of the assessee remained the same both in the opening and the closing stocks.
Before the Income tax Officer it was contended on behalf of the assessee that as the arrear dividends pertained to the years 1936 to 1945 the arrear dividend received by the assessee Was not in the nature of income liable to income tax as.
it was merely a realisation of capital.
The Income tax Officer rejected the contention of the assessee and treated the amount of arrear dividend as the business income of the assessee liable to tax.
On appeal by the assessee the Appellate Assistant Commissioner of Income tax examined the question whether the amount of Rs. 43,925/ should be treated as dividend and should, therefore, be assessed under section 12 of the Indian Income tax Act, 1922 (hereinafter referred to as the Act) or whether it should be treated as 769 profits and gains of business arising to the assessee and taxed under section 10 of the Act.
He, however, held that the amount could not be regarded as 'dividend ' as the assessee was not the registered shareholder in the years for which the arrear dividends were declared.
But he held that since the shares were purchased by the assessee with the knowledge that it would be entitled to receive the arrear dividends which represented profits arising on the acquisition of such shares, the assessee could be deemed to have entered into a scheme of profit making, an adventure in the nature of trade. 'The assessee brought a second appeal to the Appellate Tribunal but the appeal was dismissed.
The Appellate Tribunal confirmed the findings by the Income tax authorities and held that the assessee acquired the shares on which the arrear dividends were received in the course of its share dealing business and that the sum of Rs. 43,925/ so received by the assesee formed an integral part of its income arising from business which was liable to tax.
At the instance of the assessee the Appellate Tribunal stated a case to the High Court on the following question of law: "Whether on the facts and in the circumstances of the case the sum of Rs. 43,925/ received by the assessee represented business income arising under section 10 from an adventure in the nature of trade or it was a dividend within the meaning of section 12 of the Income tax Act ?" After looking into the statement of case and also the application of the assessee under section 66(1) of the Act the High Court held that the question which the Tribunal had referred did not correctly and accurately describe the stand and contention taken by the assessee throughout which was that no part of the arrear dividend received by the assessee was income at all liable to tax.
The High Court thereafter addressed itself to the real issue between the parties and ultimately held that the amount of Rs. 43,925/ was not liable to tax.
This appeal is brought on behalf of the Commissioner of Income tax against the judgment of the High Court dated January 6, 1965 by a certificate granted under section 66A(2) of the Act.
It is necessary that the question referred to by the High Court should be reframed in the following manner in order to bring out the real point in controversy between the parties: "Whether in the facts and circumstances of the case the assessee had purchased the arrears of dividend ? If so whether the said sum of Rs. 43,925/ could at all be assessed either as dividend or as profit ?" It is manifest that dividends declared by Kedarnath Jute Manufacturing Co., between the years 1936 and 1945 were the 770 property of the persons whose names stood on the share register on the relevant dates.
When a company declares dividend the same can only be paid to the person who is then the registered holder.
A purchaser of shares becomes entitled to all dividends declared since his purchase but not before.
If the purchase is made on the eve of declaration of dividend but the purchaser does not get his name mutated in the records of the company in time to have the dividend warrant issued in his own name he is entitled to call upon his vendor to make over the dividend to him if and when received.
It is well settled that after a sale of the shares and so long as the purchaser does not get his name registered, the vendor is for certain purposes considered a trustee for the purchaser of the rights attaching to the shares or accruing thereon,including the voting rights.
In the present case there was a contract between the assessee and the registered shareholders to sell the shares to the assessee with arrear dividends.
In other words the assessee entered into the contract with the registered shareholders not only to purchase share scrips but the dividends which had been declared but not collected by him or paid over to shareholders.
As the dividends had been declared long ago there was no uncertainly as to the exact amount receivable in respect of them.
It is.
therefore, Clear that both the purchaser and the vendor knew exactly what sum of money would come to the vendor by way of such dividend.
In other words the purchase consideration included the amount of the arrear dividends and as the dividends had been declared long ago, there was no uncertainty as to the exact amount receivable in respect of them.
The existence of a contract binding the vendors to make over to the purchaser the arrear dividends clearly implied that the price paid by the purchaser was not only for the value of the share scrips but also for the sum of Rs. 43,925/ which was going to be realised in the form of arrear dividends by the purchaser.
The High Court held upon an examination of the evidence that such an arrangement implied that the value of Rs. 9 8 0 and Rs. 9 4 0 per share as settled into the broker 's bills was not the real value of the share scrips alone but also included the element of the arrear dividends agreed to be receivable by the purchaser.
The legal position, therefore, is that the arrear dividends were not claimable by the purchaser by virtue of his right as such purchaser and could not become his income from the shares.
He was to get the same because the vendor had contracted to pass the arrear dividends on to him.
They were the income of the vendors, i.e., the registered holders but they could not become the income of the purchaser.
In fact the assessee had purchased the amount of arrear dividends for a price which was included in the total consideration of Rs. 1,12,575/ .
What the assessee acquired in the form of share scrip represented its stock in trade, which consisted of the shares and the dividends potential which had to be realised.
771 In this state of facts it is manifest that the assessee paid the amount of Rs. 1,12,575/ not only for the share scrips but also for the arrear dividends which was inextricably connected with the purchase of the share scrips.
In our opinion the High Court rightly held that the amount of Rs. 43,925/ was not income which could be assessed in the hands of the assessee.
It was said that the assessee had itself credited the amount of Rs. 43,925/ to the profit and loss appropriation account and thereafter transferred the same to a reserve fund in the accounting year ending September 30, 1955.
No adjustment was made in the share purchase account on account of the receipt of dividend.
But it is well established that a receipt which in law cannot be regarded as income cannot become so merely because the assessee erroneously credited it to the profit and loss account.
[see Commissioner of Income tax, Bombay City I vs M/s. Shoorji Vallabhdas & Co.(1)].
The assessee 's case, had all along been that the amount of arrear dividends received could not be treated as income of the assessee liable to tax for the assessment year 1956 57.
As we have already shown the consideration paid by the assessee was given not only for the shares but also for share dividends amounting to Rs. 43,925/ and the amount of Rs. 1,12,575/ was paid not only for the share scrips but also for the arrear dividends.
In other words there was capital purchase by the assessee.
of the shares together with arrear dividends due on the shares for the years 1936 to 1945.
It is therefore not possible to treat the payment of Rs. 43,925/ as income liable to tax either as profit under section 10 of the Act or as dividend under section 12 of the Act.
For the reasons expressed we hold that there is no merit in this appeal.
It is accordingly dismissed with costs.
Y.P. Appeal dismissed.

summary:
The assessee a dealer in shares and securities, purchased certain shares on which dividends relating to previous years were in arrears.
The shares were sold with the arrear dividends.
The assessee received the amount of arrear dividends and he first credited this sum to the profit and loss appropriation account and thereafter transferred the same to a reserve fund.
No adjustment was made in the share purchase account on account of the receipt of the dividend.
The value of the shares which represented the stock in trade of the assessee remained the same both in the opening and the closing stocks.
The assessee claimed that the amount of arrear dividends received was not income liable to income tax as it was merely a realisation of the capital.
The Income tax Officer rejected the contention and brought it to tax.
This decision was upheld in further appeals.
But, on reference, the High Court held that the amount was not liable to tax.
Dismissing the appeal by the Revenue, this Court, HELD: The consideration paid by the assessee was given not only for the shares but also for the share dividends.
As the dividend had been declared long ago there was no uncertainty as to the exact amount receivable in respect of them, and so, both the purchaser and the vendor knew exactly what sum would come to the vendor by way of such dividend.
The existence of a contract binding the vendors to make over to the purchaser the arrear dividends clearly implied that the price paid by the purchaser was not only for the value of the share scrips but also for the amount which was going to be realised in the form of arrear dividends by the purchaser.
Such an arrangement implied that the value of the per share settled into the broker 's bill was not the real value of the share scrips alone but also included the element of the arrear dividends agreed to be receivable by the purchaser.
The legal position, therefore, was that the arrear dividends were not claimable by the purchaser by virtue of his right as such purchaser and could not become his income from the shares.
He was to get the same because the vendor had contracted to pass the arrear dividends on to him.
They were the income of the vendors, i.e., the registered holders but they could not become the income of the purchaser.
What the assessee acquired in the form of share scrip represented its stock in trade which consisted of the shares and the dividends potential which had to be realised.
[770 D H] A receipt which in law cannot be regarded as income cannot become so merely because the assessee erroneously credited it to the profit and loss account.
[771 C] Commissioner of Income tax, Bombay City I vs M/s. Shoorji Vallabhdas & Co. , referred to.